Budget planning can substantially define the overall financial state and economy within an organization or any other entity. Overall, budgeting implies the consideration of as many costs, risks, and potential profits as possible. It is apparent that there cannot be one right way to plan a budget. However, each budget method has pros and cons, which should be considered within particular contexts. Based on this, in the given paper, the budget planning technique used in Alabama will be discussed, and its efficacy will be evaluated.
The state has a bifurcated budget system, which implies that it is divided into the General Fund and the Education Trust Fund. The latter aims to cover all costs associated with public education, including salaries for teachers and school administrators, while the former comprises funds for all other spheres of life and performance, including healthcare. The General Fund is primarily financed through tax revenues, which means that tobacco settlement funds received by the state become distributed among the spheres involved in this budget section. The Children’s Policy Councils of Alabama (n.d.) notes that the Children First Trust Fund usually gets the greatest portion of the tobacco settlement dollars (about 52%), while Medicaid receives approximately 31%. The rest is allocated to multiple smaller funds and programs launched in Alabama.
The way the tax incomes are allocated may show that the budget method currently used in Alabama focuses on priorities and activities that entail greater expenditures. The manner of fund distribution between the General Fund and the Education Trust Fund only verifies this assumption. As stated by Robertson (2014), the latter receives a larger portion of Alabama’s overall appropriations. For instance, in the fiscal year 2015, the US $5.9 billion was provided to it, while only US $1.8 billion was given to the General Fund (Robertson, 2014). The findings indicate that the state government sees education as a priority. It means that it may implement the top-down budget planning methodology.
The identified technique is among the most commonly used. According to Kalish (2018), it is defined as “a process based on estimating the cost of higher-level tasks first and using these estimates to constrain estimates for lower-level tasks” (para. 2). When using the top-down method, one substantially relies on previous experience and expertise. For this reason, such an approach helps save time during decision-making. However, it does not require the consideration of lower-cost activities and tasks during the initial stages of planning. Therefore, the given methodology may fail to deliver sufficient resources to all the areas and to meet all the national and state goals.
Though the top-down budget technique strives to cover critical activities and needs, it is possible to say that it may not work well for Alabama in the current complicated economic situation. The combination of this tool with zero-based budgeting may help resolve potential issues and minimize risks more efficiently. The given planning instrument implies the estimation of possible costs starting from the bottom and the consequent building of the budget based on the initial analysis data. The bottom-up methodology is more time-consuming. Nevertheless, since it requires the involvement of a greater number of stakeholders and not only the superior-level governors, it may provide the state with a better insight into the economic problems. At the same time, to ensure the efficacy of planning that combines both of the techniques, it is essential to enhance the data flow system in order to facilitate the negotiation and avoid miscommunications.
References
Children’s Policy Councils of Alabama. (n.d.). Children First Trust Fund. Web.
Kalish, B. (2018). Should FP&A look top-down or bottom-up? Digitalist Magazine. Web.
Robertson, K. G. (2014). Budget basics: The facts about Alabama’s budget system. Web.