Dangerous Stratagems

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Dangerous Stratagems

Identifying the Weakness of Each Strategy

  1. Delay maintenance and replacement of assets

Delaying maintenance of assets only creates the illusion of a standardized budget. However, this delay only deteriorates asset longevity putting the public at risk due to utilization. Additionally, delaying asset replacement also endangers the public. It also makes public services offered by such assets distasteful.

  1. Sell Assets

Selling assets is also disadvantageous. However, selling assets only hides budget deficits and further leads to an increase in such deficits per annum. Usually, the proceeds from selling assets such as land function as normal revenue. Thus, they are inaccessible for solving problems within the budget.

  1. Lease Rather than Buy Equipment

Even though buying equipment costs exponentially for the budget, leasing is also disadvantageous. Since leasing is available for long-term periods, the leased equipment at the end of the maturity period will be at a higher cost due to compounded interest. Thus, the cost of the equipment will be higher than the initial cost of buying the asset.

  1. Rob Peter to Pay Paul

Transferring finances from off-budget funds to on-budget funds for deficit financing leads to creation of a hole in the next budget. Even though transferring funds balances the budget in the current year, there will be a deficit in both on and off-budget funds the next year.

  1. Nickel and Dime Employees

The government also reduces diminutive expenses made by employees in organizations. However, this is negative. Nickel and diming workers leads to a deterioration of working conditions. This demoralizes employees significantly. Additionally, they do not even save much finance.

  1. Make the Across-the-Board Cuts rather than Targeted Cuts

Across-the-Board Cuts only circumvents the need to create plausible solutions. By reducing allocation for public agencies, across-the-board cuts only create government services to become repugnant and unsatisfactory.

  1. Fudge the Numbers

Even though a budget is a forecast of numbers, fudging numbers also poses challenges. If budget assumptions are wrong, then the whole budget is wrong. Thus, fudging numbers possesses the potential to better or worsen the budget.

  1. Borrowing

Borrowing also poses a weakness in financing budget deficits. This is because too much borrowing only affects the borrower’s credit ratings. Since borrowing continues via bond issuances, low bond ratings would only heighten the borrowing cost and dispel latent investors.

  1. Accounting Gimmicks

Accounting gimmicks such as pretending for planned expenses, demanding funds after budget consent, false assumptions and dubious promises only hide the real financial condition of the government. They only make the expenses seem diminutive but in reality, misinform the budget.

Most and Least Dangerous Strategies

One of the most dangerous strategies is borrowing. In order to account for budget deficits, the government usually restricts borrowing by state agencies. This is a common strategy usually expressed in the fiscal policy. Fiscal policy ultimately focuses on reduction of government spending and increase in taxation (Langdana, 2009). Nonetheless, state agencies usually utilize other means of borrowing if restricted by government. One of these means comprises the issuance of bonds. However, this strategy is critical for states since it lowers their credit rating. Consequently, a low credit rating leads to loss of investor confidence, especially due to public debt.

Another dangerous strategy comprises the Rob Peter to Pay Paul strategy. This strategy is dangerous since it only adds to a consistent deficit in government budget every year. Usually, if general funds become problematic, leaders usually transfer finances from off-budget funds to on-budget funds. Doing this only shifts the deficit in budget finances from one system to the next. Therefore, even though transferring finances from these funds covers the current deficit, it only uncovers further deficit in the subsequent budget.

However, a strategy such as Nickel and Diming does not pose considerable problems in deficit financing. Nickel and diming focuses mainly on reducing the expenses state organizations and agencies incur. However, such expenses are very diminutive such that cutting them only saves insignificant money. Another less dangerous strategy involves accounting gimmicks. Budgets usually rely on accounting forecasts in order to allow for allocation of funds. Without these accounting assumptions, then it would be impossible to allocate funds across states.

Examples of Each Strategy

  1. Delay maintenance and replacement of assets

An example of this strategy involves the upgrading of rail transits in all states across the United States in 2009. This is according to the damages arising from rail-transit accidents that resulted in a loss of nearly US$ 29 million dollars in property damages as well as 13 fatal outcomes and 297 injuries in 2004 alone (United States, 2011).

  1. Sell Assets

An example of this strategy involves the selling of sewer and water works by the leaders of Jacksonville City, Florida. The city decided to sell its sewer and water system to the entity that performed it off the balance sheet. However, after a year, the city traded it for US$ 32.2 million by selling US$ 51.2 million dollars in sewage and tax liens.

  1. Lease Rather than Buy Equipment

Recently, Congress decided to attempt purchasing i8 fighter jets of the Block 30 prototypes. However, in order the price for purchasing these airplanes was exorbitant. Thus, Congress decided to lease existing jets such as U-2 models in the 2013 fiscal year (Presse, 2012).

  1. Rob Peter to Pay Paul

Recently, one state decided to transfer the supervision of a parking garage and a convention center in order to decrease its contribution from the on-budget funds. This move enabled the state to save US$ 175 million dollars within the current fiscal year.

  1. Nickel and Dime Employees

The move by airlines in the United States to charge even the minutest services offers an example of this strategy. Recently, airlines started charging for on-board meals, water, blankets, and luggage in order to curb the cost of providing services without increasing ticket charges.

  1. Across-the-Board Cuts

Recently, the state government of New Hampshire made significant across-the-board cuts on state employees. The cut would see state employees receiving a deduction that amounted collectively to US$ 50 million in the state (Grossmith, 2013).

  1. Fudging

In the fiscal year, the city of Lynwood projected that it would require an additional US$ 10, 679, 915 dollars for storm water schemes. This increased fivefold from last year’s budgetary allocation.

  1. Borrowing

Recently, Governor Jerry Brown of California proposed for the state to borrow US$ 500 million from the special funds accounts. This proposal focuses on equalizing the general fund budget by borrowing from auctions of the Carbon Cap-and-Trade (Mulkern, 2013).

  1. Accounting Gimmicks

The city of South Pasadena sought to manipulate the expenses it would incur in 2012 by increasing them to nearly 29 million irrespective of its small population size.

 

 

References

France-Presse, A. (2012, Feb. 13). U.S. Air Force gives U-2 spy plane another lease on life. Rawstory. Retrieved from <http://www.rawstory.com/rs/2012/02/13/u-s-air-force-gives-u-2-spy-plane-another-lease-on-life/>

Grossmith, P. (2013, May 31). Hassan faults NH Senate for across-the-board cuts. New Hampshire Union Leader. Retrieved from <http://www.unionleader.com/article/20130531/NEWS06/130609994>

Langdana, F. K. (2009). Macroeconomic policy: Demystifying monetary and fiscal policy. Boston, MA: Springer-Verlag.

Mulkern, C. A. (2013, May 15). Gov. Brown proposes to borrow $500M from cap-and-trade revenue. E&E Publishing LLC. Retrieved from <http://www.eenews.net/stories/1059981189/>

United States. (2011). Rail transit: FTA programs are helping address Transit agencies’ safety challenges, but improved performance goals and measures could better focus efforts: report to the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. Washington, D.C.: U.S. Govt. Accountability Office.

 

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