22 fiscal year – dominates. However, with predictable revenue – even if it is low –
incremental budgeting will be the norm.
2.2.3 Theoretical Implications for State Responses to Fiscal Stress
As discussed in the previous section, researchers have identified several practices associated with the incremental method of budgeting, specifically in times of fiscal stress.
Across-the-board cuts, or at the very least not using targeted cuts, are described as indicative of the incremental method. In addition, the use of opportunistic reductions in
expenditures and the lack of a discernable strategy or method in dealing with fiscal stress are also described as elements of a decremental strategy. The use of rainy day funds are
not mentioned in relation to incrementalism, although this is more likely due to a research focus on municipal units of analysis than on anything else. Aggregate data on localities
does not differentiate between funds for annual expenditures and rainy day funds Wolkoff 1999, making it difficult to determine which municipalities use rainy day
funds and their balances. Based on my review of incremental budgeting theory, rainy day fund use neither confirms nor contradicts incremental budgeting. Also using a rainy day
fund can be categorized as opportunistic and allowing the continued avoidance of upsetting particular interest groups or agency heads. Also, to avoid upsetting budget
stakeholders and avoid a comprehensive look at budget allocations, incrementalism suggests budget cutters will look to the easiest areas to trim. Opportunistic cuts include
hiring freezes and slashing non-mandatory expenditures Wildavsky 1986. A nuisance of incremental budgeting, particularly in times of fiscal stress, is that when state decision-
makers cannot confidently or accurately predict their revenue flow within a fiscal year the budget then must be made and remade. The practice of repetitive budgeting involves
adjustments to budgeted expenditures throughout budget execution, as revenue repeatedly misses targeted amounts.
23
2.2.4 Criticisms and Limitations of Theory
Since incrementalism has been the dominant theory of public budgeting for nearly 50 years, criticism of it is abundant and varied. Much of the criticism focuses on the
empirical work that uses the theory as a framework for understanding practical application – critics question the methodology used by Davis et al 1966, the unit of
analysis, and the definition of an increment Swain and Hartley 2001; Natchez and Bupp 1973; Gist 1982; Berry 1990. Other criticism concerns the analytical and descriptive
aspects of the theory. That is, some researchers equate incrementalism to a historical period of steady, across-the-board increases and not representative of current budgeting
practice. Others question incrementalism’s usefulness in periods of revenue decline in addition to its adherence to a strictly non-rational orientation of budgeting Rubin 1990;
Schick 1983; Bozeman and Straussman 1982; LeLoup 1978; Premchand 1983. Of particular interest for the present study are criticisms concerning incrementalism’s
description of the budget process. A persistent criticism of incrementalism centers on its portrayal of the budget
process, as legislatively dominant, comprised of political trade-offs among multiple budget actors with only marginal adjustments made to the budget year after year.
Scholars offer several different conceptions of how the budget process functions. For instance, the budget process is described as both top-down and bottom-up by Bozeman
and Straussman 1982 in their critique of the theory. In their view, budgeting, at least since the Budget and Accounting Act of 1921 which created a federal executive budget
process, a central budget office – now the Office of Management and Budget – the General Accounting Office – now the Government Accountability Office has had both
top-down and bottom-up elements. The authors argue that as chief executives face constrained revenues, top-down management will undermine the incremental nature of
budgeting. The 1974 Congressional Budget and Impoundment Act; that created budget committees, the Congressional Budget Office, and changed the fiscal year, among other
24 actions, is also credited with fundamentally changing the U.S. budget process and moved
the process further away from incremental budgeting LeLoup 1988. Although the terminology differs LeLoup and Schick refer to micro- and macro-
budgeting as opposed to top-down and bottom-up budgeting, the result is the same – chief executives, those in the legislative branch, program managers and other budget
decision-makers are increasingly using non-incremental budget strategies. That is, throughout the 1970’s and 1980’s, as economic and political environments changed,
budget practices diverged from the predominant theory Rubin 1990. According to scholars critical of incrementalism, the theory may have been an accurate description of
budgeting for a limited, historical time period but starting in the 1970’s certain factors including the growth in mandatory spending, entitlements, and reduced revenues reduced
its accuracy Rubin 1990; Schick 1983; Bozeman and Straussman 1982. In line with Schick’s discussion of macro budgetary adaptations, Premchand 1983
suggests that the tasks performed by the government and the decision-making approaches they undertake are too complex to be described as simply incremental and non-analytical.
While warning against overly rationalist, comprehensive descriptions of budgeting, Premchand 1983 explains that budgetary decision-making may include goals, strategies,
and an overarching framework without being unrealistic or even exceedingly rational. Some of the macro budgeting adaptations highlighted by Schick 1986 underscore this
point: countries such as Australia, Sweden, Finland and Britain have adopted fiscal rules, targets and expanded multiyear budgeting.
Closely related to critiques of incrementalism as only useful for limited historical periods are those that claim the theory does not accurately describe budgeting in periods
of revenue decline Schick 1983; Bozeman and Straussman 1982; Rubin 1990. These criticisms share a common interpretation of incrementalism; that it assumes growth will
create a positive increment. Schick 1983 also points to the instability of ‘decremental’
25 budgeting – when revenue decline is substantial, decision-makers may have to consider
or reconsider significant budget changes in order to reach balance. Although these criticisms have merit, using a slightly more flexible definition of
incrementalism, as Wildavsky 1986 does, allows for a broader application of the theory and, perhaps, a more complete picture of the public budgeting process and outcomes. As
mentioned, several scholars have used incremental theory to investigate budgeting in periods of both revenue growth and decline Downs and Rocke 1984; Rickards 1984;
Lewis 1984 while others define strategies in periods of revenue decline as both incremental and non-incremental Hackbart and Ramsey 2004. As noted by Swain and
Hartley 2001 incrementalism still provides a better description of budgeting than other theories and perhaps more importantly, describes the characteristics of budgeting –
political process, limited human capacity for review, and agencies’ desire for increased funding– such that most subsequent descriptions of the budget process build on
incremental theory.
2.3 Punctuated Equilibrium 2.3.1 Background and Description of Theory
