FINANCE

Finance

Finance

The Nature of Budgets and Their Use in the Long-Term Planning and Strategy of an Organization

Strategy is the long-term Direction of a enterprise and throughout a recession this can be skewed by short-termism and a contradictory outlook. In the midst of unprecedented turbulence in economic markets, state economists divide £529 million from the authorized state income forecast. The balance concerns to projections for the 2009-2011 allowance that lawmakers start composing in January. (Rattiner 2008 79)

The new outlook magnifies the projected allowance shortfall for the approaching allowance cycle to £3.2 billion.

Even with this newest decrease, though, incomes will still be up by 8.1 per hundred in the next cycle, giving lawmakers £2.4 billion more to spend. That's a bit less than usual development, but barely a catastrophic implosion. The slowdown was predictable.

So how do we get to a £3.2 billion budget gap? It's a combination of two factors: unsustainable spending commitments made by the Legislature and collapsing tax collections. Even without the economic downturn, the escalating expenditures guaranteed trouble under any plausible revenue scenario. The recession simply hastened and deepened the problem.

The cost of maintaining current state services in the next budget will exceed the money at hand. Increased costs include paid family leave, social service caseloads, school enrollments, pension expense, health care, and inflation and employee compensation. These commitments can only be changed by explicit changes in state policy. The governor and Legislature will have to set priorities and make choices. (Cantrell 2008 15)

In 2007, with a strong economy and a hefty budget surplus, lawmakers adopted a budget that spent £1.3 billion more than anticipated revenues. Earlier this year, in a weakening economy, they added £300 million in additional spending.

Even as the budget was being written in early 2007, critics pointed out those unsustainable spending commitments assured a shortfall in the foreseeable future. At the time, a coalition of business organizations wrote legislators urging restraint. The budget “spends too much and saves too little,” they said, noting that construction spending was already slowing. Many of the state's major newspapers expressed similar concerns.

Lawmakers stayed the unsustainable course, dismissing repeated warnings from nonpartisan analysts that they faced substantial budget shortfalls beginning in 2009. Instead, they highlighted their new “investments.” (Hallman , Rosenbloom 2003 15)

One Democratic senator said as the Senate adopted the budget in 2007, “It's a time for hope and optimism, but as a financial strategy it leaves something to be desired. The revenue boom stemmed directly from rising housing prices, hot sales, and an unparalleled surge in commercial and residential construction. Predictably, the real estate bubble burst and construction is returning to normal levels, contributing to the sharp contraction in anticipated revenues announced last week.

The other major contributor to the recent revision is the decline in automobile sales. With high gas prices, pessimistic consumers and a limited supply of the fuel-efficient vehicles auto buyers currently favor, a robust recovery in that major source of sales tax revenue may be a long time coming.

In business and household budgets, investments tend to be ...