Line item budget

The line item budget has been a tool used to assign different amounts to each budget line for many years. Detail planning underscores the particular articles for which funds are spent. Accordingly, spending plans are arranged around each budget line, and the new budget plan depends on increments to cach line's base normally a year ago's spending level. Generally, line item budget spending plans have as their base three wide "lines":

• personnel (the costs include benefits for school employees and salaries),
• maintenance and operations (cover daily operational expenses, from utilities to maintenance),
• supplies and equipment (they cover everything from cleaning products and textbooks to computers and electronic equipment).

The line item budget contains all items to purchase that are listed on the budget form lines. The system offers strict expenditure control and is transparent and easy to prepare. Be that as it may, detail spending plans will in general fortify themselves by proceeding with quite a long time after year with no survey of need or effectiveness.

Significance of line item budget

Most state and local governments use line item budget. Based on the previous year's budget, it assumes the effectiveness of individual entries. It reflects the principles of incremental budgeting. It is to ensure that budgeting line items does not endanger any agency or program. Then again, it has a few disadvantages. Tolerating the legitimacy of a program, essentially in light of the fact that it showed up in the previous year's spending limit, disregards the topic of whether the program is still necessary or potentially powerful.

Example of line item budget

“When items are cut from the budget by a reviewing officer, no information is available regarding the subsequent impact on programs. For instance, a piece of equipment may be comprised of two separate units which are listed on two separate lines of the budget. The reviewing officer may delete one unit on a line-item budget, not knowing that the two units must be connected for either to work. Usually the manager must wait until the next budget year to get the deleted item. Like the lump-sum budget, a line-item budget offers very little possibility for determining if program objectives are being achieved. Line-item budgets are still being used, however.”

Types of Operating Budgets

Different types of operating budgets are used in contemporary public finances. Among the more typical are the accompanying:

• Line item budget
• Program budget
• Performance budget
• Zero-base budget.

Advantages of Line item budget

A line item budget is a useful tool for allocating resources and creating a spending plan. It has several advantages, including the following:

• It provides a detailed picture of a budget that is easy to understand and evaluate. This makes it easier to identify areas that need additional funds and to determine where money could be saved.
• It is a relatively simple way to allocate resources, as the budget lines are already established and it is merely a matter of adjusting the amounts for each line.
• It allows for quick and easy comparison of current and past spending levels, so that changes in budget allocations can be made without lengthy analysis.
• It also allows for budget adjustments in response to changing needs and circumstances. This is beneficial for organizations that experience fluctuating demands for their services.

Limitations of Line item budget

The line item budget has its own set of limitations which can make it difficult to use. These include:

• Not being able to capture the full costs of a project, as it only allocates funds to specific line items and does not take into account hidden costs.
• A lack of flexibility to adjust to changes in the project or to account for unexpected costs.
• A tendency to reinforce a ‘silo’ mentality, as funds are allocated to separate line items and departments, making it difficult to see the overall picture.
• A lack of transparency, as it is difficult to identify how funds are being used and where the money is going.
• A potential for overspending, as budgeting for each line item does not take into account the overall project budget.

Other approaches related to Line item budget

One other approach related to line item budget is zero-based budgeting. This strategy requires that each line item in the budget be evaluated from the beginning, without any regard to previous allocations or spending levels. Programs and initiatives need to be justified in terms of their value and impact on the organization, rather than having funds allocated for the sake of continuity. This approach can be more time consuming, but it can help organizations to make more strategic decisions in their spending.

Other approaches related to line item budget include:

• Performance-based budgeting which ties spending levels to specific performance goals, focusing on outcomes rather than inputs;
• Program budgeting which looks at the total cost of a program, including both direct and indirect costs, to evaluate its overall value;
• Incremental budgeting which adjusts spending levels based on the organization's current performance, rather than relying solely on the previous year's spending;
• Activity-based budgeting which examines the costs of particular activities, such as marketing, to determine the best ways to allocate those resources;
• Flexible budgeting which allows organizations to adjust spending levels as needed in response to changing conditions or external factors.

In summary, line item budgeting has been a common approach to budgeting for many years, but there are several other approaches that organizations may choose to implement in order to make more strategic spending decisions.

Footnotes

Line item budget — recommended articles

Single use plan — Top down budgeting — Master budget — Bottom up budgeting — Budget manual — Tactical plan — Functional budget — Fixed budget — Budgetary control

References

• Carmichael D. R. , Rosenfield P. H. (2003), Accountants' Handbook, Special Industries and Special Topics, John Wiley & Sons, Inc., Hoboken, New Jerscy
• Elliot J. M., Ali S. R. (2007), The State and Local Government Political Dictionary, Wildside Press LLC
• Morgan D., Robinson K. S., Strachota D., Hough J. A. (2017), Budgeting for Local Governments and Communities, Routledge
• Rubin I. S. (2019), The Politics of Public Budgeting: Getting and Spending, Borrowing and Balancing, CQ Press
• Schmidt W. D., Rieck D. A., Vlcek Ch. W. (2000), Managing Media Services: Theory and Practice, Libraries Unlimited, USA
• Thompson D. C., Crampton F. E., Wood R. C. (2012), Money and Schools, Eye On Education, NY

Author: Monika Wójcik