Budgeting in the Public Sector

The module on budget started yesterday. Three readings were assigned but one especially caught my attention.

“Reinventing Government” from Osborne and Gaebler talks about the relation of budget and governance from bureaucrats’ perspectives.

It starts off highlighting the pros and cons of Line Items Budget (LIB). This form of detailing and categorizing the cost of inputs help public administrators keep track of expenditures; however, because it is extremely centralized, LIB does not encourage savings as well as requires high expenses on monitoring mechanisms.

Expenditure Control Budget (ECB) aims to solve these problems. This mission driven budget is more concerned about measuring outcomes (quality) and outputs (volume). Since this control mechanism encourages the savings of budgets previously earmarked, it frees up resources for managers to test new ideas as well as give managers autonomy to pursue organizations’ missions. Although this system has significantly reduced red tape, it has also perpetuated undesirable situations. In public health, subsidizing more the very ill has not encouraged hospital staff to improve patients’ overall conditions.

Public administrators then came up with a mechanism that would precisely measure performance. Management By Result (MBR) is about quantifying performance. Public service would now be measured by its quality, quantity, and cost. Taxpayers and constituents were asked to fill out surveys stating how much they were satisfied with services provided. If results turned out positive, entrepreneurial public administrators would receive bonuses and other financial incentives.

Although MBR dramatically improved public performance, it has neglected the very process of accomplishing public tasks and as a result greatly raised the level of stress among civil servants and also involuntarily created a system where public goals did not necessarily match with constituents’ needs.

Total Quality Management (TQM) aimed to address the problems of MBR. As individuals were afraid of revealing their feelings against powerful bosses and institutions, TQM encouraged not individual but group feedbacks. In doing so, TQM was able to identify and tackle systematic institutional problems. Not only budget but also personnel, purchasing, accounting and other systems were anonymously scrutinized by groups of unhappy civil servants.

(After this brief budget historical analysis, it is possible to envision an evolution of budget systems in the years ahead where TQM is widely extended to constituents through online and regular feedbacks so that public administrators would be able to gratify departments and organizations who have not only fulfilled quantity, time and cost assigned goals but also, and especially, surpassed quality measurement expectations)