LIBRARY,
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TEXAS AGRICULTURAL EXPERIMENT STATION

A. B. CONNER, DIRECTOR
College Station. Texas

BULLETIN NO. 603 SEPTEMBER 1941

BUDGETING IN TEXAS COUNTIES, 1931-1940

H. C BRADSHAW

Division of Farm and Ranch Economics

 

_ LIBRARY
Agncultural 8» Mechanical College of Tm;

linllege Station, Texas

AGRICULTURAL AND MECHANICAL COLLEGE OF TEXAS
T. O. WALTON, Prasident

B-1——941-——7M—L180

[Blank Page in Original Bulletin]

The uniform budget law applying to Texas counties was passed in
1931. The law requires that each county, with the exception of Harris
County which is governed by a special statute, prepare a budget annually.
A copy of the budget must be filed with the county clerk, and a second
copy must be filed with the state comptroller of public accounts.

Judging by the number of budgets filed with the state comptroller,
82 per cent of the counties have prepared budgets annually. An analysis
of these budgets indicates that many differences of opinion still exist
as to the proper content and arrangement. This fact suggests that the
use of the budgets should increase in value as these difierences of
opinion are worked out and the officials gain additional confidence in
the possibilities. As a means of assisting in arriving at. a common under-
standing, one section of this bulletin is devoted to a description of the
essentials of a good county budget.

Despite the fact that the budget documents have many deficiencies,
the counties are making a good budgeting record in terms of living
within their available incomes. An analysis of 231 current funds for
the budget year 1935 reveals that 83 per cent of these funds lived within
their incomes, that is balances plus receipts. An analysis of 100 current
funds in 26 of the 60 counties for the budget year 1939 reveals that
the results obtained in 1935 were continued and improved upon. In the
case of these 26 counties, the percentage 0f the funds which lived within
their incomes increased from 84 to 92 between 1935 and 1939. These
results indicate that ofiicials are making real progress in applying budget-
ing principles to government.

Based on this study the following suggestions are made for the im-
provement of budgeting:

(1) State and local officials should continue their efforts
to arrive at a common understanding of the law, the forms
and the terminology employed in county budgeting. This
should Inake budgeting procedures more understandable
and helpful to officials and the public;

(2) A manual of instructions should be prepared in
order to demonstrate the manner of estimating and present-
ing the information essential to a budget;

(3) A field force composed of trained and experienced
men should be provided in the state comptro]1er’s office.
This field force should be charged with the duty of deter-
mining the budgeting procedures which are producing the
best results and the further duty of making these procedures
available to all the counties of the state. In carrying out
these duties, the field force should work closely with the
various associations of county officers, particularly the
county judges and commissioners, the county auditors, and
the county clerks.

CONTENTS

g PAGE

Introduction 5
Purpose of Study 6
Procedure 6
Legal Provisions 9
The Budget Form 11
Number of Budgets Prepared by Counties 11
Majority of County Funds‘ Lived Within Income in 1935 ____________________ __ 12
More Funds Lived Within Income in 1939 than in 1935 ______________ __ 15
Small Counties Have Most Fund Deficits 16
The Content and Arrangement of Budgets 18
Many Budgets Omit Particular Funds or Items_-_______________________-_- 18

Estimated and Actual Receipts and Expenditures Vary Wide1y____ 20
Accurate Estimates of Receipts and of Expenditures Seldom

Occur in Same Counties 23

Accuracy of Budget Preparation Not Related to Size of Counties-_ 24
The Essentials of a Good County Budget 24

Summary and Conclusions 30

BUDGETING IN TEXAS COUNTIES, 1931-1940
H. C. Bradshaw

Economist in Farm Taxation
Division 0f Farm and Ranch Economicsl

In 1935 the expenditures of the 254 counties in Texas amounted t0
$56,847,000. This amount includes the $6,983,000 of gasoline taxes used
to service county bonds outstanding on state highway construction. The
management of so large a sum of money constitutes an important problem
of government. If each of the counties spends its proportionate part of
this sum wisely, a great deal more can be accomplished than if these
resources are carelessly handled. The management of governmental
affairs in an economical and efficient manner requires that some form
of budgeting be employed. A budget is ordinarily defined as a financial
plan covering some future period of time, ordinarily a year. In preparing
a budget it is necessary to decide What services are to be provided and
how these services are to be financed. These two aspects of budget prepa-
ration can hardly be separated, although the amount of expenditures
necessarily determines the amount of taxes needed.

The term “budgeting” is generally defined as living within the available
income. This is a good definition, but it covers only a portion of the
budgeting process. For example, it would be possible under certain cir-
cumstances for a county to live within its income even though various
services were carelessly or wastefully handled. This might happen when
the number of services was limited and the revenue fairly large in com-
parison to the need. The same thing might occur in another way if the
particular county experienced a rapid increase in its assessed valuations
and, therefore, in the available revenue. In the latter case, the expanding
valuation and revenue would allow a considerable expansion in services
without necessitating much attention to operating economies.

The term “budgeting,” interpreted in a broader sense, implies‘ far more
than merely living within the available income. In its broadest sense,
budgeting involves a study of all phases of the governmental work with
the purpose of determining the most economical and efficient means of
financing all activities. It must be evident that if a. particular service
can be financed at less cost and without decreasing its efficiency, a
saving is made. This saving can be used to finance other services, or it
can be used to reduce the tax rate. The truth of the matter is that
budgeting is a continuous process involving the application of all the
known techniques of good management.

1The author is indebted to many state and county officials for assistance
throughout this study. Especial thanks are due P. L. Marquess, county auditor
of Wharton County, for his help in reading and criticizing the manuscript.

6 BULLETIN NO. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

Purpose of Study

The purpose of this study is to examine the results which have been
obtained by Texas counties under the uniform budget law passed in 1931.
Many questions have arisen in connection with this law and many differ-
ences of opinion still exist concerning its exact interpretation. Despite
these facts, it is admitted by virtually all concerned that the law will
permit good budgeting if the officials care to make the effort.

The following points have been kept in mind: (1) The number of
counties which have complied with the law by compiling the formal
budget document; (2) the accuracy of the estimates from an accounting
standpoint; (3) the content and Arrangement of budgets; (4) the essen-
tials of a good county budget; and (5) suggestions for improving the
administration of county budgeting in Texas.

Procedure

Information has been secured from official copies of budgets filed with
the state comptroller, and from field audits made by accountants of the
Highway Planning Survey. After obtaining accounting schedules in this
way, a. large number of county officials were interviewed. In these
interviews every effort was made to ascertain the attitude of the various
officials towards the budget law, to determine the results which have
been obtained, and to examine the accounting and reporting procedures
utilized.

The sample includes 60 counties, or approximately 23 per cent of the
254 counties in the State. A schedule of receipts and disbursements ot
each of the 60 counties was obtained directly from county accounts by
the accountants of the Texas Highway Planning Survey. These accounting
schedules were made available for this study of budgeting. Of the 60
counties, 51 had filed budgets, setting forth the anticipated receipts and
expenditures for the calendar year 1935. In these 51 counties, the
budgeted or estimated receipts and disbursements have been compared
with the actual receipts and disbursements realized in 1935. In addition.
schedules have been obtained on 26 of the 60 counties for the calendar
year 1939.

The location of the 60 sample counties is shown in Figure 1. The
characteristics of the 60 counties are shown in Table 1.

BUDGETING IN TEXAS‘ COUNTIES, 1931-1940‘

Figure 1. Location of 60 sample counties used Ln study of county budgeting‘,
1931-1940, indicated by shading.

8 BULLETIN NO‘. 603, TEXAS AGRICULTURAL EXPERIMENT ‘STATION

Table 1. Characteristics of 60 counties used in study (Arranged in the order
of popu1ation—hig'h to 10w, 1930)

Per cent
Population Assessed Tax Levy 0t current
County 1930 valuation per capita tax levy
1934 delinquent
McLenrmn 98,682 $60,783,000 $ 3.94 18.07
Cameron __ 77,540 34,828,000 5.53 41.85
Navarro-__- 60,507 21,403,000 3.41 13.00
Webb_____ 42,128 19,237,000 4.18 41.76
Kaufman- . 40,905 14,674,000 4.17 18.50
Lubbock 39,104 21,816,000 2.89 25.00
Caldwell 31,397 12,718,000 1.62 13.31
Nacogdoches - 31,290 12,715,000 4.16 36.30
C0" 30,030 6,175,000 1.78 35.20
Wharton ----- -- 29,681 28,715,000 8.61 5.26
Lavaca ____________________________________ _- 27,550 13,040,000 2.84 14-25
DeWitt 27,4141 13,383,000 2.54 ; 16.96
Robertson _________________________________ _. 27,240 12,128,000 3.29 i 39.00
Jones 24,233 12,505,000 2.68 ‘ 20.00
Cook,» 214,136 14,948,000 2.91 19.00
Freestone. 22,589 10,951,000 5.13 29.00
Gray ...... -. 22,090 24,189,000 10.73 9.00
Victoria ___ 20,048 14,142,000 5.29 10.36
Liberty 19,868 16,558,000 14.17 24.00
Nolan 19,323 10,288,000 2.66 17.54
Qglgradn 19,129‘ 12,216,000 4.60 14.00
walkeq- _ 18,528 5,560,000 4.9“ 32.00
Matagorda ________________________________ __ 17,678 21 ,992,(X)0 15.68 10,70
Wilson 17,606 9,004,000 4.19 28.00
Polk 17,555 10,600,000 7.25 33.40
Jasper ______ __ 17,064: 7,7401)“, 2.99 20.00
Chj]dreg's___ 15,044 7,967,000 5.66 31.00
Bosque 15,750 9,353,000 3.26 12.00
V3] Verde 14,924.- 11,784,0(n 1.58 11.52
Hays ___ 14,915 7,599,000 5.60 17.70
Montgomery _ 14,588 60,920,000 44.00 8.30
Clay 14,545 10,403,000 4.58 30.00
Collingsworth 14,461 6,709,000 3.99 28.19
Medina 13,989 9,569,000 6.16 21.00
Hardin_-_ 13,936 ’ 12,511,000 6.20 $.58
Fisher 13,563 8,217,000 11.35 27.00
Jim Wells 13,456 8,344,000 41.84 33.00
Uva1de___ __ ___. 12,945 7,650,000 3.55 24.77
Newton ____________________________________ _- 12,524 ' 4,855,000 2.98 24.90
Sabine ____ __ 11,998 3,113,000 4.15 32.80
Kerr _ _ _ _ _ _ _ _ _ _ _ __ __ 10,151 5,525,000 4.35 15.50
Camp ______________________________________ _, 10,063 2,926,000 4.80 38.00
San Jacinto 9,711 3,684,000 9.67 40.90
Archer ______ _. 9,684 11,578, 14.12 48.00
Cottie 9,395 6,306,000 8.87 44.00
Live Oak 8,956 6,638,000 12.23 45.00
Franklin___ 8,494 2,240,000 5.69 36.00
Dallam 7,830 8,667,000 7.52 35.00
Pecos ___-. 7,812 47,219,000 45.32 6.00
Refugio 7,691 12,609,000 24.68 11.40
Deaf Smith 5,979 6,874,000 8.62 36.00
Brooks 5,901 4,298,000 4.61 18.00
Garvn 5,586 3,806,000 4.77 20.00
Bailey 5,186 3,%5,000 7.97 32.00
Armstrong * 3,329 3,593,000 9.06 15.00
Somerven 3,016 1,W,000 5.98 44.00
TerrelL 2,660 4,854,000 10.02 24.86
Hartley 2,185 4,190,000 14.77 27.00
Cochran- L 1,963 5,089,000 24.63 39.60
Borden . 1,505 2,130,000 10.47 20.00

BUDGETING IN TEXAS COUNTIES, 1931-1940 9

Legal Provisions

The Uniform Budget Act which became effective August 21, 1931,
required that the State and each local unit of government prepare an
annual budget.’ The one exception was Harris County which continued
to operate under an earlier law applying only to counties having county
auditors.

Under the uniform budget law as it applies to counties, the county
judge is responsible for the preparation of the budget. The law further
provides that the county judge may call upon the county auditor or the
county clerk for any help which may be needed. The latter provision
does not remove the responsibility from the county judge, but it does
provide a method by which necessary aid and assistance can be secured.
In practice, this situation has been worked out in a variety of ways. In
many cases the county judge has passed the job on to the auditor or
clerk. It is also true that in some counties the treasurer has assisted in
preparing and administering the county budget. Still another common
practice is to employ an independent auditor to make up the county
budget. In such cases the preparation of the budget is often included
in the price of the independent audit.

Following the preparation of the budget, and before the tax rate can
be set, a public hearing must be held. This hearing must be preceded by
a notice and a period during which the proposed budget may be inspected
by any interested person. The budget which is adopted by the commis-
sioners’ court following the hearing must be followed “except that emer-
gency expenditures, in case of grave public necessity, to meet unusual
and unforseen conditions which could not, by reasonably diligent thought
and attention, have been included in the original budget, may from time
to time be authorized by the court as amendments to the original budget."
Any such emergency must be approved by the commissioners’ court in
the same manner as the original budget.

The budget year is the calendar year. This is according to a ruling
of the Attorney General since the law itself did not specifically designate
the months to be used.

The county judge is also responsible for the administration of the
budget. But here again the duty has often been delegated. The county
auditor is often the real budget authority in the 80 or more counties
which have county auditors. In the remainder of the counties the ob-
servance of the budget does‘ depend largely upon the county judge. These
judges have insisted on keeping each county fund on a cash basis and
have taken pains to see that the situation was fully explained to both
the officials and the public. This is a courageous and forceful attitude
which has resulted in improved budgeting in the counties affected. The

 

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BUDGETING IN TEXAS COUNTIES, 1931-1940 11

position of the county judge in the organization of county government
is clearly revealed by an examination of Figure 2. As‘ the presiding
officer of the commissioners’ court, and the only member of that “gov-
erning board" who is elected at large, the county judge has a great deal
of responsibility for the conduct of county government. Although the
authority of the county judge does not match his responsibility, he is
nevertheless in a position to exercise much control over county affairs.

The Budget Form

The first standard budget form was prepared by the state comptroller
of public accounts and the state auditor and efficiency expert. The second
form was designed by the comptroller of public accounts about two years
later. The latter form has been used by a majority of the counties,
even though various objections‘ have arisen from time to time. This
form provides columns for the presentation of complete detail on the
receipts and disbursements of the preceding, current, and budgeted years.
The form further provides for a statement of outstanding debt, a state-
m-ent of interest and sinking fund requirements, and a history of ad
valorem tax collections over a period of years. From an accounting
standpoint both receipts and expenditures‘ are classified in sufficient detail
to permit any break-down which may be desired.

It is true, however, that opinions have differed widely regarding the
interpretation of the various items entering into the classification. This
has meant that the standard classifications have been used differently
from one county to another. This subject is discussed later under the
heading “The Essentials of a Good County Budget,” and an attempt is
made to present a uniform interpretation of points which have not been
agreed upon.

Number of Budgets Prepared! by Counties

Including the 1940 budget year, at least eight budgets should have
been prepared by each of the 253 counties to which the law applies. The

Table 2. Number of budgets filed. with state
comptroller by the 254 counties, 1935-1940

Number
Year filed Per cent
1935 221 87
1936 217 85
1937 179 70
1938 219 86
1939 194 76
1940 214 84
Average M7 82

12 BULLETIN NO‘. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

law requires that copies of county budgets be filed with the comptroller
of public accounts. Consequently, the most readily available indication
of observance lies in the number of budgets filed as contrasted with the
number of counties in the State. No record is available concerning the
number filed during the two-year period 1933-1934. The comptroller’s
ofiice is required to preserve the budgets for two years only. This fact
plus the limited space available makes it inadvisable to maintain com-
plete files. Table 2 shows the number of counties filing budgets for the
last six years.

Judging by the six-year period 1935-1940, an average of 207, or 82
per cent of the counties filed budgets annually. One group of 139 coun-
ties filed budgets‘ for each of the six years, and a second group of 104
counties filed budgets intermittently during this period. A third group
of 11 counties filed no budgets at all during the» six-year period. In view
of the fact that the counties have been given little encouragement and
assistance, the record must be considered a good one.

Majority of County Funds Lived Within Income in 1935

One of the best measures of the effectiveness of county budgeting is
the degree to which counties lived within their income. This measure
can be applied to all counties even though some of them did not prepare
a budget for the year in question. The budgeting process, or a portion
of it, may exist in the fact that both citizens and officials customarily
regard personal and public expenditures from a conservative viewpoint.
In counties where this attitude is widespread, an excellent job of budget-
ing will likely be accomplished. The chief reason a budget is prepared
anywhere is to achieve the painstaking analysis and control of expendi-
tures which may have been accomplished in some counties without pre-
paring the budge-t document.

With these explanations in mind, let us examine the record of the 60
sample counties in order to determine how well they lived within their
income in 1935. The term incom-e means the total amount available to
finance expenditures during the year. It, therefore, includes the balance
on hand in the funds which were on a cash basis. In making this analysis,
it is necessary to use the. fund accounts instead of the county-wide ac-
counts, for the use of county totals would conceal the results obtained
in particular funds. It is also well to note that no interest and sinking
funds are included. In every case the interest and sinking funds lived
within their income in 1935. That is, their receipts and balances ex-
ceeded their payments.

Table 3 shows that 83.1 per cent of the current or operating funds
in the 60 counties lived within their incomes in 1935. The remainder,
or 16.9 p-er cent of the funds, spent more than was available during the
same period. Of the four operating funds shown, the permanent improve-
ment fund had the best record, but the jury fund was almost equally

BUDGETING IN TEXAS COUNTIES, 1931-1940 13

Table 3. Number and per cent of current funds living within available
income, 1935

Total Funds living within income
Fund groups No. of
funds Number | Pier cent
Jury ____________________ ____ _____________________ _. 60 54 90.0
Road and bridge ______________________________ _. 60 48 80.0
General _________________________________________ _. 60 44 73. 3
Permanent improvement ______________________ __ 51 46 90.2
Totals and per cent _______________________ __ 231 192 83.1

good. The road and bridge fund had a considerably poorer record than
either the jury or permanent improvement fund. The general fund group
had the poorest record of all because only 73 per cent of the 60 general
funds lived within the income available.

The foregoing statements do not reveal the entire situation, for some
funds which lived Within their income already had a deficit which had
been created in prior years. In these cases, living within their income
meant that the deficit was decreased during the- year. Other funds which
lived Within their income decreased cash balances which had been ac-
cumulated in prior years.

Table 4 provides an analysis of the relative record made by the various
county funds in terms of living within their available incomes. In 11.6
per cent of the funds, deficits existing on January 1 were reduced during
the year. These funds are making progress‘ towards a cash balance. In
7.8 per cent of the funds, a deficit existed at the beginning of the year
but was eliminated during the year. This is progress of the best kind.
Perhaps the most surprising result is that 42 per cent of the funds actually
increased their cash balances‘, while only 21.6 per cent of the funds de-
creased their cash balances. These decreases in cash balances are per-
fectly legitimate in any budgeting system for there is no reason why

'.I.'able 4. Comparison of 231 current funds in terms of living within available
income, 1935

 

Funds living within income Funds exceeding
Total income
Fund groups number
funds D d Created Lncreahsed Decreztilsedl C ted In d
ecrease cas cas cas rea crease
deficits balances balances balances» i deficits deficits

Jury _______________ -- 60 5 5 30 14 V 2 4
Road and bridge--- 60 10 5 23 10 1 2 10
General ____________ __ 60 3 7 17 12 2 14
Permanent Improve-

ment ____ ___ ______ __ 51 4 1 27 14  3 2
Total number ..... -- 231 2v 1s 9v 50 \ 9 a0
P91- (gent ___________ __ 100 11,6 7.8 4,210 21.6 3.9 13-0

14 BULLETIN NO‘. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

excessive balances should be carried in any fund. But it goes without
saying that the balances should not be eliminated entirely, for it is good
policy to have some money available to cover unforeseen items. These
items may not be emergencies but simply the ordinary run of small unpre-
dictable expenditures which occur from year to year. A reasonable allow-
ance for such items is good budgeting, and should be set up in the budget
adopted.

On the other side of the picture, almost 4 per cent of the funds created
deficits during the year. That is, they began with a cash balance but spent
more than the balance plus receipts and ended the year with a deficit. It
is also important that 13 per cent of the counties had a deficit at the be-
ginning of the year and increased that deficit during the year. These two
groups of funds amounting to 17 per cent of the total were farther from
a cash basis at the end of the year than they were at the beginning.

In regard to the funds having deficits, several questions remain to be
answered. These questions concern the number and seriousness of the
deficits as well as the possibility of finally eliminating them. Considering
the deficits in the 60 counties as one group, the situation in 1935 may
be described as follows. At the beginning of the year, 75 of the 231
funds were on a deficit basis; during the year, 18 deficits were eliminated
and nine deficits were created. Consequently, at December 31, the num-
ber of deficit funds was 66. This decrease in number is' equal to 12 per
cent of the funds affected. The 66 deficits existing on December 31 were
distributed among 37 of the 60 counties in the following order: 17
counties had one fund deficit per county; 12 counties had two fund def-
icits‘ per county; 7 counties had three fund deficits per county; and one
county had four fund deficits.

The size of the deficit as compared with the annual receipts of the
fund is a good measure of its‘ seriousness. If the deficit is small as com-
pared with the annual receipts, it can be retired in one or a few years.
If the deficit is equal to a large percentage of the r-eceipts of an average
year, then several years will ordinarily be required to reach a cash basis.
Certainly it is true that a fund which accumulates a deficit equal to one
year's receipts is’ in a serious condition. The relation of the ending def-
icits to the annual receipts of the respective funds is shown in Table 5.

'.I.'a.b1e 5. Relation of ending deficits to annual fund receipts, in per cent, 1935

Total Per cent ending deficits were of receipts
Fund groups deficit

funds 0-25 26-50 51-75  76-100 | 101+
Jury ______________________ _. 11 3 5 1 1 0 Q 2
Road and Bridge ________ __ 22 7 9 2 I 1 3
General ................... __ 24 5 6 3 l 1 9
Permanent improvement" 9 2 5 0 l 0 2
Total number funds _____ __ 66 17 25 6  2 16
Per cent __________________ __ 100 26 38 9 I 3 24

BUDGETING IN TEXAS COUNTIES, 1931-19401 15

Of these 66 funds, 17, or 26 per cent, had ending deficits amounting to 25
per cent or less of their 1935 receipts. At the other extreme, 24 per cent
of the funds had ending deficits equal to 100 per cent or more of their
1935 receipts. Within the latter group, the most serious deficits are
found in the road and bridge and general fund groups. The ending def-
icts of the three road and bridge funds in this classification Were equal
to 186, 179, and 116 per cent of the 1935 receipts of the respective funds.
The ending d-eficits of the nine general funds in this classification were
equal to 904, 497, 434, 419, 212, 170, 166, 158, and 135 per cent of the
1935 receipts. of the respective funds. This indicates that the general
fund group has‘ the most deficits, and that the individual deficits are
larger than the deficits in other fund groups.

The ability of the counties to keep the various funds on a cash basis,
or to retire deficits which have been created is vitally affected by the
available tax rate and the level of expenditures which each fund must
support. For example, it is known that the jury fund in most counties
does not require the full 15 cent rate which is allowed by the Constitu-
tion. The requirements of this‘ fund are light and fairly stable from year
to year. Likewise, the permanent improvement fund is restricted to a
few uses and the 25 cent rate allowed by the Constitution is seldom
needed in its entirety. On the other hand, it is well known that the gen-
eral fund carries many different expenditures and that many counties
have difficulty in living Within the 25 cent rate which is the maximum
allowed by the Constitution. Road and bridge fund expense is limited to
that one purpose, but many counties‘ have need for all the money they
can collect, and in addition the fund is subject to- emergency expenditures
such as those occasioned by severe rains. The road and bridge rate is
limited to 30 cents, 15 cents of which must be approved by popular vote.

The evidence indicates that the jury and permanent improvement fund
deficits are probably due to failure to set a proper tax rate as expenditures
fluctuate from year to year. On the other hand the normal load of ex-
penditures" in the road and bridge and the general funds plus the fact
that both funds are subject to emergency expenditures means that def-
icits will inevitably be incurred in some years. The latter statement
seems to be especially true of the general fund for while each fund is
subject to recurring deficits, they are considerably more severe in the
general fund.

More Funds Lived Within Income in 1939 Than in 1935

Because too much reliance cannot be placed on the record made in any
one year, an effort has been made to study the situation at a later date.
Schedules have been obtained on 26 counties of the sample group for
the budget year 1939. In these 26 counties the deficit situation in 1935
was compared with that in 1939 in order to see if the trend of 1935 has
been continued. This method of handling provides a five-year period for
these 26 counties‘.

16 BULLETIN NO. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

Table 6 indicates that the percentage of funds living within their in-
come increased from 84 to 92 per cent during the five-year period 1935-
1939. This improvement is reflected in each fund group with the excep-
tion of the permanent improvement. The general fund shows the most
improvement, but this is partially due to the fact that it had the worst
record at the beginning of the period.

‘table 6. Number of funds living within income in 1935 as compared with 1939
(100 current funds in 26 counties)

Number of funds living
Fund groups Total within income
number
funds 1935 i 1939
I

Jury _____ -_ 26 24 25
Road and bridge ______________________________ ___ 26 21 22
General -__- __________ -. 26 19 25
Permanent improvement. _____________________ __ 22 210 20
Total and per cent ____________________________ _- 100 84 92

Here again it should be observed that some of the funds which lived
within their income in 1939 had deficits which had been accumulated in
prior years. In these cases “living within income” meant that the deficits
were reduced or retired. Of the 67 funds which were on a cash basis at
December 31, 1935, 65 Were on a cash basis at December 31, 1939. Of
the 17 funds in which deficits were reduced in 1935, deficits were elim-
inated in 10, deficits were reduced in four and deficits‘ were increased in
three funds before December 31, 1939. The three deficits created in 1935
were eliminated entirely before the end of 1939. Of the 13 funds in
which deficits were increased, deficits were eliminated in four, deficits were
reduced in six and deficits were increased in three funds.

It is also significant that the deficit funds in these 26 counties included
several of those which had the most severe deficits in 1935. Measured
in percentages of the 1939 receipts‘ of the various funds these deficits
were considerably less severe than at the end of 1935. This is due, in
part, to a decrease in amount of deficit per fund, but it is due in larger
degree to an increase in receipts in 1939 as compared with 1935.

On the whole, the counties made good records in 1935 and 1939 in
terms of living within available income. This is especially significant
when the difiiculties of county finance are given proper consideration.

Small Counties Have Most Fund Deficits

Judging by studies’ which have been made in the past, it would be ex-
pected that the smaller counties having lower assessed valuations would
be more apt to have deficits in their funds. The sample counties bear

"Possible Savings Through Changes in Local Government,” Texas Agricultural
Experiment Station Bulletin No. 540, by H. C. Bradshaw and L. P. Gabbard.

BUDGETING IN TEXAS COUNTIES, 19-31-1940 17

out this conclusion. In the 29 counties having more than $10,000,000
valuation there were 26 fund deficits in 14 counties. In the 31 counties
having less than $10,000,000 assessed valuation there were 40 fund def-
icits in 23 counties. In general, there seems to be no definite explanation
for the presence or absence of deficits in the counties below $10,000,000.
The same is‘ true of counties above $10,000,000 assessed valuation. That
is, the deficits, while less apt to exist in the larger counties, are fairly
evenly distributed among each group above and below $10,000,000 as-
sessed valuation.

In dollars the three highest county-Wide deficits were found in the
four counties having the highest assessed valuations. (The county hav-
ing the second highest assessed valuation had no- deficit.) But when a.
unit of measurement, or a common denominator, is introduced, the sit-
uation is reversed. A computation of the county-wide deficit per million
dollars of assessed valuation shows that the largest deficits were in the
smallest counties. The county-wide deficit is the total of the fund deficits
without regard to the cash balances which exist in other funds. This
method of computation is used because each fund, under the law, is
supposed to support itself and, therefore, balances in another fund are
the property of that fund.

   

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COUNTY Assesszo VALUATION m Muuows OF DOLLARS

Figure 3. Relation between deficits and size of county as measured b7
assessed valuation, 1935. The deficits increased in number and in severity as
the assessed valuation declined.

18 BULLETIN NO‘. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

The significant break seems to occur around $6,000,000. In fact seven
of the ten highest county-wide deficits per million dollars valuation are
found in counties having less than $6,000,000 valuation. The other three
deficits of this group are found in counties having valuations of seven,
ten, and twelve million dollars, respectively. The relation between the
deficits‘ per million dollars. of assessed valuation and the valuations of
the counties is shown in Figure 3. It should be noted, however, that only
the 37 counties which had deficit funds are shown in this figure.

The two groups of counties above and below 10 million dollars as-
sessed valuation differed very little as regards the percentage of total
receipts applied to deficit retirement. On the other hand, the smaller
counties‘ increased deficits which continued throughout the year by a
larger percentage of receipts than did the larger counties. This is per-
haps the only significant difference between the two groups.

There is a definite relation between the percentage of current taxes
deliquent and the significance of the deficits. This is illustrated by the
fact that the 10 counties having county-wide deficits in excess of $4,000
per million dollars assessed valuation, each have delinquent taxes equal
to 20 per cent or more of the current levy. In general, the number and
the severity of fund deficits increases as the tax delinquency increases
above 20 per cent.

No significant relation could be found between the deficits and the tax
levy of the various counties.

There is a relation between the deficits and the population of the coun-
ties, but it is not as clear as that between the deficits and the assessed
valuations or the deficits and the amount of delinquent taxes. Again
it is true that the most severe deficits are found in the counties having
the smallest populations.

The Content and Arrangement of Budgets

The foregoing discussion has chiefly concerned the ability of counties
to live within their income. This section is devoted to a study of the
adequacy of the budgets prepared by the 51 counties of the 60 county
sample. The counties which prepared no budgets are not under consid-
eration here. The question is one of examining and evaluating the budgets
prepared.

Necessarily much attention is devot-ed to this section to accounting
phases of budget work. This must be true for accountingrecords con-
stitute the chief tool of budget preparation and administration. Never-
theless, the subject of accounting is treated indirectly and the reader is
left to make his own application.

Many Budgets Omit Particular Funds or Items

In a considerable number of cases‘ a budget has omitted a fund or an
item of a fund. The term item refers to one of the four elements of a

BUDGETING IN TEXAS COUNTIES, 1931-1940 _ 19

fund; namely, opening balances, receipts, expenditures, and closing bal-
ances. These omissions were obtained by comparison of the 1935 budgets
with the accounting schedules obtained from the county accounts in the
same 51 counties. Table 7 shows these omissions in detail.

Table 7. Funds or items omitted 1n the 51 county budgets 0f the GO-county
sample, 1935

Number of funds affected

Description of Total Perma-
omission‘ Interest Road nent
and Jury and General improve-
sinking bridge ment
Entire fund omitted _______________ __ 6 1 0 0 0 5
Receipts of a fund ________________ _-_ 4 0 0 0 0 4
Expenses of a fund ________________ __ 5 0 0 0 O 5
Opening balances only _____________ __ 75 11 13 16 21 14
Funds affected _____________________ -_ 90 12 13 16 21 28

' ‘There is no overlapping between counties omitting entire funds and those omitting items
only.

The failure to prepare a budget for interest -and sinking fund receipts v

or expenditures means that a large part of the value of budget prepara-
tion has been lost, for the interest and sinking fund generally involves
a sizeable proportion of the expense of the county. On the other hand,
failure to prepare a budget for the permanent improvement fund may
affect the total county budget very little. Unless substantial public im-
provements are being financed, the transactions‘ of the fund constitute
a relatively small portion of a county's business. Of course its omission
does indicate carelessness in making up the budget.

The omission of opening balances is a particularly glaring error. If
a fund is in use, it must have some cash on hand or a deficit in some
amount. At first it was thought that officials would be more apt to
omit a deficit than to omit a cash balance. Examination reveals, however,
that this was not the case. Of the 75 beginning balances omitted in the
budgets, 51 were found to be cash while only 24 or about one-third were
deficits. Further, it is apparent that the cash balances omitted were
large enough to be important. In other words, the omission of these
balances would mean in a good many instances that the available re-
sources presented in the budget were quite incomplete. These computa-
tions are shown in Table 8.

Some of the omissions may have been due to the interpretation placed
on the budget law. Some officials may have purposely omitted a cash
balance in order to present a conservative picture of the money avail-
able. But over 75 per cent of the funds budgeted did show the balances,
which indicates that omissions were nearer an exception than a general
rule.

20 BULLETIN NO. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

‘table 8. Number and description of opening balances omitted from 1935 budgets
of 51 counties

Funds affected
Description of Totals Perma-
Qmisgions Interest Jury Road _ nent
and funds and General improve-
sinking bridge ment
Number of cash balances ---------- -- 51 11 9 9 9 13
Number of deficits ----------------- -_ 24 0 4 7 12 ‘ 1
Total number ___________________ -_ 75 11 13 16 21 14
Range of cash balances . _
rorn ___________________________ -- 54 $ 1,561 $ 218 $ 210 $ 124 $ 54
To ______________________________ __ 178,475 178,475 12,044 133,945 10,5-67 9,281
Average cash balance _________ --’---_- 20,074 51,658 4,235 40,023 3,418 2,033
Median cash balance _______________ -_ 3,620 5,904 4,229 36,091 3,620 752
Range of deficits
From ___________________________ -_ 103 0 450 103 347 ------ --
To 159,756 0 8,413 159,756 79,829 *
Average deficit ______________________ -- 25,704 0 4,252 42,370 25,168 ______ _-
Median deficit ....................... __ 13,833 0 4,074 15,854 18,665 ------ --

*The one deficit in the permanent improvement fund group amounted to $1,291.00.

Undoubtedly, the best explanation for the omission of opening bal-
ances is that many officials dislike to estimate a balance six months
ahead of time. Since the budget for 1935 was made up in July 1934, it
was necessary to project both receipts and expenditures for six months
in order to estimate balances at January 1, 1935. The difficulty involved
in making these estimates has probably been over-estimated, for other
ofiicials have been able to estimate balances with reasonable accuracy
simply by applying their knowledge of conditions together with the ex-
perience revealed by their accounts.

Estimated and Actual Receipts and Expenditures Vary Widely

The only source of information concerning the degree of accuracy
possible in budgeting the receipts and expenditures lies‘ in the results
obtained by the most competent officials. It is believed that under 0r-_
dinary conditions a capable official having fairly adequate accounts should
be able to estimate the available resources and the probable expenditures
within 5 per cent. Even under unusual conditions he should be able to
estimate within 10 per cent of actual results. Of course, it may be ob-
jected that in some cases the estimate may have been a good one, but
lack of budget control allowed over-spending. In such cases the original
amount budgeted, while in line with probable results, would possibly
vary more than 10 per cent from the actual results obtained. It is also
true that a budget may have been prepared by one official and adminis-
tered by another.

BUDGETING IN TEXAS COUNTIES, 1931-1940 21

The tendency to understate both receipts and expenditures is clearly
brought out when the number of funds is considered. Of the 239 funds
in 51 counties, 72.8 per cent estimated their receipts at less than 100

' per cent of the amounts actually realized. The range was from 94 per

cent in the road and bridge fund group to 52.8 per cent in the perma-

Table 9. Percentage of funds budgeting less than or more than 100 per cent
of actual receipts and expenditures, 239 funds, 1935

 

Receipts I Expenditures
Fund groups

Less than I More than Less than More‘ than

100 per cent 100 per cent 100 per cent fl 100i per cent
50 Interest and sinking funds ___________ -_ 64.0 36.0 48.0 52.0
51 Jury funds ____________________________ __ 62.8 37.2 29.5 70.5
51 Road and bridge funds _______________ -_ 944.0 6.0 82.3 17.7
51 General funds ________________________ ___ 84.3 15.7 70.5 29.5
36 Permanent improvement funds ______ __ 52.8 47.2 58.2 41.8
Average (Arithmetic) _______________ -_ 72.8 27.2 57.7 42.3

nent improvement funds. On the other hand, only 57.7 per cent of all
funds under-estimated expenditures. Two groups of funds, namely, the
interest and sinking and the jury, over-estimated expenditures in a ma-
jority of the budgets. As a matter of fact, the percentage of funds which
over-estimated expenditures in four of the five groups of funds is con-
siderably higher than the percentage of the same fund groups which
over-estimated receipts. The permanent improvement fund is an excep-
tion.

Table 10. Variation of budgeted receipts from actual receipts of 239 funds
expressed in per cent, 1935

 

Variation from actual Percentage of funds
in per cent
Total Underestimated Overestimated
|
14.2 9.2 5.0
13.8 8.8 5.0
7.5 6.7 0.8
10.9 9.2 1.7
8.8 7.5 1.3
9.6 7.9 1.7
4.2 2.9 , 1.3
3.8 3.4 0.4
5.0 4.6 0.4
5.5 3.8 1.7
51 and over ______________________________ __ 16-7 8.8 7-9
Total ________________________________ __ 100.0 72.8 l 27.2

As yet no indication has been given of the relative variation of the
budgets from the actual realized receipts and expenditures. Tables 10
and 11 provide this information for all classes of funds combined. In
these tables the variation is shown above and below 100 per cent using
an interval of 5 per cent.

22 BULLETIN NO‘. 603, TEXAS AGRICULTURAL EXPERIMENT‘ STATION

The analysis of receipts presented in Table 10 indicates that 14 per
cent of the 239 funds were estimated within 5 per cent of the actual.
Similarly, 28 per cent of the funds were estimated Within 10 per cent
and 35.5 per cent of the funds" were estimated within 15 per cent of the
actual realized receipts. In these same intervals the number of funds
estimating receipts from 0 to 15 per cent less than actual was 24.7 per
cent. While the number of funds in which receipts were estimated from
1 to 15 per cent more than actual was 10.8 per cent.

The analysis of expenditures reveals a similar picture except that the
number of funds which were over-estimated in the budgets is consid-
erably larger. According to this tabulation 11.3 per cent of the funds
were estimated within 5 per cent, 26.4 of the funds were estimated
within 10 per cent and 39.3 of the funds were estimated within 15 per
cent of actual expenditures. These data are shown in Table 11.

Table 11. Variation of budgeted expenditures from actual expenditures of 239
funds expressed in per cent, 1935

 

Variation from actual Percentage of funds
in per cent
Total Underestimated Overestimated
11.3 6.7 4.6
15.1 8.4 6.7
12.9 7.9 5.0
10.9 7.1 3.8
7.0 5.0 21.0
5.8 3.8 2.0
5.1 3.8 1.3
4.7 2.9 1.8
1.3 1.3 0.0
3.8 2.0 1.8
51 and over .............................. -- 22.1 8.8 13.3
Total- 100.0 l 57.7 I 42.2

In fairness to the budget officers it must be stated that a great deal
of the variation of budgeted from actual receipts and expenditures is due
to the omission of non-revenue receipts such as bond proceeds and the
corresponding omission of such disbursements. That is, the budgets for
1935 generally omitted such receipts while the accounting schedules,
which were obtained from the county accounts, included them. These
two sets of figures were then compared without making adjustments for
this difference in handling. An examination of the budgets and a. com-
parison of the budgets with the actual realized receipts and disburements
leads to the conclusion that current receipts and disbursements are esti-
mated with considerably more accuracy than are the non-revenue receipts
and their corresponding disbursements.

There is a great deal of justification for the view expressed by many
budget officers that the budgeted receipts" should omit non-revenue re-
ceipts in order to avoid duplication over a period of years. Furthermore,
it must be admitted that the budget officers generally have no way of

BUDGETING IN TEXAS COUNTIES, 19'31-l940 23

knowing that non-revenue receipts such as bond proceeds will be received
in a future year. Bond issues are voted by the people and the amount
voted, if any, can hardly be set up in the budget until it is voted. The
requirements of good budgetary procedure could be satisfied without
showing such non-revenue items under the receipts schedules at all. All
that is necessary is to explain the actual or contemplated use of any such
non-revenue receipts in a footnote, a supplementary statement or a
letter of transmittal. This method of handling satisfies the need for
explaining the combination of revenue and non-revenue receipts which
is being used in financing the various services.

The fact that the budget year includes portions of two tax collection
years may also influence the comparison of estimated and actual receipts
and expenditures a great deal. The budget year is‘ the calendar year
while the tax collection year begins Octob-er 1 and ends the following
June 30th. There is always a possibility that a change in the tax rate
which goes into efiect on October 1 will increase or decrease the receipts
of the calendar year. This is a circumstance which can hardly be fore-
seen at the time the estimated budget figures are made up some fifteen
months earlier.

Accurate Estimates of Receipts and of Expeditures Seldom Occur in Same
Counties

The foregoing analysis has not covered one point adequately. It might
still be assumed that if receipts were estimated accurately in a particu-
lar county, the expenditures would also be estimated accurately. Further
analysis reveals that this was not the case. In a great majority of in-
stances‘ there were wide variations in the degree of accuracy with which
receipts and expenditures of the same funds in the same counties were
estimated. In order to check this possibility, the budgeted expenditures
of the 239 funds were distributed according to’ their variance from the
actual expenditures, using an interval of 5 per cent. Then the receipts
of the same funds were distributed in the same manner.

These distributions showed that only 15.5 per cent of the funds had
estimated receipts within the same limits of accuracy that expenditures
had been estimated. The estimates may have been better or worse, that
is‘, nearer or farther from the actual results, but the degree was not the
same. For example, in 27 funds, expenditures were estimated within
5 per cent of actual results. These 27 fund-s included 9 interest and
sinking funds, 6 jury funds, 3 road and bridge funds, 5 general funds,
and 4 permanent improvement funds. Of these same 27 funds, only 3
had budgeted their receipts within 5 per cent of the actual receipts.
These three included two interest and sinking funds and one general
fund.

This point is emphasized by examination of a single fund group. It
has been stated that the expenditures of 9 interest and sinking funds

24 BULLETIN NO. 603, TEXAS AGRICULTURAL EXPERIMENT STATION

were estimated within 5 per cent of actual results. This means‘ that the
budget expenditures ranged from 96 to 105 per cent of the actual. As
a matter of fact, all 9 cases fell between 96 and 102 per cent. The per-
centage which the budgeted receipts were of the actual receipts in these
same funds. ranged as follows: 66, 86, 100, 72, 34, 83, 89, 102, and 106.
Two of these cases fell within the same 5 per cent interval of variance
and a third was‘ only 1 per cent removed from that interval.

To state the matter another way, if the correlation had been perfect,
each county would have appeared in the distribution but once. But in
reality each county appeared in the distribution an average of 4.3 times,
expenditures used as a base. In making this distribution the total re-
ceipts and expenditures of all funds in each county were used along with
the five different funds. Hence, the maximum number of times a county
could have appeared would have been six. Thus, on an average, each
county required more than four and less' than five of the 5 per cent inter-
vals in order to distribute its six classifications of funds.

It, therefore, does not follow that a county which estimates expendi-
tures within a certain degree of accuracy will estimate its receipts within
the same approximate degree of accuracy. The reverse is also true.

Accuracy of Budget Preparation Not Related to Size of Counties

The larger counties might be expected to do a better job of estimating
receipts and expenditures than would the smaller counties. This possi-
bility was checked in a number of Ways, but no significant relation could
be discovered between the size of the county, as measured by population,
and the accuracy of the estimates. The relative number of counties doing
a good job was about the same in each population grouping used. It is
true, however, that the counties having auditors tended to do a better
job than those having no auditors. This was true regardless of the pop-
ulation of the counties involved. Here again it should be remembered
that a good many of the officials have understated receipts and expendi-
tures as a matter of policy. Had the officials thought it wise they could
have estimated these figures much more closely on the basis of their
accounts.

The Essentials of a Good County Budget

One of the significant facts‘ revealed by this study is that the budget
law and the standard budget form are interpreted differently from county
to county. In fact, there is considerable difference of opinion among
county officials over the definition of a budget. These differing inter-
pretations have a bearing on the estimates made in the budgets as well
as the items included. If substantial agreement existed as to What con-
stituted a budget, and how it should be set up, officials would be in a
far better position to prepare a budget which would approximate actual

BUDGETING IN TEXAS COUNTIES, 1931-1940 25

results. Unfortunately, the effect of differing interpretations and methods
of presentation are not subject to exact measurement. But their presence
is emphasized by the fact that the counties as a whole did an excellent
job of living within their income despite the serious deficiencies which
existed in their budgets". _

In view of this situation, an attempt is made to list the essentials of
a good county budget. This list of essentials includes the points which
have evidently been most confusing to county officials. Some of these
essentials are prescribed by the law but have not been followed in prac-
tice. Other essentials have not been explained in the law or in the instruc-
tions issued by the comptroller of public accounts. This list of essentials
is based upon an examination of a great many county budgets. In addi-
tion much assistance was‘ secured from a two-day meeting in May 1939
which was sponsored jointly by George H. Sheppard, State Comptroller,
and Curtis Morris, tax director of the East Texas Chamber of Commerce.
Following this meeting, P. L. Marquess, county auditor of Wharton
County, and the author served as a committee to assist the state Comp-
troller in preparing a revised budget form suitable for the counties.

1. The budget would show three or more years, including the last
year completed, the year in progress at the time the budget is made up,
and the year immediately ahead for which the budget is being prepared.
The figures for the year in progress should be estimated as accurately
as possible on the basis of the six months‘ which have already passed.
The Working papers should provide three columns for the year in prog-
ress; one column for the first six months for which actual figures are
available, a second column for the last six months which must be esti-
mated, and a third or total column. The figures from the total column
can then be transferred to the budget document itself. This method will
provide the estimated balance available January 1 of the year which is
being budgeted.

2. The classification of receipts and expenditures in each fund should
be in as much detail as the accounting system of the county will permit.
For example, the expenditures‘ of each office or activity should be shown
apart from those of other officers or activities. The salaries, Wages, post-
age, telephone and other costs under each office should be itemized.

3. The budgetshould contain a statement of outstanding indebted-
ness as of January 1 of the year for which the budget is prepared. In
addition to outstanding bonds, this statement should show all time war-
rants. No curr-ent warrants outstanding should be shown on the debt
statement, however. Any such current warrants must be paid from the
fund which issued them. V

4. a) The beginning balance of each fund should be the balance re-
maining after warrants outstanding and bills accrued and unpaid are
deducted. This procedure reveals the balance available for expenditures‘
during the coming year. In many instances officials ignore these outstand-
ing commitments and use the cash balance on the grounds that the

26 BULLETIN NO. 603, TEXAS AGRICULTURAL EXPERIMENT‘ STATION

amounts involved will be substantially the same at the close of each
year. As long as this is true little or no harm is done in ignoring out-
standing commitments. But the amounts outstanding should be checked
whenever a budget is made up, and it would add to the value of the
budget to explain the kind of balances used and how they were derived.

b) Sinking fund investments and changes in the amount of such in-
vestments should be shown in the budget. This is necessary in order
to reveal all the assets of the county. Such transactions are to be shown
as a change in the form of assets and not as a receipt or disbursement.
This method avoids the possibility of showing the purchase of bonds for
investment purposes as a bond retirement. Bonds owned January 1 would
be shown as follows:

 

Cash balance, January 1 ______ --$ 5,000
Securities owned 10,000
Total balance $15,000

If additional bonds were purchased during the year, the budget would
show:

Balance Balance

January 1, 1939 January 1, 1940
Clash $ 5,000 $1 2,000
Securities owned 7 10,000 13,000
Total $15,000 $15,000

This example assumes that the tax collections‘ and the disbursements
-of the fund were exactly equal and, hence, did not affect the balance.
If bonds owned were sold during the year, the cash portion of the bal-
ance would be increased and the securities owned would be decreased.
‘This might be shown in skeleton form as follows:

Total receipt“ ----- --$25:000
Add balance January 1 Gash ..... _- 5,000
Securities _____________________________________ _- 10,000

Total available ---$40,000
Less expenditures ....... __ 20,000
Balance December 31 Cash__ _--- -----$ 7,000‘
Securities _____________________________________ -_ 13,000

c) Cash and securities deposited to the credit of the county with the
board of county and district road indebtedness should be shown in the
budget. Thes-e can be included with the same items held in the county
depository or they can be shown separately. If it is desired to split the
balance, simply show: »

In Austin In County Total

9081K _----- $ 100 $ 4,900 $ 5,000
Securities 2,000 8,000 10,000
Total-m- $2,100 $12,900 $15,000

If difficulty is experienced in getting this information in the spaces
provided in the budget, simply insert the totals in the budget proper

BUDGETING IN TEXAS COUNTIES, 1931-1940 ‘ 27

but make up and attach a “table of balances” showing exactly the com-
position of the beginning and ending balances involved.

5. a) Since the budget is made in July, the ad valorem tax collections
of the various funds must be based on the rendered value as reported by
the assessor-collector. This tentative budget serves as a basis of discus-
sion. Later when the commissioners’ court has completed its work as
the board of equalization, the estimated tax collections may be revised
on the basis of the equalized or assessed valuation. At any rate the
budget should report both the rendered and the equalized valuations"-
and state which one was used in the computations.

b) In estimating the current ad valorem tax collections of the vari-
ous funds, the percentage of the current levy which has‘ gone delinquent
for the past three to five years should be studied. To the percentage
used should be added the percentage of current collections which will
be deducted by the tax collector as fees. If, on the average, for the past
five years, 971/2 per cent of the current taxes have been collected by
June 30 and if the tax collector's fees have amounted to 2% per cent,
then the estimated current tax collections of each fund would be 95 per
cent of the levy.

In estimating delinquent taxes, the amounts‘ outstanding, the collec-
tions of prior years by funds, and the officer’s knowledge of the general
situation must all be considered. If during the current year, unusually
large amounts have been collected, the estimated collections of the com-
ing year must be reduced accordingly.

In order that the budget may reveal the facts, the current and delin-
quent ad valorem tax collections should be estimated as accurately as
possible. That is, they should not be understated or overstated but
should be shown at a figure which may honestly be anticipated. In
numerous instances, tax collections have been understated in order to
secure what is called a cons-ervative budget. It seems reasonable to
believe that the budget officer would be in a better position to secure
compliance with the budget if the facts were reported to the best of his
knowledge and ability.

c) The current and delinquent ad valorem tax collections should be
separated in the budget.

d) The gasoline taxes used to retire county bonds for the construc-
tion of state highways should be included in the receipts. This is legally
a county receipt even though it is used for state purposes. Furthermore
the inclusion of gasoline tax money is necessary in order to show the
total amounts of interest and principal payments and how these payments
are being financed.

6. Transfers among funds should be shown, but should not result in
duplication of receipts and disbursements. One method which works well
is to apply all transfers against receipts, thereby reaching the sum avail-
able for expenditures. For example, assuming one transfer between two
of four funds:

28 BULLETm NO. 603, TEXAS AGRICULTURAL EXPERIMENT‘ STATION

Road -
and Officers’
Jury Bridge General Salary Total
Total receipts
and balance _- $3,000 $30,000 $20,000 $20,000 $73,000
Transfers ---------------------------- -- -2,000 +2,0oo __________ --
Available for
expenditures -- $3,000 $30,000 $18,000 $22,000 $73,000

When this method is used, transfers do not appear in disbursements
at all.

7. a) The expenditures of a fund from a budgetary standpoint are
the warrants issued during the year. This is‘ particularly important in
the case of funds which are not on a cash basis. In no case should the
retirement of current warrants issued in prior years be considered an
expense of the year in question. The validity of this reasoning is’ apparent
when the purpose of budgeting is re-called. That purpose is to live
within the income and to provide as much service as possible from the tax
dollars. In order that a fund which is not on a cash basis may reach that
position, the warrants issued must be less than the receipts. The amount
by which receipts exceed expenditures represents the amount by which
the outstanding current warrants are reduced.

If any fund is not on a cash basis, this fact should be revealed in the
budget, together with the plans by which it is expected to bring the fund
to a cash basis. This procedure reveals all the facts and insures that
this important problem be given proper consideration.

b) The budget should contain all expenditures which have been made.
In some cases extraordinary expenses which are not expected to» be re-
peated have been omitted from the prior and current year’s expense. A
better method is to include but explain any such items.

c) The officers’ salary fund should be included in the budget in those
counties in which it exists. In some instances, this fund has been consoli-
dated with the general fund because under the law the general fund
must make up any deficiency which may be incurred in the ofiicers’
salary fund. The provision of a budget for the officers’ salary fund makes
the situation clear and it also reveals‘ the costs of the various offices
involved. a

d) Relief expenditures should be budgeted in the general fund. Care
should be exercised to separate direct relief expenses from such indirect
expenses as contributions to Federal projects.

e) Road and bridge expense should be classified as well as" possible
between administrative, maintenance, construction, and purchase of right-
of-way. The various salaries and other items should be listed under each
classification. When this classification cannot be made or is difficult to
make, ‘a. written explanation detailing the number of brigdes‘ built, the
miles of road graveled, and the like would add materially to the value
of the figures.

8. Defaults on bonded debt should be clearly set forth in the budget.
This information might well be placed on a separate statement showing

BUDGETING IN TEXAS COUNTIES, 1931-1940 29

the issues in default, the total accumulated principal and interest in
default, and the amounts applicableto each year. The purpose in show-
ing such defaults is to reveal more accurately the condition of the county
finances.

9. In order that the public may be informed regarding the financing
of improvements", non-revenue receipts and their disbursements should
be shown in the budget. This appli-es particularly to the use of bond
funds. Many county officials object to the inclusion of bond funds be-
cause these same amounts must later be collected in taxes, and because

' the budget officer cannot be sure in any instance that bonds will be voted

during the coming year. Because of the latter reason, bond proceeds
have generally been shown only in the preceding or the current year and
not in the budgeted year. One method of handling which satisfies the
need for revealing that bonds are being used to finance certain activi-
ties is to omit all such data from the receipts and disbursements and
merely place an explanation in the letter of transmittal. An example
of an explanation for the 1941 budget might read as follows:

In addition to the sums set up in the budget, the county will also ex-

pend the remainder of the road bonds voted in __________ __ to finanee the
construction of .............. -- miles of road.
Road Bond A sold in 1940 ______ __$500,000
Less disbursements in 1940 350,000
Estimated balance to be disbursed in 1941 $150,000

10. The tax rates should be grouped according to purpose. If five
cents of the twenty-five cent general fund rate is used for debt service,
this should be made clear. This can be explained in a footnote or it can
be shown by splitting the general fund rate in two parts, thereby show-
ing a 20-cent rate for general fund purposes and a 5-cent rate for gen-
eral fund debt purposes. This method keys up the debt statement, the
statement of requirements, and the fundbudgets.

11. The order in which the funds are listed should be the same
throughout the budget. If this procedure is followed, the funds appear
in the same ord-er in the statement of tax rates, the debt statement, and
the fund budgets‘. This makes for convenience in using the budget.

12. Where fund budgets are broken into several units, a summary
of all units should be included. If the road and bridge fund is divided
into precinct funds, a summary sheet or sheets should show the combined
totals. Similarly after showing the receipts and disbursements of each
interest and sinking fund, all interest and sinking funds should be sum-
marized. These summaries are a distinct aid in interpreting the budget
to the public as well as in the checking the accuracy and completeness
of schedules.

13. Points which are difficult to explain by figures alone should be
explained in footnotes or in supporting statements attached to the budget.
When the budget officer is undecided as to the best method of presenting

30 BULLETIN NO’. 603, TEXAS AGRICULTURAL EXPERIMENT’ STATION

certain figures, the thing to do is to choose one of the possible methods
and then attach a written explanation of the transaction. The use of
such a written explanation would, in the final analysis, allow the figures
to be presented in any one of s-everal ways without misleading anyone.

14. Each county budget should contain a written statement or letter
of transmittal explaining and interpreting the budget. The ofiicer who
makes up a budget gains an understanding of the detail which figures
alone do not transmit to other officers or citizens. The letter of trans-
mittal is a vehicle in which the procedures, the reasoning, the conclu-
sions, and the important points can be presented. It is an opportunity
to let others in on the picture. Why not take advantage of that oppor-
tunity? A

15. An index should be prepared for the completed budget. This"
index will be of most value if it is placed at the front of the budget
form.

16. A useful suggestion which many counties could follow to ad-
vantage is that tax collections from October 1 to December 31, of each
year, be treated as revenue of the year beginning January 1 following.
This procedure makes the tax collections and the budget year coincide.
It avoids the variable which is introduced when the budget year includes
a portion of two tax collection years. Wharton County follows this pro-
cedure, and it is believed that a few other counties" have adopted the
same practice.

17. The administration of the county budget will be facilitated by
checking the status of the various funds each month throughout the
year. Such a report will show the receipts and expenditures of each fund
in as much detail as may be desir-ed. If tax collections are running be-
hind the amounts anticipated, or if the budgeted expenditures are being
exceeded, these facts will be revealed in time to devise solutions.

SUMLIARY AND CONCLUSIONS

The uniform budget law applying to Texas counties has been in efiect
since 1931. Under this law the first budgets were formulated in 1932
and applied to the calendar year 1933. It is, therefore, apparent that
eight budgets should have been prepared by each county during the
years 1933-1940, inclusive. Judging by the six-year period 1935-1940,
an average of 207 or 82 per cent of the 254 counties have filed budgets
annually. At the other extreme, 11 counties filed no budgets at all dur-
ing this period.

In terms of living within the income available, the counties have done
a good job of budgeting. Eighty-three per cent of the current funds of
60 counties lived within their income in 1935. An analysis of 100 current
funds in 26 of the 60 counties for the budget year 1939 reveals that
these good results were continued and improved upon. In the case of
these 26 counties, the percentage of the funds which lived within their

Qiiliiiil-ii i

BUDGETING IN TEXAS COUNTIES, 1931-19401 31

incomes increased from 84 to 92 per cent between 1935 and 1939. These
results indicate that counties are striving to apply budgeting principles
to government.

The study also reveals that many differences of opinion still exist as
to the content and arrangement of a workable budget. This fact sug-
gests that the use of a budget should increase in value as thes-e differ-
ences of opinion are worked out and the officials gain additional confi-
dence in the possibilities. As a means of focusing attention on this
situation, the content and arrangement of a workable budget is described
under the heading: “The Essentials of a Good County Budget.”

Agreement on the proper content and arrangement of budgets, accept-
able methods of estimating figures and the like should not restrict the
initiative of the counties in preparing budgets. Even after substantial
agreement was reached concerning the existing differences of interpre-
tation, a great deal of leeway would remain concerning the exact presen-
tation. In fact, oificials should be encouraged to display ingenuity in
developing workable budgets suited to their communities. If all budgets
covered the essential points and adequate explanations were given in in-
dividual cases, the exact arrangement would be of minor importance.

There is a real need for an adequate budget manual which illustrates
the preparation of a workable budget. Such a manual should describe
the purposes of a budget, the statements which must be prepared as a
guide in estimating the “budgeted" figures, and the forms which may
be used in presenting the detail. Further, the use of Written explana-
tions, in support of accounting schedules, should be encouraged. Figures
alone offer little information to the average citizen whereas an accom-
panying explanation makes the situation clear. A letter of transmittal
might partially satisfy this need, and the remainder might be satisfied
by the use of footnotes and supplementary statements attached to the
budget.

The accounting systems of the counties should be improved, for there
is no doubt that the maintenance of a good accounting system is vital
to the preparation of an adequate budget. Furthermore, the maintenance
of proper accounts is the tool by which the budget must be adminis-
tered. The preparation of monthly control sheets showing the amounts
expended to date and the amounts remaining to be expended is dependent
on the accounts maintained. While the presence of proper accounts does
not insure good budgeting, it does make it possible. Judging by this
study, it is believed that the accounts maintained in Texas counties have
aided greatly in the administration of the budgets. At the same time it
seems reasonable to believe that accounts" have not been fully utilized
in budgeting work.

One of the important facts brought out in this study is that many
counties are applying the budget law to good advantage while others
have hardly grasped the purposes involved. This fact emphasizes the
need for some means of making the experience of the best officials known

32 BULLETIN NO‘. 603, TEXAS AGRICULTURAL EXPERIMENT‘ STATION

to the remainder of the county officials. The various associations of county
officials have carried on some educational work, and many individual
county officers have assisted the officers of neighboring counties. These
associations have discussed budgeting problems at many of their annual
conventions, and have sought in other ways, to assist new members. The
County Auditors’ Association, through its president, has actively assisted
in revising the forms and instructions for the preparation of county
budgets. These revisions" should be ready for use in preparing the 1942
budgets which are made up in July 1941. It is not too much to say
that these efforts of county officials to improve the preparation and ad-
ministration of budgets should be encouraged in every way possible.

In this connection, it is believed that the State of Texas should pro-
vide a field force to work with local officials on budgeting and related
problems of finance. The state is, or could be, in a position to serve
as a clearing house for information.

If a field force were organized under the comptroller’s office to assist
county officials, much good could be accomplished; In the beginning,
emphasis might well be placed on the accumulation of accurate infor-
mation concerning what is actually being accomplished in the counties
which are doing the best job of budgeting. The information so accumu-
lated could then be passed on to other counties. As the inventory pro-
ceeded, the major problems‘ would be revealed and the counties most in
need of assistance would be disclosed. Then the field force would con-
centrate its efforts in those counties which were experiencing the most
difficult budget problems.

Special consideration should be given those counties which have seri-
ous deficits in one or more funds. The uniform budget law merely pro-
vid-ed that after the effective date of the law, all counties should operate
on a cash basis. While it was impossible for some of these counties to
place all funds on a cash basis within the few months allowed them, it
would have been possible for the great majority of these counties to set
up plans" to reach a cash basis within a certain number of years.

It is believed that the state should have no authority to coerce local
officials, but that all cooperation should be secured on a voluntary basis.
If the situation were properly explained, both state and local ofiicials
should s-ee the desirability of working together in solving a mutual
problem. Experience has shown that the provision of assistance and
leadership is the most effective means of improving local governmental
services.

At this point, it must be emphasized that no field force could serve
the purpose unless its members were well qualified by reason of training
and experience. It is impossible for a state employ-ee to assist a local
official unless he understands local conditions and reactions as well as
the technical aspects of the job. The field force must be capable of learn-
ing from county officials as well as teaching them. Undoubtedly, one

BUDGETING IN TEXAS COUNTIES, 1931-1940 33

of the best sources of qualified field men would be the county officials
themselves: There are many qualified county officials who see far beyond
the horizons of their own offices. If such men could be induced to accept
the job of imparting their knowledge to others, no better qualified field
men could be secured. Certainly the direction of the field force should
be intrusted to one who has had first hand experience in the solution of
county budgeting problems.