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What Is a Funding Shortfall?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 21 November 2016
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A funding shortfall is a lack of money to meet projected needs. Such shortages are a particular concerns for governments and non-governmental organizations that provide services to members of the public. There are a number of reasons why there may not be enough money available, including a shortage in revenues and lack of payments on the part of participants in a fund or organization. For example, United Nations members must pay dues used to provide services, and if they fail to do so, individual agencies might not be able to operate.

Budgeting includes a number of calculations to determine projected expenses as well as sources of money to cover them. This can include discussions of old debt that may need servicing as well as obligations, like ongoing bond payments, and future needs. Discussions of expenses are contrasted with revenues to determine if enough money will be available, and to make adjustments if there are problems. In some cases, agencies or governments may move forward without a balanced budget in the hopes of resolving the issue later.

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The development of a funding shortfall means that there is not enough money to cover budget expenses. One reason can be a poorly balanced budget, or a fall in revenues that wasn’t anticipated. A classic example can occur with property taxes when the value of real estate drops. Community agencies counting on set revenues from property taxes might be left without enough money when property is reassessed and the rate is lowered to reflect the reduced value.

Options to resolve the issue can include taking out loans, which can create problems in the future, along with increasing appropriations. Governments could increase the tax rate, while organizations might request more donations to meet an immediate need. While dealing with a funding shortfall, an organization may be asked to provide financial disclosures to demonstrate how it happened and provide information about how it is being dealt with. This information is used by potential investors, legislators, and lenders to determine whether the organization is acting responsibly, so they can decide whether the shortfall should be addressed.

An unaddressed funding shortfall may lead to serious consequences. It may not be possible to provide needed services to members of the public who rely on them, which can create a ripple effect. In addition, it can lead to higher future expenses associated with resolving the issue and meeting funding gaps in other ways. For example, a funding shortfall at an agency that subsidizes health services might leave patients without access to reliable treatment, which could increase the burden on emergency rooms when people grow critically ill.

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