Intergovernmental Relations: Financing
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Institution
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Intergovernmental Relations: Financing
Sources of Finance
Every government entity, whether at the local, state or federal level has the responsibility to provide services and answer to the needs of the citizens. Therefore they have to find ways of financing the several projects that they choose to undertake, such as infrastructural projects. Home rule is one strategy that has been used to ensure that states and local governments provide the necessary services to the citizens. For the states that allow home rule, local governments can pass on regulations that will enable financing of the issues that most affect the people within that locality. However, it can provide a challenge, especially when there is a common problem within a state, and one local government refuses to comply (Long, 2014). Therefore, even with the positivity of home rule, it is imperative to ensure that there are some restrictions to prevent the development of necessary infrastructure for some localities. With that in mind, it would be essential to discuss where funding for all levels of the government comes from.
In the U.S majority of the infrastructure, funding comes from the local and state levels through the revenues that they collect. The federal government contributes only around 20 per cent towards infrastructure development (Shirley, 2017). The most common methods that the governments use to finance these projects is through taxes and borrowing. The fees come from government revenue. Majority of the government revenue in the United States comes from the taxes paid by individuals from their incomes. There are also the payroll and corporate income taxes which bring in part of the revenue. The government entities, especially at the local levels, use user charges as a method of financing infrastructure. This is the method where they will charge the citizens for the services that they give so that they can be in a position to develop the services further (Phillimore, 2016). For instance the payment of water and wastewater bills in the U.S. When the local governments use this strategy, they ignore any intergovernmental transfers.
The other method of financing is through government borrowing and collaboration with the private sector. In lending, this is usually known as debt financing, where the government will look for institutions that can offer substantial amounts of money for the maintenance of infrastructure. The collaborations with the private sector in the U.S are called public, private partnerships. The government will enter into a contract with a private company so that it can maintain and sometimes construct a part of the infrastructure (Budden, 2017). The government will then pay the costs of these over a specified period. The importance of the government getting funding from alternative sources such as this is that there is the development of infrastructure in the country but with fewer costs per period (Shirley, 2017). The method is efficient as there are usually deficits when it comes to the infrastructure budgets in the country.
Creation of Budgets
The U.S constitution provides the power of the development of the budget to congress. They have the authority of the creation and collection of taxes and to borrow money when needed. In line with this, the congress will develop a new budget every year. Through this, they specify the amount of money that will go to the various governmental agencies through the appropriations bill. There are also authorization bills that the congress has to pass to indicate that they have granted the federal government to spend this money. The creation of budgets is an evolving process that follows five critical steps as discussed below.
The first step involves the president submitting a budget request to the congress. The budget request will usually include recommendations for the agencies and projects that may need more or less funding. How does the office of the president get this information? The various federal agencies are required to submit budget requests for assessment by the office of management and budget. The second step in the creation of budgets is the passing of resolutions by the house and the senate (White House, 2018). The respective committees here will write and forward their recommendations. The budget resolutions are not the final word as it is just a suggestion of what each federal agency should receive. Both committees will then come together to try and find common ground about the budget (Sych, 2015). They come up with a reconciled version which the members now have to vote for or against.
Here, it is vital to ask the question, how these committees come up with the recommendations? How do they determine how to expend specific amounts to projects? Well, the treasury divides the federal spending into either mandatory, discretionary and interest on debt spending. Therefore the house and the senate will assess the provisions by different federal agencies depending on the spending that it lies within. Discretionary spending is mandatory spending by the government. These may include essential services, and congress has the responsibility to set the spending levels every year. They look at the particular department, and the resources needed and then determine how much is required in order to ensure the success of the discretionary service. Mandatory spending refers to spending on entitlement programs (Sych, 2015). Statutory criteria usually guide this. Therefore the congress will look at the number of people eligible for that particular year and allocate the necessary monies for that purpose. Interest on debt is the amount of money that the government owes to lending institutions and the percentage that it requires to pay back in a certain period.
There is then the forwarding of these to smaller appropriations subcommittees in both the house and the senate. The responsibility of these subcommittees is to ensure that they interview the leaders of the government agencies and understand their rationale for having come up with those particular budgets. The chairs of each of these subcommittees will then write a report based on the findings here and forward to the rest of the members. They will then vote and pass the recommendations to the appropriations committee. After the full appropriations committee reviews the budget, they will then send it to the house and senate. Now the budget has moved on to the next stage, which involves the house and senate vote on appropriations and reconciliation of the differences. The house and the senate have to debate and then provide the full recommendations. A conference committee then meets from both houses to reconcile the differences so that there is a similar budget on both chambers (White House, 2018). After this reconciliation, the members will once again vote, taking the budget to its last step. This is where the president signs the budget into law, and the budget creation process comes to an end. However, it is essential to note that this may take longer, and the process may fail to be complete at the beginning of a particular fiscal year. In such cases, there is usually a continuing resolution to ensure that agencies continue to receive funding until the end of the creation of the new budget.
The state, local and federal governments need to come together for the provision of essential services to the people. The primary way they communicate on matters fiscal policies is through holding conferences. These serve as a discussion and education platform on systems. There is also the sharing of similar problems facing the provision of services and possible solutions to ensure that these three levels can cooperate for the good of the public.
References
Budden, B. (2017). The debate over private infrastructure financing in the United States. McKinsey & Co. Retrieved from https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/the-debate-over-private-infrastructure-financing-in-the-united-states
Long, C. (2014). How local power and home rule affect spending and budgets. Havard Kennedy School. Retrieved from https://journalistsresource.org/studies/government/municipal/local-power-home-rule-spending/
Phillimore, J. (2016). Understanding Intergovernmental Relations: Key Features and Trends. Australian Journal of Public Administration
Shirley, C. (2017). Spending on Infrastructure and Investment. Congressional Budget Office. Retrieved from https://www.cbo.gov/publication/52463
Sych, L. (2015). Budgeting Processes: The State of the Art in the United States. International Journal of Public Administration. 34. 43-48
White House. 2018. Budget Concepts and Budget Process. Retrieved from https://www.whitehouse.gov/wp-content/uploads/2018/02/ap_8_concepts-fy2019.pdf