A budget ceiling is a metaphorical, not literal, ceiling.
"Budget ceiling" is a financial term that applies to various budgeting situations. The term means more or less what it seems to mean at first glance, though the extenuating circumstances surrounding its use provide a deeper and more complex understanding of its meaning. Like many financial and economic terms, budget ceiling seems rather innocuous, but in fact relates to a number of pertinent concerns throughout the world, particularly in developing nations or those struggling in the wake of the global financial crisis.
Budget Ceilings
Also known as a budget constraint, a budget ceiling represents that maximum point of a budget, or its cap. When a project reaches its budget ceiling, funds are depleted. Two types of budget ceilings exist: those imposed by some sort of authority as a means of controlling expenditure within a certain sector, and those imposed by extenuating circumstances such as the state of the global economy. The former type of budget ceiling occurs deliberately, when a governing body decides to cap expenditure. The latter type of budget ceiling occurs as a result of a series of external economic forces beyond the control of any one person or group of persons.
Budget Ceilings and Governments
The term "budget ceiling" most commonly applies to national budgets. Nations calculate budget ceilings on an annual basis, in accordance with revenue generated through taxes, fees, fines and more. With a budget ceiling in mind, the government allots funds for all public projects for the coming fiscal year. Governments can raise budget ceilings by raising taxes.
According to a report published by nonprofit organization Health GAP, budget ceilings imposed on developing nations by limited revenue streams resulting from post-colonial woes, such as foreign corporations taking and selling important natural resources such as diamonds and oil, pose tremendous problems. Uncontrollable budget ceilings limit resources available for education, health care and infrastructural development, making it difficult for such countries to modernize. Organizations such as the International Monetary Fund provide loans to these countries to raise the budget ceiling.
Budget Ceilings within Governments
Governments create budget ceilings for each public project based on the overall budget ceiling. Some of these projects create budget ceilings for projects within projects, particularly in highly bureaucratized nations such as the United States. For instance, the United States government apportions part of its budget each year to the National Science Fund. The amount provided to the NSF represents the project's budget ceiling -- it gets no more money for the year. The NSF must create its annual budget based on this ceiling. When the NSF awards grants for science projects, each grant project has a budget ceiling for the total project and for each project awarded a grant. For example, the 2009 NSF grant for High-End Computing University Research Activity had a budget ceiling of approximately $10,000,000, though each project awarded a grant had a ceiling of $1,000,000.
More Information on Budget Ceilings
Budget ceilings apply to myriad other contexts, most often business. Each company has a budget ceiling. This ceiling constitutes the remainder when a company subtracts all of its expenditures, from salaries to manufacturing costs and taxes, from its net profits and adds new investment capital. Within a company, different departments, projects and operations also have budget ceilings. Companies place more budget constraints on departments or projects in times of economic hardship or in order to increase profit margin by reducing expenditures.
Technically, any project with any funding whatsoever, be it a peewee football team, public school, lemonade stand or independent film production, has a budget ceiling.
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