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Cost Elements to Consider in Budgets
The agency has to provide for many things that cost money. Some of these
things are unavoidable, or can only be avoided at large political cost or may take a long
time to avoid. Others can be postponed or avoided easily. To understand what money the
agency has left to use on matters that may interest the reader, an understanding and
analysis of what the agency has to pay for is useful.
Unavoidable Costs:
 | Payroll. The agency has to
meet its payroll first. Personnel compensation and benefits costs are incurred by people
employed by the agency, and short of implementing a "reduction in force" (or
RIF) there is no way to reduce the payroll in the short term. (The agency will avoid a RIF
like the plague.) The payroll is made up of salaries paid, costs of benefits (agency
contributions to retirement programs and health benefits), and various payments, such as
overtime and holiday pay.
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| Facilities and related costs.
After taking care of meeting the payroll, the agency must pay for the facilities used by
the workers on the payroll plus additional requirements, such as laboratories. These costs
can include rent (if the facility is rented) utilities (electricity, natural gas or
heating oil, and water and sewer charges), janitorial services, guard services, trash
removal, exterminator services, and other items.
 | Facilities costs become especially significant if the agency faces a
burden for new facilities, either due to expansion or obsolescence or advanced age of
existing facilities.
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| Most Federal agencies do not have a capital replacement budget.
When new facilities are needed, capital expenses are considered part of the operating
budget, creating serious pressure on all other uses of funds.
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Politically Unavoidable Costs
Agencies sometimes have to provide funding for items that may seem to be
discretionary, but in reality cannot be avoided. These costs may be associated with
the support of powerful stakeholders (such as continued funding for grants programs for
state governments) or with the desires of powerful players in the system (for example, key
members of the Appropriations Committees).
Discretionary Costs
After unavoidable or non-discretionary expenses are taken care of,
discretionary funding remains. However, even these funds may be less discretionary
than may appear. In analyzing funds availability, the prior demands on these funds
need to be considered. These prior demands include:
| Continued funding for projects (contracts, grants, etc.) with multi year
project periods.
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| New policy developments that dictate that funding be directed in
specific ways based on prior year decisions.
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| Increased funding demands for continuing projects, not specifically
accounted for by budget increases.
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After all these factors are taken into account, there may be little left
that is truly discretionary funding in an agency. Finding these funds is a true
challenge for a budget analyst.
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