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Government Budget Forecasting

704 words | 3 page(s)

I think the statement: ‘Forecasting in public budgeting is always going to be wrong, therefore it is a waste of time.’ is false because there is a reasonable reason to forecast in public budgeting, which is “to err [and to] plan… [That means to] acknowledge and deal with errors” (Swain and Reed, 2010). The three ways to handle with forecasting errors are “intentionally building a bias toward safety in the forecasting techniques, monitoring actual values relative to forecast ones, and preparing for unfavorable forecasting errors by making arrangements for or actually taking corrective actions” (Swain and Reed, 2010).

Forecasting in public budgeting is very important because by doing so; we can avoid making too many errors. We can use three ways to handle forecasting errors. One way is to “slightly biasing or slanting forecasts toward whichever direction would leave [the government] with more money or resources on hand” (Swain and Reed, 2010). For examples, out of approximately 35,182,000 elementary students in the public school in the U.S., the proficiency of 4th graders in Math in 40%, according to K-12 Facts in 2015 from the Center for Education Reform, 2016. There might be an additional funding towards training educators and provide resources to improve the academic performance.

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The forecast of such budget should be set within the range of $100 billion to $200 billion, hypothetically. This way there is a buffer zone for errors to the exact amount. If the funding is $150 billion, let’s say, then there will be $50 billion available, in case needed. “[A] slight bias means one that is within the range of what a forecaster can reasonably expect a forecast value to be” (Swain and Reed, 2010). This way of resolving forecasting error also avoid “… people with opposing views might do the opposite … [, that is when] some policy-makers who want to spend more money bias revenue forecasts up and expenditure forecasts down; other policy-makers take the opposite stance” (Swain and Reed, 2010).

Another way to deal with forecasting errors is to “[observe] actual values to see how closely they conform to forecast value and being open to deciding that forecasts erred” (Swain and Reed, 2010). Using the same example of the funding for U.S. public schools, a forecast on whether 1.5 billion would be sufficient through a thorough report can indicate possible problems beforehand. More useful and appropriate resolutions that are thought ahead of time can be applied when needed. “Early observations of possible problems and early reactions … make the required corrective actions less severe” (Swain and Reed, 2010).

The third way to deal with forecasting errors is to take “some corrective actions [that] can be implemented before problems actually arise … [, such as] central offices or administrators retaining some expenditure authority or other financial reserves, making contingency plans for reducing expenditures or increasing revenues, and making arrangements for credit” (Swain and Reed, 2010). Applying the same example we have been discussing, on top of allotted extra amount of funding just in case there is a need, we can also compose a collection of contingency plans for various situation might follow with the funding. Let’s say there are schools that need more funding on special needs programs, such as speech therapy, occupational therapy, and physical therapy, in schools with a majoring population of special needs students. The funding that is originally allotted to all public schools evenly might not be sufficient to these particular schools. Contingency plans come into play in this case. Given to each school’s individual situation, the plans can categorized with the different needs along with the matching allotted funds. This way, schools that are in high needs can also benefit from promoting our future leaders appropriately. “Corrective actions to implement after problems arise include implementing prepared plans … [plus] rescinding expenditure authority, freezing expenditures, and reformulating expenditure plans” (Swain and Reed, 2010).

In conclusion, the given statement about forecasting is a waste of time and wrongdoing is false. We should always hope for the best and plan for the worst. Therefore, when working on government budgeting, same theory should apply. We should have forecast for errors and have contingency plans ready to be used. “Building a bias, monitoring actual values, and preparing for unfavorable forecasting errors” (Swain and Reed, 2010) are three great and useful ways when dealing with forecasting errors.

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