In building a budget of any scale, it is necessary to consider many details. The most standard budget requirement is the excess of revenues over expenditures, which ensures the continued functioning of the organization. However, in some cases, this rule may be violated. The purpose of this essay is to analyze the statement to the city council regarding the proposed unprofitable budget and the specifics of making such a decision.
First of all, it should be noted that the excess of expenditures over income is initially included in the budget. While the initial reaction is rather adverse, as such budget planning is unusual, there are several additional points. Since this is the second year in a row this approach has been adopted, which means it was approved and successfully implemented the previous year. This means that the city council has accumulated funds and can afford to plan a negative budget with the expectation that an excess of spent funds is indispensable. Consequently, the increase in costs is due to a specially created surplus of money, which can now be spent without compromising vital programs.
Thus, the city council has the opportunity to invest surplus back into the community, addressing issues from improving infrastructure to investing in education (Francis & Randall, 2017). Such budget planning, which includes storing funds and then spending them on targeted needs, may exist and does not deserve a strictly negative assessment.
However, there are methods by which this situation could be resolved much more efficiently. Accumulating funds for their subsequent spending within the framework of a negative budget is a somewhat risky strategy. If there are any critical situations, the gap between income and expenses will become even more massive, and budgetary reserves will be at risk. Therefore, they can use the strategy of creating special funds explicitly aimed at investing back into the community. Such organizations are currently widely found in private and public formats (“Community Investment Fund,” n.d.). Such entities can improve the lives of the community on an ongoing basis without creating a risky situation for the budget.
Thus, the strategy used by the city council is somewhat risky but possible. However, this kind of money management requires very precise control and planning to prevent a complete budget collapse in an emergency. Therefore, it is recommended to set aside a separate organization that invests in the community on an ongoing basis rather than periodically.
References
Francis, N., & Randall, M. (2017). Investments in the community. Urban Institute. Web.
Community Investment Fund (CIF) (n.d.). Government of New Brunswick, Canada. Web.