Page 7 - FY 2020-21 Blue Book Volume I

FOREWORD

CITY OF LOS ANGELES BUDGET SYSTEM

The City's budget system is the means of allocating resources to meet our citizens' need for public services.
The budget system used by the City has evolved over the years to incorporate innovations in budgeting
theory.

The most basic of the budget systems is termed line-item, or object of expenditure, wherein planned
expenditures are categorized according to the goods or services to be secured. The budget document
states appropriations in line-item terms, such as salary and equipment accounts, and provides the basis
for financial control during the fiscal year. This basic system is essential, but lacks features to measure
service levels.

The City modified its budget concept to place primary emphasis on services and their attainment by
incorporating selected concepts of program budgeting. Programs are defined within the framework of
City departments, such as parking services provided by the Department of General Services or traffic
control provided by the Police Department, rather than interdepartmentally. This approach permits a higher
degree of accountability for the attainment of services.

The City additionally uses a functional budget approach wherein programs are grouped into functions
and sub-functions (also referred to as activity groups and categories), to enable interdepartmental analysis
at this higher level. This level of differentiation is determined on the basis of the services provided and not
on the basis of organizational or geographic units. Currently, all of the City’s programs fall within one of six
functions and 49 sub-functions, as shown in Section 6 of the Proposed Budget.

The City’s performance budget element is based in departmental work programs. Performance budgets
use statements of mission, program goals, and/or objectives to explain why the money is being spent. It is
a way to allocate resources to achieve specific objectives based on program goals and measured results.
Performance budgeting permits qualitative and quantitative performance measurements of services
provided for a given amount of resources. As part of the City’s performance budgeting system, metrics
associated with each program are included in the budget documents and used to evaluate progress
towards achieving priority outcomes and to compare effectiveness between programs.

The City’s current budget system establishes the prior year as the baseline for decisions to add new
services or to expand, supplement, or revise resources for existing services in the program year (also
known as incremental budgeting). This strategy streamlines the decision making process by focusing on
changes. This approach, however, assumes that the current baseline-services are of higher priority than
new or expanded services that may be proposed. Moreover, it assumes that the current baseline
resources are appropriate to accomplish the service objectives. Therefore, the City incorporates certain
elements of zero-base budgeting to allow for an examination of the historical baseline budget and staffing
of existing programs that are proposed to be enhanced.

Thus, the City's budget system may be described as a modified program budget, which incorporates the
elements of line-item, program, functional, performance, and zero-base budgeting.

The City's concept of the budget system includes the traditional orientation of budgeting as a plan of
financial operations, providing an estimate of proposed expenditures for a given period of time or purpose,
and the proposed means of financing them. Therefore, budgeting consists of a management program, a
decision-making program, and a financial program. The City's budgetary system is a constant and
continuing flow of planning, decision-making, accomplishment, and control. The development of the
annual budget document is only one part of the system for each fiscal year and, despite its intensity of
focus, should not detract from the continuing aspects of the overall system.