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2012-01-19 21:46:01

Municipal Budgeting
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  1. Budget Basic
    • The budget process should:
    • a. Incorporate a long-term perspective
    • b.Establish linkage to broad organizational goals
    • c.Focus decisions on results and outcomes
    • d. Achieve consensus on decisions related to goals, services, and resource allocation
  2. Budget Reform Types - Six
    • Executive Budgeting
    • Performance Budgeting
    • Program Budgeting
    • Program-Planning Budgeting
    • Zero-Based Budgeting
    • Budget Allotment
  3. Executive Budget

    • a.Control of budget preparation lies with
    • the Chief Executive Officer/City Manager
    • b. Earliest version used a simple line item
    • format
    • c. Cities and states were the first to adopt
    • this format
  4. Performance Budget
    • a. First major reform after Executive Budget format
    • b. Emphasizes purpose and accomplishments
    • c. Primary features are efficiency and effectiveness measures
    • d. Expenditures are based on measurable performance of activities and programs
    • e. Sets primary focus on evaluation of the efficiency of existing activities
  5. Program Budget
    • A budget wherein expenditures are based on program of work and on character and object class (GFOA definition)
    • Organized by major programs
    • Enables comparison of the costs and benefits of major programs
    • May encourage micro management of
    • department activity by CEO or legislative body
  6. Program Planning Budget
    • Originated by Department of Defense
    • Identify most cost effective way to achieve goal
    • Successful at DOD where results were
    • easily quantified
  7. Zero Based Budgeting
    • a. Continued existence of programs and activities must be justified every year and not taken for granted
    • b. Purpose is to force conscious decisions
    • between disparate goals
    • c. designed to address the appropriateness
    • of each goal, rather than the most cost effective program to achieve the goal
  8. Budget Allotments
    • A portion of the budget is allocated to an interim period based on historical
    • spending patterns and needs
    • Advantages include:
    • avoidance of rushed year-end spending
    • Aids in cash flows
    • Provides for inventory planning needs
  9. Aspects of the Budgeting Function
    • Financial: plan for future revenue collection and spending
    • Political: resolve conflicts due to allocation of scarce resources
    • Planning/Analytical: Effectively use
    • government resource tools, such as, costbenefits analysis, cost effectiveness, net present value analysis and strategic planning
  10. Aspects of the Budgeting Function Continued
    • Administrative: effectively coordinate the preparation of the budget and ensure expenditures are made in accordance with the adopted budget
    • Communicative: provide information that will assist with choices and promote stakeholder participation in the budget process
    • Strategic Planning: define the direction of making decision on allocating resources, link to budget, be outcome driven and be supported by elected officials
  11. Six Phases of Budget Process
    • 1. Budget manual (call)
    • 2. Agency/Department budget
    • requests
    • 3. Preparation of the proposed budget
    • 4. Legislature consideration and adoption
    • 5. Implementation
    • 6. Audit and evaluation
  12. Budget Manual
    • Responsibility for initiating budget cycle rests with the CEO, usually City Manager or Mayor
    • Budget call or manual is instructions sent to agency and department heads concerning the submission of information for the budget year
  13. Budget Manual Continued
    • Statement from CEO or budget officer outlining fiscal position
    • Description of budget process Budget calendar
    • Assumptions to be used for requests
    • Forms to be used with instructions
  14. Phase 2 Budget Requests
    • Prepared by Agency/Department
    • Budgets usually begin as requests that contain three items
    • 1.Budget schedules that detail the amounts requested, usually in line item format
    • 2. Supporting documentation
    • 3. Transmittal letter that describes the agency/department and provides justification for its major objectives and initiatives for the budget year

  15. Phase 3- Preparation
    • Budget staff reviews requests to ensure:
    • Compliance with priorities and objectives in budget manual
    • Revenues and expenditures balance
    • Revenue estimates are realistic and within guidelines, DOR provides information about revenue to local governments
    • Budget staff compile requests into a single budget document that is submitted to the legislative body for review
  16. Phase 4- Legislative Adoption Budget
    • Executive proposal is presented to legislative body for consideration
    • Legislative body reviews to ensure the budget addresses their constituents’ needs
    • Public hearings in compliance with State Statutes dictate:
    • Date, Time, and Place of hearings
    • Publicized hearings that give citizen interest groups the opportunity to raise issues related to the allocation of resources
  17. Phase 4- Legislative Adoption Continued
    • Budget document should:
    • a. Include a transmittal letter that outlines key
    • policies and strategies
    • b. Be readable and understandable
    • Chapter 200, F.S. Truth in Millage (TRIM)
    • Requires two public hearings for open
    • discussion of millage rates and budgets of
    • taxing authorities
    • Sets the maximum operating millage for cities
    • and counties at 10 mills
    • Provide summary information for the public and media
  18. Phase 4- Legislative Adoption Continued 2

    • Chapter 200, F.S. TRIM (continued)
    • 1. Requires taxing authorities to utilize a minimum of 95% of the certified taxable value
    • 2. Requires taxing authorities to advise property
    • appraiser of its proposed millage rate, its
    • rolled-back rate, and public hearing information
    • within 35 days after receipt of certification of
    • value by Property appraiser.
    • 3. Defines a “county of special financial concern” as a county where 1 mill will raise less than $100 per capita
  19. Phase 4- Legislative Adoption Continued 3
    • Requires certification of statutory compliance be sent to Department of Revenue
    • Chapter 200, F.S. TRIM (continued)
    • Allows taxing authorities to readopt its prior
    • year’s adopted final budget, as amended, and
    • expend moneys based on that budget until such time as its tentative budget is adopted if the fiscal year of the taxing authority begins prior to adoption of the tentative budget.
  20. Phase 5- Implementation
    • Budget officer implement
    • Establish and record budget as approved by legislative body
    • Start new fiscal year
    • Establish position control based on
    • approved positions, job description and pay rate
  21. Phase 6- Audit and Evaluation
    • Budget officer monitors quarterly or monthly
    • Report actual compared to budget
    • Make budget adjustment as necessary
    • Monitor progress toward objectives
  22. Multi-Year Budgeting Types
    • Classic (traditional)
    • Both the spending and revenue plan for each budgetary year are approved at the same time
    • Rolling
    • Each year’s appropriations are adopted in each subsequent year
    • Recommended
    • Governments should prepare multi-year expenditure projections
  23. Multi-Year Budgeting Advantages
    • Improves
    • Financial management
    • Long-range strategic planning
    • Program monitoring and evaluation/benchmarking
    • Reduces staff time in budget development
    • Links operating and capital activities/spending
    • Reduces surprises
    • Pinpoints problem areas early
  24. Multi-Year Budgeting Disadvantages
    • Difficult to project into the future
    • Could reduce responsiveness to emergencies if too restrictive
    • Initial year may increase work and
    • stress in departments
  25. Multi-Year Budget Safeguards
    • Amend existing financial and budget
    • policies and procedures addressing:
    • Allowance/disallowance of carryovers from one year to the next
    • Level of acceptance of budget adjustments, if any
    • The amount of revenue reserves that can be used for unanticipated expenditures
  26. Accounting Basis
    • Governmental fund types:
    • Used to account for most, if not all, of a government’s taxable supported activities
    • Uses modified accrual basis of accounting which recognizes revenue when measurable and available
    • Five types:
    • General fund
    • Special Revenue funds
    • Debt Service funds
    • Capital Projects funds
    • Permanent funds
  27. Accounting Basis- Continued
    • Proprietary funds:
    • Used to account for a government’s businesstype activities and serves internal and external customers
    • Uses accrual basis of accounting which recognizes revenue when earned and measurable
    • Two types
    • External – Enterprise funds
    • Internal – Internal service funds
  28. Accounting Definitions
    • Encumbrances: obligations incurred for which receipt of goods or services have not occurred
    • Mandate: when a higher level of
    • government requires a lower level of government to perform a specific task or to meet a standard
  29. Fiscal Policies
    National Advisory Council of State and Local Budgeting (NACSLB)
    • Four principles of the budget process
    • Twelve elements each of the four
    • principles of the budget process
    • incorporates at least two of the
    • twelve elements to help translate
    • the guiding principles into action
    • components
  30. NACSLB- 4 Principals
    • 1. Establish broad goals to guide government decision making
    • 2. Develop approaches to achieve goals
    • 3. Develop a budget consistent with approaches to achieve goals
    • 4. Evaluate performance and make adjustments
  31. NACSLB- Establish Broad Goals
    • Assess community needs, priorities, challenges and opportunities
    • Identify opportunities and challenges for government services, capital assets, and management
    • Develop and disseminate broad goals
  32. NACSLB- Develop Approaches
    • Adopt financial policies
    • Develop programmatic, operating, and capital policies and plans
    • Develop programs and services that are consistent with policies and plans
    • Develop management strategies
  33. NACSLB- Develop Budget
    • Develop a process for preparing and adopting a budget
    • Develop and evaluate financial options
    • Make choices necessary to adopt a
    • budget
  34. NACSLB- Evaluate Performance
    • Monitor, measure and evaluate performance
    • Make adjustments as needed
  35. Operating Budget Policies
    • 􀂀Define a balanced operating budget
    • 􀂀Develop with goal to maintainstructurally balanced budget(balance between operatingexpenditures and operatingrevenues)
    • 􀂀Identify who is responsible forbudget preparation - management
  36. Revenue Policies
    • 􀂀How much change in the propertytax rate is acceptable in a givenyear
    • 􀂀How will one-time revenues be used
    • 􀂀How frequently should servicecharges and fees be reviewed
    • 􀂀 Example:
    • 􀂃 Contribution
    • 􀂃 Savings from bond issue
    • 􀁼 Don’t budget
    • 􀁼 Not used for ongoing expenditures
  37. Fund Balance Policies
    • GFOA recommends a formal policybased upon a government’s ownspecific circumstances
    • 􀂀Establish level of Unrestricted FundBalance to be maintained in GeneralFund based on:
    • 􀂃 Predictability of its revenues
    • 􀂃 Volatility of its expenditures
    • 􀂃 Risk to significant one-time outlays (disasters)
    • 􀂃 Commitments and assignments (not included)
    • 􀂃 Conformity with legal and regulatory constraints
  38. Stabilization Policies
    • 􀂀To guide the creation, maintenanceand use of resources for financialstabilization purposes
    • 􀂀Identify purpose for which funds canbe used
    • 􀂀Also referred to as rainy day funds,unreserved, undesignated fundbalances and contingency funds
  39. Contingency Planning Policies
    􀂀Guide financial actions that will takeplace in the event of emergencies,natural disasters or otherunexpected events
  40. 􀂀General guide to improve the abilityto take timely action and to aidmanagement when an emergencyoccurs
  41. Debt Policies
    • Should guide issuance and managementof debt
    • 􀂀What is the maximum long-term debtburden that the government will incur
    • 􀂀What mix of long-term debt and currentrevenues, if any, will be the basis forfinancing capital improvements
    • 􀂀How will bond proceeds be used
    • 􀂀Under what conditions will short-termdebt be used
  42. Develop Managemetn Strategies
    • 􀂀Develop mechanisms for budgetarycompliance
    • 􀂃 Appropriate management processes andsystems should be in place to ensurecompliance with the adopted budget
    • 􀂃 Institute procedures to review budgetperiodically (actual-to-budgetcomparisons)
  43. Cost of Government Services
    􀂀Full Cost – Encompasses all direct andindirect costs related to that service
  44. 􀂀Direct Cost – salaries, wages andbenefits of employees workingexclusively on the delivery of theservice and materials and supplies andother associated operating costs
  45. 􀂀Indirect Cost – shared administrativeexpenses in the work unit and insupport functions outside the work unit
  46. Cost of Government Services (Continued)
    • Life-cycle costs - Include costs inaddition to purchase price over thelife of an asset such as maintenanc eand repairs, failure costs(downtime) and money costs(interest and opportunity)
    • 􀂃 This concept is useful for decisions involving the purchase of major equipment
  47. * Opportunity costs – The benefit ofan option that is forgone by choosinganother option (loss benefit)
  48. 􀂀Sunk costs – A cost that has been incurred and cannot be reversed
  49. 􀂃 Should be ignored when evaluating future decisions
    Marginal Cost – Associated withexpansion of a service without anyincrease in fixed costs (unusedcapacity)
  50. Performance Measurement
    􀂀Performance measurement - processto determine if a program isaccomplishing its mission
  51. 􀂀Four key steps:
    • 􀂃 Identify and define indicators
    • 􀂃 Collect appropriate data
    • 􀂃 Analyze (compare) performance toprevious results or benchmarks
    • 􀂃 Report results
  52. Performance Measures
    • 􀂀Input – resources used in producing anoutput or outcome
    • 􀂃 Outcomes measure intended results
    • 􀂀Output – completed activity, amountof work done within the organization
    • 􀂃Workload – the level of productivity toprovide goods and services to customers
    • 􀂃Workload emphasizes purpose andaccomplishments of agency/department
  53. Performance Measures 2
    􀂀Effectiveness – the degree that goalsand objectives are met withindeadlines

    􀂀Efficiency – the amount of outcomesper unit of resources allocated anobjective
  54. Performance Measures 3
    • Performance measures should be linked to specific program goals and objectives
    • 􀂀Give priority where goals area chieved
    • 􀂀Measures should be valid, reliableand verifiable (quantifiedassessment)
    • 􀂀Performance budgeting (outcome)links the budget by establishing performance measures agreed upon by managers and decision makers
  55. Program Components
    • 􀂀Answer key questions:
    • 􀂃 How much did we do (quantity)?
    • 􀂃 How well did we do it (quality)?
    • 􀂃 How hard did we try (effort)?
    • 􀂃 What change did we produce (effect)?

    • 􀂀Why measure?
    • 􀂃 To improve performance
    • 􀂃 To enable good decision making (quantified)
    • 􀂃 Enhance accountability
    • 􀂃 Report to the public
    • 􀂃 Early warning of potential issues
  56. Program Components 2
    • 􀂀Activities and tasks
    • 􀂀Processes
    • 􀂀Planned outcomes or achievedresults
    • 􀂀Link expenditures and revenues to goals, objectives and outcome
    • 􀂀Expenditures and revenues arerelated to specific functions
    • 􀂀Clearly defined service area
  57. Good Objectives
    • 􀂀SMART
    • 􀂃Specific
    • 􀂃Measurable
    • 􀂃Attainable
    • 􀂃Relevant or Realistic
    • 􀂃Time-Bound or Timely
  58. Performance Benchmarks
    Should be developed to aid inassessing how well a function,program or activity meets needs orpurpose

    􀂀Comparative standards that prove aframe of reference for evaluating program/service quality or effectiveness

    􀂀Should be consistently defined andmeasureable
  59. Forecasting Revenue
    􀂀Estimating revenue is the first stepin determining the level of resourcesthat will be available for budget appropriations
  60. 􀂀Influenced by:
    • 􀂃 Administrative factors
    • 􀂃 Political factors
    • 􀂃 Economic factors
    • 􀂃 Policy factors
  61. Forecasting Revenue (Continued)
    • Uses analytical techniques to estimate
    • 􀂀Should be decentralized with processto achieve consensus on the forecast
    • 􀂀Establishes a spending target
    • 􀂀Projects the overall future financialcondition – capital spending and debt
    • 􀂀Should extend over a period of atleast 3 years
  62. Forecasting Revenue (Continued) 2
    • Governments should maintain arevenue manual that documentsrevenue sources and factors relevantto specific resources
    • 􀂃 Promotes better understand of availableresources
    • 􀂃 Supports decision making
    • 􀂃 Provides tool for internal staff training
  63. Qualitative Methods
    • 􀂀 Qualitative revenue forecasting methods rely on judgments about future revenues
    • 􀂀 These methods includes:
    • 􀂃 Consensus – Group collectively reaches agreement on revenue projections based on previous collection patterns, experience, and knowledge of historicalevents. Can be used for new revenues and/orsources that have inadequate or unreliable data.
    • 􀂃 Judgmental – Informed decision based on history and general economic conditions. Can be used forrevenues with high stability; those that do notfluctuate from year to year.
    • 􀂃 Expert – uses economists, demographers, marketresearchers, and social scientists to study trends. Use to research revenues affected by national/regional trends.
  64. Qualitative Methods (Continued)
    • Weaknesses of qualitative forecastingmethods:
    • 􀂃 Responds to political pressures
    • 􀂃 Focus on current issues/events
    • 􀂃 Lack of comparability over time
  65. Qualitative Methods (Continued) 2
    • 􀂀Relies on numerical data enabling testing to see if underlying dataassumptions are met
    • 􀂀Requires extensive amounts of historical data to generatedependable projections
    • 􀂀Requires at a minimum 40 datapoints
    • 􀂀Trend analysis – forecasting futurerevenues based on its short-termhistoric trend
    • 􀂀Simple linear and multiple regressionanalysis
    • 􀂀Time series analysis – forecastingrevenues based on financial data overextended periods (e.g., 15 or moretime periods)
    • 􀂀Econometric forecasting
  66. Quantitative Methods- Econometric
    • 􀂀Economic forecasting involvesprojecting future revenues by takingaccount the economic factors that influence the revenue
    • 􀂀Most useful for revenues that aredriven by economic factors:
    • 􀂃 Sales tax
    • 􀂃 User charges (building & constructionpermits)
    • 􀂃 Real estate revenues
  67. Economic Factors- Influencing Revenues
    • 􀂀Utilities – consumption/customers
    • 􀂀Sales tax – inflation/sales/income
    • 􀂀Impact fees –construction/population
    • 􀂀Property taxes – values/foreclosures
    • 􀂀Fuel taxes – miles driven/price
    • 􀂀Other examples - Class
  68. Break-Even Analysis
    • 􀂀Simple technique for determiningwhether a project will break-even orrevenues = costs
    • 􀂀Four variables
    • 􀂃 Revenue per unit
    • 􀂃 Fixed costs
    • 􀂃 Variable costs
    • 􀂃 Number of units or users
  69. Calculate Net Present Value (NPV)
    • Brings the future value of money intotoday’s terms
    • 􀂃 Which is worth more:
    • 􀁼 $100,000 today or 􀁼 $100,000 in FY2020?
    • 􀂃 Why?
    • 􀂀Time value of money – used to appraiselong term projects
    • 􀂀What do you need to determine NPV:
    • 􀂃 Number of periods
    • 􀂃 Inflation rate
    • 􀂃 Future value

  70. Revenue Restrictions
    • To form a Community RedevelopmentDistrict, FS163.355 requires:
    • 􀂃 Municipality adopt a resolution,supported by data and analysis, whichmakes a legislative finding that theconditions in the area meet the criteriadescribed in s.163.340(7) or (8).
    • 􀂃 Finding of necessity
  71. Revenue Restrictions
    􀂀Florida Statute 205.0535 requires a municipality to establish an equity study commission before adopting a new rate structure for business taxes

    􀂀Florida Statute 218.25 constrains theuse of State Revenue Sharing for debt service in excess of guaranteed entitlement amount
  72. Capital Assets-GFOA Policy
    • Capital assets are government facilities,infrastructure, equipment, or networks.
    • 􀂀Recommends governments establish asystem for assessing their assets
    • 􀂀 Plan and budget for any capital maintenance and replacement needs
    • 􀂀 Develop a capital asset inventory tha tincludes:
    • *Engineering Description
    • *Location
    • *Book value
    • *Condition
    • *Replacement costs
    • *Operating costs
  73. CIP Planning
    • 􀂀Prioritize projects and funding sourcesfor period of time, usually 5 years
    • 􀂀Should involve citizens –recommendations
    • 􀂀Should be included in budget documentand approved by the governing body
    • 􀂀Adopted at the same time
    • 􀂀Is a decision-making tool – futureconsiderations outside scope􀂀Is a financial management tool
  74. CIP Planning (Continued)
    • 􀂀Is part of long-term strategic plans but doesn’t drive them
    • 􀂀Includes projects approved by key officials (manager, council) waiting for funding
    • 􀂀Projects are typically placed in out years and move up until they are included in the current year’s capital budget
  75. Steps to Identify CIP Projects
    • Review status of previously approvedprojects
    • 􀂀Identify new projects
    • 􀂀Assess alternatives
    • 􀂀Complete forms
    • 􀂀Evaluate ability to fund
  76. Evaluate New CIP Projects
    • 􀂀Project description
    • 􀂀Location map
    • 􀂀Justification
    • 􀂀Cost by year
    • 􀂀Impact of future revenues
    • 􀂀Future operating costs
  77. Ranking CIP
    • Criteria
    • 􀂃 Should be developed to select and rankproposed CIP projects and agreed on byeveryone in the decision makingprocess.
    • 􀂀Consider
    • 􀂃 If taxes will have to be raised
    • 􀂃 How many citizens will benefit
    • 􀂃 Safety issues
    • 􀂃 Is funding available
  78. Methods to Finance CIP
    • 􀂀Current revenues or fund balance(pay-as-you-go)
    • 􀂀Debt (pay-as-you-use) –intergeneration equity
    • 􀂀Grants 􀂀Impact fees
    • 􀂀Tax-Increment Financing
  79. Use Debt to Finance Capital
    • 􀂀Taxpayers that benefit pay for capital investment
    • 􀂀Level debt service other revenues can be used for operating
    • 􀂀Reduce (not eliminate) maintenance budget by replacing assets
  80. Requirements for CGFO Award
    • Four categories:
    • 􀂀Budget as a policy document
    • 􀂀Budget as a financial plan
    • 􀂀Budget as an operations guide
    • 􀂀Budget as a communications device
  81. Criteria:
    􀂃 14 Mandatory requirements
  82. Budget as a Policy Document- CGFO Award
    􀂀Statement of entity-wide long-term financial policies
  83. 􀂀Budget message that articulatespriorities and issues for the budgetfor the upcoming year
  84. Budget as Financial Plan
    • Summary of major revenues and expenditures, as well as other financing sources and uses, to provide an overview for all total resources
    • 􀂀Summaries of revenues, expenditures and other financing sources and usesfor the prior year actual, current year budget and/or estimated current yearactual and proposed budget year
    • 􀂀Describe major revenue sources,explain the underlying assumptions for the revenue estimates and discuss significant revenue trends
  85. Finacial Plan (Continued)
    • 􀂀Projected changes in fund balances, as defined by the entity in the budget document
    • 􀂃 Discussion of the causes and/or consequences of any change in fund equity greater than 10%
    • 􀂀Budgeted capital expenditures
    • 􀂀 Financial data on current debt obligations and description of the relationship between current debt levels and legaldebt limits
  86. Budget as an Operations Guide
    • Describe activities, services or functions carried out by organizational units
    • 􀂀Include an organizational chart
    • 􀂀Schedule or table summary of personnel or position counts for prior, current and budgeted years
  87. Budget as Communications Device
    Description of processes for preparing, reviewing and adopting the current year’s budget and procedures for amending the budget after its adoption

    􀂀Use charts and graphs to highlight financial and statistical information

    􀂀Include a table of contents