Government Funding

 Federal, state/provincial, and municipal governments exist to enact and enforce laws which strive to ensure we remain a civilized society; they are also there to provide centralized common services and assist those who are legitimately in need.

 In developed nations it is common to have a centralized pot of funds which members of society contribute to provide services such as civil protection including military, police, border, prisons, fire-rescue and healthcare. In addition to these public safety services, is infrastructure such as roads, water, and sanitation. Although there are many debates regarding providing the above more efficiently through forprofit sector, we will assume it would still require a central authority to collect and distribute funding to provide such services regardless of who in the end is delivering. In addition to civil protection and infrastructure, is social programs which is providing support and services to those members of society who are legitimately in need, which is essential to being a civilized society.

 For the remainder of this article, we will work from the premise the above-mentioned services are provided to citizens from a centralized common source being government entities funded via taxation and other sources of revenue such as fees, and these services are delivered through a combination of public servants as well as both forprofit and not-for-profit service providers.

 Unlike forprofit organizations and not-for-profit societies who compete for business, governments have unique revenue streams in they acquire the funds they need for providing public common services, through means such as taxation and service charges, and do so at their own pleasure versus that of their clients. What I mean by this is unlike other business models, governments dictate what citizens will contribute or what the price of a particular service will be, and if you do not like what you are receiving you do not have the opportunity to shop elsewhere, nor do you have the option to not pay should you wish to no longer receive the service at all. If you feel this is a harsh stance, think about the income or value added tax rate you pay, or the service fee you incur for items such as a building permit: how were these rates set, by who, can you get these somewhere else, and do you have the option to not participate? You could choose to not build a house; however, be assured the person who constructed the one you bought or the rental you live in, paid for these same permits at some point. A further example is the fees charged for a passport, although you could choose to not travel if you were not willing to pay the fee. Finally, best of luck choosing to not participate in taxation.

 This leads us to a term which is often used in jest but is very real:

 When you hear the phrase ‘print their own money,’ it does not just refer to the fact governments own printing presses; the metaphorical side of this is governments create their revenue stream when they mandate contributions through taxation, service fees, and budget legislation. One does not need to print money, they only need to print the budget mandate document and sign it. If you feel we are going down a rabbit hole with this, I am simply laying the foundation of how very different government revenue generation therefore ability to establish operating budgets is, compared to other entities such as not-for-profit societies and charities who often struggle to acquire sufficient funding to meet their objectives.

 Taxation revenue comes in many forms the most notable being the amount individuals and corporations contribute from their income. In addition to this there are value added taxes such as the Canadian Goods and Services Tax (GST) and British Columbia Provincial Sales Tax (PST), import duties often called tariffs, fuel and carbon tax, and for municipalities, taxation of properties. All levels of governments have fees for various services in addition to taxation revenue; these include but are not limited to passport renewals, hunting and fishing tags, building permits, and business licenses.

 With this, the primary objective for any level of government should be to deliver essential common services using the funds acquired by and entrusted to them, and these services are paramount to maintaining a civilized society and include security, infrastructure, and health and welfare. However, what is sometimes missing is the spenders of public funds is to do so with due care. In addition to this, the fact there is no competition for governments to face, does not negate the fact taxpayers are paying for a service, and have the right to receive the best service possible.

 This leads us to the subject of government budgeting:

Note: The process varies by jurisdiction therefore the following only provides a general description of one particular model which is from Canada. There is a great deal of publicly available information on the process which applies to the jurisdiction in which you reside and operate.

 Once the elected political level of government establishes mandates including services and programs to be delivered, they estimate the costs of these initiatives including where required funds will come from. From here, a budget is prepared to be presented for a vote by the elected officials, which at the Canadian Federal Government level is called a supply bill or an Appropriations Act. There are at least three of these Appropriations Acts each year as follows:

 As the fiscal year begins April 1 and budgets are only being tabled for review at this time, an interim supply bill is passed in order to continue government operations until the main bill has made its way through the process, usually complete during the month of June. The interim supply bill and the main appropriations acts are the first two of a minimum of three supply bills which will go through the system each fiscal year.

 In early fall of the current year, the previous year financial statements are completed and audited at which time the government establishes any unused funds which could be carried forward and used during the current year; in addition to this, new initiatives are brought forward resulting in what is called a supplemental supply bill which must go through the same review and vote process as the interim and main bills which preceded it. This is the third supply bill, and in some cases, there are even more supplemental bills proposed at later times during the year. Once these spending packages make their way through the various levels of approval, the funds are dispersed to the applicable departments to spend.

 Depending on the financial policies, funds are normally separated into Capital versus Operating, the former being for large long-term purchases such as buildings, ships, and airplanes, where the later is for day-to-day program delivery costs including employee salaries and benefits, as well as non-salary expenditures such as support payments, program supplies, travel, and repairs and maintenance.

 Note: The Canada Pension Plan (CPP) and USA Social Security are funded by contributors, and their employers therefore should not be considered either revenue or program expenditures by the applicable governments. However, both the Canadian and USA governments treat contributions as a taxation revenue and a program expense.

 Normally, movement between Capital and Operating, as well as Program accounts, often called ‘allotments’, are restricted; in addition to this, funds must also be spent on delivering the program for which they were intended. Examples include not being able to use day-to-day operating funds to purchase a new military helicopter, or a prison using funds to pay staff retreats, from the budget which was earmarked to provide vocational training to inmates as part of the mandate of reintegration to society.

 There are circumstances where fund transfers are permitted typically from within the operating allotments: these include between programs when there are unforeseen circumstances, or from salaries to operating when it is deemed a contractor is more appropriate for delivering a program or service versus a government employee. Levels of authority for such transfers vary by jurisdiction, as do the implications which we discuss further throughout the book.

 There are occasions where the government of the day fails to get a budget passed through the process; in the Canadian parliamentary system this is one of the cases identified as a ‘vote of non confidence’ which then requires an election. When this happens, the current Head of the Public Service goes to the Governor General and applies for permission to issue funds to federal government departments to keep them operating until an election is completed, and the new government successfully passes a budget. These are called ‘Governor General Warrants’ and I have been through this as a Regional Comptroller of a federal government department. My colleagues from the United States of America contend with a completely different process; you may have heard the term ‘Government Shutdown.’

 For the most part, public services are delivered by government employees; however, many not-for-profit organizations serve as contractors for various levels of government by delivering services on their behalf. There are also many charities who fund other not-for-profit organizations to deliver these types of services, which makes the industry a complex web of both funders and service providers. As an example, federal taxes are transferred to provincial governments, who transfer funds to regional health authorities, who then contract both forprofit and not-for-profit organizations to deliver various services. Another example is a provincial government agency who owns or rents an apartment complex from a forprofit company, then contracts a not-for-profit organization to run a homeless shelter within it. The list of funder and service provider relationships is endless.

 For those who deliver services via government funding agreements, you may have noticed one of the terms and conditions being ‘subject to available funds or appropriation.’ The significance of this is if you have a multi period agreement with a government entity and their appropriation is reduced in the funding legislation of one or more of the periods, they may have cause to significantly amend or terminate your agreement. So, when are you safe? Never. Your fiscal years starts April 1, their budgets do not get approved until June, and you are three months into the contract; in this scenario you should still be entitled to the funding for the three months you have performed and perhaps a reasonable notice period.

Let's be clear, it is not about 'no available funds' as the government has lots of money; it is about your program no longer fitting into their priorities.