Municipal Finance and
Budget Process Overview
Newly Elected Officials Course
Tuesday, December 11, 2007
Michael Foreman 412-565-5199 mforeman@state.pa.us
Deborah Grass 412-565-2552 dgrass@state.pa.us
Governor’s Center for Local Government Services, DCED
www.newpa.com
Budgeting - Revenues
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Taxes
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Real Estate
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Current – Collection rate
Delinquent
Liened
General and Special Purpose Levy
Real Estate Tax Collection Laws
Budgeting ContinuedRevenues
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Taxes Continued
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Act 511
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Earned Income/Net Profits = compensation tax
Local Services Tax (LST) (Formerly OPT/EMST)
Per Capita Tax
Business Gross Receipts Taxes
Real Estate Transfer Tax
Amusement
Regional Asset District Tax – Sales Tax
Distribution for Allegheny County only
Budgeting Continued –
Revenues
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Other Revenue Sources
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Licenses & Permits
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Fines & Forfeits
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Cable TV License
State
Local - Magistrates
Interest and Rents
Budgeting ContinuedRevenues
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Municipal Charges for Services & User Fees
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Purpose
Authorization
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Municipal Codes & Municipalities Authorities Act
Ordinances and Resolutions
The Municipalities Planning Code
Collection Processes
Examples
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Garbage and Recycling Fees
Public Records
Sewer/Water & Other Utilities
Services: Zoning Hearings, Recreation
Budgeting ContinuedRevenues
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Intergovernmental Revenue
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General Fund/State Shared Revenue
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Liquor License Allocation
Police Training-Act 120 Reimbursement
Act 205 Pension Aid
Foreign Fire Relief (Volunteer Fire Companies)
PURTA
Special Revenue
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Liquid Fuels a.k.a. Highway Aid
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Eligible Uses
PennDOT municipal services representative
State Road Turnback Fees
Budgeting ContinuedRevenues
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One-Time Revenues
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Sale of assets
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Real Property or Personal Property
Inventory
Procedures apply to sale
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Exemptions
 Another municipality, authority, library
 Community Development Corporations
 PA or US government
Refunds of Prior Year Expenses
Budgeting Continued-Other
Financing Sources and Uses
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Borrowing
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Many tests determine when appropriate
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Ability to pay back
Useful life
Usually only capital
Local Government Unit Debt Act
DCED Debt Management Handbook
Borrowing Continued
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Debt Instruments
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Bonds
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Notes
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General Obligations
Revenue Bonds
Rating Agencies
Bond Counsel
TAN/TRAN
Small Borrowing – Capital Purchases
Unfunded Debt Operating Loans
DCED Approval Process
Budgeting ContinuedExpenditures
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Operating Budget
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Recurring Expenses
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Personal Services
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Wages, salaries, benefits, pension benefits
Contractual Services
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Non-employee compensation
Contracts, like garbage collection
Professional Services like legal services
Insurance – Property, Casualty, Auto, Professional
Purchasing requirements—DCED Purchasing Manual
Budgeting ContinuedExpenditures
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Recurring Expenses Cont’d
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Supplies and Commodities
 Salt
 Utilities – Gas, Electric, Water, Sewer
 Communication – Telephone, Internet,
Radios
 Office Supplies
 Data Processing
 Purchasing Requirements—DCED
Purchasing Manual
Fund Balance
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Fund Equity includes “fund balance”
Fund balance generates interest because it is as
close as governments gets to “profit”
Called Retained Earnings in Proprietary fund
Fund Balance increases by revenue and decreases
by expenditures for any given period
Fund Balance can be legally reserved—set aside
for future use
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Second Class Twp. Operating Reserve Fund
Fund Balance can be designated to set aside for
particular purposes
Budgeting Continued-Other
Financing Sources Uses Cont’d
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Use of Cash or Fund Balance
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Accumulated Cash Available for 1 time use
Fund Balance is a part of Fund Equity which is the
difference between Assets and Liability
Appropriate uses
Interfund Transfers
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Transactions between funds of the governmental unit
Reimbursements from one fund to another for
expenditures made on behalf of fund
Operating subsidy—I.E., Recreation fund that needs help
from General Fund
Evaluating Financial Condition
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What is the appropriate level of fund balance?
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Rating agency tests? 5 – 10 % of revenues
Operating Test? Equal to 1 months expenditures?
2 months?
Fiscal Monitoring for Viability
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Financial Monitoring Handbook, Governor’s
Center for Local Government Services
Solvency Measures
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Cash Solvency
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Budget Solvency
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Ability to generate sufficient revenue over a 12
month period to pay operating obligations
Long Term Solvency
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Ability to generate sufficient cash to pay bills on
30-60 day basis
Ability to generate sufficient revenue to pay
obligations over a multi-year period
Service Delivery Solvency
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Ability to provide basic public services to meet
health, safety and welfare of citizens
Solvency Measures
To assure Service Delivery Solvency
assumes that a Municipality is able to
sustain cash, budgetary, and long-term
solvency over a multi-year period
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Capital Improvements
Planning
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Nationally, capital represents 1/3 of all municipal
spending
Paying for Capital Improvements
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Current Revenue
User Fees
Grants
Special Assessments
Low Interest Government Loans
General Obligation Bonds
Revenue Bonds
Leases
Capital Improvements
Planning
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Appropriate Use of Capital Financing
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Matching of Useful Life and Payback period
Policy questions—What projects are viable?
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Utilize a formal process for determining capital
needs—Capital Improvement Planning
Utilize objective criteria for decision making
Benefits of Capital Improvement Planning
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Links master plans to financial plans
Controls Spending—Avoids sharp tax increases
Increases Public Confidence
Statement of Revenues and
Expenditures Cont’d
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If Funds exist then they should matter
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Separated for legal reasons or because of
the nature of the revenue and
expenditures which are being tracked (i.e.
Liquid Fuels vs. Sewer Fund vs. General
Fund)
Fund Types are not the same as funds
Use as many funds as needed – but no
more than absolutely necessary
Some Nuts and Bolts
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Funds
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Nature of Funds
Benefits of funds
You will have at least 2 funds
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General Fund
Liquid Fuels
Chart of Accounts
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Skeleton of Financial System
DCED Chart of Accounts
Example: 01.301.100 GL Real Estate Current
Example: 01.410.210 GL Police Office Supplies
Legal Environment for the
Finance Function
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Tax Rate and Budget Adoption by December
31 of each year
Public Inspection Period prior to budget
adoption
Re-opening of Budget permitted in years
immediately following municipal election; final
adoption by February 15
Annual Audit Report due to DCED by April 1
Careful Consideration Before
Re-opening Budget
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Do you have sufficient understanding of
the adopted budget to make changes
within the legal timeframe?
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Financial Information
Program Information
Limitations on revenue sources
Non Discretionary expenses
Budgeting as an Art and
Science
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A Good Budget is
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Policy Document
Financial Plan
Operations Guide
Communications Device
Budget Cycle/Calendar
Data to Collect/Who to Involve in
Budget Development
Typical Budget Calendar
Due Date
September 1
September 15
Budget Activity
Obtain annual budget forms
Post current year ependituers and
revenues or estimates
September 30
Municipal pension obligations
sumitted to governing body
Project revenue estimates for the
next budget year
Submit activitiy expenditures to the
October 30
secretary
Enter expenditure requests and
revenue estimates in annual budget
November 15
form
November 20
Conduct full review of budget
November 20-30 Tenative adoption
November 30
Submit advertisement to newslaper
Make Budget available for public
December 3 -23 inspection
Adpted budget and ordinance setting
December 27
real estate tax rate
Create budget accounts and enter
January 1
amount in ledger
Source: Fiscal M anagement Handbook , DCED
October 1
Responsible
Person
Secretary
Secretary
Chief
Administrative
Officer of Pension
Plan
Secretary
consulting with
other officers
Department Heads
Secretary
Governing Body
Governing Body
Governing Body
Secretary
Governing Body
Secretary
Budget Administration
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Implementation
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Monitoring
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Review on a regular basis
Modification
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Transfer to Accounting System
Make budget transfers as necessary
Budget Reporting