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Great expectations from budgetary structures within local public organizations.

Why the necessity of a foray into budgetary structures? he sources of financing Romanian public organizations are diverse, ranging from state budget, subsidies especially granted from state budget and local budgets to personal incomes, this aspect dwelling a series of budgetary implications and bringing about a series of fiscal constraints upon local public organizations. The allocation of limited financial resources to satisfy endless competing interests is a crucial task for any manager of either a public or a private organization. One may also feel the need of a foray into budget execution in local public organizations for a variety of reasons.

Firstly, a discussion on local public budgetary structures is convenient because of the need to raise awareness on the importance of effective budgetary analysis and feedback about budgetary problems which finally reflect into the level of local public organizations' management performance (1) and effectiveness in public services delivery.

Secondly, because the financing of public organizations activity from state budget and subsidies especially granted from state budget could raise the problem of limiting the independence of local public organizations towards higher authorities, as well as the ability of local public organizations of formulating critiques and resorting to innovation and change.

Thirdly, because of the competition for a share of the local budget which occurs each year in the preparation of the budget and which becomes a political struggle that most often neglects the welfare of the community by prioritizing personal interests. Fourthly, because of the role of budget execution and monitoring in ensuring management performance while enhancing transparency and encouraging local participation of the citizens (2).

Moreover, because of the importance of institutional arrangements within budgetary structures in disciplining decision making and struggling against corruption.

Sources of financing local public organizations

Ensuring the general welfare of the community has been a formula so often called on in political discourses in order to build a strong consensus around the idea of government performance. However, this desiderate implies an increase in the efficiency and effectiveness in public services delivery. The majority of local public organizations accommodate a great deal of experience and practical knowledge put in the service of representing the stakeholders, able to find rapid solutions and trying to fight resistance to change. However, the management of the budget within public organizations may take the shape of a conflict among subjective competing interests. For most of the times the allocation of financial resources in a public organization is a political issue, the interests of one department or office coming first in the organization. According to Public Finance Law no. 500/2002, the financing of current and capital expenditure of local public organizations is ensured in three manners: either entirely from state budget, local budgets, social state insurance budget, special funds budget, as the case may be; either from personal incomes and subsidies granted from state budget, local budgets, social state insurance budget, special funds budget, as the case may be; or entirely from the organizations' personal incomes (3). Local public organizations which receive entire financing from state budget, local budgets, social state insurance budget, special funds budget, as the case may be, discharge their complete achieved incomes into the budget from which they are financed (4).

Moreover, Romanian local public organizations can dispose of the material goods and financial funds they receive from natural and legal persons under the form of donations and sponsorships and use them in order to accomplish their activities in compliance with the legal provisions (5).

The law stipulates that, as regards local public organizations financed entirely from state budget, the former have to discharge the material goods and financial funds they receive under the form of donations and sponsorships from natural or legal persons directly to the budget which ensures their financing. The sums fueling the respective budget as such increase its budgetary credits and are to be used according to the destinations stipulated by the donor. However, as regards local public organizations financed entirely or partially from personal incomes, the funds received from natural or legal persons under the form of donations and sponsorships increase the respective organizations' own budgets. These institutions are subjected to the obligation of presenting, within the annex to the count of annual and quarterly budgetary execution, the situation regarding the sums received and used in these conditions and with which the budget was increased (6). According to the same Article, the material goods received under the form of donations and sponsorships by local public organizations are registered into their accounting.

The public revenues of local public organizations are cashed, administered, used and enter in their accounts. The local public organizations' own revenues result from rents, the organization of cultural and sports manifestations, artistic contests, publishing, editorial work, studies, projects, capitalizing products resulting from personal activities or annexes, carrying out services and others (7).

As regards the budgetary surpluses resulting from the execution of the budgets of local public organizations financed from their own incomes and subsidies granted from state budget, local budgets, social state insurance budget, special funds budget, they are regulated at the end of the year with the budget from which they are financed, within the limits of the sums received from it. Annual budgetary surpluses resulting from the execution of the budget of public organizations entirely financed from their own incomes are carried forward to the next year (8).

Because of the bitter competition for resources, sometimes exceeding the real possibilities to receive financing, an alternative means of financing the budget of public organizations is that of financing through loans. One of the basic principles had in view when preparing the budget is the principle of equilibrium, principle that constraints the propositions of local public expenditure to the ability to cover them with financial resources, expressed in budgetary incomes. However, the pressure over the increase in local public expenditure, resulted, in most of the instances, from collective real pressures, is so high that, due to the fact that financial budgetary resources are limited, one must resort to alternative means of financing. Thus the enormous competition for a larger share of the budget determines the public organizations to call on to loans, either through bank credits or through an issue of bonds.

The bank credits which may be contracted by public authorities, local or national, can be divided in several categories, depending on the purpose for which they are granted. Consequently, there are bank credits incurred to finance the state budgetary deficit or local budgetary deficits, bank credits for re-financing public debt, credits for the financing of short-term necessities of state and local budgets, or bank credits contracted for the financing of some economic activities. No matter the purpose for which they are contracted, the bank credits can be further divided in internal and external credits. In any case, the loans employed by the state or by local public authorities are part of the public debt.

The reimbursement of the loans is ensured from the following sources: from local budgets, from sources of the general account of the state treasury, from other sources provided in loans contracts, like incomes and guarantees, which guaranteed the contracted credits, or from state loans for re-financing the public debt. As regards the loans contracted or guaranteed by the state, in case the money is insufficient to cover the payments fallen due completely, all the responsibility assumed by the mandatary agents cease, the bonds being simultaneously taken over by the Public Finance Ministry.

As regards the temporary loans granted for the creation of some public organizations or activities, the law provides as follows: when at the creation of public organizations or activities financed entirely from their own incomes, subordinated to some chief credit accountants, they do not dispose of sufficient funds, grounded on thoroughly founded documentations, the chief credit accountants may grant interest-free loans from their own budget, on a convention basis. Loans granted by the chief credit accountant are completely reimbursed within six months from the date they were granted (9).

Budgeting principles

The revenues and expenditure of local public administration are provided in the local budgets which are established and approved for each budgetary exercise. As regards the judicial aspect, the budget of public organizations represents a compulsory act through which one foresees and authorizes their annual revenues and expenditure. As regards the economic aspect, the budget of local public organizations represents a source of microeconomic correlations as regards their economic performance and the level of resource allocation. Consequently, one of the tasks of local public organizations is insuring a satisfactory level of resource allocation efficiency (10).

Budget building and execution constitute a highly complex process subjected to a binding set of rules and principles, which ensure the disciplines of forecast, collection and use of public money. Furthermore, public organizations' budgets are political tools which, by simultaneously reflecting the revenues and public expenditure of a budgetary year, translate local governmental policy performance. Moreover, the budgetary exercise within local public organizations is subjected to a series of formal or informal budgetary rules which have to discipline decision-making and managerial actions (11). In conclusion, allocation of resources is political (12), local governments' performances being also reflected in the manner in which local budgets are built, approved and executed. These operations are subjectted to the principles of universality, transparency and publicity, unity, of the annual budget cycle (13), budgetary specialization and budgetary unity.

The principle of universality assumes that all the revenues resulting both from taxes and non-fiscal incomes and public expenditure both reflect in gross proceeds in the budget of the respective locality. According to this principle, the budgetary incomes cannot be directly subjected to specific public expenditure, except for donations and sponsorships which may have intended destinations (14).

The principle of transparency and publicity stipulates the necessity that the budgetary process be open and transparent (15). The means to achieve this principle are by publicly debating over the local budgetary project or by presenting the annual execution account of the local budget in the public meeting of the local or county council on the date of its approval or by publishing the local budgetary project and its annual execution account in the local media or in the Official Monitor, in compliance with the legal provisions (16).

Another budgeting principle, placed at the foundation of local budgets, the principle of unity requires the integration of the foreseen incomes and public expenditure to a single budget aiming at ensuring the knowledge of all budgetary revenues and demands of resource allocation for public actions and services (17). Thus, the principle of unity stands at the basis of disciplining decision-making in a public organization through the subscription of the control and monitoring function in the management of public money. Moreover, it enhances the establishment of correlations between budgetary revenues and public spending and the prioritization of public expenditure options.

The principle of the annual budget cycle fundaments the approval of revenues and public expenditure, in compliance with the legal provisions, on a one year-basis which corresponds to the budgetary exercise. Moreover, the cash-in and payment operations made during a budgetary year in the account of the local public organization's budget belong to the correspond ding execution exercise of the respective budget (18). Economic growth is also translated in the data foreseen in the local budgets' incomes and public expenditure category. The law provides for the chief credit accountants to draw up and present the forecast of the annual project of the local budget on the next three years, as well as the investment program detailed on objectives and execution years.

The principle of budgetary specialization provides that the registry of incomes and expenditure in local budgets, the approval, monitoring of execution, as well as their reflection within local public organizations are made according to a compulsory grouping known as budgetary classification drawn up on the basis of pre-determined criteria (19). On the basis of the classification of incomes and expenditure from the local budgets in the accounting system, one ensures the administration of local financial resources, the respect of financial discipline and the monitoring of the use of resources from the local budgets (20). The budgetary classification of incomes and expenditure from local budgets and within local public organizations reflects the source of the incomes, the economic nature and the destination of the expenditure. The principle of budgetary specialization ensures compliance of the budget exercise with the planned budget by demanding knowledge of the source of incomes of the local budgets and of the main destinations of the expenditure and permits the exercise of public expenditure control (21). The application of the expenditure control system depends in a considerable extent on the type of organizational culture and the degree of managerial flexibility existing in the respective local public organization (22).

Budget building and execution are subjected to the principle of the equilibrium arguing that all expenditure must be completely covered from the revenues of the respective budget. The budgets of some local public organizations whose own incomes do not cover the necessary expenditure benefit from sums deducted from the income tax of the state budget, as well as from transfers. On the basis of the equilibrium principle, the authorities of the local public administration use their own incomes together with the revenues received through redistribution for the coverage of the expenditure provided in the local public organization budget during the budgetary year.

Another principle taken into account by the local authorities is the principle of local financial autonomy which claims that the authorities of the local public administration dispose of competences in the establishment of the levels of taxation, in compliance with the law. Based on this principle, the allocation of financial resources in order to balance local budgets must not affect the application of budgetary policies of the authorities of the local public administration in their field of competence. Also, according to the principle of consultation, the authorities of the local public administration, through their associative structures, must be consulted on the process of allocation of financial resources from state budget to local budgets.

Public spending is also subjected to a series of formal rules. First of all, local authorities are forbidden to make direct payments from the revenues cashed, with some exceptions provided by the law. Secondly, budgetary expenditure has precise and limited destinations and is determined by the authorizations stipulated in the special laws and in the annual budgetary laws. Thirdly, public expenditures cannot be registered, contracted and made in the account of local budgets unless there is legal basis for the respective expenditure. Fourthly, public expenditures from local public funds cannot be contracted, ordered and paid unless they are approved in compliance with the legal provision and have budgetary provisions and financing sources (23).

Conclusions

Driven by the need to survive the changes brought by liberalization, economic growth and globalization, local public organizations collect experience and practical knowledge put in the service of the public interest and try to develop a pattern to change that would not become overflowing or confusing. The competition for resources translated in the demand for a larger share of the budget sometimes materializes in a political struggle among subjective interests. The protagonists of this struggle seek every opportunity to use their powers to influence the decision making process. Consequently, the expected achievement of limited resources allocation efficiency requires fiscal discipline, effective monitoring of budgetary exercise, quality feedback, banning corruption and ensuring a high level of public servants integrity. In a nutshell, the highly praised community welfare is expected to be determined by budgetary effectiveness through a thorough public expenditure control, by responseveness to citizens, local participation, local public organizations' managerial flexibility and efficient organizational communication.

Notes:

(1) Anwar Shah, Local Budgeting, World Bank Publications, 2007, p. 251.

(2) Ibidem, p. 15; 270.

(3) Public Finance Law no. 500 of 11/07/2002, published in the Official Monitor, Part I, no. 597 of 13/08/2002, Article 62, paragraph 1.

(4) Ibidem, Article 62, paragraph 2.

(5) Ibidem, Article 63, paragraph 1.

(6) Ibidem, Article 63, paragraph 4.

(7) Ibidem, Article 65, paragraphs 1, 2.

(8) Ibidem, Article 66, paragraphs 1, 2.

(9) Ibidem, Article 69, paragraphs 1, 2.

(10) World Bank, Public Expenditure Management Handbook, 1998, pp. 2-5.

(11) Anwar Shah, op. cit., p.

(12) World Bank, Public Expenditure Management Handbook, p. 13.

(13) Anwar Shah, op. cit., p. 274.

(14) Public Finance Law no. 500/2002, Article 8.

(15) Anwar Shah, op. cit., pp. 26-27.

(16) Public Finance Law no. 500/2002, Article 9.

(17) Ibidem, Article 10.

(18) Ibidem, Article 11.

(19) Ibidem, Article 12.

(20) Anwar Shah, op. cit., pp. 277-278.

(21) Ibidem, pp. 285-286.

(22) Ibidem, pp. 291-292.

(23) Public Finance Law no. 500/2002, Article 14.
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Title Annotation:Provocari Economice
Author:Georgescu, Catalina Maria
Publication:Revista de Stiinte Politice
Article Type:Report
Date:Apr 1, 2008
Words:2784
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