CGFO Budget 3

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shark522
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CGFO Budget 3
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2012-02-22 19:29:56
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CGFO Budget
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  1. BUDGET BASICS
    • •Governments allocate funds to programs and services through the budget process
    • •Process should effectively involve major stakeholders and reflect their needs and priorities
    • •The Budget process should:
    • • Incorporate a long-term perspective
    • • Establish linkage to broad organizational goals
    • • Focus decisions on results and outcomes
    • • Achieve consensus on decisions related to goals, services, and resource allocation
  2. BUDGET REFORM/APPROACH
    • •Budget process reforms are designed to provide more and better information to decision makers increasing the rationale for budget decisions
    • •Approach depends on management and legislative body

    Note: What do your decision makers (council) want – more or less info
  3. What are the 6 different types of budgets?
    • •Executive Budgeting
    • •Performance Budgeting
    • •Program Budgeting
    • •Program-Planning Budgeting
    • •Zero-Based Budgeting
    • •Budget Allotment
  4. Which budget type places the control of budget preparation with the Chief Executive Officer/City Manager?
    • EXECUTIVE BUDGET
    • •Control of budget preparation lies with the Chief Executive Officer/City Manager
    • •Earliest version used a simple line Item Format
    • •Cities and states were the first to adopt this format
  5. Which budget type enables comparison of the costs and benefits of major programs?
    PROGRAM BUDGETING

    •A budget wherein expenditures are based on program of work and on character and object class (CFOA definition) Note: Can show that a program is profitable. Don’t want to cut a profitable program

    • .•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. Which budget type was the first major reform after Executive Budget format and emphasizes purpose and accomplishments?
    • PERFORMANCE BUDGETING
    • •First major reform after Executive Budget format
    • •Emphasizes purpose and accomplishments
    • •Primary features are efficiency and effectiveness measures
    • •Expenditures are based on measurable performance of activities and programs
    • •Sets primary focus on evaluation of the efficiency of existing activities
  7. Which budget type is designated to address the appropriateness of each goal, rather than the most cost effective program to achieve the goal ?
    • ZERO-BASED BUDGETING
    • •Continued existence of programs and activities must be justified every year and not taken for granted
    • •Purpose is to force conscious decisions between disparate goals
    • •Designated to address the appropriateness of each goal, rather than the most cost effective program to achieve the goal
    • •Note: Happening more due to economic constraints
  8. PROGRAM-PLANNING BUDGETING
    • •Originated Department of Defense
    • •Identify most cost effective way to achieve goal
    • •Successful at DOD where results were easily quantified
  9. BUDGET ALLOTMENTS
    •A portion of the budget is allotted to an Interim period based on historical spending patterns and needs

    • •Advantages Include:
    • • Avoidance of rushed year-end spending
    • • Aids in cash flow and monitoring for investments
    • • Provides for inventory planning needs

    Note: When do you need the funds?
  10. Name the six 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, cost-benefits analysis, costs effectiveness, net present value analysis and strategic planning
    • Note: Very political, council will spend more time on budget than on CAFR!
    • Administrative: effectively coordinate the preparation of the budget and ensure expenditures are made in accordance with the adopted budget- Note: have systems in place
    • 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- Note: needs to be realistic
  11. What are the six phases of the budget process?
    • •Budget manual (call)
    • •Agency/department budget requests
    • •Preparation
    • of the proposed budget
    • •Legislature consideration and adoption (i.e. Council, Board)
    • •Implementation
    • •Audit and evaluation (i.e. Performance measures)
  12. PHASE 1 – 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
    • Note: hopefully strategic planning already done before budget call/manual
  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
  15. • Budget schedules that detail the amounts requested, usually in line item format
    • • Supporting documentation
    • • Transmittal letter that describes the agency/department and provides justification for its major objectives and initiatives for the budget year
  16. 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
  17. PHASE 4 – LEGISLATIVE CONSIDERATION AND ADOPTION
    • •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
  18. LEGISLATIVE CONSIDERATION AND ADOPTION (CONTINUED)
    • •Budget document should:
    • • Provide summary information for the public and media
    • • Include a transmittal letter that outlines key policies and strategies
    • • 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
    • • Requires percent of increase in millage over the roll-back rate to be first issue discussed
  19. LEGISLATIVE CONSIDERATION AND ADOPTION (CONTINUED)
    • •Chapter 200, F.S. Truth In Millage (TRIM)(cont’d)
    • • Sets the maximum operating millage for cities and counties at 10 mills
    • • Tax revenue is based on the Certification of Value provided by the Property Appraiser and is the valuation of taxable value within the jurisdiction
    • • Requires taxing authorities to utilize a minimum of 95% of the certified taxable value
    • • Requires certification of statutory compliance be sent to Dept. Of Revenue (DOR)
  20. PHASE 5 - IMPLEMENTATION
    • •Budget Officer implements
    • •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 towards objectives
  22. What are the three multi-year budget types
    • •Classic
    • (traditional)
    • • Both the spending and revenue plan for each
    • budgetary year are approved at the same time - Note: adopts
    • both years (bi-annual) then would need to amend

    •Rolling

    • • Each year’s appropriations are adopted in
    • subsequent year

    • •Recommended
    • • Governments should prepare multi-year
    • expenditure projections
  23. Name
    some of the advantages of the of multi-year budgeting?
    • •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. Name
    some of the disadvantages of the of multi-year budgeting?
    • •Difficult
    • to project into the future

    • •Could
    • reduce responsiveness to emergencies if too restrictive

    • •Initial
    • year may increase work and stress in departments – ( First
    • year you do the entire budget )
  25. Name
    some of the safeguards of the of multi-year budgeting?
    • •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
    • Note: usually a percent for reserves, or in months (2-3 months)

    • •Create
    • financial policies

    • Balanced budget

    • Revenue diversification

    • Debt capacity

    • fund balance/ bond covenants

    • •Other
    • safeguards

    • Examine key safeguards and fiscal indicators

    • • Perform analysis of existing revenue
    • structure

    • Update budget manual/call to reflect changes
  26. MULTI-YEAR
    BUDGETING vs. MULTI-YEAR FINANCIAL PLAN
    • •Budgets
    • have more detail



    • •Budgets
    • have goals and/or objectives



    • •Budgets
    • are public documents



    • •Budgets
    • are approved by the governing body
  27. What
    are the five governmental fund types that use modified accrual method of
    accounting basis?
    • Uses modified
    • accrual basis
    • of accounting which recognizes revenue when measureable
    • and available

    • •Five
    • types:

    1.General Fund

    2.Special Revenue Funds ( CRA, Gas Tax, CIT)

    3.Debt Service Funds

    4.Capital Projects funds

    5.Permanent Funds (GASB 34)
  28. What type of governmental funds use the accrual method of accounting basis?
    • •Proprietary
    • Funds:

    • • Used to account for a government’s
    • business-type activities and services internal and external customers

    • • Use accrual
    • basis of accounting which
    • recognizes revenue when earned

    •Two Types:

    • External – Enterprise Funds

    • Internal – Internal Service Funds
  29. What are obligations incurred for which
    receipt of goods or services have not occurred?
    • •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
  30. COST OF GOVERNMENT
    SERVICES examples
    • •Full Cost - Encompasses
    • all direct and indirect costs related to that service
  31. •Direct Cost - salaries, wages and benefits of employees working exclusively on the delivery of the service and materials and supplies and other
    associated operating costs
  32. •Indirect Cost - shared administrative expenses in the work unit and in support functions outside the work unit
  33. COST OF GOVERNMENT
    SERVICES (CONTINUED
    •Marginal Cost - Associated with expansion of a service without any increase in fixed costs (unused capacity)
  34. 2009 2010
    • Cost 100,000 $ 106,000
    • Units served (estimated) $85,000 $ 92,000
    • Marginal cost $ 0.857
  35. COST OF GOVERNMENT
    SERVICES (CONTINUED 3
    • •Life-cycle costs - Include costs in addition to purchase price over the
    • life of an asset such as maintenance and repairs, failure costs (downtime) and
    • money costs (interest and opportunity)


    • This concept is useful for decisions involving the purchase of major equipment

    • Note: ie. Police vehicles – oil the equipment
    • that goes on it, maintenance on the vehicle, fuel, etc.
  36. NATIONAL ADVISORY COUNCIL ON STATE AND LOCAL BUDGETING
    (NACSLB)
    Four principles of the budget process

    12 elements for each of the principles of the budget process to help translate the guiding principles into action components
  37. What are the four principles of the government process? NACSLB
    • 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
  38. NACSLB 12 Principals
    • 1.Assess community needs, priorities, challenges and
    • opportunities
    • 2.Assess community needs, priorities, challenges and
    • opportunities
    • 3.Develop and disseminate broad goals
    • 4. Adopt financial policies
    • 5. Develop programmatic, operating, and capital
    • policies' and plans
    • 6. Develop programs and services that are consistent
    • with policies and plans
    • 7. Develop management strategies
    • 8. Develop a process for preparing and adopting a budget
    • 9. Develop and evaluate financial options
    • 10. Make choices necessary to adopt a budget
    • 11. Monitor, measure and evaluate performance
    • 12. Make adjustments as needed
  39. REVENUE POLICIES
    • •How much change in the property tax rate is acceptable in a given year•How will one-time revenues be used•How frequently should service charges and fees be reviewed
    • •Example:
    • • Contribution
    • • Savings from bond issue
    • o Don't budget
    • o Not used for ongoing expenditures
  40. DEBT POLICIES
    • •Should guide issuance and management of debt
    • •What is the maximum long-term debt burden that the government will incur
    • •What mix of long-term debt and current revenues, if any, will be the basis for financing capital improvements
    • •How will bond proceeds be used
    • •Under what conditions will short-term debt be used
  41. STABILIZATION POLICIES
    • •To guide the creation, maintenance and use of resources for financial stabilization purposes
    • •Identify purpose for which funds can be used
    • • Also referred to as rainy day funds, unreserved, undesignated fund balances and contingency funds

    Note: can use for rate fluctuations also for catastrophes or per charter/regulations/policies to keep a certain % or amount for fund balance
  42. OPERATING BUDGET POLICIES
    • •Define a balanced operating budget
    • •Develop with goal to maintain structurally balanced budget (balance between operating expenditures and operating revenues)
    • •Identify who is responsible for budget preparation - management
  43. CONTINGENCY PLANNING POLICIES
    •Guide financial actions that will take place in the event of emergencies, natural disasters or other unexpected events

    •General guide to improve the ability to take timely action and to aid management when an emergency occurs
  44. DEVELOP MANAGEMENT STRATEGIES
    • •Develop mechanisms for budgetary compliance
    • • Appropriate management processes and systems should be in place to ensure compliance with the adopted budget
    • • Institute procedures to review budget periodically (actual-to-budget comparisons)
  45. CIP PLANNING
    • •Prioritize projects and funding sources for period of time, usually 5 years
    • •Should involve citizens – recommendations
    • •Should be included in budget document and approved by governing body
    • •Adopted at the same time
    • •Is a decision-making tool – future consideration outside scope
    • •Is a financial management tool
  46. 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 finding
    • •Projects are typically placed in out years and move up until they are included in the current year’s capital budget
  47. RANKING CIP
    • •Criteria
    • • Should be developed to select and rank proposed CIP projects and agreed on by everyone in the decision making process
    • •Consider
    • • If taxes will have to be raised or debt
    • • How many citizens will benefit
    • • Safety issues
  48. METHODS TO FINANCE CIP
    • •Current revenues or fund balance (pay-as-you-go)
    • Note: Pay-as-you-go – build up funds and do once you receive all the funding (i.e. impact fees)

    • •Debt (pay-as-you-use)
    • • Major advantage of debt financing is that each generation of taxpayers that benefits from the investment pays for the use
    • Note: Pay-as-you-use – build now and finance
  49. NET PRESENT VALUE
    •Converts future costs and benefits into a single number•Used to select highest value with least cost

    $ Promised in future /Discount Rate = Net Present

    Value I.E. 100,000 3 yrs from now with 4% discount rate 100,000/ (1 + .04)³ = $88,900
  50. Tax Incremental Financing (TIF) PROJECTS
    • •Generate revenues based on amount > base value
    • Note: Incremental tax increase over base assessed value goes to CRA; get from counties as well as cities and money spent in district only. Sunsets usually 30 yrs after 30 yrs goes to General Fund in lieu of CRA

    • •Encourage growth
    • •Use revenue in that district
    • •Difficult to Bond ( typically sunset provision, no history and non-permanent )
    • •Increased property value does not benefit general fund
    • •Improvements pay for more improvements

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