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Budgeting Analysis of a State, Essay Example

Pages: 13

Words: 3504

Essay

Introduction

Economics is a field which has its recognition and involvement in almost every walk of life (Financial inspiration cafe, 2012). Unfortunately, the official definition of economics has never been established,  as every authority on the subject has his own definition.. Adam Smith and Alfred Marshall are known as two of the most important persons from the viewpoint of economics (Evans, 2012).

According to them “Economics is the study of wealth” and this particular definition is still being used in broadly. There are two major kinds of economics, namely, microeconomics and macroeconomics. Microeconomics deals with individuals while Macroeconomics is concerned with the economics of a country as a whole (Evans, 2012).

Actually, economics is largely related to finance. The entire field of finance is closely related economics and accounting (Financial inspiration cafe, 2012). There are number of concepts which are present in the study of economics and finance, one of which is Budgeting.  Budgeting is important to an organization and to an individual. At the individual level, budgeting would be initiated and done with a different method while it would be quite different at the macro level (Financial inspiration cafe, 2012).

The purpose of this assignment is to analyze the budget of the state of California. Different sorts of public budget would be defined in this particular assignment. It is more important to make sufficient grounds before leaping over the main perspective of this particular assignment. The next section will discuss the basics of Budgeting and the differences between budgeting in an individual and macro levels. capacity. Revenue estimation as well as different formats of budgets used in public budgeting would be discussed in this assignment.

Budgeting: An Overview

As previously discussed  there are many concepts that fall within the ambits of both finance and economics, and budgeting is one of them. While budgeting is important for a country and a corporation, this  assignment, however, would be carried out from the perspective of a state; hence the entire budgeting stance as well as the definition would be mold according to the country rather than company (East Carolina University, 2011).

Budgeting is a strategy which has been extracted from Budget. Actually, budget is a French word connoting a financial plan by which all list of planned revenue and expenses have to be defined accordingly. According to a large school of thought, budgeting is a name of planning, saving, borrowing, and spending. From a company’s perspective, budgeting needs to be considered in analyzing the difference between the anticipated and actual figures of revenues, expenses, and net incomes (East Carolina University, 2011).

From the standpoint of a country, a budget would forecast the revenue and expenditure of a country (Needless & Susan, 2001). Every state or country defines its budget for a fiscal year.

There are two main sub concepts lies in Budgeting, namely, budget deficit and budget surplus. To illustrate, let us say a country presented a budget of $100 and the state incurred total expense of $101, hence the country is in the deficit of $1. Now, suppose such country incurred a total expense of $99, therefore the country is in the surplus of $1.

Budget would be fixed according to the total Gross Domestic Product (GDP) and Gross National Product (GNP) of a country. Every state of a country would be given a different amount of budget depending on  its contribution to the GDP (Evans, 2012).

There is a marginal difference between an individual budget and country budget. Individual budget is considered micro budget while the budget that pertains to the economy as a whole is regarded as macro budget. Both types of budget are important for an economy as they represent revenue and expense of the country as a whole.

After describing about budget, the question of why do we produce budgets arises. The reasons behind the same would be identical for organizational as well as country level. In the next headings, all of the reasons behind making budget would be highlighted and discussed accordingly.

Reasons to Produce Budgets

As previously discussed, a budget is a strategy that differentiates between the budgeted and actual revenue and expense of a country or a company (Evans, 2012). Below are the reasons behind making and presenting a budget.

  • Controlling the Resources: Countries make budget to control the natural as well as different resources accordingly and make them available for the long run productivity of the company (Evans, 2012).
  • Communicate the Plans: Countries make budgets to make their plans available to different government based authorities and central managers
  • Motivating Different Authorities: Countries make budget to motivate the head headers to achieve the goal of the country accordingly
  • To Allocate Resources: Countries make budget to allocate resources and funds to the right level at the right time as this is extremely important from the viewpoint of a country as a whole. Allocation needs sufficient research and analysis; hence countries have economists who identify the needs of budget and resources for a specific segment or domain.
  • Evaluating the Performance: Countries make the budget to judge and evaluate its performance by comparing it with the other countries of the world.
  • Visibility in the Performance Evaluation: Countries made the budget evaluate the performance evaluation of the country as a whole.

There are different ways of budgeting and every single kind may be appropriate for a particular country. The following are some of the major kinds of budgeting:

  • Business Startup Budget
  • Corporate Budget
  • Event Management Budget
  • Personal or Family Budget
  • Sales Budget
  • Production Budget
  • Marketing Budget
  • Revenue Budge
  • Cash Flow Budget

Common in all these types is the recognition as well as presence of revenue and expenses (Evans, 2012). In almost every type of budget, the stance of revenue as well as expense recognition would lie accordingly. Allocation of funds is one integral thing that is present in all  types of budget. even in the budget mentioned in the above section. Estimation of revenue is also very important in budgeting.

Estimation of Revenue

Recognition and estimation of revenue yield the same result. Organizations estimate their revenues based on their total receipts and total units manufactured while countries do the same by looking over its GDP growth and amount of resources they have (Evans, 2012).

Budgeting and revenue has a strong relationship with each other. In fact, budget is made on the basis of the total revenue and expenses of a country. Usually the head header of the country or the Finance Minister would make and present the budget in front of the general public and media officials. Countries look over the amount of cash inflow and outflow of another to judge the financial status or capability. Obviously a country with higher cash outflow than that of inflow would be regarded as having lower financial strength, while a country which has high cash inflow than outflow would be considered as having higher financial strength (California, 2011).

Formats of Public Budgeting

The budgeting that relates with the general public is regarded as Public Budgeting and it is one of the most important things from the standpoint of a country (California, 2011). Government uses different formats to reach decisions on how  to make public budget like past result, past consequences, future targets, and level of consumption of general public. Remember, high consumption of individuals and public guarantee that the public have enough money to spend according to their needs and appetite (California, 2011).

This particular assignment is all about analyzing different budgetary stance of a particular state and the state which has been taken into consideration for this analysis is California. It is important to write something about this particular region of the United States in details for better understanding. Defining the same in detail would make the reader understand the concept correctly (California, 2011).

California: The State

California is basically a state located in the West Coast of the United States. California is quite a famous state of the United States from two different angles. One is that California is the most populous state of the US and 2nd is that this state is the richest among the states. The capital is Sacramento, while the largest city is Los Angeles.

The area of the state is quite large as it is the third biggest state of the US. The total area is 163, 696 sq. mi. The amount of water in this particular state is lesser than the other states as it accounts only for 4.4% of the country’s total amount of water. The population according to the statistics of the fiscal year 2011 was 37 million people. California is known as an important state for the country because 34 democrats and 19 republicans reside here. it has found in this particular region. There are different budget allocated for this particular state which would be defined in the next section (Evans, 2012).

There are six different angles from which every single budgetary type would be analyzed and defined. The following are the six angles:

  1. Include a basic description of each budget
  2. Identify the differences and similarities of each budget
  3. What accounts for the major sources of revenue for each?
  4. How are the revenue amounts expected to change in the future?
  5. How does the budget fit with the mission of each domain?
  6. How can the budget be improved and revenue estimation be accurately accessed at each level?

Budget Analysis of California

It is analyzed that the financial and economic condition of California is improving year by year (YBY) unlikethe other states of the United States (US). In the fiscal year 2011, the state faced an immediate shortfall amounting to US$ 26.6 billion, manifesting a budget gap or budget deficit of US$ 20 billion. Even in this year, the state has envisaged a budget gap of $ 5 billion in total (Summary Chart of California, 2012). By considering the problems of the last year, the head headers of the government have made a new and sophisticated budget for this particular year. There are different provisions for which the budget have been made and maintained (Summary Chart of California, 2012).

The budget project which ended in the year showed a deficit of $ 4.1 billion. It means that the state spent $ 5.1 billion more than its allocated budget. There are certain foundations on which the government has diverged its attention during the fiscal year of 2012.

Stabilizing Funding for Education

Education is an important thing from the aspect of a country because it is one of those things that work wonders for them. To be economically viable, a country has to stabilize its educational institutes and empower its individuals to take high level of education in a broad nutshell (Summary Chart of California, 2012).

Education funding was US$ 56.6 billion in the fiscal year 2007-2008. This was reduced to $47.6 billion in the year 2011, manifesting a downturn of 9% due to current economic downturn (California State Budget 2012-2013). This particular budget has now move towards a level of $ 52.5 billion in the year 2012 in order to create new universities and educational institutes, and to create large amount of jobs in the region. High population of the country requires the same to initiate, otherwise it would become extremely difficult for the state to remain ahead of the other states of the country (California State Budget 2012-2013).

There are major areas in which the government has announced and allocated its budget and all of them are mentioned below.

  • Legislative, Judicial and Executives
  • State and Consumer Services
  • Business, Transportation and Housing
  • Natural Resources
  • Environmental Protection
  • Health & Human Services
  • Corrections and Rehabilitation
  • Education
  • Higher Education
  • Labor and Workforce Development
  • General Government
  • Tax Relief and Local Government Statewide Expenditure

Given that it is not possible to describe every type of budget along with its major characteristics, only specific and highly recommended budget’s elements would be mentioned and described in the upcoming sections of this report (California State Budget 2012-2013).

Legislative, Judicial and Executives

All of the above 6 angles would be utilized in this particular type of budget analysis. This particular budgetary type is classified under the legislative, judicial, and executive section of the Governor’s budget. Judiciary branch consists of the state level based judiciary including Supreme Court, the Courts of Appeal, and the Administrative Offices of the courts (California State Budget 2012-2013). This type of budget relates to all government officials and executives. This particular budget is quite different than the other type of budget as it analyzes the amount expenses which have been spent on the government officials and personnel. The major source of revenue would be the GDP of the country and the amount of tax received. Revenue amount is about to increase in the future as well (California State Budget 2012-2013). The budget inevitably fit with the mission of each domain as it can be estimated and accurately accessed at each level (California State Budget 2012-2013).

The total budget allocated for this particular section was $ 8.6 billion, and has been categorized into two different categories, namely, $ 2.6 billion as General Funds, while $ 5.9 billion as the other funds (California State Budget 2012-2013). All of such funds would be allocated for economic development of the Governor’s office and business along with strengthening the Emergency Management Agency of the state.

State and Consumer Services

This particular type is classified under the consumer services of the state. Through this budget, the government of the state would allow sufficient funds for the consumer management and for the consumers as a whole. The state has allocated a total budget of $ 36.3 billion in total. Out of this budget, $ 2.7 million of the amount have been  allocated to 250 different professions in this region while, $ 7.9 million have been allocated to goods and services. This particular budget is different from the other types of budget as it analyzes the amount expenses which have been spent on individuals. The major source of revenue would be the GDP of the country and the amount of tax received. Revenue amount is about to increase in the future as well.

Business Transportation and Housing

This particular type of budget is very important from the standpoint of a country and from an economy as well. From an economic viewpoint, high consumption would be desired because it continuously moves the wheel of economy as a whole (California State Budget 2012-2013). The stance of business, transportation, and housing are quite famous in the region of California, and that is the main thing why the officials of government took high initiatives as far as strengthening this particular section is concerned (California State Budget 2012-2013). As a description, this budget would be entirely related to the consumers, transports, and housing of individuals, and there is a high amount of difference between this particular budget and other types of budget. The major source of revenue would be the GDP of the country and the amount of tax received. Revenue amount is about to increase in the future as well (California State Budget 2012-2013).

This particular thing includes different programs that promote the business of the estate along with its economic climate, transportation, infrastructure, and affordable housing. Funding for this particular program was US$ 17.2 billion which is derived largely from special fund revenues, federal based funds, and bond proceeds (California State Budget 2012-2013).

Natural Resources

The United States of America (USA) has many natural resources; in fact the country depends entirely upon its natural resources (California State Budget 2012-2013). The natural resources agency of this particular state consists of 27 departments which collectively works to enhance the natural, historical, and cultural resources of the state of California. The budget proposes total funding of $ 7.8 billion (California State Budget 2012-2013). This particular budget is quite different than the other type of budget as it analyzes the amount expenses which have been spent on the natural resources. The major source of revenue would be the GDP of the country and the amount of tax received.

Health & Human Services

Health and Human Services has its own importance as far as the state is concerned. The health and human service agency is one of the most important regions in which the states and government like to allocate large amount of funds. This aspect describes the fund allocated to this particular section. Health and Human Service Department provide services to the Californian service department to mitigate the hazards and vulnerabilities of everything. The budget includes $ 100.1 billon. The bifurcation of this budget can be done using the method below mentioned.

$ 26.4 billion for the General Funds

$ 73.7 billion for the other funds

allocation of funds as far as Health and Human Service

The graph below shows the allocation of funds as far as Health and Human Service is concerned.

The highest proportion of the budget has been allocated to Medi-Cal with a total proportion of 59.6% amounting to US$ 59,655 million in total. The home Supportive Service and Developmental Services has the proportion of 5.4% and 4.7% and count on number 2nd and 3rd respectively.

Educational Budget

The budget that specifically analyzes the amount of budget which has been allocated to enhance the level of education is known as educational based budget. Countries, especially developed countries always try to allocate high amount of funds to this particular section because allocating sufficient funds on this section would certainly pay them back.

The state (California) has allocated a total budget of US$ 52.5 billion for the fiscal year 2012-13 (California State Budget 2012-2013). This budget is higher than that of last year which was $ 4.9 billion.  From the standpoint of the state, this will lead to better education and job opportunities The figure below shows the amount per pupil spends on education (California State Budget 2012-2013).

California State Budget 2012-2013

Summary of Budgeting Expense and Revenue

For want of space, it is not possible to describe each and every budgetary stance of every element. In this section, a short summary of the table along with the chart would be mentioned so that the reader would get an idea of the entire budgeting stance (California State Budget 2012-2013).

California State Budget 2012-2013 2

From the table, it is easy to judge that Education gets the highest amount of budget in California. Health’s element has the highest proportion of budget, amounting to $26,414 millions.  The total budget of California was $86,512 million for the fiscal year 2011-12. An increment of 6.98% has been envisaged in the total budget to California manifesting a net figure of $92,553 million. This would be beneficial for the state (California State Budget 2012-2013).

Personal Income

The biggest part of taxes which could be earn from the state of California comes from Personal Income, representing a net amount of $ 61,021 million, showing a proportion of 45.8%, followed by Sales and use Tax amounting to $ 30,901 (23.2%). Other taxes and Corporation taxes are two of the important elements from which the state of California can earn high taxes amounting to $ 16,577 million and $ 9,342 million respectively (California State Budget 2012-2013)

Conclusion

Corporate analysts, economists, and policy makers continue to argue about the basic definition of economics. The definition than could be considered most appropriate would be that which has been presented by Adam Smith. According to that definition, one result could be extracted which was about the revenue generation and expenses.

Economics is the name of how to earn the money and how to consume it and this particular thing has its own importance for an individual as well as to a corporation. The stance of economic is also important from the perspective of a country. There are various concepts under economics, and among such concepts, budgeting is one of the most important.

Every country and state makes and presents its budget. The main theme of this paper relates to budgeting. The main purpose of this assignment is to analyze the budget of different things of a specific state. The state which has been taken into consideration for this particular assignment is California. From the entire analysis, it is found that California is a big and rich state and sufficient amount of budget should be awarded to it. Last year, the state envisaged real problem as far as their operations is concerned. In the current fiscal year, sufficient amount of funds has been allocated which will certainly help  its economic progress.

References

California, G.o., 2011. E-budget government of california- Revenue estimates. [Online] (pdf) Available at: http://www.ebudget.ca.gov/pdf/BudgetSummary/RevenueEstimates.pdf [Accessed 9 October 2012].

East Carolina University, 2011. Financial services at East Carolina University. [Online] (Online) Available at: http://www.ecu.edu/cs-admin/financial_serv/budget/pandp-budget-overview.cfm [Accessed 10 Octoboer 2012].

Evans, M.H., 2012. Training course-www.exinfm.com. [Online] (pdf) Available at: http://www.exinfm.com/training/pdfiles/course03.pdf [Accessed 9 October 2012].

Financial inspiration cafe, 2012. Budgeting Analysis. [Online] (Online) Available at: http://www.financial-inspiration.com/budgeting-analysis.html [Accessed 10 October 2012].

William, J (2005), Budgeting and Economics, McGraw Hill Publications, pp. 85-112

Summary Chart of California, retrieved from <http://www.ebudget.ca.gov/pdf/budgetsummary/summarycharts.pdf>, retrieved on <10-Oct-2012

California State Budget 2012-2013, retrieved from <http://www.dof.ca.gov/documents/FullBudgetSummary_web.pdf>, retrieved on <10-Oct-2012

Governor Budget Summary 2012-2013, retrieved from http://www.ebudget.ca.gov/pdf/BudgetSummary/FullBudgetSummary.pdf , retrieved on <10-Oct-2012

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