[City Hall] "The budget is tight, yet you must spend it all?" | A former finance department employee explains the rampant contradictions

Hello. I am Bombay, a city hall employee.

I previously worked in the Finance Department for five years. During the budget compilation process, a battle unfolds between the project departments and the Finance Department.

Finance Department: "The financial situation is tight."
Project Department: "Make sure to spend the entire budget."

From the outside, it looks like a petty internal squabble, but this culture is quite deeply rooted.
I couldn't really understand why this contradiction arises.

"If there is no money, wouldn't it be better not to waste it?"

This may seem like common sense, but in the field of public administration, there are "structural circumstances" that make it not so simple.

In this article, based on my actual experience, I would like to put into words the "mysterious world of budgets" in public administration.

1. Is it true that "the city's financial situation is tight"?

When you are in the Finance Department, you have many opportunities to explain to the assembly and citizens that "the finances are tight."
This is half true and half a "defensive preamble."

For example, in my local government, even though we were withdrawing about 1 billion yen from the fiscal adjustment fund (the city's savings) in the initial budget at times, we were able to set aside almost the same amount by the end of the fiscal year.

In other words, even if it looks like a deficit, it returns to a surplus in the end.

What most people focus on is the "initial budget."
This is the apparent tightness of "not being able to compile a budget without dipping into savings."
But by the time the year ends, it is often paid back.

Of course, the content of "tight" is not just a lack of money; it also includes the meaning that mandatory expenses such as personnel costs, assistance costs, and public bond costs account for the majority of expenditures, and there is little money that can be used flexibly.
(If you are interested, please look up "current balance ratio.")

Nevertheless, this phrase is often used with the intention of "wanting to tighten assessments" or "wanting a reason to cut projects."

When you don't know the big picture, you sometimes feel uncomfortable with the ambiguity of how much is the truth and where the excuses begin... while working in the field.

2. The bargaining that unfolds at the assessment site

In my local government, we conduct budget compilation using a method called "item-by-item assessment," where every project is scrutinized and built up.

In public administration, you cannot spend money unless the assembly approves the budget, so when compiling the budget, budget requests are made with a little margin added to the actual expenses.

The Finance Department's assessment is the work of identifying the appropriate amount through a two-stage filter:
1) Is it a necessary project? 2) Is it the minimum necessary amount plus an appropriate margin?

For requests that come up from each department, we ask "why is that amount necessary?" and assess (reduce) those with insufficient grounds or excessive amounts.
However, there are not many employees who can actually explain the grounds clearly.

Many requests are based on the previous year, following the "same as last year" approach.
Because 1/3 to 1/4 of the staff rotates every year due to transfers, if past circumstances are not documented, the rationale for the budget becomes unclear.

Against this backdrop, bargaining between the requesting side and the assessing side has become the norm.

For example...

• Requesting side: "If we estimate on the high side, we won't be in trouble even if it gets cut a little."

• Finance side: "Looking at the past execution rate, you shouldn't need that much."

In exchanges like this, the "optimal amount" is put on the back burner, and the fate of the budget is sometimes decided by who has better negotiation skills.

3. The culture of "if you don't spend the budget, it will be reduced"

What I found most unsettling was the atmosphere of "if you don't spend it all, it will be reduced next year, so just spend it on anything.".

One year, I overheard a department head in charge of administrative reform giving this instruction to their subordinates:

"We have budget left over, so buy some office supplies in bulk."

I was shocked that a department promoting administrative reform would do such a thing.

Why does this happen?

It is because there is a system where leftover budget is judged as unnecessary and is reduced the following fiscal year.

Fearing this, the front lines prioritize "spending it all, even if it's wasteful."
Especially at the end of the fiscal year, this "last-minute purchase of supplies" has become the norm.

4. The budget system itself is not suitable

At the root of this problem is the design of the administrative system.

• Single-year principle: The premise of spending the budget within one year

• Previous year's precedent: Past performance directly affects the next fiscal year

• Emphasis on execution rate: Whether or not it was spent is what is evaluated

In my local government, the budget is compiled in the following flow.

• October: Autumn Review (Organizing policies for the next fiscal year)

• November: Budget requests

• November–December: Hearings → Finance Department assessment → Department head assessment

• January: Mayor's assessment and informal notification

• February: Formal notification (Completed)

Even a budget that took half a year to compile in this way becomes difficult to use once the fiscal year begins and social conditions change.
Even so, as a general rule, while additions can be made via supplementary budgets, flexible reallocation is difficult.

I feel that this makes it difficult to manage administration in a way that responds to an era of rapid change.
In fact, the number of times supplementary budgets have been compiled since the COVID-19 pandemic has doubled, leading to a situation where one wonders what the point of the tight initial budget assessment was.

5. Administration has evaluation criteria that are the exact opposite of those in the private sector

The biggest issue with this structure is that 'not spending' is not rewarded.

In private companies, people who reduce expenses and generate profit are rewarded.
However, in administration, if you do not spend the entire budget, it is deemed 'unnecessary' and the budget is reduced.

Even in the assembly, if there is a large difference between the budgeted amount and the settled amount, it is sometimes pointed out that 'the project was not carried out properly.'

Ideally, those who achieve results while keeping the budget down should be the ones rewarded.

However, the system does not allow for this, and the finance department also tends to focus only on 'cuts' right in front of them, sometimes failing to see the significance or results of the projects themselves.

We need to move toward an administration that is evaluated not by 'how much was spent,' but by 'what results were achieved.'

Although still a minority, some local governments have begun to move toward viewing 'not spending' as 'excellent.'

The original purpose of administration is to improve the lives of citizens.
Budget execution is merely a means to that end.

Especially in local governments that compile budgets through individual item assessments, I believe the ideal operation is 'to provide sufficient budget for necessary projects' and 'to reward those who achieve results while keeping expenses down'.