American Institute of Certified Planners (AICP) Practice Exam

Which of the following best describes a major drawback of line item budgeting?

1. High comprehensiveness

2. Alignment with strategic objectives

3. Rigidity in financial management

4. Ease in public understanding

The correct answer is: Rigidity in financial management

Line item budgeting is known for its structured approach, where expenditures are categorized by specific items. This system offers detailed accountability but also has a significant drawback: rigidity in financial management. This rigidity arises because line item budgets do not easily accommodate changes in funding priorities or allow for flexibility in how funds are used. For example, if a department has surplus funds in one line item but a deficit in another, they often cannot reallocate those funds without a formal budget adjustment process. This can hinder adaptive management and responsiveness to changing needs or circumstances. In contrast, other budgeting approaches, such as program or performance budgeting, offer more flexibility by focusing on broader financial goals and allowing for adjustments based on strategic objectives. Thus, while line item budgeting provides clarity and simplicity, it often lacks the flexibility needed in dynamic environments, making it less responsive to changing financial needs and priorities.