Course 1

FINANCIAL MANAGEMENT OF
LOCAL COMMUNITIES

Associate professor PhD Maria-Andrada GEORGESCU

Department of Economics and Public Policies
Faculty of Public Administration
SNSPA –Bucharest
maria-andrada.georgescu@administratiepublica.eu
1.1. Introduction to public financial management

 Financial management represents the set of

principles, methods, tools, objectives, specific to the
organization, aiming at positioning the formation and
use of economic and financial resources.
The tasks of financial management consist of:
a) assessing the financial effort of all the actions to be
undertaken in a given management period;
b) providing capital, at the right time, in the structure and
quality requirements demanded, at as low a cost as
possible;
c) tracking how capital is used and influencing decision-
makers in other responsibility centers to ensure an
efficient use of all funds attracted to the circuit;
d) ensuring and maintaining financial equilibrium in the
short and long term in accordance with the needs of the
organization;
e) pursuing the expected financial result and allocating it to
destinations.
1.2. Functions of public financial management
 Formulated for the first time by Henry Fayol in 1916,
management functions can be defined using five
infinitives:
 Planning,
 Organizing,
 Commanding,
 Coordinating, and
 Controlling.
 The public management functions include:
 predictive function;
 organization-coordination function;
 motivation function;
 administration function;
 control-evaluation function.
Predictive function
The predictive function represents the set of
management processes that take place in public
institutions by which it is determined its main
objectives in close interdependence with those of
other public sector institutions and according to
general and specific public needs, implementation
modalities and financial and material resources
necessary to achieve them.
 Predictive function
Features:
a) objectives must be formulated taking into account
the specific and general legislative framework in
accordance to which local governments operate
(e.g. the Local Public Administration Act, the Local
Public Finance Act, the annual budget laws, etc.)
b) the objectives must correspond to the specific
needs of local communities, including:
modernization of roads, public lighting, green
spaces, maintenance and repair of school units,
etc.
 Predictive function
The predictive function is exercised at the level of local
communities in two forms:
1) the forecasting of objectives, formulated in
accordance with the specific needs of local
communities and the legislative functioning
framework, the long-term or short-term objectives
included in the economic and social development
strategies of the entities
2) the forecast of the financial status of the local
communities, based on the legal norms in force
(Law No. 273/2006), is based on the projection of
financial performance over time horizons, typically
3-5 years, to identify any treasury surpluses /
deficits.
 Predictive function
1) objective prediction – peculiarities
a) the potential of local communities: it is based on the potential of
human, material and financial resources involved in the provision of
public services of local interest;
b) the political commitment, electoral commitment to the electorate, to
the main authorising officers;
c) the level of professionalization of civil servants, depending on their
experience or level of professional training;
d) the values of organizational culture specific to local communities;
e) the motivation system for civil servants;
f) the material basis and technical - material basis available to the
local community.
 Predictive function
2) forecasting the financial status of local
communities - peculiarities
a) the fiscal potential of the administrative-territorial
units, consisting of all taxable goods (land and
buildings) and their evolution over 3-5 years
horizons;
b) factors influencing the change in taxable value due
to labor force migration, local investment, including
facilities provided by local communities for
investors.
 Organization - coordination function
 The financial organization function defines:
competencies, authority, responsibility, including the
necessary activities: meeting the organization's
financial targets, assigning them as tasks to
employees and organizational structures; positioning
them in a well-defined setting of decision-making and
follow-up.
 The financial coordination function includes all
activities that correlate the decisions and actions of
the organization's staff and subsystems within the
strategies, tactical procedures and the organizational
system adopted
 Motivation function (drive)

 Financial drive refers to all activities that determine

the organization's staff to achieve the objectives set
at the time of the financial forecast, under the
conditions of effectiveness set.
 Management/ Administration function

 The management/Administration function consists of

all the management processes through which the
material, financial, human and informational
resources are managed in order to achieve the
foreseen objectives.
 Control-evaluation function

 The control-evaluation function is defined as the

whole of the management processes that compare
the results achieved with the objectives, verify the
legality of the activities carried out within the public
institution, measure and analyze the deviations and
identify the causes that determined them.
 Control-evaluation function
requirements for exercising control:
 The control is continuous;
 The control is selective;
 The control is carried out by specialized personnel;
 The control is preventive;
 The control has finality;
 The control is realistic, objective;
 The control is efficient.
 Control-evaluation function
The control-evaluation function for the local
administrative system is exercised by:
a) the external environment (the Court of Auditors), by
carrying out the legality control and the financial
audit, being relevant at this stage the calculation of
some performance indicators;
b) the internal environment (preventive financial
control and internal public audit) of the structure of
the local public administration.
1.3. Financial Mechanism of Local
Communities’ functioning
 taxes and duties collected from taxpayers in the form of tax
revenues, under the legal regulations in force, are subject to the
principle of depersonalization (they lose their source of origin) to
finance the public service portfolio that local communities are
obliged to provide based on decentralization of services between
local, county and central authorities;
 the amounts collected from the state budget complement the
deficit of resources, practically following the same invariable
route of the depersonalization and financing of public services.
These are the result of the gap in the Continental Europe budget
model between the transfer of responsibilities before the transfer
of resources to the local authorities;
 The Authorizing Officers arranged under an architecture of
branched networks, disciplined, authorize each other access to
local budget resources, using as an instrument the "unknown"
budget appropriation to give life to the functional domains D1, ...,
Dn corresponding to the public services which, in the interest of
citizens, local communities have to provide.
 Course 2
BUDGET AND LOCAL AUTONOMY

Associate professor PhD Maria-Andrada GEORGESCU

Department of Economics and Public Policies
Faculty of Public Administration
SNSPA –Bucharest
maria-andrada.georgescu@administratiepublica.eu
 2.1. Management and financial autonomy
of local government
Local autonomy involves an assembly of three
interdependent components:

Decisional • spending
autonomy
Patrimonial • assets of local public
autonomy authorities

Financial • assuring financial

autonomy resources
 Competence
attributed
through loan
contracting and
management
Ensuring budget
Partial or full
balance and
independence in
management of
revenue
the annual
formation
surplus or deficit

Degree of
autonomy
2.2. Decentralization of public finances

We can talk about a decentralization theorem:

social welfare is maximized if public services are
achieved by the administrative level closest to the
citizen.
The principles on which this theorem is based are the following:
a) the social benefits of various public functions have areas of interest
of different dimensions: small for a kindergarten, for example, and
large for national defense;
b) the principle of fiscal equivalence: if a jurisdiction (administrative
level) is in charge of a public function, it must decide on the
necessary expenditure in accordance with the available public
revenues. A new public service involves additional expenses, which
involve additional income, and thus higher taxes and fees. It follows
that the functions transferred by the central government to the local
one, which always result in expenditure, must correspond to an
appropriate level of revenue over which the local authority must
have a large control;
c) the principle of subsidiarity: if a public function can be carried out
by a lower administrative level, then it must lead and finance the
performance of that function;
d) decisional principle: if a public function has been delegated to a
local government level, then it must decide discretionary on the
performance of that function.
Decentralization is the transfer of authority and
responsibility for public functions from central
levels to local public administrations or to the
private sector.
The main types of decentralization are:
 political,
 administrative,
 financial, and
 economic.
Financial decentralization has essentially two
components: the creation and strengthening of
autonomous local authorities by bringing the act
of governance closer to the citizen and
rationalizing the financial relations between the
national government and the other levels of
national public authorities aimed at creating a
balance between the responsibilities of the local
or regional authorities and the material and
financial resources they have.
Financial decentralization is subordinated to the
need to ensure the stability of the country's
public finances.
2.3. Local Budget System
 The local budget is the document by
which the revenues and expenses of the
administrative-territorial units are
provided and approved each year
 The local budget system in Romania
includes:
a) the local budgets of communes, cities, municipalities, districts
of Bucharest, counties and Bucharest municipality;
b) budgets of public institutions financed entirely or partially from
local budgets, as appropriate;
c) the budgets of public institutions (local subordination) fully
financed from their own revenues;
d) the external and internal loan budget, for which the repayment,
payment of interest, commissions, charges and other costs are
provided from local budgets and derive from: external loans
contracted by the state and sub-borrowed to the local public
administration authorities and / or economic agents and public
services in their subordination; loans contracted by local public
administration authorities and guaranteed by the state; external
and / or internal loans contracted or guaranteed by local public
administration authorities;
e) the budget of the non-reimbursable external funds.
 The drafting, approval, execution and reporting of
local budgets is governed by the provisions of the
Local Public Finance Law no. 273/2006, which
came into force on the 1st of January 2007.
 Local budgets are real tools for planning and
managing financial activity at the local level,
being drafted as autonomous budgets.
 The local councils, the county councils and the
General Council of the Municipality of Bucharest,
as the case may be, have competence in drafting,
approving and managing budgets at local level.
2.4. Critical analysis and reform of
the local public revenue system
2.4.1. Local government revenue structures at
international level

The structure of public resources by category of

revenue highlights the degree of financial autonomy
of local communities, knowing that financial
decentralization has manifested differently from one
country to another, in the category of local revenue
a major place currently being occupied by the
grants allocated, usually, from the state budget.
Local authorities' access to a tax or a lot of taxes is
dependent on a number of factors such as:
 the ability of local communities to manage the
taxes entrusted to them;
 the type of expenditure that local authorities have
to finance;
 the willingness of central governments to allocate
taxes to local communities and thus achieve
financial decentralization;
 constitutional and legislative requirements at
country level.
 The tax autonomy of local communities represent an
important issue in local taxation in order to provide the required
levels of services and public infrastructure. In theory, tax
autonomy is greater when local governments are free to
determine both the tax base and the tax rate, without the central
governments imposing limits on either. Tax autonomy is reduced
when the tax base and the tax rate are controlled by higher
governments.
 Tax-sharing arrangements between different levels of
government also lead to different levels of fiscal autonomy. The
degree of tax autonomy will depend on whether or not the
consent of local authorities is required before any change in the
local income sharing formula can be operated.
 The situation of Romania, where both the tax
rate and the tax base are set by the central
government, makes our country fall among
countries where fiscal autonomy is quite limited
and, the tax capacity of local communities
generating income is largely dependent on the
central level.
2.4.2. Criteria for assessing local tax systems
used internationally
The assessment of the local tax system can be
made according to several criteria, namely:
a) revenue productivity;
b) neutrality;
c) equity;
d) export of taxes;
e) investment and growth;
f) compliance costs of taxpayers;
g) the balance of choices made through policies.
 2.4.3. Tax federalism and local taxation
issues
Fiscal federalism studies the system of taxation and
public spending under the responsibility of a central
government, but also of local authorities alike.

The theory of fiscal federalism is analyzed on the

basis of its components:
a) allocation of revenue prerogatives;
b) allocation of prerogatives in terms of expenditure.
The fiscal federalism is based on four rules developed in the specialty
literature in the form of principles:
• The principle of reciprocity: according to which public goods must be
provided at local, regional or national level depending on the spatial
incidence of the benefits produced;
• The principle of centralized redistribution: it is based on the fact that
redistribution of revenue among the members of society must be the
responsibility of the central government, because only in this way can
optimal distribution efficiency be achieved;
• The principle of fiscal equalization: reflects the fact that the distribution
of revenue and wealth should not only concern individuals, but also
groups of individuals who form communities. Through tax policies, only
the central government can assess and alleviate discrepancies
between social communities as states or local authorities;
• The principle of federal merit goods: according to which the central
authority is obliged to encourage the production of goods of a social
nature - merit goods imposed on the citizens, starting from the idea
that they do not know the real benefit they would have obtained
through the consumption of those goods.
2.4.4. Romanian Local Public Revenue
System
 According to the principle of local autonomy,
provided by the Local Public Administration Law,
the administrative-territorial units have the right to
own resources that the local public administration
authorities manage, according to their attributions
under the law.
 These financial resources must be proportionate
to the competencies and responsibilities of the
local public administration authorities.
Starting from this principle, according to the
legislation in force, the following types of revenue
are provided for local budgets:
a) own revenues, consisting of: taxes, fees,
contributions, other payments, other revenue and
quotas deducted from the income tax;
b) amounts deducted from some state budget
revenues;
c) subsidies received from the state budget and from
other budgets;
d) donations and sponsorships;
e) amounts received from the European Union and / or
other donors on account of payments made and
pre-financing.
1. Own revenues
Own revenues are local authorities' revenue
obtained locally. These include taxes, fees and
payments from revenue earned from economic
agents and public institutions of local importance,
and from local taxes and fees from individuals and
legal entities.
Normally, these revenues should represent the
majority of the total local budget revenues.
The level and sources of this revenue are
controlled by the local authorities within the limits
set by law.
 In Romania, the main normative acts regulating
the own revenues are the Fiscal Code and the
Local Public Finance Law. Another aspect that
defines own revenues is that local authorities
generally have freedom in how they are spent.
 According to the budget classification, own
revenues are derived from current tax and non-
tax revenues, capital revenue and quotas
deducted from income tax.
 1.1. Current tax revenues
 Tax revenue represents revenue accruing from
direct and indirect taxes levied by tax authorities at
the time and under the conditions set by law. In
general, tax revenues are the main source of local
revenue for the budgets of municipalities, towns
and communes. Only in the case of the county
councils these are not the main source of local
revenue.
 The main increase in local taxes stems from the
adjustment of tax rates and tax bases on land and
buildings for both individuals and legal entities.
The sources of current tax revenue of local budgets are
represented by:
• property tax (building and land tax on natural and legal
persons)
• sums derived from quotas and amounts deducted from
income tax, profit tax payable by state-owned
enterprise (SOE) (regii autonome) and local
subordinated companies and capital gains:
• taxes on use of goods and services (tax on means of
transport owned by natural and legal persons, tax on
shows, license fee and operating licenses).
1.2. Current non-tax revenues
Non-tax revenues are those categories of budget
revenues obtained from state-owned autonomous
companies in the form of payments from the net
profit of autonomous companies, payments from
public institutions, various revenues from
concessions, rents, dividends, from refunds of
budget financing of previous years and other
receipts.
The bulk of the non-tax revenues of the general consolidated
budget are collected to the state budget (approximately 75%). The
share held by local authorities in these revenues is about 15%.
Non-tax revenues of the local public administration
authorities:
 income from economic activities and properties,
 Payments (vărsăminte) from public institutions,
 various local revenues, and
 the special taxes imposed by the local public
administration authorities for the creation of public
services in the interest of natural and legal
persons.
1.3. Capital revenues
 Capital revenues are generated by the assets’
sales belonging to the private patrimony of the
local public administration.
 Capital revenues consist of revenues from the
capitalization of some assets of public institutions;
revenues from the sale of dwellings built from
state funds; privatization proceeds and revenues
from the sale of private domain assets.
 Capital revenues are rather exceptional revenues
representing only a small fraction of the total local
revenues.
 1.4. Quotas deducted from personal
income tax
An important share in the local budgets’ revenues is
represented by the quotas deducted from personal
income tax (71.5% of the income tax) in the form of
quotas, differentiated, from the income tax collected to
the state budget at the level of each administrative-
territorial unit that is allocated to the local budgets of
communes, towns and municipalities (41.75%), to the
county's own budget (11.25%), as well as to a distinct
account opened by the county council for balancing
the local budgets of the communes, towns,
municipalities and the county (18.5%).
These quotas are allocated monthly, not later than the 8th of the month
in progress.
Quotas from income tax are correlated to the effective
receipts from income tax. State budget renounces from a
large part of income tax in favour of local budgets. The total
quotas were changing during the time. At the beginning (late
1990s) the cumulated quotas were 50%, but afterwards
increased in order to permit local budgets to face
decentralized expenditures. The highest value was at 82%
when quotas were such established to permit local budgets
maintaining their revenues even after introducing 16% flat
income tax. After 2011, in several stages the quotas were
reduced in order to offer supplementary resources to state
budget. The quotas in 2017 are: 41.75% for the budget of
localities (cities, towns and communes), 11.25% for the
budget of counties and 18.5% for balancing local budgets.
 2. Revenue to local budgets received
from the central level
 Revenue received from the central level has as its main
objective the correction of local imbalances, both
vertically (the level of local taxes and fees does not
cover the expenditures necessary for the provision of
public services), but also horizontally, as not all local
communities are doing the same financially, although
they have the obligation to provide equivalent services
in terms of quantity and quality.
 According to the legislation in force, the revenues to
local budgets received from the central level include
sums deducted from some state budget revenues and
subsidies from the state budget and from other
administrations.
2.1. Sums deducted from some state
budget revenues
 This revenue corresponds to the so-called system
of sharing taxes and fees between different levels
of government.
 The system for allocating these amounts is set at
the central level, with local authorities having
virtually no control over their amount and, in some
cases, the way they will be spent.
 As a rule, there are clear allocation criteria, but
they are often negotiated.
 Taxes and fees are collected at the national level
by the Ministry of Public Finance through the
county financial directorates and some of them
will then be divided between the different levels of
administration of the state authorities.
 Therefore, local authorities receive sums
deducted from personal income tax (PIT) and
sums deducted from value added tax (VAT).
 Sums deducted from some state budget
revenues granted for the financing of certain
responsibilities transferred to the local public
administration authorities, as well as for the
balancing of the local budgets, are approved
annually by the state budget law.
 Currently, sums deducted from value added tax
are allocated for: subsidizing the heat supplied to
the population (no longer granted since 2007);
financing of decentralized expenditures at the
level of the counties and the municipality of
Bucharest; financing of decentralized
expenditures at the level of the communes,
towns, municipalities and districts of Bucharest;
financing of centralized heat generation and
distribution systems; financing of county and
communal roads; financing the Program for the
development of infrastructure and sports facilities
in rural areas and balancing local budgets.
 The allocation of the sums deducted from some
of the state budget revenues aimed at balancing
the local budgets is done by counties according
to the rule, 70% of the amount using as a criteria
the financial capacity, determined on the basis of
the personal income tax per inhabitant and 30%
of the amount depending on the county's surface.
 Of the total amount allocated to the county,
approved annually by the state budget law, and of
the share of 18.5% of the shares deducted from
the income tax meant for the balancing of the
local budgets, a 27% share is allocated to the
respective county budget and the difference is
distributed to localities within the county.
For the balanced distribution of the balancing
amounts to the local budgets, criteria have been
established, based on some elements that
influenced the level of expenditures of a local public
authority, namely the population, the area inside the
administrative-territorial unit and the financial
capacity of the administrative-territorial unit. Based
on these criteria, 80% of the amount is allocated.
The remaining 20% is allocated by decision of the
county council to support local development
programs and to support infrastructure projects that
require local co-financing.
2.2. Subsidies

Subsidies received by local budgets may be

subsidies from the state budget or subsidies from
other administrations.

Subsidies are amounts allocated from the central

level to local communities for a very well-defined
purpose.
Subsidies received from the state budget are mainly
used for the financing of the gravel program of the
communal roads and water supply of the villages;
financing of priority multi-annual environmental and
water management programs; funding of rights
granted to people with disabilities; compensation for
unforeseen increases in fuel prices; refurbishment of
thermal and electric heating plants; financing the
capital expenditures of state pre-university education
units; the granting of aid for heating the home with
wood, coal, petroleum fuels; achieving investment
objectives in tourism; thermal rehabilitation of
buildings; financing health costs.
In addition to subsidies from the state budget, local
budgets receive subsidies from other
administrations, such as the unemployment
insurance budget to finance temporary employment
programs.
2.5. Local budget expenditures
The daily practice in Romania shows that central
authorities have the tendency to maintain the
control over the level and the structure of local
administration expenditures.

Two explanations for this tendency:

 the macroeconomic stability and
 the fact that central government still plays an
important role in financing the decentralized
responsibilities.
Local public administrative units continue to act as
agents of the government while dealing with some
public services. Central authorities have transferred
the management of public services to the local level
and later some of the financial resources but local
authorities are still not in charge of adopting
important decisions regarding the quality of the
respective services.
2.5.1. Classification of local budget
expenditures

budgetary expenditures = the sums approved in

local budgets, the budgets of public institutions
financed entirely or partly from local budgets, the
budgets of institutions fully funded from their own
incomes, the budgets of internal and external loans,
the budget of the non-reimbursable foreign funds,
incurred within the limits and according to the
destinations established by the respective budgets,
in compliance with the legal provisions.
 economic classification
1) Current expenses: Title I. Staff expenses; Title II. Goods
and services; Title III. Interest; Title IV. Subsidies; Title V.
Reserve funds; Title VI. Transfers between public
administration units; Title VII. Other transfers; Title VIII.
Projects funded from Non-reimbursable external funds
(NFPs); Title IX. Social assistance; Title X. Projects
funded from non-reimbursable external funds related to
the 2014-2020 financial framework; Title XI. Other
expenses; Title XII. Expenditure related to reimbursable
financing programs;
2) Capital expenditures: Title XIII. Non-financial assets;
Title XIV. Financial assets; Title XV. National Development
Fund;
3) Financial operations: Title XVI. Loans; Title XVII. Credit
reimbursements.
functional classification
Part I General Public Services: Public Authorities and
External Actions; Other general public services; Public debt
transactions and Loans; General transfers between different
levels of government;
Part II Defense, Public Order and National Security: Defense;
Public order;
Part III Social and Cultural Expenses: Education; Health;
Culture, Recreation and religion; Insurance and social
assistance;
Part IV Public Development Services, Housing, Environment
and Water: Housing, Public Services and Development;
Environment protection;
Part V Economic Actions: General economic, commercial
and labor actions; Fuels and energy; Agriculture, forestry, fish
farming and hunting; Transports; Other economic actions.
2.5.2. Functional and economic classification - a
necessity for managing local public
expenditures
 2.5.3. Capital expenditures and local
public investment
Investments made in local communities are
particularly important, the earnings from this being
derived either from tax revenues recorded in local
budgets (building tax or land tax), or from personal
income tax paid to the budget as shared taxes.
The investment issue is complex and consists of:
• developing the capital investment program;
• establishing financing arrangements and sources
of financing;
• prioritization of investment objectives.
1) Elaboration of the capital investment
program (CIP)

The capital investment program (CIP) is a list of

projects - capital investments - which a local
community wants to achieve over a period of
several years.

Projects run for two or three years (sometimes

longer periods of time) and include a realistic
assessment of both project costs and planned
funding sources.
2) Financing public investment

Capital investment financing is limited to two major

categories of sources:
 financing from own sources;
 financing from borrowed sources.
 Own financing has a long history, being the only
source of investment until lending, although a
number of projects are now fully or partially paid
based on own financing.
 Financing from borrowed sources is possible in
Romania at the level of local communities since
1998, presenting a number of advantages, such
as:
 allows local authorities to build capital projects in
short periods of time;
 ensures greater equity between generations;
 equalizes investment costs over time.
Local government debt instruments:
a) Securities (municipal bonds);
b) loans from commercial banks or from other
credit institutions;
c) supplier credits;
d) financial leasing;
e) local guarantee.
 3) Prioritizing investment objectives
 In general, at the level of each administrative-
territorial unit there is a rather "complex and rich"
portfolio of investment projects, which is why it is
necessary to prioritize them.
 In order to track the performance of an investment
project, several indicators are calculated. Among
these, the most commonly used and most
appropriate is the Social Net Present Value (SNPV).
Alongside this indicator, others are used, such as the
Social Internal Rate of Return (SIRR), the Social
Profitability Index (SPI), the Payback period (Pp), and
others.
Social Net Present Value (SNPV) is determined
as the difference between the present value of
future net social benefits on the one hand and the
invested capital on the other hand:
𝑛
(𝐵 − 𝐶)𝑡
𝑆𝑁𝑃𝑉 = 𝑡
− 𝐼0
(1 + 𝑘)
𝑡=1

I0 – initial investment;
(B – C)t – social net benefits associated with the project in year t;
Bt –estimated social benefits in money value of the project in year
t;
Ct – costs associated with the project in year t;
k – discount (interest) rate;
n – lifetime of the project.
Another indicator according to which the investment
projects can be hierarchized is the Social Internal
Rate of Return (SIRR). It is that discount rate for
which SNPV = 0 or, in other words, the discount
rate that makes the flow of net present social
benefits equal to the initial cost of capital.

𝑛
(𝐵 − 𝐶)𝑡
𝑆𝑁𝑃𝑉 = 0 ↔ 𝐼0 =
(1 + 𝐼𝑅𝑅)𝑡
𝑡=1
We have two rules for selecting efficient investment
projects:

1. NPV rule: only investment projects with NPV > 0

are accepted;

2. IRR rule: only investment projects with IRR > k

are accepted.
The Social Profitability Index (SPI) expresses the
relative return on investment over its lifetime,
respectively the present expected value for an
initial investment expense equal to 1. It is
determined as the ratio between the present value
of the net annual social benefits and the initial
investment, according to the relation:

𝑛
𝐵−𝐶 𝑡
𝑡
𝑡=1 1 + 𝑘
𝑆𝑃𝐼 =
𝐼0
Payback period (Pp) expresses the number of
years of recovering the capital invested through
present annual net benefits. It is calculated as
follows:

𝐼0
𝑃𝑝 = 𝑛
𝐵−𝐶 𝑡
𝑡
𝑡=1 1 + 𝑘
𝑛
 Course 3
THE LOCAL BUDGET PROCESS

Associate professor PhD Maria-Andrada GEORGESCU

Department of Economics and Public Policies
Faculty of Public Administration
SNSPA –Bucharest
maria-andrada.georgescu@administratiepublica.eu
3.1. Budgetary calendar

Steps:
 The National Prognosis Commission prepares
forecasts for macroeconomic and social indicators by
the 1st June. These forecasts will be updated, if
necessary, during the budget process and will be
published on the National Prognosis Commission
website;
 The Ministry of Public Finance (MoPF) will submit to
the Government, by July 31st the expenditure limits
for the next budget year, as well as the estimates for
the next 3 years, set by the main authorizing officers;
 By the 1st of August of each year, the MoPF shall
send to the General Directorates of Public Finance,
the County Councils and the General Council of
Bucharest a framework letter in which it will be
mentioned the macroeconomic context on the basis
of which the planned draft budgets will be drawn up,
the methodologies for their elaboration, the limits of
the amounts deducted from some revenues of the
state budget and the consolidated transfers.
 transmission by the main credit authorizing officers
of the state budget or other budgets in whose
budgets are provided transfers to the local budgets
to the main authorizing officers of local budget (to
the local public administration authorities), within 10
days of receiving the limits of expenditures approved
by the Government, of the amounts to be included in
their draft budgets;
 the local public administration authorities are required
to submit to the Ministry of Public Finance the
proposals for consolidated transfers and sums
deducted from some state budget revenues, within
the limits of the expenditures and estimates for the
next 3 years, accompanied by detailed documentation
and substantiation up to the 1st of September. If the
main authorizing officers do not adjust their budget
proposal to the fiscal-budgetary strategy, the MoPF
has the authority to reject the budget proposals and, if
they do not align their budget proposal within the
timeframe specified by the MoPF, the latter is
empowered, after negotiations, under the Prime
Minister's mediation, to unilaterally adjust the budget
proposal to be included in the annual budget;
 the draft budgets and their annexes, amended,
shall be submitted to the MoPF no later than the
15th of September;
 By September the 30th , the MoPF, on the basis
of the draft budgets of the main authorizing
officers and its own budget, prepares the draft
budget laws and the draft budgets, which it
submits to the Government for the first reading;
 until November the 1st , the MoPF, based on the
autumn prognoses of the National Prognosis
Commission, finalizes the draft budgets of the main
authorizing officers and of its own budget and the
draft annual budget laws, which it submits to the
Government;
 After adopting the draft budget laws, by the 15th of
November the Government submits them for
adoption to the Parliament;
 within 5 days from the publication in the Official
Gazette of Romania of the State Budget Law, the
MoPF shall send to the General Directorates of
Public Finance the sums deducted from some state
budget revenues and the consolidated transfers,
approved by the State Budget Law;
 within 5 days from the communication, the Counties’
General Directorates of Public Finances, respectively
the General Directorate of Public Finances of
Bucharest Municipality, as well as the Counties’
Councils and the General Council of Bucharest
Municipality, on the basis of the criteria established
by law, allocate the amounts deducted from some
revenues of the state budget and the consolidated
transfers to administrative-territorial units, with the
view to finalizing the local budget drafts by the
authorizing officers;
 the local budgets shall be finalized within 15 days
from the publication in the Official Gazette of
Romania of the State Budget Law;

 the local draft budget is approved by the local and

county councils, within maximum 45 days from the
date of publication of the State Budget Law in the
Official Gazette of Romania.
 3.2. Financial Fundamentals of Local Budgets -
Classical or Modern Methods

A. In the category of classical methods of sizing the

budgetary indicators are included:

 automatic method,
 the method of increasing or decreasing and
 direct evaluation method.
 The automatic method consists of the flat-rate
assessment of budget revenues and expenditures
based on data from the last budget. As the draft
budget for the next year begins already in the
summer of the current year, it means that the last
year ended is that of the penultimate year in relation
to the year for which the budget is being drafted.
Hence the name of the penultimate method (budget
management periods). The figures from the last
approved budget are almost automatically
transposed to the next draft budget. Almost
automatically, because if there are legislative
changes that will affect future revenues and
expenditures, the figures taken from the previous
budget will be corrected accordingly.
 In order to overcome this shortcoming, the method
of increasing or decreasing was designed. In this
case, the situation in a single year (year (t-1)) is not
automatically transposed into the new draft budget
but it is taken into account the trend observed over
the last five or more consecutive years. This trend is
also projected in the next year's budget. For this
purpose, it is determined the average annual rate of
revenues and expenditures for the period under
review or the increase or decrease coefficients,
which shall be applied to the revenues and
expenditures of the current year's budget,
establishing the budget figures for the following year.
 Although the method is superior to the previous one,
it neither provide the correct assessment, as the
trend outlined in previous periods may not be valid in
the coming year.
 As there are major difficulties in the situation of a
budget constructed as such, with revenues not being
fully realized, and with expenses incurring significant
differences, the method of direct assessment has
been used over time. It is an analytical and therefore
laborious method, the evaluation being made for
each revenue and for each expenditure, starting from
their preliminary execution for the current year and
taking into account the predictable evolutions with
budget implications in the year it follows.
B. As a complement to classical methods, in
international practice, modern methods of sizing
budgetary indicators were developed, of which:

 planning, programming, budgeting method;

 zero-based budgeting method;
 rationalizing budget options method.
3.3. Approval of the local budget,
stage of the budget process

 Stage of the budgetary procedure, the approval of

the local budget is regulated by law, the draft
budget being presented by the mayor for
approval to the local council within 45 days from
the date of publication of the State Budget Law in
the Official Gazette of Romania, Part I.
Prior to submitting the draft local budget for
approval, the following steps are taken:
 the communication by the MoPF to the General
Public Finance Directorate of the amounts
deducted from some state budget revenues and
the consolidated transfers, within 5 days from the
publication in the Official Gazette of Romania of
the Annual Budget Law;
 the distribution by the county councils within 5
days from the communication, according to the
criteria regulated by the law, of the amounts per
administrative-territorial units;
 within 15 days from the publication of the State
Budget Law in the Official Gazette, the main
authorizing officers are obliged to finalize the draft
budget, which is published in the local press or is
displayed at the headquarters of the
administrative-territorial unit;

 submitting complaints to the local budget project

by the taxpayers within 15 days of its publication
in the local press;
 within 5 days from the expiration of the deadline
for submitting complaints, the draft budget,
together with the mayor's report and the
complaints of the inhabitants, shall be submitted
to the local Council for approval;
 within 10 days from the date of submission for
approval of the draft budget, the Local Council
must approve, according to the law, the local
budget.
 The Mayor's report at this stage is the document
presenting the synthesis of the local community's
budget policy, which includes:
 the main trends of revenue growth;
 the management of public expenditure and in
particular expenditure;
 policies to attract borrowed sources;
 ensuring the necessary resources for the
functioning of public services;
 other important developments in local budget
policy.
 The local budget approval procedure consists of
an analysis of each chapter of revenue and
expenditure, after which voting for the local
budget adoption takes place on chapters,
subchapters, titles, articles and paragraphs, as
the case may be.
 There is a 45-day deadline for approving local
budgets. If this is exceeded, making payments
from the budget is no longer possible except
within the revenue cashed in.
 After approval, the main authorizing officers have the
obligation to transmit, within 5 days, the local budgets
to the General Directorate of Public Finance, with the
view of centralization at the county level. Within 10
days, the general public finance directorates send the
local budgets to the MoPF to centralize them at
national level.
 The voting procedure of the local budget is special,
the Local Council being able to adopt the budget with
the vote of the majority of local councilors in office.
 The competencies in approving the local budget are
clearly set, with the Local Council exercising the
approval attribute, while the draft budget proposal
being exclusively the responsibility of the main
authorizing officer (the mayor).
3.4. Execution of the local budget:
procedures and perspectives
 After the approval of the local budget and the
entry into force of the approval decision, the third
stage of the budgetary process, namely the
budget execution (implementation), is carried out.
 The main task is that of the main authorizing
officer (the mayor); Several authorizing officers
(secondary and tertiary) are involved in the
execution, their primary concern being to ensure
that the revenues are at the minimum approved
level and that the expenditures are within the
approved limits and destinations.
 The revenues provided within the local budget
are minimum targets. Exceeding them (except
for the extra-budgetary ones) is not an act of
budgetary indiscipline unless the tax laws have
been violated. The attention is therefore directed
to the identification of all sources of revenue and
the full collection of the amounts due to the state,
without any tax abuses.
 Instead, in the case of expenditures, the
amounts provided in the local budget are
maximum limits. Expenditures over the
approved ceiling or for purposes other than those
for which approval was obtained is a violation of
financial discipline, and the guilty are sanctioned.
Here the concern is to spend within the limits,
conditions and legal destinations, avoiding
misappropriation, waste and abuse of funds.
 In the execution of the revenue part, the
principle of separation of functions is respected
and the operations performed differ according to
the type of revenue to be paid to the local budget.
 The procedures involve, by virtue of the principle
of separation of functions, two phases:

 the phase of administrative decisions and

 the phase of accounting decisions.
 The administrative phase involves three
technical operations, namely:
 The settlement,
 The liquidation and
 Issuing the tax collection title.
 The settlement involves identifying taxable base
when the taxable event occurred and its
valuation. The settlement is an operation of the
utmost importance for avoiding tax evasion by
means of clandestine or under-valuation of
taxable base.
 The liquidation consists in determining the
amount of tax due by each taxpayer according to
the taxable base (assessed taxable base) and the
tax regime (the quotes or fixed amounts
established by law for the tax unit and the
possible tax reliefs the taxpayer may benefit from,
according to the law). The amount due by each
taxpayer represents his tax debit.
 Issuing the tax collection title consists of
enrolling the tax debit to be collected from each
taxpayer in an act or provision authorizing the tax
collection.
 The accounting execution phase concludes the
procedure, consisting of the actual collection of
taxes by cash collectors or accountants who
belong to the state treasury or the units carrying
out the tax collection operations.
 Executing the expenditure part raises more
complex problems, and therefore the phases to
be covered and the competencies of the
authorized personnel (people who have the
status of authorizing officers) and the executives
(accountants) are rigorously delineated.
 In the process of budget execution, local budget
expenditures go through the following phases:
commitment, validation, authorisation, payment.

 The first three phases, meaning commitment,

validation, authorisation are the responsibility of
the authorizing officers, and the fourth, the
payment itself, is ensured by the head of the
financial-accounting department, within the limits
of the available funds.
 Commitment of expenditure is the stage in the
budget execution process whereby the public
institution undertakes to pay a sum of money
resulting from the fulfillment of the conditions
stipulated in a legal commitment for the delivery
of goods, the execution of works, the provision of
services and the fulfillment of the obligations of
payment based on laws, government rulings,
agreements, court order, within the limits of
commitment appropriations approved by the
annual budget law.
The commitment of any public expenditure takes
two forms:

• legal commitment - is the act whereby the

authorising officer enters into or establishes an
obligation which results in a charge.
 budgetary commitment - is the operation by
which the appropriation necessary to cover
subsequent payments to honour legal
commitments is reserved.
The validation of expenditure is the act whereby the
authorising officer responsible:

(a) verifies the existence of the creditor's entitlement;

(b) determines or verifies the reality and the amount of
the claim;
(c) verifies the conditions according to which payment is
due.
The authorisation of expenditure is the act by
which the authorising officer responsible, having
verified that the appropriations are available,
instructs the accounting officer, by issuing a
payment order, to pay an amount of expenditure
which the authorising officer responsible has
validated.

 The commitment and the authorization of expenditures are

approved and performed only if there is a preventive financial
control visa on the respective document.
The payment of expenditures is the stage in the
process of budget execution representing the final
act by which the public institution pays its
obligations to third parties.

 Payment is made by the accounting officer within

the limits of the funds available.
 Course 4
THE REVENUE AND EXPENDITURE BUDGET - BETWEEN THE
SOURCE OF INFORMATION FOR THE PUBLIC MANAGER AND
PRINCIPLES OF ELABORATION

Associate professor PhD Maria-Andrada GEORGESCU

Department of Economics and Public Policies
Faculty of Public Administration
SNSPA –Bucharest
maria-andrada.georgescu@administratiepublica.eu
4.1. Revenue and Expenditure Budget - source
of information for the public manager

Usually defined as a financial planning tool, the

revenue and expenditure budget has been the basis
for substantiating decisions by public managers, being
the place of intersection of financial resource planning,
conceived based on classical and modern methods
known in the literature, with the use of resources
especially for the provision of public services at the
highest quality level and in terms of continuity and
permanence, rendered in the interest of the citizens.
As financial resources come from a wide variety of
taxes and duties in the public sector, and their
distribution between the central and local levels is
made according to various criteria, so that public
needs, following the principle of proximity to citizens,
are distributed between the same levels, in order to
ensure public services, two models of budgets were
created that would eventually lead to serious
headaches for "public managers", either to solve the
problem of budget deficits or to the most happy
situation of budget surpluses.
 the budget model specific to Continental Europe

 the budget model specific to Latin America

 the budget model specific to Continental Europe,
most often characterized by a budget deficit , first as a
result of the transfer of responsibilities, accompanied
fairly late by insufficient public resources transfer to
local communities. The consequence was the
exerting of pressure on the balance of local budgets,
the immediate solution of the coverage of the deficits
due to the loans being identified. Thus, both in
Romania and in Western Europe, a new concept, that
of local public debt, has been developed, even if for
the start it can be used only in relation to the financing
of public investments of local interest;
 the budget model specific to Latin America, at its level
characterized by the recording of budget surpluses, as financial
resources were first transferred in order to transfer
responsibilities later. Neither has the consequences been left to
be expected in this situation. Apparently, these local communities
are in a happy situation because their primary concern is that the
provision of public services is ensured on account of the
resources transferred. But the "sin" of this model is the
involvement of local communities in a lack of chronic interest in
the collection of budgetary resources. The pressures have finally
been exerted on the balance of the state budget called to provide
the level of financial resources needed both for the provision of
public services of national interest, as well as those of local
interest. Finally, local communities, according to this model, are
resource-consuming, it is true, in the public interest, the aim
being virtually the same: providing public services in the interest
of citizens.
 the analysis of the two models, from a financial
management perspective, highlights the
budgetary antagonism: a European model whose
particularities are more than obvious, a
responsibility transferred before a resource
determines a budget deficit, whereas the
American model, having the two committed
leaders, "responsibility" and "needs", cause
budget surpluses.
 4.2. Principles of the local budget
procedure
The principle of budgetary universality allows for
democratic control over the budget, regrouping two
rules:
 the gross budget rule (non - contracting rule), according
to which revenue and expenditure are budgeted in their
total amounts, without any adjustment;
 non-assignment rule, according to which budget
revenues can not be directly assigned to a budget
expenditure (meaning that no particular connection is
established between a certain revenue and a certain
expense), with the exception of donations and
sponsorships, that have distinct destinations established.
 If the two rules are met, we are dealing with a
gross budget, which includes all revenue and all
expenditure with their total amounts, the total
revenue being intended to cover the total
expenditure.
 Universality thus offers the necessary
transparency in budgetary matters and the
chance of a real budget control as it makes it
impossible to offset revenue and expenditure or
to assign some revenue to cover certain
expenses.
 In practice, the requirements of the universality of the
budget are only partially respected. Thus, instead of gross
budgets, with the inclusion of all revenues and
expenditures in total amounts, it has been passed to the
drafting of mixed budgets, where the revenues and
expenditures of some public institutions are shown with
their total amounts, according to the gross budget rule,
and others only with the balance, according to the net
budget rule.
 Although the local public finance law explicitly stipulates
the principle of universality in budgetary matters, mixed
budgets continue to be used in Romania where, for the
main social, cultural and defense activities, the gross
budget rule is applied and in relations with the revenue-
generating autonomous companies and public institutions
the net budget solution is preferred.
Publicity Principle
It is the principle strictly applied, according to which
the local budget must be brought to the attention of the
citizens within the administrative-territorial unit both in
the project phase and after approval.
The forms of publicity of the local budget are
determined by the content of the law, this being
achieved by:
 publishing in the local press, on the public institution's website or
displaying at the respective local government authority’s headquarter
of the local budget project and its annual account execution;
 public debate on the draft local budget, on the occasion of its
approval;
 presentation of the annual budget account execution in public
session.
Budget Unity Principle
The overall picture of the local budget provided by
respect for the principle of universality is complete if
the principle of budgetary unity is also applied.
This principle requires that budget revenues and
expenditures be included in a single document.
Complying with this principle leads to the
development of a clear budget in order to ensure
the efficient use and monitoring of local public
funds by prohibiting the retention and use of extra-
budgetary revenues, as well as the constitution of
local public funds outside local budgets, unless the
law provides otherwise.
The principle of unit of account
This principle requires all budget operations to be
expressed in national currency, being a relatively
new principle in the practice of budgetary law.
The principle of unit of account does not prohibit
the consolidation of local budgets in foreign
currency, but this operation may be particularly
useful to ensure comparability with other foreign
administrative or territorial units or to borrow from
international financial institutions.
The principle of annuality
If the principles of universality and unity of the
budget give it its size in space, setting the way of
registering of revenues and expenditures in the
budget document, instead, the principle of
annuality defines the time dimension of the
budget.
The principle of annuality of the budget refers, on
the one hand, to the periodicity of the budget
preparation and approval (that is the budget year)
and, on the other hand, to the period of time when
the approved budget has to be executed (so the
duration of the budget execution).
 According to this principle, the main authorizing
officer (the mayor) has to draft the local budget
for one year and the deliberative authority (the
local council) has to analyze it and approve it
annually.
 The annuality principle covers not only the budget
year but also the duration of the budget year. This is
the timeframe in which revenue is to be collected and
the expenditure is to be made as entered in the
budget approved by the deliberative authorities.
 It is often the case that some of the revenues
entered in the approved budget can not be fully
collected by the end of the budget year and the
expenditure committed on the basis of the
approved budget will be settled only the following
year. The problem of the non-accumulated
revenues and of the expenditures committed but
not carried out during the budgetary year was
solved differently from one country to another.
Practice has devoted two solutions to this:
1) the method of management, in which case the duration
of the budgetary exercise is limited to that of the budget
year. This means that on the last day of the budget year the
local budget accounts are automatically closed, showing
only the revenues collected and expenditure completed
during the year. Outstanding revenue and unpaid
expenditure will be budgeted as they are made in the next
year's budget. Consequently, approved and unspent credits
are legally canceled and can not be used to finance
expenditure in the following budget year;
2) the method of exercise, in which case the duration of the
budget execution exceeds that of the budget year, while the
execution continues for another three or six months the
following year for the liquidation of the "outstanding"
operations of the previous year.
In Romania, the budget year coincides with the calendar
year. The budget execution ends on 31 December. Any
unpaid revenue and any expense committed, liquidated
and ordered under budget provisions and unpaid by
December 31 will be charged or will be paid on the
account of the following year's budget. Unused budget
credits until the end of the year are canceled by law.
Therefore, the budget exercise is performed according to
the management method, both for the state budget and for
the local budgets. According to the local public finance law,
the available funds from the external non-reimbursable
funds and those from the public funds intended to co-
finance the financial contribution of the European Union
remaining at the end of the budget year in the accounts of
the implementation structures shall be carried forward to
the following year.
The principle of budgetary specification
Budgetary specification is the principle
according to which budget revenues and
expenditures are registered and approved in the
budget by sources of origin and by categories
of expenditures, grouped by their economic
nature and their destination.
Law no. 273/2006 on local public finances states that in the budget
classification "revenues are structured by chapters and sub-
chapters, and the expenditures on parts, chapters, subchapters,
titles, articles, as well as items and paragraphs, as the case", which
are also subdivisions of the classification of the budget,
respectively classification degrees. It is important that budget
resources are allocated to destinations according to these
subdivisions of the budget classification and that their beneficiaries
can only spend them for the purpose for which they were granted
and within the approved limits.
The principle (rule) of expenditure specificity
This rule states that each budget expenditure has a
precise and limited destination and is determined
by the authorizations contained in special laws and
annual budget laws. At the same time, if there is no
legal basis, no expenditure can be entered in the
budget, nor committed and carried out. Moreover,
no public expenditure can be committed, ordered,
and paid if it is not approved under the law and has
no budgetary provisions and sources of funding.
The principle of budget equilibrium
As a last principle in the theory of local budget law,
it implies that the local budget is balanced, that is,
the expenditures should be fully covered by the
revenues, including the surplus of the previous
years.
 4.3. Budgetary indicators
A first category of indicators is represented by
revenue structure indicators, calculated according to
the relationship:

where: - share of the local public revenue category of the group

i in the total local public revenues;
VPLi- local public revenue of the group i
VPLT – total local public revenues;
where:
The Structure Indicator expresses how total local
government revenue is generated, depending on
the source of each revenue category. For the sake
of simplicity, we consider that local public revenues
are derived from three important sources, namely
revenue from property tax (Vip), capital revenue
(Vk) and levies from the state budget (Pbs) as well
as other income (Av). In this case, the VPLT is
determined as follows:
VPLT = Vip + Vk + Pbs + Av
In decomposed form, the income structure indicator
can be obtained with the relationship:

or
 1) The share of property tax revenues
registers a trend of growth, the share of capital
revenues has a steady trend, the share of levies
from the state budget also has a steady trend, a
situation that signifies a budgetary policy with a
pronounced fiscal character, the tax on property
representing a fiscal burden borne by taxpayers,
being necessary to analyze this indicator both
from the perspective of the evolution from one
period to the next and from the reporting per
inhabitant.
Budgetary policies with a strong fiscal character
aim either to increase the tax rate, which is not
recommended as the return on receipts may
decline, and taxpayers' reactions are often not
favorable either by increasing the tax base based
on stimulus and support local economic
development. Thus, budget policies can be
formulated from the product that generally defines
any revenue of the local budget resulting from the
property tax, between the tax rate (ri) and the tax
base (bi): Vip = ri x bi.
The situations encountered in relation to the
budgetary policies according to ri and bi can be
summarized as follows:
 ri ↑, bi = const, policy based on the increase of
the tax rate with unfavorable reactions from the
taxpayers;
 ri = const, bi ↑, policy based on tax base growth
as a result of sustainable economic support at the
local level.
2) The share of property tax revenues has a steady
trend, the share of capital revenues has a
growing trend, the share of levies from the state
budget has a steady trend, it means budgetary
policies based on the capitalization of goods (land
and buildings) private property of the
administrative-territorial units. Sale or concession
are the main means of obtaining revenue that take
from the pressure exerted on tax revenues (from
property tax) or levies from the state budget.
Budgetary policy based on capital revenues is seen
as favorable when it leads to the formation of new
public assets that are needed by local communities
or unfavorable when it finances consumption
determined by sustaining public expenditure.
3) The share of property tax revenues registers a
steady trend, the share of capital revenues has a
steady trend, the share of levies from the state
budget has a growing trend, as a source of
information, the revenue and expenditure budget
signals a critical situation due to the dependence it
generates such a budgetary policy compared to the
state budget revenues.
The second category of indicators that must
"accompany" the decisions of the public manager,
which also belong to the category of local
communities’ revenues, are those determined by
the ratio between the realized revenues and the
planned revenues.
In general form, revenue realization indicators can be
expressed as:

where: VPLRi – local public revenue „i” acheived;

VPLPi – local public revenue „i” planned;
- indicator of local public revenue
realization.
The indicators for achieving the budget revenues,
starting from the relationship
VPLT = Vip + Vk + Pbs + Av,
can be developed in the form of:
Starting from the logic of the construction of this
indicator, deviations from the planned level of
revenue can be determined in absolute terms, after
a relationship of the form:

where:
- the absolute deviation in the
achievement of revenue indicators.
The positive values of the absolute deviation mean
the achievement of the revenue indicator as a
result of a good financial management policy, while
the negative values indicate the failure to realize
the planned budget value of the revenues.
 Functional expenditure structure indicators = the
ratio between the type of functional expenditure
and the total of local public expenditures,
ultimately reflecting the orientation of budgetary
policies to support a category of public services
according to the development strategy of the
territorial-administrative units.
The calculation of these indicators can be done
after a relationship of the form:

where: - the share of the local public expenditure

category of the functional group i in the total
local public expenditures;
CPLi - local public expenditure of the functional group i;
CPLT – total local public expenditures; where
Taking into account that each type of functional
expenditure corresponds to a given category of
public services (of local interest), CPLT can be
expressed according to a relationship of the form:

CPLT = Ch.înv. + Ch.săn. + Ch.cult. +

Ch.serv.publice + Ch.asist.soc. + …+ Alte ch.
We will use the following notations:
𝑔𝑠𝐶ℎ.𝑠𝑠𝑐 − 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑤𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑟𝑒𝑙𝑎𝑡𝑒𝑑 𝑡𝑜 𝑠𝑜𝑐𝑖𝑎𝑙 − 𝑐𝑢𝑙𝑡𝑢𝑟𝑎𝑙 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠
𝑔𝑠𝐶ℎ.𝑠𝑝𝑑𝑑 − 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑤𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑟𝑒𝑙𝑎𝑡𝑒𝑑 𝑡𝑜 𝑝𝑢𝑏𝑙𝑖𝑐 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑎𝑛𝑑
𝑠𝑢𝑠𝑡𝑎𝑖𝑛𝑎𝑏𝑙𝑒 𝑑𝑒𝑣𝑒𝑙𝑜𝑝𝑚𝑒𝑛𝑡
𝑔𝑠𝐶ℎ.𝑎𝑝𝑠 − 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑤𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑟𝑒𝑙𝑎𝑡𝑒𝑑 𝑡𝑜 𝑎𝑠𝑠𝑖𝑠𝑡𝑎𝑛𝑐𝑒 𝑎𝑛𝑑
𝑠𝑜𝑐𝑖𝑎𝑙 𝑝𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛
𝑔𝑠𝐴𝑙𝑡𝑒 𝑐ℎ. − 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑤𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝑜𝑡ℎ𝑒𝑟 𝑝𝑢𝑏𝑙𝑖𝑐 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒
We can obtain the following situations:
1) 𝑔𝑠𝐶ℎ.𝑠𝑠𝑐 ↑, 𝑔𝑠𝐶ℎ.𝑠𝑝𝑑𝑑 = 𝑐𝑜𝑛𝑠𝑡. , 𝑔𝑠𝐶ℎ.𝑎𝑝𝑠 =
𝑐𝑜𝑛𝑠𝑡. 𝑎𝑛𝑑 𝑔𝑠𝐴𝑙𝑡𝑒 𝑐ℎ. = 𝑖𝑛𝑠𝑖𝑔𝑛𝑖𝑓𝑖𝑐𝑎𝑛𝑡, it is characteristic to a
policy oriented towards public resources consumption,
except for the situation where the increase of social-cultural
expenditures is determined by infrastructure investments.
2) 𝑔𝑠𝐶ℎ.𝑠𝑠𝑐 = const. , 𝑔𝑠𝐶ℎ.𝑠𝑝𝑑𝑑 ↑, 𝑔𝑠𝐶ℎ.𝑎𝑝𝑠 =
𝑐𝑜𝑛𝑠𝑡. 𝑎𝑛𝑑 𝑔𝑠𝐴𝑙𝑡𝑒 𝑐ℎ. = 𝑖𝑛𝑠𝑖𝑔𝑛𝑖𝑓𝑖𝑐𝑎𝑛𝑡 , it corresponds to a
budgetary policy oriented towards local development and
the improvement of public services quality, having a long
term favorable impact on financial resources and the
sustainability of local interest public expenditure.
3)
𝑔𝑠𝐶ℎ.𝑠𝑠𝑐 = const. , 𝑔𝑠𝐶ℎ.𝑠𝑝𝑑𝑑 = 𝑐𝑜𝑛𝑠𝑡. , 𝑔𝑠𝐶ℎ.𝑎𝑝𝑠 ↑
𝑎𝑛𝑑 𝑔𝑠𝐴𝑙𝑡𝑒 𝑐ℎ. = 𝑖𝑛𝑠𝑖𝑔𝑛𝑖𝑓𝑖𝑐𝑎𝑛𝑡, it is based on a budgetary
policy oriented only towards consumption, meaning a
redistribution of local revenues in order to financially
sustain the social layers found in the situation of social risk.
Structure indicators regarding expenditures
grouped by their nature = in the category of
expenditure structured by nature are included staff
expenditures, goods and services expenditures,
transfers, subsidies, capital expenditures, and
borrowing costs. In order to characterize the
budgetary policies, it is necessary to re-group the
expenditures in three large groups, which include:
 current expenditures (operational expenditures) -
Ch.crt. - obtained by summing up staff expenditures,
material and service expenditures, transfers and
subsidies;
 capital expenditures - Ch.k. - the result of the
investment objectives approved according to the
legal regulations in force;
 borrowing expenditures - Ch.impr. - which
characterize expenditure financing policies by
studying the ratio between own sources and
borrowed sources, with various situations where the
ratio is grater than one due to the limitation of
indebtedness to 30% of total own revenues.
The Structure Index of Local Public Expenditures,
by their nature can also be written in the form of:

or
1) 𝑔𝑠𝐶ℎ.𝑐𝑟𝑡. ↑, 𝑔𝑠𝐶ℎ.𝑘. = 𝑐𝑜𝑛𝑠𝑡. , 𝑔𝑠𝐶ℎ.𝑖𝑚𝑝𝑟. =
𝑐𝑜𝑛𝑠𝑡., corresponds to budgetary policies
according to which the consumption of financial
resources is sustained only to insure the
functionality of public services, without any
accent being placed on the sustainability of
economic development, an alternative to the
generation of other potential financial sources.
2) 𝑔𝑠𝐶ℎ.𝑐𝑟𝑡. = 𝑐𝑜𝑛𝑠𝑡. , 𝑔𝑠𝐶ℎ.𝑘. ↑, 𝑔𝑠𝐶ℎ.𝑖𝑚𝑝𝑟. =
𝑐𝑜𝑛𝑠𝑡., is based on budgetary policies that try to
orientate towards sustaining economic
development especially the investment in public
infrastructure. The investment multiplier,
according to Keynes theory, will make any leu
invested to contribute to a higher revenues, so
that we can conclude that the budgetary
policies with 𝑔𝑠𝐶ℎ.𝑘. ↑ represent the basis for
financing the future public expenditures.
3) 𝑔𝑠𝐶ℎ.𝑐𝑟𝑡. = 𝑐𝑜𝑛𝑠𝑡. , 𝑔𝑠𝐶ℎ.𝑘. = 𝑐𝑜𝑛𝑠𝑡. , 𝑔𝑠𝐶ℎ.𝑖𝑚𝑝𝑟. ↑
we can state that the budgetary policies that
rely on borrowing expenditures are the result of
a previous indebtedness strategy which
determined 𝑔𝑠𝐶ℎ.𝑖𝑚𝑝𝑟. ↑. Even though we would
be tempted to say that we are in the situation of
a resource consumption budgetary policy, we
consider that a mix between capital
expenditures and borrowing expenditures will
be one to assure at least a local public
infrastructure able to sustain the provision of
public services of local interest.
If the structure indicators regarding expenditures
grouped by nature give us an overview of the main
features of the budget (current, capital and loan),
we could not complete this analysis without taking
into account the indicators that are characteristic of
the expenditure realization (execution).
Such an indicator can be written under the general
form:

𝐶𝑃𝐿𝑅𝑖
𝐼𝑅𝐶𝑃𝐿𝑖 =
𝐶𝑃𝐿𝑃𝑖

where:

CPLR i − local public expenditure i acheived;

CPLPi − local public expenditure i planned;
IR CPLi − realization indicator of local public expenditures
The calculation of these indicators is important for
financial management because there can be
obtained information about:
 the state of execution of expenditure against the
approved budget;
 any public spending savings that can be obtained
to their planned level and the transfer of
resources to other spending areas;
 respecting the financial and budgetary discipline
in the use of budget credits.
The information obtained by calculating these
indicators are expressed in percentage and can be
completed with the deviations in absolute form
established under the relation:

∆𝐶𝑃𝐿𝑖 = 𝐶𝑃𝐿𝑅𝑖 − 𝐶𝑃𝐿𝑃𝑖

Where:
∆𝐶𝑃𝐿𝑖 − 𝑎𝑏𝑠𝑜𝑙𝑢𝑡 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑡ℎ𝑒 𝑟𝑒𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑜𝑓
𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑖𝑛𝑑𝑖𝑐𝑎𝑡𝑜𝑟𝑠
From the deviation calculus in absolute form there
can be obtained the following situations:
a) When ∆𝐶𝑃𝐿𝑖 > 0, the planned level of local public
expenditures was realized and exceeded, which
means a disregard of the financial-budgetary
discipline because, due to legal regulations in
force, the commitment of an expenditure above
the level of budgetary credits is not possible;
b) When ∆𝐶𝑃𝐿𝑖 < 0, the public expenditures have not
been entirely executed, being registered either
expenditure economies when these are no longer
necessary, or the failure to achieve the planned
level as a result of the execution complexity of the
expenditures.
 It can be said under these conditions that the
revenue and expenditure budget is a source of
abundant information that provides the basis for
the decision making of the public manager (from
the simplest to the most complex).
 Beyond the informational content of the
budgetary indicators, we consider that it is
important to substantiate the financial
management decisions to analyze the tendency
that they record over a period. Their upward or
downward trend will be a good signal for the
public manager to determine the content of
budget policies that are particularly important in
sustaining public spending.
 Course 5
MODERN FINANCIAL MANAGEMENT INSTRUMENTS - BASIS
FOR THE BUDGET POLICIES OF LOCAL COMMUNITIES

Associate professor PhD Maria-Andrada GEORGESCU

Department of Economics and Public Policies
Faculty of Public Administration
SNSPA –Bucharest
maria-andrada.georgescu@administratiepublica.eu
5.1. Consolidated Local Budget - Overview of the financial
state of a community

Consolidation is today a necessity, both for budget

science and for accounting science, local communities
being interested in knowing the performance and
financial standing not only for their own activity, but
also for the activity of the authorizing officers financed
from the local budget.
Financial and public services decentralization have led
to the establishment of public services or institutions
as service operators, with or without legal personality,
whose budgets, depending on the form of their
financing (entirely from the local budget, partly from
own resources or from the budget ) is either an
annexed budget of the local budget or is consolidated
with it. For the first time, there is a need to consolidate
the local budget, respectively the summing up of
budgets for each authorizing officer and service
provider, whose full or partial funding is provided by
the local budget.
The need for consolidation arises as a result of the
budgetary reform started in 2003, the legislator
defining the components of the consolidated budget:
 the local budget of the administrative-territorial unit;
 budgets of public institutions financed entirely or
partially from local budgets;
 budgets of public institutions financed entirely from
their own revenues;
 the budget of domestic and foreign loans;
 the budget of the non-reimbursable foreign funds.
 In order to achieve consolidation and understand the
significance of this type of budget, it is necessary to
first consider the types of links and interrelationships
that are generated between the local budget and the
other types of budget.
 For the construction of the consolidated local budget,
the following types of links and interdependencies are
found between the local budget and different types of
budgets, the authorizing officers and the service
operators:
a) between the state budget and the county budget,
the links are established on the basis of the amounts
deducted from some state budget revenues.
Incidentally or not, the dependence of local budgets
on the state budget increases from one year to the
next. The state budget, through the county budgets,
assures the local budgets, especially on account of
the amounts deducted from the VAT, the financial
resources necessary for the functioning of some
public services such as pre-university education or
social assistance and protection;
b) between the county budget and the local
budgets, the same types of connections and
interdependencies are established on the basis
of the amounts deducted from some state
budget revenues and the amounts allocated for
balancing, according to the criteria stipulated by
the law;
c) between the local budget and the
authorizing officers (education, health, culture,
social assistance and social protection, etc.) are
established links based on the full or partial
financing of the expenses resulting from their
operation;
d) between the local budget and service
operators (supply of heat, water and sewerage,
sanitation, etc.), the link to the budget is
established in two ways: by collecting revenue
from royalties, dividends, profit tax and
payments from net profit and financing of
expenditures related to modernization,
extension, refurbishment of the public
infrastructure that is the property of the
administrative-territorial units.
The consolidated local budget will be obtained by
summing the total revenue of each budget component
(actual, mixed financing, full financing from own
revenues, external or internal loans and non-
reimbursable financing) and total expenditure by the
same reasoning, so that after deducting the total
expenditure from the total revenue to obtain the result:
surplus or deficit, for all budget categories.
The analysis of the consolidated local budget, as a modern instrument
of financial management, ensures:
a) knowing the local communities’ revenues, consisting of the total
revenue of the budget itself, including the revenue of the service
operators or the authorizing officers;
b) knowing the expenditures of the consolidated budget and the efforts
made by local communities to ensure the need to finance public
services;
c) reflecting financial performance due to surpluses or deficits over a
financial year;
d) identifying the deficits by segments of activity, respectively at the
level of the budget, of the authorizing officers or the service
operators and taking the necessary measures to reduce or
eliminate them;
e) knowledge of the situations in which surpluses have been made,
including types of activities, and their allocation for the constitution
of working capital funds as reserve funds which the local community
can use in various situations.
5.2. Program Budget - an alternative to
managing financial resources
 There is a new concept of program, defined as "a modern
financial management tool for budgetary resources
management, which establishes the set of actions of the local
authorities for achieving objectives, usually included in the
strategy of economic and social development, having the results
evaluated with the help of program indicators".
 A similar definition is also found in current legislation, the
program being defined as "the coherent action or coherent set of
actions relating to the same main authorizing officer, designed to
achieve a defined objective or set of objectives and for which
program indicators are set to evaluate the results to be achieved
within the approved funding limits“.
It follows that the defining elements of the program
are:

 the objectives pursued;

 program value;
 sources of financing;
 deadlines for achievement;
 result indicators.
5.3. Functional and capital budget - basic tools of
modern budget policies (OPTIONAL – not for the exam)

 If we recognize the information as a basis for

decision-making, then the functional and
capital budgets fit harmoniously into the
comprehensive and complex portfolio of
financial management tools for local
communities.

 How does the functional and capital budget

form?
5.3.1. The content and importance of the
functional budget

The functional budget was the first major development

from the traditional budget based on expenditure
categories and organizational units (institutions),
focusing on the costs of major governmental goals,
facilitating debates on budget priorities. The budget also
served as a bridge to the program budget and led to a
new hierarchical classification and cost analysis
method: by functions, sub-functions, programs,
subprograms and activities.
 Although it has been identified and substantiated as
the functional budget, it currently includes all the
operational revenues and expenditures generated by
the operation of public institutions, as well as the
collection and administration of local taxes and duties.
 Practically, the presentation of expenditures by
functional areas continued with their restructuring on
the economic classification, a model of operational
budget being presented below:
1. Operating revenues (+)
a) Current revenues (fiscal and non-fiscal) of the local public administration
b) Quota deducted from VAT
c) Other operating transfers (for the equilibrium or with special destination)
from central budgets
2. Operational expenditures (-)
3. Gross operating result (surplus/ deficit)
4. The annual debt service (-)
5. Net operating result (surplus/ deficit)
 Operating revenues comprise all the financial resources that a local
administration currently (repetitively) benefit from;
 Operational expenditures include all the expenditures of a local public
administration with the provision of public services, respectively, all the
expenditures of a local administration, excluding capital and debt services;
 Current (autonomous) revenues are defined as the part of operating revenues
that are heavily dependent on local administrations and have a high degree of
predictability: fiscal and non-fiscal own revenues, special duties and the quota
deducted from the income tax (operating income from which is excluded any kind
of balancing or special purpose operational transfer);
 the gross operating result (surplus / deficit), obtained by deducting operational
expenditures from operational revenues, represents the part of the operating
revenues to finance the debt service;
 debt service is the set of contractual obligations and guarantees representing
loans contracted under the conditions provided by the legislation in force, which
may not exceed 30% of the level of local authorities’ own revenues;
 the net operating result, determined by deducting the debt service from the
gross result, is the source of financing capital expenditure when an operating
surplus is recorded.
The operational budget is thus the set of resources
managed by local authorities to finance current
expenditures generated by the operation of public
services, providing communities with information on:
 the level of revenue currently available to the
authorities over a period of time;
 the level of operational expenditure (some of which
are considered fixed) recorded over a period of time;
 the portion of the gross result intended to finance the
annual debt service;
 the portion of the net operating result intended to
finance capital expenditure.
The operational budget is the picture that gives an
overview of the "fixed" costs involved in the
operation of public services of local interest to
which the local authorities responsible for the
operation of these services are given priority. In the
category of operational expenditures are included
the staff expenditures, the material and service
expenditures and the expenditures that are strictly
necessary for the provision of public services (of
local interest).
From the analysis of the operational budget,
conclusions can be drawn regarding:
 the measures to be taken to cover potential gross
operating deficits, both presently and in the
future;
 measures relating to debt service coverage
policies in the gross operating result;
 measures that help improve own revenue
collection capabilities as an alternative to meeting
operational expenditure requirements.
5.3.2. The content and importance of the
capital budget

The link between the operating budget and the

capital budget is ensured by the surplus or deficit
recorded in the net operating result, with a capital
budget structure presented below:
1. Revenues for investments (+)
a) Own revenues for investments (capital revenues or assets
amortization)
b) transfers from the central budgets for investments
2. Expenditures for investments (-)
3. Primary budget result (surplus/ deficit)
4. Loans received in the current year (+)
5. Working capital balance at the beginning of the year (+)
6. Reserves (-)
7. Final budgetary result
 revenues for investments consists of all capital revenues or
fixed asset amortization revenues including consolidated
transfers from the state budget to finance investments whose
primary purpose is to ensure the expansion, modernization and
construction of public infrastructure;
 capital expenditures include expenditure on public
infrastructure that ensures the delivery of public services in terms
of quality and continuity in operation;
 the primary budget result, defined as the difference between
capital revenues and capital expenditures, represents the
surplus or deficit resulting from covering the expenditure
requirement from the two major sources: net operating result and
investment revenue;
 loans received in the current year are those categories of
loans contracted under the conditions provided by law to finance
certain categories of capital expenditures;
 the balance of the working capital at the beginning of the
year includes the surplus of the previous year allocated to the
establishment of the working capital, the use of which is
regulated by the local public finance legislation in force;
 reserves representing the part of the total expenditures to
finance certain emergency situations arising within the
administrative-territorial unit, representing natural calamities,
floods, earthquakes, etc. The budgetary reserve fund is up to 5%
of the total expenditures;
 the final budget result obtained after adding to the primary
budget result the loans and the working capital balance at the
beginning of the year and the deduction of the reserves; it takes
the form of the surplus or deficit, as they are known from the
budget practice.
The capital budget, also known as the
development budget, provides a high
informational power regarding current and future
local development, representing the budget with
direct or indirect implications for the realization of
budget revenues.
The capital budget highlights how revenues covers
expenditure needs in public infrastructure, providing
information on:

 the level of revenues available to finance capital

expenditures;
 the amount of capital expenditure to be funded during
a budgetary exercise and in subsequent budget
years;
 the amount of loans to be contracted for the financing
of capital expenditures, within the limits of the existing
possibilities;
 the level of own funds used to finance capital
expenditures consisting of capital revenue, fixed asset
amortization revenue and net operating result.
From the capital budget analysis, conclusions can
be drawn and decisions can be made on:

 measures to improve the performance of capital

revenue collection;
 measures to formulate a coherent policy of
contracting the loan;
 measures to improve the management of own
sources of financing for capital investment.
 As a conclusion, the capital budget is the main
financial management tool that provides an
overview of the investment policies of local
communities in Romania, linking sources of
financing with financing needs and ensuring long-
term development essential to public services
quality, amid the diversification of the needs of
individuals.
 We believe that for local authorities, both capital
and operational budgets must become real tools
for substantiating decisions in their day-to-day
activities.
5.3.3. The link between the functional budget
and the capital budget - the small balance rule
Functional budget and capital budget are two
instruments of modern financial management that
connect the current revenues for the financing of
the operational activity of public institutions with the
operational expenditures and revenues from the
valorification of some assets belonging to the public
or private domain of the administrative-territorial
units, components of the public capital, with the
capital expenditures needed to make public
investments.
 This ordering of revenues and expenditures by
their nature ensures the use of resources
according to the destination determined by the
current and capital activity of the local
communities. Both budgets (functional and
capital) violate the principle of budget balance,
according to which the elaboration of budgets
needs to be balanced, the revenues to be equal
to the expenditures from the stage of forecasting
the budgetary indicators.
 So the question is: How does the two budgets
communicate with each other and what does the
"small balance rule" mean?
 In order to answer this question, it is necessary first to
clarify the rules underlying the drafting of the functional
budget. Presented in the contents of the previous
paragraph, the functional budget contains two indicators
that make possible the communication of this type of
budget with the capital budget, resulting the gross
operating result and the net operating result.
 While the gross operating result provides for the
financing from operating revenues of the operating
expenditures required by public institutions, the net
operating result covers, on account of the operating
surplus, the annual debt service.
 Basically, from this moment on, we lay the foundation for
the small balance rule, which ultimately is the means by
which local communities will base their investment
financing decisions.
 Table used to represent the small balance rule
NEEDS RESOURCES
The annual debt service (the The net operating result (own
annuity of the reimbursement of resource)
the investments) Self-financing
Own resources for investments
New investments proposed as Loans contracted by different means
objectives by the local community (bank or bond credits)
From the table below, based on which the "small
balance rule" is built, the following follows:
1) The annual debt service is funded from both own
resources mainly represented by self-financing
(amortizations, provisions, including the surplus of
the gross operating result) and own resources
destined for investments (revenues from the
valorification of some goods belonging to the
private domain of administrative-territorial units).
2) After covering the annual debt service, based on
self-financing or own resources for investment, the
resulting balance is intended to finance the
investments included as investment objectives in
the strategies of the local communities.
3) The financing requirement for the proposed
investment objectives, usually included in the
technical document entitled "investment list", will be
provided after the deduction of the possible balance
resulting from the debt cancellation service, on the
back of the new loans.
4) The small balance rule is based on the equality
of needs and resources, respecting the above
mentioned funding principles:
 from self-financing and own resources, the
annual debt service is covered with priority;
 the potential balance in the "top" of the table is
then used to finance public investment objectives.
5.4. Multiannual Budget - Reconciliation of the
annual budget with multi-annual political
commitments
Despite the fact that it is annual, the exercise of the
local budget has to do with the problem of the long-
term support of fiscal policies and programs. This is
particularly important in two respects: for new or
reformed policies and their potential to cause
unforeseen expenditures and the transversal
impact of policies and to detect issues that can not
be sustained. In each case, the elaboration of the
budget requires accurate cost forecasts and
requires them to be taken into account, especially
during the budget process.
The key issue for multi-annual budgeting is the
multi-annual cost of new proposals, often difficult to
predict by local communities, for several reasons:

 the impossibility of knowing the future evolution

(or accurate knowledge) of the inflation rate;
 the impossibility of anticipating price trends for
different material consumptions;
 not knowing precisely the programs underlying
policy formulation for future economic
development;
 lack of specialized staff, to achieve future budget
forecasts.
Neither the forecasting of revenues is an easy one
for local communities, and the causes are also
diverse:
 the impossibility of anticipating the evolution of
the inflation rate - a situation similar to that of
costs;
 the impossibility of knowing the phenomena that
will influence the evolution of revenues (tax rate
or tax base);
 lack of specialized staff in budget forecasting.
However, the construction of multi-annual budgets
provides insight into future policies that underpin the
process of public resource management, taking into
account a number of assumptions regarding:
 tax policies for the next 3 to 5 years;
 public investment policies, especially in infrastructure;
 operational expenditure policies, including those in
the social-cultural field;
 policies that concern the local public debt service.
Hypotheses are, ultimately, the scenarios taken into
account in the multi-annual substantiation of
budgets that relate to trends in key revenue and
expenditure indicators that ensure compliance with
multi-annual policy commitments.