Mary-Lou Pickles, CGFO, CMA Chris Lyons, CPA, CGFO, CPFO 1 I. II. III. IV. V. VI. VII. Budget Process/Budget Types Fiscal Policies & Best Practices Performance Measurement Revenue Management & Forecasting CIP & Financial Planning Budget Presentation Award Additional Information and Source Material 2 3 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 4 The budget is a plan If you don’t have a plan, how do you know when you are done? Benefits of the budget Stable service delivery Impact of current decisions Thoughtful responses Identifies future trends early Builds credibility Transparency 5 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 6 Executive Budgeting Performance Budgeting Program Budgeting Program-Planning Budgeting Zero-Based Budgeting Budget Allotment 7 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 8 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 9 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 10 Originated by Department of Defense Identify most cost effective way to achieve goal Successful at DOD where results were easily quantified 11 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 Designed to address the appropriateness of each goal, rather than the most cost effective program to achieve the goal 12 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 flow Provides for inventory planning needs 13 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 14 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 15 1. 2. 3. 4. 5. 6. Budget manual (call) Agency/Department budget requests Preparation of the proposed budget Legislature consideration and adoption Implementation Audit and evaluation 16 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 17 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 18 Prepared by Agency/Department Budgets usually begin as requests that contain three items 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 19 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 20 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 21 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 Sets the maximum operating millage for cities and counties at 10 mills 22 Chapter 200, F.S. TRIM (continued) 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 Defines a “county of special financial concern” as a county where 1 mill will raise less than $100 per capita 23 Chapter 200, F.S. TRIM (continued) Requires taxing authorities to advise property appraiser of its proposed millage rate, its rolledback rate, and public hearing information within 35 days after receipt of certification of value Requires certification of statutory compliance be sent to Department of Revenue 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. 24 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 25 Budget officer monitors quarterly or monthly Report actual compared to budget Make budget adjustment as necessary Monitor progress toward objectives 26 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 27 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 28 Difficult to project into the future Could reduce responsiveness to emergencies if too restrictive Initial year may increase work and stress in departments 29 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 30 Create financial policies Balanced budget Revenue diversification Debt capacity Fund balance Other safeguards Examine key economic and fiscal indicators Perform analysis of existing revenue structure Update budget manual/call to reflect changes 31 Budgets have more detail Budgets have goals and/or objectives Budgets are public documents Budgets are approved by the governing body 32 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 1. 2. 3. 4. 5. types: General fund Special Revenue funds Debt Service funds Capital Projects funds Permanent funds 33 Proprietary 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 Two funds: types External – Enterprise funds Internal – Internal service funds 34 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 35 36 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 37 1. 2. 3. 4. Establish broad goals to guide government decision making Develop approaches to achieve goals Develop a budget consistent with approaches to achieve goals Evaluate performance and make adjustments 38 1. 2. 3. Assess community needs, priorities, challenges and opportunities Identify opportunities and challenges for government services, capital assets, and management Develop and disseminate broad goals 39 4. 5. 6. 7. 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 40 Develop a process for preparing and adopting a budget 9. Develop and evaluate financial options 10. Make choices necessary to adopt a budget 8. 41 Monitor, measure and evaluate performance 12. Make adjustments as needed 11. 42 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 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 Don’t budget Not used for ongoing expenditures 44 GFOA recommends governments establish a formal policy on level of Unrestricted Fund Balance that should be maintained in General Fund based upon a government’s own specific circumstances considering: Predictability of its revenues Volatility of its expenditures Risk to significant one-time outlays (disasters) Commitments and assignments Conformity with legal and regulatory constraints 45 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 46 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 47 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 48 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) 49 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 in support functions outside the work unit 50 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 51 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 52 Marginal Cost – Associated with expansion of a service without any increase in fixed costs (unused capacity) 53 54 Performance measurement - process for determining how a program is accomplishing its mission Four key steps: Identification and definition of indicators Collection of appropriate data Analysis (comparing) performance to previous results or benchmarks Reporting the results 55 Input – resources used in producing an output or outcome Output – completed activity, amount of work done within the organization Workload – the level of productivity of staff in providing goods and services to customers Effectiveness – the degree that goals and objectives are met within deadlines Efficiency – measures the amount of outcomes per unit of resources allocated to an objective 56 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 57 Answers 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 58 Clearly defined service area Processes Activities and tasks Planned outcomes or achieved results Link expenditures and revenues to goals, objectives and outcome Expenditures and revenues are related to specific functions 59 SMART Specific Measurable Attainable Relevant Time-Bound or Timely 60 Should be developed to aid in assessing 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 61 62 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 63 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 64 Governments should maintain a revenue manual that documents revenue sources and factors relevant to present and projected future levels of those resources Promotes better understanding of government’s resources Supports decision-making Internal staff training tool 65 Qualitative revenue forecasting methods rely on judgments about future revenues Consensus - Group collectively reaches agreement on revenue projections based on previous collection patterns, experience, and knowledge of historical events. Judgmental - Informed decision based on history and general economic conditions. Expert - uses economists, demographers, market researchers, and social scientists to study trends. 66 Weaknesses Responds to political pressures Focus on current issues/events Lack of comparability over time 67 Relies on numerical data enabling testing to see if underlying data assumptions are met Requires extensive amounts of historical data to generate dependable projections 68 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) 69 Econometric forecasting involves projecting future revenues by taking into account the economic factors that influence that revenue source Sales tax User charges (building & construction permits) Real estate revenues 70 Simple technique for determining whether a project will break-even Revenues Four = Costs variables Revenue per unit Fixed costs Variable costs Number of units or users 71 Method of comparing the long-term financial costs and benefits of different alternatives Uses discounting – process of converting a future value into the value it would be given today The value of the $ Promised in future = promise today Discount factor 72 To form a Community Redevelopment District, Florida Statute 163.355 requires a municipality to 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 73 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 the use of State Revenue Sharing for debt service in excess of guaranteed entitlement amount 74 75 Capital assets are government facilities, infrastructure, equipment or networks Enable the delivery of essential public sector services Recommends governments establish a system for assessing their assets Plan and budget for any capital maintenance and replacement needs Inventory policy 76 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 the governing body Adopted at the same time Is a decision-making tool – future considerations outside scope Is a financial management tool 77 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 78 Review status of previously approved projects Identify new projects Assess alternatives Complete forms Evaluate ability to fund 79 Project description Location map Justification Cost by year Impact of future revenues Future operating costs 80 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 81 Current revenues or fund balance (pay-as-you-go) Debt (pay-as-you-use) Tax-Increment Financing Bonds Used for projects within an area expecting to benefit from economic development Grants Impact fees 82 83 Four categories: Budget as a policy document Budget as a financial plan Budget as an operations guide Budget as a communications device 27 Criteria: 14 Mandatory requirements 84 Statement of entity-wide long-term financial policies (mandatory) Budget message that articulates priorities and issues for the budget for the new year (mandatory) 85 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 year actual, and proposed budget year Describe major revenue sources, explain the underlying assumptions for the revenue estimates and discuss significant revenue trends 86 Projected changes in fund balances, as defined by the entity in the budget document Financial data on current debt obligations and description of the relationship between current debt levels and legal debt limits Explain the basis of budgeting for all funds, whether cash, modified accrual, or some other statutory basis 87 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 88 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 89 Stay positive throughout the whole test and try to stay relaxed Take deep breaths to relax Read the entire question and pay attention to the details Make sure you understand what question is really asking you If you don't know an answer, skip it and come back to it later Don't stay on a question that you are stuck on Only change an answer if you misread or misinterpreted the question Your first answer is usually the correct one. 90 91 Chapter 200 - Determination of Millage, specifically: 200.065 200.068 200.071 200.081 200.185 Chapter 205.035 Chapter 218.25 Chapter 163, Part III http://www.leg.state.fl.us/ 92 Capital Improvement Programming: A Guide for Smaller Governments An Elected Official’s Guide to Revenue Forecasting An Elected Official’s Guide to Performance Measurement An Elected Official’s Guide to MultiYear Budgeting 93 Cost Analysis and ABC for Governments Decision Tools for Budgetary Analysis Financial Policies: Design and Implementation The Operating Guide: A Guide for Smaller Governments Other Readings An Elected Official’s Guide to Government Finance An Elected Official’s Guide to Debt Issuance 94 Chapter 1 - GAAP and the Governmental Environment Chapter 2 - The Governmental Financial Reporting Model Chapter 10 - Financial Statements Chapter 16 - Budgetary Integration and Reporting Chapter 17 - Performance Measurement 95 Friedman, Mark. Trying Hard is Not Good Enough. Trafford Publishing, 2005. 96 Recommended Budget Practices: A Framework for Improved State and Local Government Budgeting http://www.gfoa.org/services/dfl/budget/Recommen dedBudgetPractices.pdf Recommended Policy Practices: Budget and Fiscal http://www.gfoa.org/services/rp/budget.shtml Distinguished Budget Presentation Award Program Criteria Guide and Explanations http://www.gfoa.org/downloads/BudgetCriteriaLocati on.pdf http://www.gfoa.org/downloads/BudgetCriteriaExpla nations.pdf 97 98