Budgeting Process in the Public Sector

Rational Budgeting v. Incremental Budgeting

Rational budgeting and incremental budgeting are two very different perspectives on the budget process. The former tends to be a grand-scale approach to budgeting with medium-term and long-term ramifications, while the latter focuses on small and immediate steps in adjusting budget plans.

Since colonial times, the traditional approach, which emphasized incremental budgeting, has dominated budgetary practices in government. Until the early part of this century, line-items were approved piecemeal by the legislature. For the most part, Congress had control over which items would be funded and the amount of the funding. Under this system, no idea existed regarding the total anticipated budget for a particular fiscal year. The Taft Commission on Economy and Efficiency played an important role in changing the system. The Commission's 1912 report argued the need for establishing an executive budget. The report, however, gave as much emphasis to budget execution and management as to budget formulation. Outputs became as important as inputs. In essence, the 1912 report recommended a performance-type approac

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place for studying the need and impact of capital expenditures and investments ever since 1951. Since 1984, the Federal Capital Investment Program Information Act has required the federal government to assess non-defense-related capital outlays for each 10-year period. This last argument against a special capital budget for the federal government actually highlights why the federal government should have a capital budget. It recognizes that capital investments are a critical service by government at all levels and that these investments must be studied and planned. This is precisely what a special capital budget accomplishes, but more thoroughly than the current federal analyses. A review of capital projects at the federal level by the National Council on Public Works Improvements has found that the federal government has performed poorly when it came to capital projects. Highways, airports, water resources, waste management facilities, and hazardous waste treatment plants were all in sub-standard condition and in dire need of additional investment (Axelrod, 1995, p. 107). Clearly, the lack of a special capital budget has decreased the attention given to capital investment and has produced an underdeveloped capital infrastruc
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Approximate Word count = 2944
Approximate Pages = 12 (250 words per page)