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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. 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 decisionsbetween disparate goals
    • c. designed to address the appropriateness of each goal, rather than the most cost effective program to achieve the goal
  7. 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
  8. Program Planning Budget
    • Originated by Department of Defense
    • Identify most cost effective way to achieve goal
    • Successful at DOD where results were easily quantified
  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, cost benefits 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 keypolicies 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 citiesand 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, itsrolled-back rate, and public hearing informationwithin 35 days after receipt of certification ofvalue 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 prioryear’s adopted final budget, as amended, andexpend 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 maintain structurally balanced budget (balance between operating expenditures and operating revenues)

    􀂀Identify who is responsible forbudget preparation - management
  36. Revenue Policies
    • 􀂀How much change in the propertytax rate is acceptable in a given year
    • 􀂀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 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
  40. 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
  41. Develop Management Strategies
    • 􀂀Develop mechanisms for budgetary compliance
    • 􀂃 Appropriate management processes andsystems should be in place to ensurecompliance with the adopted budget
    • 􀂃 Institute procedures to review budgetperiodically (actual-to-budget comparisons)
  42. Cost of Government Services
    􀂀Full Cost – Encompasses all direct and indirect costs related to that service

    􀂀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

    􀂀Indirect Cost – shared administrative expenses in the work unit and insupport functions outside the work unit
  43. Cost of Government Services (Continued)
    • 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
    • * Opportunity costs – The benefit of an option that is forgone by choosing another option (loss benefit)
    • 􀂀Sunk costs – A cost that has been incurred and cannot be reversed
    • 􀂃 Should be ignored when evaluating future decisions
    • Marginal Cost – Associated with expansion of a service without any increase in fixed costs (unused
    • capacity)
  44. Performance Measurement
    􀂀Performance measurement - process to determine if a program is accomplishing its mission

    • 􀂀Four key steps:
    • 􀂃 Identify and define indicators
    • 􀂃 Collect appropriate data
    • 􀂃 Analyze (compare) performance to previous results or benchmarks
    • 􀂃 Report results
  45. Performance Measures
    • 􀂀Input – resources used in producing an output or outcome
    • 􀂃Outcomes measure intended results
    • 􀂀Output – completed activity, amount of work done within the organization
    • 􀂃Workload – the level of productivity to provide goods and services to customers
    • 􀂃Workload emphasizes purpose and accomplishments of agency/department
  46. Performance Measures 2
    • 􀂀Effectiveness – the degree that goals and objectives are met within deadlines
    • 􀂀Efficiency – the amount of outcomes per unit of resources allocated an objective
  47. Performance Measures 3
    • Performance measures should be linked to specific program goals and objectives
    • 􀂀Give priority where goals are achieved
    • 􀂀Measures should be valid, reliable and verifiable (quantified assessment)
    • 􀂀Performance budgeting (outcome) links the budget by establishing performance measures agreed upon by managers and decision makers
  48. 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
  49. Program Components 2
    • 􀂀Activities and tasks
    • 􀂀Processes
    • 􀂀Planned outcomes or achieved results
    • 􀂀Link expenditures and revenues to goals, objectives and outcome
    • 􀂀Expenditures and revenues are related to specific functions
    • 􀂀Clearly defined service area
  50. Good Objectives
    • SMART
    • 􀂃Specific
    • 􀂃Measurable
    • 􀂃Attainable
    • 􀂃Relevant or Realistic
    • 􀂃Time-Bound or Timely
  51. Performance Benchmarks
    Should be developed to aid inassessing how well a function, program or activity meets needs or purpose

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

    􀂀Should be consistently defined and measureable
  52. Forecasting Revenue
    􀂀Estimating revenue is the first step in determining the level of resources that will be available for budget appropriations

    • Influenced by:
    • 􀂃 Administrative factors
    • 􀂃 Political factors
    • 􀂃 Economic factors
    • 􀂃 Policy factors
  53. Forecasting Revenue (Continued)
    • Uses analytical techniques to estimate
    • 􀂀Should be decentralized with process to achieve consensus on the forecast
    • 􀂀Establishes a spending target
    • 􀂀Projects the overall future financial condition – capital spending and debt
    • 􀂀Should extend over a period of at least 3 years
  54. Forecasting Revenue (Continued) 2
    • Governments should maintain arevenue manual that documentsrevenue sources and factors relevant to specific resources
    • 􀂃 Promotes better understand of available resources
    • 􀂃 Supports decision making
    • 􀂃 Provides tool for internal staff training
  55. Qualitative Methods
    Qualitative revenue forecasting methods rely on judgments about future revenues

    • These methods include:
    • 􀂃 Consensus – Group collectively reaches agreement on revenue projections based on previous collection patterns, experience, and knowledge of historical events. 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 for revenues with high stability; those that do not fluctuate from year to year.
    • 􀂃 Expert – uses economists, demographers, market researchers, and social scientists to study trends. Use to research revenues affected by national/regional trends.
  56. Qualitative Methods (Continued)
    • Weaknesses of qualitative forecasting methods:
    • 􀂃 Responds to political pressures
    • 􀂃 Focus on current issues/events
    • 􀂃 Lack of comparability over time
    • 􀂀Relies on numerical data enabling testing to see if underlying data assumptions are met
    • 􀂀Requires extensive amounts of historical data to generate dependable projections
    • 􀂀Requires at a minimum 40 data points
    • 􀂀Trend analysis – forecasting future revenues based on its short-term historic trend
    • 􀂀Simple linear and multiple regression analysis
    • 􀂀Time series analysis – forecasting revenues based on financial data over extended periods (e.g., 15 or more time periods)
    • 􀂀Econometric forecasting
  57. Quantitative Methods- Econometric
    Economic forecasting involves projecting future revenues by taking account the economic factors that influence the revenue

    • Most useful for revenues that are driven by economic factors:
    • 􀂃 Sales tax
    • 􀂃 User charges (building & construction permits)
    • 􀂃 Real estate revenues

    •  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
  58. Break-Even Analysis
    Simple technique for determining whether a project will break-even or revenues = costs

    • Four variables
    • 􀂃 Revenue per unit
    • 􀂃 Fixed costs
    • 􀂃 Variable costs
    • 􀂃 Number of units or users
  59. Calculate Net Present Value (NPV)
    Brings the future value of money into today’s terms

    • Which is worth more:
    • 􀁼 $100,000 today or
    • 􀁼 $100,000 in FY2020?
    • 􀂃 Why?
    • 􀂀Time value of money – used to appraise long term projects

    • 􀂀What do you need to determine NPV:
    • 􀂃 Number of periods
    • 􀂃 Inflation rate
    • 􀂃 Future value

  60. Revenue Restrictions
    To form a Community Redevelopment District, FS163.355 requires:

    • 􀂃 Municipality adopt a resolution,supported by data and analysis, which makes a legislative finding that the conditions in the area meet the criteria described in s.163.340(7) or (8).
    • 􀂃 Finding of necessity

    􀂀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
  61. Capital Assets-GFOA Policy
    Capital assets are government facilities, infrastructure, equipment, or networks.

    • 􀂀Recommends governments establish a system for assessing their assets
    • 􀂀 Plan and budget for any capital maintenance and replacement needs

    • Develop a capital asset inventory that includes:
    • *Engineering Description
    • *Location
    • *Book value
    • *Condition
    • *Replacement costs
    • *Operating costs
  62. 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 – future considerations outside scope
    • 􀂀Is a financial management tool
    • 􀂀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
  63. Steps to Identify CIP Projects
    • Review status of previously approved projects
    • 􀂀Identify new projects
    • 􀂀Assess alternatives
    • 􀂀Complete forms
    • 􀂀Evaluate ability to fund
  64. Evaluate New CIP Projects
    • 􀂀Project description
    • 􀂀Location map
    • 􀂀Justification
    • 􀂀Cost by year
    • 􀂀Impact of future revenues
    • 􀂀Future operating costs
  65. 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
    • 􀂃 How many citizens will benefit
    • 􀂃 Safety issues
    • 􀂃 Is funding available
  66. 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
  67. 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
  68. 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
  69. Criteria:
    14 Mandatory requirements
  70. Budget as a Policy Document- CGFO Award
    Statement of entity-wide long-term financial policies

    􀂀Budget message that articulates priorities and issues for the budget for the upcoming year
  71. 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 uses for 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 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 legal debt limits
  72. 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
  73. 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
Card Set:
2016-07-20 16:17:32
CGFO Budget

Municipal Budgeting
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