The objective of this research is to determine the existence of systematic biases of municipal budget variances and the direction of any biases using a sample of Texas municipal governments. We first calculate budgetary variances based on the final budgets, and find local governments report disproportional favorable variances for both total revenues and total expenditures. The direction and magnitude of favorable variances are especially extreme for total expenditures. Then, we recalculate budgetary variances using the original budgets, but this time we find some of the favorable variances disappear and a few even turn into negative. Furthermore, budgetary variances calculated for individual revenue sources and expenditure line items show similar patterns as those for total revenues and total expenditures. Collectively, our results provide additional support that local governments put more emphasis on revenue budget accuracy, but may intentionally create budgetary slack for expenditures. Finally, we analyze budget disclosure for local governments and identify some common factors contributing to budgetary amendments and budgetary variances from political, economic, and organizational perspectives.
governmental accounting, budgets variances