Budgets
Texas Local Government
Code
§ 102.001 - § 102.011
Texas Local Government Code
§ 102.001. BUDGET OFFICER.
(a) The mayor of a municipality serves as the
budget officer for the governing body of the
municipality except as provided by Subsection (b).
(b) If the municipality has the city manager form of
government, the city manager serves as the budget
officer.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.002. ANNUAL BUDGET REQUIRED.
The budget officer shall prepare each year a
municipal budget to cover the proposed
expenditures of the municipal government for
the succeeding year.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.003. ITEMIZED BUDGET; CONTENTS.
(a) The budget officer shall itemize the budget to allow as clear a comparison as
practicable between expenditures included in the proposed budget and actual
expenditures for the same or similar purposes made for the preceding year. The
budget must show as definitely as possible each of the projects for which
expenditures are set up in the budget and the estimated amount of money carried in
the budget for each project.
(b) The budget must contain a complete financial statement of the municipality that
shows:
(1) the outstanding obligations of the municipality;
(2) the cash on hand to the credit of each fund;
(3) the funds received from all sources during the preceding year;
(4) the funds available from all sources during the ensuing year;
(5) the estimated revenue available to cover the proposed budget; and
(6) the estimated tax rate required to cover the proposed budget.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.004. INFORMATION FURNISHED BY
MUNICIPAL OFFICERS AND BOARDS.
In preparing the budget, the budget officer may
require any municipal officer or board to furnish
information necessary for the budget officer to
properly prepare the budget.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.005. PROPOSED BUDGET FILED WITH
MUNICIPAL CLERK; PUBLIC INSPECTION.
(a) The budget officer shall file the proposed budget
with the municipal clerk before the 30th day before
the date the governing body of the municipality
makes its tax levy for the fiscal year.
(b) The proposed budget shall be available for
inspection by any taxpayer.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.006. PUBLIC HEARING ON PROPOSED BUDGET.
(a) The governing body of a municipality shall hold a public hearing on
the proposed budget. Any taxpayer of the municipality may attend
and may participate in the hearing.
(b) The governing body shall set the hearing for a date occurring after
the 15th day after the date the proposed budget is filed with the
municipal clerk but before the date the governing body makes its tax
levy.
(c) The governing body shall provide for public notice of the date,
time, and location of the hearing.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.0065. SPECIAL NOTICE BY PUBLICATION FOR
BUDGET HEARING.
(a) The governing body of a municipality shall publish notice before a
public hearing relating to a budget in at least one newspaper of
general circulation in the county in which the municipality is located.
(b) Notice published under this section is in addition to notice
required by other law, except that if another law requires the
governing body to give notice, by publication, of a hearing on a budget
this section does not apply.
(c) Notice under this section shall be published not earlier than the
30th or later than the 10th day before the date of the hearing.
Added by Acts 1993, 73rd Leg., ch. 268, § 24, eff. Sept. 1, 1993. Amended by Acts
2001, 77th Leg., ch. 402, § 9, eff. Sept. 1, 2001.
Texas Local Government Code
§ 102.007. ADOPTION OF BUDGET.
(a) At the conclusion of the public hearing, the
governing body of the municipality shall take action
on the proposed budget.
(b) The governing body may make any changes in
the budget that it considers warranted by the law
or by the best interest of the municipal taxpayers.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.008. APPROVED BUDGET FILED WITH
MUNICIPAL CLERK.
On final approval of the budget by the governing
body of the municipality, the governing body
shall file the budget with the municipal clerk.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.009. LEVY OF TAXES AND EXPENDITURE OF
FUNDS UNDER BUDGET; EMERGENCY EXPENDITURE.
(a) The governing body of the municipality may levy taxes only in accordance with the
budget.
(b) After final approval of the budget, the governing body may spend municipal funds
only in strict compliance with the budget, except in an emergency.
(c) The governing body may authorize an emergency expenditure as an amendment
to the original budget only in a case of grave public necessity to meet an unusual and
unforeseen condition that could not have been included in the original budget
through the use of reasonably diligent thought and attention. If the governing body
amends the original budget to meet an emergency, the governing body shall file a
copy of its order or resolution amending the budget with the municipal clerk, and the
clerk shall attach the copy to the original budget.
(d) After the adoption of the budget or a budget amendment, the budget officer shall
provide for the filing of a true copy of the approved budget or amendment in the
office of the county clerk of the county in which the municipality is located.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.010. CHANGES IN BUDGET FOR
MUNICIPAL PURPOSES.
This chapter does not prevent the governing
body of the municipality from making changes
in the budget for municipal
purposes.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Texas Local Government Code
§ 102.011. CIRCUMSTANCES UNDER WHICH CHARTER
PROVISIONS CONTROL.
If a municipality has already adopted charter provisions
that require the preparation of an annual budget covering
all municipal expenditures and if the municipality
conducts a public hearing on the budget as provided by
Section 102.006, the charter provisions control. After the
budget has been finally prepared and approved, a copy of
the budget and the amendments to the budget shall be
filed with the county clerk, as required for other budgets
under this chapter.
Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.
Budgets
Budget - budg·et [buhj-it]
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•
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A budget (from old French bougette, purse) is a list of all planned expenses and revenues. It
is a plan for saving and spending. A budget is an important concept in micro economics,
which uses a budget line to illustrate the trade-offs between two or more goods. In other
terms, a budget is an organizational plan stated in monetary terms.
In summary, the purpose of budgeting is to:
– Provide a forecast of revenues and expenditures i.e. construct a model of how our
business might perform financially speaking if certain strategies, events and plans are
carried out.
– Enable the actual financial operation of the business to be measured against the
forecast.
A budget is a financial document used to project future income and expenses. The budgeting
process may be carried out by individuals or by companies to estimate whether the
person/company can continue to operate with its projected income and expenses.
A budget may be prepared simply using paper and pencil, or on computer using a
spreadsheet program like Excel, or with a financial application like Quicken or QuickBooks.
The process for preparing a monthly budget includes:
– Listing of all sources of monthly income
– Listing of all required, fixed expenses, like rent/mortgage, utilities, phone
– Listing of other possible and variable expenses.
Budget - budg·et [buhj-it]
•
•
•
•
•
A budget (from old French bougette, purse) is a list of all planned expenses and revenues. It
is a plan for saving and spending. A budget is an important concept in micro economics,
which uses a budget line to illustrate the trade-offs between two or more goods. In other
terms, a budget is an organizational plan stated in monetary terms.
In summary, the purpose of budgeting is to:
– Provide a forecast of revenues and expenditures i.e. construct a model of how our
business might perform financially speaking if certain strategies, events and plans are
carried out.
– Enable the actual financial operation of the business to be measured against the
forecast.
A budget is a financial document used to project future income and expenses. The budgeting
process may be carried out by individuals or by companies to estimate whether the
person/company can continue to operate with its projected income and expenses.
A budget may be prepared simply using paper and pencil, or on computer using a
spreadsheet program like Excel, or with a financial application like Quicken or QuickBooks.
The process for preparing a monthly budget includes:
– Listing of all sources of monthly income
– Listing of all required, fixed expenses, like rent/mortgage, utilities, phone
– Listing of other possible and variable expenses.
Budget
• BUD-GET
• BUD
– Budweiser (Anheuser-Busch), a global pale lager
brand
• GET
– Retrieve or procure
What is a Budget?
• A planning and policy document where you
record your best estimate / guess / calculation
of how to pay for the expenses that you
anticipate for a given year.
• You have to consider all sources and amounts
of available funds.
• There are multiple types of budgets that can
be developed.
Why is the Budget Important?
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Shapes local economy
Communicates effective leadership
Sanctions and limits administrative action
In sum:
– Budget
• process: citizens as market: consumers
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Budget Concepts
• Operating Budget
– Reports the spending plan for a government’s
ongoing services by department and by line-item
– Funded by current revenues
– Requires being balanced
• CR (Current Rev.) = CE (Current Exp.)
• CR + FB (Fund Balance) = CE -> Drawdown FB
• CR = CE + FB (Fund Balance) -> Add too FB
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Budget Concepts
• Capital Budget
– Spending plan for the acquisition of fixed assets.
– Part of a capital Improvement Plan (CIP)
• 5 to 8 year rolling plan.
– Funding usually from the sale of bonds and grants.
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Best Practices
• The budget process should clearly define:
– Roles and responsibilities
– The timetable for completion
– The type of information to collect and use
– The policies that guide financial practices
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Budget Policies
• The budget begins with a budget policy
statement that is approved by the governing
body.
• The budget policy statement includes:
– The financial forecast for the year
– Description of factors that will influence the revenues
and expenditures.
– Priorities and goals.
– Department preparation guidelines / templates.
– Recommendation for the budget officers.
– (Look at Example)
Budget Policies
• Operating –
– Establish the scope of the budget.
– What constitutes a balanced budget.
– What type of reserves should be maintained.
– General guideline for preparation and amendment
processes.
– Who is responsible for budget preparation.
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Budget Policies
• Revenue –
– Changes in property tax rate.
– Use of one-time revenues.
– Frequency of reviewing changes.
– Collection of delinquent taxes and charges.
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Budget Policies
• Debt
– Maximum term for which debt can be incurred.
– The mix of long-term debt and current revenues
as a basis for financing capital improvements.
– How bond proceeds will be used.
– Under what conditions short-term debt will be
used.
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Budget Policies
• Budget Implementation
– Govern the transfer of funds across accounts.
– Interfund borrowing/payments.
– Empowerment of chief executive to encumber
budget authority.
– Standards for government accounting, financial
reporting and auditing.
What is a Balanced Budget?
Preparation Phase
1. Chief executive
must submit a
balanced budget.
Legislative Phase
Executive
Implementation
Accounting and
Financial Reporting
4. Budget
amendments and
supplemental
appropriations
must include
offsetting revenue
sources.
5. Must end fiscal
year with a
balanced budget.
2. Budget approved
by council must be
balanced
3. Budget signed by
elected chief
executive, after and
vetoes, must be
balanced
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NACSLB - 4 Principles of the Budget
Process
• Establish Broad Goals to Guide Government Decision Making
– A government should have broad goals that provide overall direction for the
government and serve as a basis for decision making.
• Develop Approaches to Achieve Goals
– A government should have specific policies, plans, programs and management
strategies to define how it will achieve its long term goals.
• Develop a Budget Consistent with Approaches to Achieve Goals
– A financial plan and budget that moves towards achievement of goals, within
constraints of available resources, should be prepared and adopted.
• Evaluate Performance and make Adjustments
– Program and financial performance should be continually assessed, and
adjustments made, to encourage progress towards achieving goals.
NACSLB – National Advisory Council on State
and Local Budgeting
GFOA – Recommended Budget Practices
Steps to Budgeting
• Identify the person who will coordinate the
budgeting process and will train staff in methods,
definitions, document formats, assign
responsibilities and communicate deadlines
• Analyze yearly operational objectives and service
goals with staff recommendations
• Align goals and objectives with strategic plans,
staffing requirements and budget estimates
• Prioritize services and goals in order to construct
the budget details
Policy Decisions in the Budget Process
• Tax rates and revenue sources
– Increase or frozen, special taxes, prior year
availability or any new taxes?
• Transfers of revenue
– Taxes replaced with user / service fees?
• Earmarked funds
– Internal service fees shifted?
• Allocations
– How is the budgeted money allocated?
Budget Process Players
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Budget Officer
City Council
Department Heads
The Public
Budget Process Players
• Who is the Budget Officer?
– TLGC 102 specifies that the mayor is the budget
officer except those with a CM form of
government.
– In home rule, the charter may specify that the
(finance officer or a finance committee) has the
responsibility
Budget Process Players
• Budget Officer
– Prepares the forms and instructions
– Distributes them to the department heads
– Controls the timeline
– Makes the revenue forecasts
– Presents the balanced budget to the municipal
clerk for distribution to the city council
– Monitors departmental compliance
– Tracks the performance of the budget
Budget Process Players
• City Council
– Publishes notices for and conducts the public
hearing on the proposed budget
– Writes the budget policy statement
– Hold budget workshop sessions that are open to
the public
– Adopts the budget in a timely manner
Budget Process Players
• Department Heads
– Request budgetary needs for the coming year
– Analyze community needs
– Propose service modifications
– Provide long range input to capital improvements
• Typically include: streets, drainage, buildings and other
multiyear projects
Budget Process Players
• The Public
– The budget must be publically available to be
reviewed
– The public provides input at the budget hearings
and is allowed to provide insight, opinions and
recommendations to the budget
The Beginning Process - CNA
• Community Needs Assessment
– Services and programs needed and their costs
– Programs in demand and not in demand
– Revenue anticipation
– Community improvements and efficiencies
– Community changes and direction
– May result in a partnership for a joint-service
delivery
Budget Cycle
Let’s look at 2 processes…
Budget Cycle in Brief #1
• Phases
Product
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Executive’s proposed budget
Appropriation act
Encumbrance & disbursement of funds
Comprehensive annual fin. report
Preparation
Legislative Approval
Executive Implementation
Accounting & Fin. Reporting
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Preparation
• Preparation
– Engage department heads, link to the strategic
plans and performance measures.
– A budget calendar and budget manual.
– Regular updates of revenue forecasts.
– Executive – level hearings.
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Legislative
• Legislative Approval
– Council reviews and modifies the proposed
spending plan,
• invites public comment, public hearings
• assesses how proposals meet community needs
– Approves plan as appropriation (budget authority)
– Tax-supported versus fee-supported activities.
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Preparation
(and Legislation) Phase
• Revenue forecasting methods
– Informal judgment
– Deterministic, or formula based
– Time series analysis
– Econometric or causal model
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Legislative Phase
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Manager’s budget
Council work sessions
Public hearings
End runs
Biennial budget
Tax ordinance - EXAMPLE
Appropriation (budget) ordinance
– EXAMPLE #1 and EXAMPLE #2
• Line-item veto
• Failure to adopt budget before start of FY.
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Executive
• Executive Implementation
– Communicate budget information to stakeholders.
– Maintain budget compliance
– Policies and procedures designed to alter budget as
circumstances warrant.
– Technology platform
• Forecasting revenues and expenditures (short term/long
term)
• Budget preparation
• Formulating budget scenarios
• Performance measurement.
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Executive Implementation
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Budget authority
Estimated Revenues
Requisitions, encumbrances
Salary savings
Apportionment
Allotment
Lapse in budget authority
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Accounting
• Accounting & Financial Reporting
– Provide financial control.
– 13 GAAP principles provide the accounting
guidelines for local governments
– Interim and CAFR reports
• Reconciliation of all transactions
• Comparison to approved and amended budget.
– Interim report -- an early warning system.
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Budget Cycle #2
Forecasting
Adoption
Analysis
Public Hearing
Preparation
Presentation
Budget Cycle - Best Practice
• Duties should be clearly identified.
• Policies should be established to guide
deliberations.
• Timely and accurate revenue forecasts.
• Assess the long-term financial impact of
proposals.
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Budget Cycle: Forecasting
• Forecasting
– Estimation / Calculation and Best Guestimates of
anticipated revenues and expenditures
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Bank Statements
General Ledger
Prior budget worksheets
Accounting reports
Price indexing from prior year numbers
Publication data, economic data, vendor data
Budget Cycle: Analysis
• Ensuring all revenues and expenses are
identified and organized
• Develop budget instructions and targets
• Departmental data is compiled and integrated
into the budget building worksheets and
forms
• Departmental review for accuracy and
consistency
Budget Cycle: Preparation
• Publish a calendar identifying deadlines for
tasks and individual responsibilities
• Ensure worksheets and documents cover all
areas of the budget details and process
• Confirm accuracy and data flow throughout
the budget worksheets
Budget Cycle: Presentation
• Basic Guidelines:
– Easy to understand with basic information.
– Explain the budget in terms of priorities.
– Be honest and do not exaggerate or mislead.
– Be able to justify each item in the budget.
– Be able to explain cuts and their ramifications.
– Be able to provide proof of service effectiveness.
– Know the facts of each department
– Be prepared for scenarios on the budget
Budget Cycle: Public Hearing
• After the tax rate has been proposed, the
public may express their opinions.
– If a tax rate is proposed, notice must be given at
least 7 days before the initial hearing, giving date,
time and place of hearing.
– The second hearing may not be held earlier than 3
days after the initial hearing
• Texas Tax Code §26.06 outlines the specific
requirements
Budget Cycle: Adoption
• The adoption is typically an agenda items after
all the required and publicized public
meetings.
• The budget for the next fiscal year is adopted
with an ordinance.
• Time to collect the taxes…
Estimating Revenues
• Based on:
– Revenues collected during the fiscal year
– Budgeted for collection for the coming fiscal year
– Projected for the coming fiscal year
– Anticipated changes:
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Community retail and industry
More or less jobs
Demographic issues
Housing changes
Estimating Expenditures
• Based on the known expenditures and other
potential issues:
– Tax base
– Building, staff, benefits
– New services and existing services
– Grants and alternative income
– Laws, contracts
– Interest expenses
Budgetary Sources
• Property tax
– No State property Tax
– Appraisals based on market value as of Jan. 1
– Assessment used to for the purpose of levying the property taxes
• Sales tax
– Retail sales of merchandise
• Currently Texas has a 6.25% tax. Municipalities can levy up to an additional 2%
for a total of 8.25%
• Franchise fees
– Charged to telecom, cable, gas and electric utilities for the right to
solicit customers in the community.
– Based as a percentage of the revenue generated and is negotiated
with the community
• Occupancy tax
– Hotels, motels, Inns, Lodges and is used to support tourism in Texas
Budgetary Sources
• Beer, mixed drink
– Taxes on alcoholic beverages and drinks
• Amusement tax
– Bingo, coin operated (related to amusements)
• User Fees
– Users of services (bus fees, golf courses, rec. classes)
• Special assessment
– Owners of benefit from improvements (roads, curbs)
• Capital recovery fees or Impact Fees
– Sewers, water lines, roads, schools, parks
• Licenses and permits
– Food service, building permits, daycare permits
Budget Types
Budget Types
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Lump Sum – Distributed totals (grants)
Formula – Calculations based on formulas
Line-Item – Categorized by accounting tracks
Program – Cost categories by program
Performance – Tied to indicators / functions
PPBS – Program + Performance
Zero-Based – Substantiate into decision packages
Responsibility Centered –Dept. centered
Budget Types: Lump Sum
• Each department receives a certain amount of
funds and the department head decided on
how to allocate those funds and develops the
budget
– Advantages: Flexibility to move funds where they
are needed.
– Disadvantages: Lack of accountability and vision.
You want a budget that follows a plan, not a plan
that follow a budget.
Budget Types: Formula
• Formula funds are allocated by numbers (
miles, population) and further allocated by
additional formulas.
– Advantages: Response to growth in numbers and
can be modified easily with formula adjustments.
– Disadvantages: Allocations can decrease easily.
More difficult to add line items to an existing
budget due to the total reallocation of formulas
Budget Types: Line-Item
• There is a line for each revenue and
expenditure item with a percentage for
allowable variations from budget.
– Advantages: Easy to construct and typically based
on prior year funding.
– Disadvantages: Across the board cuts may not be
realistic to actual expenditures ( i.e.. 10% cuts).
Also, the do not show the costs of individual
programs or services.
Budget Types: Program
• Ties all costs to specific programs. Difficult to
set up, but easy to maintain. It is important to
keep accurate records and statistics
documenting usage.
– Advantages: Closely tied to the mission, goals and
objectives. Total costs are kept together so
accounting is easier.
– Disadvantages: Everything must be tied to a
program, so proration of expenses may be
difficult.
Budget Types: Performance
• Tie a program’s functions to various
performance indicators. Provides for easy
cost-accounting of municipal services
traceable to per unit charges.
– Advantages: Easy to track costs of services and
their respective efficiencies.
– Disadvantages: Emphasizes economy over service.
Maintenance of statistics shouldn’t overshadow
the reasons for tracking performance.
Budget Types: PPBS
• Planning, programming, budgeting system is a
combination of program and performance
based budgeting. Planning and cost benefit
analysis plays an important role.
– Advantages: Easiest budget format for cost
analysis. Individual staff performance can be
analyzed.
– Disadvantages: Does not assess the quality of
service. Only indicated cost of providing service.
Budget Types: Zero Based
• Based on what is needed for the future. Each
program begins with zero and you must justify
the related costs. Each program is packaged
into decision packages which are ranked.
– Advantages: Common goals and limited resources
are pooled to accomplish the common goals.
– Disadvantages: Very time consuming. The ranking
of packages takes time.
Budget Types: Responsibility Centered
• All operating expenditures and revenue
should be assigned to that center. Incentives
should exist to reduce costs and promote
priorities. Each department is expected to be
self-supporting. The centers are: Cost Center,
Revenue Center and Profit Center
– Advantages: Each Dept. self supports
– Disadvantages: Over collaboration of centers
Budgets as a Financial Plan
• Tax Rate = Millage levied by the taxing entity.
The tax rates are combined for the home
owner’s tax bill.
• Assessed value
(x) Multiplier
(-) Exemptions
(x) Tax rate
= Total tax bill
Millage
• Mill = 1/10of a penny, or $1 for every $1,000
in taxable value.
• Each taxing entity (city, school district, county)
levies a specific millage against the property
taxes.
– A 1 mill tax increase is a $100 additional property
tax on a $100,000 house.
Calculating Effective Tax Rate
Prior year’s taxes ( - ) less taxes on property lost this
year
----------------------------------------------------------- (DIVIDED BY )
Current AV of property taxed last year
x 100
= Effective Tax Rate
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Rollback Rate
• Calculated upon the maintenance and
operations portion of the proposed budget.
– An 8% increase is allowed by law.
– If the entity adopts an amount that exceeds the
rollback rate, voters may petition for an election
to limit the rate to 8%.
Property Tax Calculation
• M&O and I&S rates set by council /
commissioners
• Combined on tax bill
• (Assessed Value – Exemptions) x PTR =Tax
Liability
• For City / County budget:
– Total Taxes Receivable – Delinquents = Current Tax
Yield
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Citizen Engagement
• People are interested and pay attention.
• Judgments tend to be formed by their
personal experiences.
• Individual interaction with an agency defines
the opinion of that agency / dept.
• People are clear in what they want / don’t
want from an agency.
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Fostering Citizen Engagement
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Public hearings
Citizen surveys
Advisory boards
Focus groups
Web based budget exercises
Open House
On line suggestion box
Posting information on-line
Changing public perceptions of government
Sustainability of citizen partnerships
Inclusion in the processes of government
Citizen feelings of representation, inclusiveness and equity in the
process
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Budget Components
Budget Components
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Funds
Budget Structure
Revenue
Expenditures
Budget Components - Funds
Municipal Accounts are called funds.
• General Funds –
– Operating funds
• Special Revenue Funds –
– Ear-marked for a special purpose or project
• Hotel/motel taxes
– Tourism or grant funds
• Special assessment funds
– Streets, sidewalks, etc.
Budget Components - Funds
• Capital Project Funds –
– Construction, building, acquisition, development
– Typically funded through referenda
– Carry over from year to year
– Not comingled with General Funds
– Usually incorporated into a Capital Improvement
Program (CIP).
• Debt Service Funds
– Used to pay off Principle & Interest on debt issues
Budget Components - Funds
• Enterprise Funds –
– Primarily funded by user fees
• Golf Courses, airports, utility depts., marinas
– Raise their own revenue
• Internal Service Funds –
– Internal charges between departments ( janitorial
services, computer & vehicle maintenance).
– Prorated and levied to other department budgets
• Fiduciary Funds –
– Collected as an agent for another fund
• Court fees sent to State, employee pension funds ).
Budget Components –
Budget Structure
• Depends on the size of the entity
– (Small)
• Public Works may incorporate Utilities, Streets, Sewer
and Heavy Equipment
• Public Safety might include Emergency Mgmt., Police,
Fire, Animal Control
– (Large)
• Each area might have its own director and separate
budget managers
Budget Components - Revenue
• Listed in the budget by source:
– Property taxes
– Sales Taxes
– Franchise Fees
– Fines & Fees
– Licenses and permits
– Interest
– Contracts
– User fees
Budget Components - Expenditures
• Typically grouped by type:
– Personnel services
– Operating expenses
– Contractual expenses
– Capital outlays
– Debt service
City of Chuck Wagon
Budge Summary
2010 – 2011
Beg. Bal. (BB)
REVENUES
Taxes
- Property
- Sales
- Other
Franchise Fees
Service Charges
Licenses &
Permits
General Fund
Water Fund
Wastewater
Total
$
$
$
$
City of Chuck Wagon
Budge Summary
2010 – 2011
REVENUES
Fines &
Forfeitures
Agency
Contracts
Int. income
Water Fees
Wastewater
Fees
Waste Tap Fees
Other Revenue
Total Rev. (TR)
TR + BB
General Fund
Water Fund
Wastewater
Total
$
$
$
$
City of Chuck Wagon
Budge Summary
2010 – 2011
General Fund
EXPENDITURES $
Salary
Supplies
Contract Svcs.
Cap. Outlays
Debt Svc.
Benefits
Other Revenue
Total EXP. (EXP)
Contingency
Ending Balance
Water Fund
Wastewater
Total
$
$
$
Budget Calendar
Budget Calendar
FY Beginning 10/1
Date
Activity
03/01 Review Budget Process and Set Calendar
Distribute budget forms and worksheets to depts.
04/01 Dept. budget requests submitted to CM/BO/FD for review
Preliminary review of estimates submitted to CM/BO
04/15 Meet with DHs individually to review budget requests
Tabulate and analyze budget requests & revenue estimates
and prepare budget for the first draft
Resp. Party
CM / BO
CM / BO
DHs
Fin Dir.
CM / BO
CM / BO
05/15 City Council Planning Meeting
CM / BO
06/15 Proposed budget is presented to City Council in draft format
CM / BO
06/20 Budget workshop with Council in public session
CM
Aug Sep
MC
Give 72-hour notice for governing body meeting
Budget Calendar
FY Beginning 10/1
Date
Activity
Resp. Party
Aug Sep
Govt. body meeting to discuss proposed tax rate & make
arrangements for a public hearing and take a record vote
Council
Tax Increase – publish a “Notice of Public Hearing on Tax
Increase” 7 days prior to the public hearing listing both dates
for the 2 required public hearings. Tax Code 26.06 gives
specific details on newspaper requirements
MC
Post 72-hour notice for the public hearing on tax increase
MC
Hold public hearing on the tax increase
Council
Post 72-hour notice for the 2nd public hearing
MC
Hold public hearing
Publish a “Notice to Vote on Tax Rate” between notice and
vote dates
MC
Budget Calendar
FY Beginning 10/1
Date
Activity
Resp. Party
Aug Sep
Post 72-hour notice for public meeting to vote on tax rate
MC
Hold public meeting to vote on tax rate
Council
Final draft of budget presented to Council and copy placed
with MC and the public library
CM
Public hearing on budget
Council
First reading of budget
Council
Second reading of budget
Council
Publish summary of budget and announcement where it can
be reviewed
MC
Budget filed with Municipal Clerk and County Clerk
CM / BO
9/30
Preparation for Next Year
• Keep a folder detailing notices of rate
increases from vendors, postage and other
recurring charges that might be increasing
during the year and that will impact the
budget.
• Map out the process for the current year and
note areas that took additional efforts and
time constraints to better prepare for next
year.
Budget Forms
• Information pockets that will be distributed to
department heads will contain all the forms to
be used in the budget process. Typically
prepared by the finance manager.
• Typically will include a statement by the City
Manager or Chief Executive setting the tone
for the coming fiscal year in addition to
providing the time-table for completion of the
process.
Budget: Legal Document
Texas Local Gov. Code, Chapter 102 requires:
• Budget shows a complete financial statement
of the municipality.
• Proposed budget be filed with the municipal
clerk before the 30th day the date that the tax
levy ordinance is passed.
• Proposed budget be available for inspection
by any taxpayer.
Budget: Legal Document
Texas Local Gov. Code, Chapter 102 requires:
• Public hearing be held after the 15th day
following the date the budget was filed with
the municipal clerk, but before the date that
the tax levy ordinance is passed.
• Public notice be given in at least one
newspaper of general circulation in the county
and on the municipality’s webpage. (26.06)
Budget: Legal Document
Texas Local Gov. Code, Chapter 102 requires:
• Action be taken on the budget at the end of the
public hearing.
• The final budget be filed with the municipal clerk
and the county clerk. (102.008-009(d))
• Taxes be levied and municipal funds spent in
strict compliance with the budget, except in
emergencies with an amendment to the budget.
• Amendments be made at public meetings.
Budget Monitoring
• Adjustments to revenues and expenditures
should be expected.
• Department heads and budget officers must
ensure the budget is on track and that
revenues and expenditures are reported
correctly.
• Monthly reports to council and the public
confirm that the budget is performing as
anticipated.
Bill Payment
• Texas has a prompt payment law which
established when payments are due.
• (Chapter 2251, Government Code)
– “Payment for goods and services are due 30 days
after the goods are provided, the service
completed, or a correct invoice is received,
whichever is later”.
Encumbrances
• Funds that are committed, but not yet spent.
– Example: Salary for the year
– Actual costs are tracked verses the encumbrances.
• Encumbrances are common to ensure:
– No large balances are shown in the planning
process initially.
– Bills are paid by the end of the fiscal year.
Basic Concepts - Funds
• Capital Project Funds –
– Construction, building, acquisition, development
– Funded by debt and current revenues
– Carry over from year to year
– Not comingled with General Funds
– Capital Improvement Program (CIP) provides
multi-year timeframe
• Debt Service Funds
– Used to pay off Principle & Interest on debt issues
101
Basic Concepts - Funds
• Enterprise Funds –
– Primarily funded by user fees
• Golf Courses, airports, utility depts., marinas
– Raise their own revenue
• Internal Service Funds –
– Internal charges between departments ( janitorial
services, computer & vehicle maintenance).
– Prorated and levied to other department budgets
• Fiduciary Funds –
– Collected as an agent for another fund
• Court fees sent to State, employee pension funds ).
102
Accounting
• Typically 2 types:
– (Accrual) - records income when it is earned rather
than when received and expenses the item when
ordered rather than when payment is made.
– (Cash) is like checkbook accounting by recording
income when it is received and expenses when they
are paid.
• Municipalities use the modified accrual method.
It records supplies and consumables as used
during the fiscal year when they are purchased.
Accounting Principles
• Modified Accrual Basis (Governmental)
– Revenues – measurable & available
– Expenditures – goods and services received
– Change in fund balance
– Balance sheet
– Statement of Revenues, Expenditures and
Changes in Fund Balance
104
Accounting Principles
• Accrual Basis (Enterprise Funds)
–
–
–
–
–
–
–
–
Revenues – Earned & measurable
Expenses – Goods and services used
Depreciation
Restricted Assets
Payables from restricted assets
Changes in net assets
Statement of Net Assets
Statement of Revenue, Expenses and Changes in Net
Assets
105
Fund Accounting
• Examples of funds that can not be comingled
requiring separate accounting are:
– Photocopy revenues
– Fine money
– State or Federal funds
– Endowment or grant funds
– Capital funds
– General funds
Financial Reporting
A = L + FB – R + E
A: assets
L: liabilities
FB: fund balance (or net assets)
R: revenue
E: Expenditures (or expenses)
107
Accounting Automation
• Do we need it?
– What currently works and what doesn’t?
– Will we monitor/track all accounts?
– Do we have issues with the current system?
– How could we improve the current situation?
– Will the costs offset the benefits?
– Will it provide additional features we currently do
not have?
Accounting Automation
• Can we implement it?
– Are current staff computer savvy enough?
– Do we have sufficient hardware to support it?
– Do we want it on the network of locally?
– Does it provide strong security and backup
functions?
– What is the cost, is it modular and is there an
annual maintenance agreement cost?
Accounting Automation
• Can we implement it?
– Does it provide all the reporting formats we need
and can it be customized by us for ad-hoc
reporting?
– Will our IT department support it or will we need
to get support from the vendor?
– Can we integrate our current systems and will it
support our current account structure?
– How is data entered / processed / maintained?
Automation Evaluation
•
•
•
•
•
Can we get a demo?
Who else used it?
How much support?
What are the comparable programs?
Is it proprietary or can we use the data in
other formats?
• How does it compare cost wise with other
products?
Outsourcing
• Outsourcing (contracting to external
companies) or Privatization (shifting to a
private sector) should only be implemented if
there is a savings or improved service over
internal operations.
• Cost benefit analysis studies should be
instituted to ensure that taxpayers are getting
the best services / benefits for the expense.
Outsourcing Pros and Cons
• Pros
– Save time and money.
– Specialized vendors can typically perform the services at a
more efficient level.
– Salaries and benefits may outweigh vendor contracts in
total expense.
• Cons
–
–
–
–
Quality control is more difficult to maintain.
Vendors may cut corners and not understand the needs
Jobs may be lost and vendors may go out of business.
Lowest bid may result in lowest service level.
Successful Outsourcing
•
•
•
•
•
•
•
•
•
Do your homework
Involve key parties
Initiate Request for Proposals (RFPs)
Ensure a competitive environment
Ensure quality work
Employ a skilled attorney
Keep good records
Make progress reports
Review your homework again
Outsourcing Questions
•
•
•
•
•
•
•
•
•
•
•
Why outsource?
What are the costs?
What is the current workflow?
Who will oversee the process?
What is the staff impact?
What is essential to the municipality?
Which vendors to use?
What services to outsource?
What are the institutional obligations?
Can current staff be absorbed?
What can be outsourced?
– Custodial, Security, vending, landscape, pet control, repairs, DR, waste
management, etc.
Protecting Property
• Dealing with misappropriated property can be
handled by:
– Municipal staff
– Referral top a collection agency
– Referral to a court system
– Offsetting debts against payments
– Extended use fees
– Amnesty days
– Skip chases (locating people…)
Theft of Public Property
•
•
•
•
Be willing to prosecute if necessary
Document everything
Know the law
Security measures:
– Access management systems
– CCTV
– RFID
– Computer Security
Risk Management & Insurance
• Municipalities may be self insured or covered
by a policy.
• Know what is covered
• Know what is not covered
• Know how to report a claim
• Know the deductible
• Is the property inventory listing current?
• Should employees be bonded?
Disaster Management and the
Budget Policy
Disaster Management and the Budget
Policy
•
•
•
•
Mitigation
Preparedness
Response
Recovery
Disaster Management and the Budget
Policy
• Mitigation
– Is the insurance coverage sufficient for a large scale
losses of city or county property?
– What impact would a disaster or emergency have on
the property tax base? Sales tax base? Water &
wastewater charges? Other revenue sources?
– What level of budget reserves is appropriate given the
community’s vulnerability to particular types of
disasters or emergencies?
– What protection should be available to cover debt
service costs in the event of a disaster?
Disaster Management and the Budget
Policy
• Preparedness
– For coordination purposes, what role should state
government have in ensuring the continuity of
operations in disaster prone local governments?
– What is the cost and what procedures should be
followed to restore revenue administration
(collections & enforcement) in the event of a
disaster?
– Do mutual aid agreements include assistance with
revenue-related needs in the event of a disaster?
Disaster Management and the Budget
Policy
• Response
– What surcharges to taxes or service charges would
be available to cover short-term revenue needs in
the event of a major disaster?
– Under what conditions can the local government
incur short-term debt to cover the operating costs
associated with an emergency or disaster?
– What loans or grants are available from the state
or federal government to ensure continuity in
operations for the local government?
Disaster Management and the Budget
Policy
• Recovery
– What tax relief options should be considered for
households and businesses in the event of a
disaster?
– What alternatives should be available for
taxpayers unable to pay their tax liability? For
those unable to pay for locally provided utility
services? How should penalties and interest on
late payments be treated for victims of a disaster?
Disaster Recovery & Emer. Mgmt.
•
•
•
•
Have a plan
Run drills with first responders
Establish phone trees and communications
Establish a business impact analysis (BIA) on
the various departments and establish
priorities for continuation of business and
ways to minimize service disruptions.
– BUSINESS IMPACT ANALYSIS example
Budget Crisis Strategies
High severity
of budget crisis
EXPENDITURE RESPONSES
Impose Layoffs
Reduce Salaries
Close Facilities
Freeze Hiring
Improve Prod.
Reduce OT
Reduce Hrs.
Delay Maintenance
Delay Cap. Imp.
Seek Approval
for Inter-fund
Loans
Raise Fees
Tap Budget
Reserves
Raise Excise Taxes
SHORT TERM
Downgrade Bond
Rating
Increase Rates on
Major Taxes
Seek State Bailout
Declare Bankruptcy
Duration
REVENUE RESPONSES
LONG TERM
Low severity of
budget crisis
Effective Tools
• Life cycle of a budget crisis:
127
Effective Tools – Strategies for
Restoring a Balanced Budget
128
Public Property Inventory
•
•
•
•
•
•
•
•
Make a plan and time schedule
Decide on a partial or full inventory
Full scale or selected equipment
Automated or manual
Keep the information updated and current
Dealing with broken or replaced items
Analyze the exception reports closely
Make a policy…
Sale & Disposal of Property
•
•
•
•
•
•
Is the property no longer needed?
Can it be used by another department?
Can it be used by another entity?
Could a non-profit entity use it?
Can it be sold and the proceeds reapplied?
What are the steps for removing it from
inventory?
• Make a policy…
Fine & Fee Collections
• Fines and fees are imposed to recover the
costs for providing a service.
• Multiple examples in your book.
• Considered part of the municipalities revenue.
• Usually turned into the general operating
fund.
• Establish strong cash management practices.
• Make a policy…
Budget Innovations
• A century of budget innovations
– Line-item budgeting (input)
– Zero-base budgeting (inputs – outputs)
– Minimum service package
– Current service package
– Enhancement package
– Ranking decision package
– Target-base budget (inputs)
132
Budget Innovations - Program
Budgeting
• Prioritizing by goals and objectives
• Weighing the costs and benefits of
alternatives
• Organizing the entity into programs
133
Budget Innovations – Performance
Budgeting
• Improving management through monitoring
inputs, outputs, and outcomes
• The causal linkage conundrum
134
Best Practices - Improving Government
Productivity
100%
100%
`
Private sector
produces
and/or
finances
0%
Privatization
Outsourcing
Public-private
nonprofit
partnerships
Intergovernmental
partnerships
Performance
measurement
and
management
Public sector
produces
and/or
finances
0%
135
Internal Controls
Budgets and Planning
Internal Controls - Checklist
• Segregation of Duties
– Responsibilities segregated for budget preparation,
execution and reporting?
– Duties and functions of the Budget Control Officer
segregated from cashiers, purchasing agents and voucher
clerks?
– Are actual revenues, encumbrances, and expenditures
periodically compared with the accounting records?
– Are comparative reports of estimates and actuals
submitted to management at least monthly?
– Is an encumbrance system actually used effectively?
– Is a percent of achievement included in monthly reports?
Internal Controls - Checklist
• Segregation of Duties
– Perpetual balances of estimated resources to be received
and unencumbered maintained for line items in the
budget?
– Are operating results of budgets used as a management
tool?
– Do internal controls ensure that budget data agrees with
the approved budget and correspond to annual financial
statements?
– Are internal audits reasonably independent of the
individuals or departments subject to the audit?
– Is the scope of the internal audit work reasonably
comprehensive?
Internal Controls - Checklist
• Segregation of Duties
– Does the internal audit work follow a written
program?
– Are written reports issued by internal audit on all
work undertaken and management required to
respond to findings?
– Are organizational charts established and maintained?
– Does the organizational chart set forth the lines of
responsibility?
– Are the duties of positions and/or employees defined
as to responsibility?
Internal Controls - Checklist
• Segregation of Duties
– Are all persons having positions of trust adequately
bonded?
– Do all personnel in positions of trust take annual
vacations?
– Is the work of persons in positions of trust performed by
others during their absence?
– Are all journal entries approved by a responsible
employee?
– Is a periodic review of insurance coverage made by a
responsible employee?
– Are key employees customarily free from overtime work
except for emergencies?
Internal Controls - Checklist
• Segregation of Duties
– Are key employees free from any detrimental
influences by reason of relations with others in
position to control over their activities?
– Are custodians of cash denied access to records or
documents used to determine the amount of cash
they should have on hand?
Internal Controls - Checklist
• Preparation Controls
– Does the law require budgets and budgetary
procedures?
– Does a budget policy exist that outlines the process
and procedures used in establishing the budget?
– Is there an awareness of budget practices, procedures
and policy within the organization?
– Are budgets prepared for all significant activities
regardless of whether or not mandated by law?
– Is a budget calendar used for the orderly submission
and approval of the budget?
Internal Controls - Checklist
• Preparation Controls
– Have initial budget submissions been developed and
prepared by major departments and activity centers?
– Has a finance or budget officer reviewed
departmental budgets and have the departments of
oversight met the legislative body’s goals and
objectives?
– Is the type of budget performed compatible with the
accounting system?
– Is the budget prepared in sufficient detail providing a
meaningful tool with which to monitor subsequent
performance?
Internal Controls - Checklist
• Preparation Controls
– Is both the original and final amended budget
available?
– Are interfund and interdepartmental transfers
included in the budget?
– Are advances included in the budget?
Internal Controls - Checklist
• Adoption Controls
– Is citizen input obtained through budget hearings?
– Are all the legal requirements met to levy taxes in
accordance with state statute or other
requirements?
– Has the budget been submitted to the legislative
body for approval, and is there clear
communication to departments or agencies on
the effects of legislatively mandated budget
modifications, either increase or decrease?
Internal Controls - Checklist
• Adoption Controls
– Coincident with the adoption of the budget, has there
been appropriate legislative action to:
• Adopt legislation to implement the raising of budgeted
revenues?
• Initiate expenditure appropriations?
• Document approval action in formal minutes?
– Are estimated resources and appropriations recorded
in the accounting records for later comparison to
actual amounts realized or incurred?
Internal Controls - Checklist
• Adoption Controls
– Are budget estimates supported by detailed
worksheets that show how the estimates were
calculated and how the assumptions were made?
– Are budgets that have been approved by grantors
in connection with grant activity recorded in the
accounting system?
– Are accounting manuals made available for
general use?
– Are budgets published if required by law?
Internal Controls - Checklist
• Execution Controls
– Have procedures been adopted and communicated
establishing authority and responsibility for transfers
between budget categories?
– Is the flow of expenditures or commitments
controlled through the use of an appropriation
system?
– Does the accounting department submit approval as
to availability of funds before the issuance of purchase
order or expenditure commitment?
Internal Controls - Checklist
• Execution Controls
– Are requests for supplemental appropriations of
budget changes processed and approved in the
same manner as the original budget is processed
and approved (or as required by law)?
– If liabilities and expenditures are recorded on an
encumbrance or obligation basis, are there
controls to ensure knowledge of outstanding
commitments?
Internal Controls - Checklist
• Reporting Controls
– Are actual expenditures compared to budget with
reasonable (monthly) frequency and on a timely
basis?
– Are reports discussed with departmental
personnel and are there explanations for
significant variations from the budget?
– Are executives and legislative branches notified of
expenditures in excess of the appropriations or
budget?
Internal Controls - Checklist
• Reporting Controls
– Are actual results of operations against the budget
published if required by law?
– Are the same accounting principles used in the
budget preparation the same as those used to
prepare the financial statements?
– Are budget resources and performance dates
appropriately summarized in an annual report to
the authoritative body?
Recommended Practices of the
National Advisory Council on State &
Local Budgeting
NACSLB Practices
Principle 1 – Establish Broad Goals to Guide Government
Decision Making
Element 1 - Assess Community Needs, Prioritize, Challenges and
Opportunities
1.
2.
Identify stakeholder concern, needs and priorities
Evaluate community condition, external factors, opportunities and
challenges
Element 2 – Identify Opportunities and Challenges for Government
Services
1.
2.
3.
Assess services and programs, and identify issues, opportunities,
and challenges
Assess capital assets, and identify issues, opportunities and
challenges
Assess governmental management systems, and identify issues,
opportunities and challenges
NACSLB Practices
Principle 1 – Establish Broad Goals to Guide Government
Decision Making
Element 3 – Develop and Disseminate Broad Goals
1.
2.
Identify broad goals
Disseminate goals and review with stakeholders
Principle 2 – Develop Approaches to Achieve Goals
Element 4 - Adopt Financial Policies:
1.
2.
3.
4.
5.
6.
7.
Stabilization funds
Fees and changes
Debt Issuance and management (Debt level and capacity)
One-time revenue (Unpredictable revenue)
Balancing the operating budget
Revenue diversification
Contingency planning
NACSLB Practices
Principle 2 – Develop Approaches to Achieve
Goals
Element 5 – Develop Programmatic, Operating and
Capital Policies and Plans
1. Prepare policies and plans to guide the design of
programs and services
2. Prepare policies and plans for capital asset
acquisition, maintenance, replacement, and
retirement
NACSLB Practices
Principle 2 – Develop Approaches to Achieve
Goals
Element 6 – Develop Programs and Services that are
Consistent with Policies and Plans
1. Develop programs and evaluate delivery mechanisms
2. Develop options for meeting capital needs and
evaluate acquisition alternatives
3. Identify functions, programs, and/or activities of
organizational units
4. Develop performance measures
5. Develop performance benchmarks
NACSLB Practices
Principle 2 – Develop Approaches to Achieve
Goals
Element 7 – Develop Management Strategies
1. Develop strategies to facilitate attainment of program
and financial goals
2. Develop mechanisms for budgetary compliance
3. Develop the type, presentation, and time period of
the budget
NACSLB Practices
Principle 3 – Develop a Budget Consistent with
Approaches to Achieve Goals
Element 8 – Develop a process for Preparing and
Adopting a Budget
1. Develop a budget calendar
2. Develop budget guidelines and instructions
3. Develop mechanisms for coordinating budget
preparation and review
4. Develop procedures to facilitate budget review,
discussion, modification and adoption
5. Identify opportunities for stakeholder input
NACSLB Practices
Principle 3 – Develop a Budget Consistent with
Approaches to Achieve Goals
Element 9 – Develop and Evaluate Financial Options
1.
2.
Conduct long range financial planning
Prepare revenue projections
1.
2.
3.
4.
3.
4.
5.
6.
Analyze major revenues
Evaluate the effect of changes to revenue source rates and bases
Analyze tax and fee exemptions
Achieve consensus on a revenue forecast
Document revenue sources in a revenue manual
Prepare expenditure projections
Evaluate revenue and expenditure options
Develop a capital improvement plan
NACSLB Practices
Principle 3 – Develop a Budget Consistent with
Approaches to Achieve Goals
Element 10 – Make Choices Necessary to Adopt a Budget
1.
2.
3.
4.
5.
6.
7.
8.
Prepare and present a recommended budget
Identify Key Issues
Provide a financial overview
Provide a guide to operations
Explain the budgetary basis of accounting
Prepare a budgetary summary
Present the budget in a clear, easy to use format
Adopt the budget
NACSLB Practices
Principle 4 – Evaluate Performance and Make
Adjustments
Element 11 – Monitor, Measure, and Evaluate
(MME) Performance
1. Program performance
1.
2.
3.
4.
5.
Stakeholder satisfaction
Budgetary performance
Financial condition
External factors
Capital program implementation
NACSLB Practices
Principle 4 – Evaluate Performance and Make
Adjustments
Element 12 – Make Adjustments as Needed
1. Adjust the budget
2. Adjust policies , plans, programs and management
strategies
3. Adjust broad goals, if applicable
Budgeting
A Budgeting Guide for Local
Governments
Robert L. Bland
Context of LG Budgeting
• The budget process tends to produce far more
information than is used in decision making,
resulting in considerable frustration among
the department heads and staff members
responsible for completing the paperwork if
they perceive their input is going unused.
• It is the rudder that steers the public
organization.
Budget Cycle in Brief
• Preparation creates the Executive budget.
• Legislative approves of the appropriation.
• Executive implementation to approve
disbursements of funds.
• Accounting & financial reporting via a
Comprehensive Annual Financial Report
(CAFR) that is reviewed by an independent
auditor.
Budget Cycle in Brief
• Preparation
– Engage department heads over activities, links to
the strategic plans and the measures used to
assess progress towards the budget goals.
– A budget calendar and budget manual assist in the
information gathering process.
– Regular updates of revenue forecasts are critical.
– The final step in preparation is the high level
meetings defending the proposals.
Budget Cycle in Brief
• Legislative
– The council reviews and modifies the proposed
spending plan, invites public comment, assesses
how the proposals will meet the community
needs and finally approves the plan as an
appropriation.
– Most deliberations are typically centered around
the tax-supported as opposed to fee-supported
activities.
Budget Cycle in Brief
• Executive Implementation
– Communicate budget information to stakeholders.
– It’s a two-sided coin:
• On one side are procedures designed to maintain
budget compliance; on the other are procedures and
policies designed to alter the budget as circumstances
warrant.
– Technology platform greatly assist in forecasting,
collaboration among users and formulating
budget scenarios and performance measurement.
Budget Cycle in Brief
• Accounting & Financial Reporting
– Provide financial control.
– The 13 GAAP principles provide the accounting
guidelines for local government accounting.
– Interim and CAFR reports provide a full
reconciliation of all transactions and their effects.
– Interim report are also an early warning system
while CAFRs provide a final reckoning to council.
Budget = 2 Documents
• Operating Budget
– Reports the spending plan for a government’s
ongoing services such as police, fire, parks,
recreation, water and sewer service. Typically
organized info. by department and provides line
item detail.
– Money comes from current revenues such as
property, sales and income taxes, service charges,
fees and fines; and grants.
Budget = 2 Documents
• Capital Budget
– Represents a spending plan for the acquisition of
fixed assets, such as highway and building
construction, water & sewer lines and park
development.
– Usually part of a capital Improvement Plan (CIP)
that projects major construction and acquisition
needs for a 5 to 8 year period.
– Funding usually comes from the sale of bonds and
other long-term obligations.
Budget Comparisons
Public Sector
• Operates as monopolies
and therefore tend to be
less efficient.
• Subject to nature and level
of service including
mandates.
• No profit incentive.
• Political ramifications.
• Open to outside influence.
Private Sector
• Targets sales volume and
profits.
• Strive for continued
efficiencies and cost
reductions.
• A single bottom line versus
multiple funds of public
goods.
• Competition forces
continued improvements
and effective pricing.
Goods
Public Goods
• Meant to serve the greater
level of service.
• Include:
–
–
–
–
Police & Fire protection
Mosquito eradication
A river dam
Water & Sewer services
– Can you contract for these
services???
Private Goods
• Divisible and excludable to
the unit level.
• Can be traded in the market
place.
• Include:
–
–
–
–
Goods
Services
Items
Efficient private operations
and services ( i.e. lawn care,
trash)
Environments of Public Budgeting
• Political
– Feedback from citizens
– Citizen involvement
• Economic
– Recessions & Expansions
– Inflation & Interest rate changes
– Competition for business investment & residents
• Social
– Population change
– Age distribution
– Personal income
• Legal
– Requirements for budgetary balance
– Mandates
The View of Local Governments
• People are interested and pay attention.
• Judgments tend to be formed by their personal opinions.
• Individual interaction with an agency defines the opinion of
that agency / dept.
• People are clear in what they want / don’t want from an
agency.
• People acknowledge success and failures in government
improvements.
• Most feel that better areas get better services.
• People want and like information from their government.
• People will complain more about services than taxes.
• People tend to feel powerless to improving services.
Lessons in Budgeting
• The fewer resources available to a community,
the less room the community has for error in
discovering budget issues.
• The quality of the data coming into the
process is critical to the success of the budget.
• Budget comparisons between entities is
tough. It’s best to use historical data.
• Performance measurement is difficult but
worth it in the long run. Build benchmarks.
Sources of Conflict
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Sources of Conflict
• Advocates request funding for a program or service from
which they benefit, but conservers, taking into
consideration revenue constraints, are not able to fill all
requests.
• Budget officers need information, but department heads
are reluctant to share information for fear that they may
lose some budgetary control.
• The administrator’s concern for budget realities may clash
with the politician’s concern for image and expediency.
• The goal of democracy – equality and accountability – may
conflict with those of bureaucracy – centralization of power
and control. Budgets have become an important tool for
creating accountability within bureaucracy.
Sources of Conflict
• Legislators must address special interest or risk losing supporters
and votes, but they must also address collective interests to avoid
revolts that result when citizens become sufficiently irritated.
• The well-being of a community is not always served by what the
public desires. The job of a manager is to educate the public while
at the same time understanding current public opinion.
• All of these conflicts can be managed by effective budget policies
that can be written or unwritten, but a formal statement of the
budget policies provides a standard of budgetary performance that
all have to agree on.
• This statement includes policies for operating budget, revenue,
budget implementation and debt.
13 GAAP - Principles
The thirteen (13) generally accepted accounting principles for governmental units are
outlined below:
1. Accounting and Reporting Capabilities
2. Fund Accounting Systems
3. Type of Funds
4. Number of Funds
5. Reporting Fixed Assets
6. Valuation of Fixed Assets
7. Depreciation of Fixed Assets
8. Reporting Long-Term Liabilities
9. Measurement Focus and Basis of Accounting in the Basic Financial Statements
10. Budgeting, Budgetary Control, and Budgetary Reporting
11. Transfer, Revenue, Expenditure, and Expense Account Classification
12. Common Terminology and Classification
13. Interim and Annual Financial Reports
Budgeting for Improved Performance
• Performance measures
1. Inputs (personnel and money)
2. Outputs
3. Outcomes
– Combinations of such as efficiency and cost-effectiveness.
• Challenges
–
–
–
–
Measuring what matters to the citizens.
Impact of changes in inputs on outputs and outcomes.
Capacity to collect adequate cost data.
Fail to reflect the complex interrelatedness of community
issues and interaction among departments.
Budget Innovations - Entrepreneurial
• Responsibility Centered
– Operating expenditures and revenue assigned to a
revenue center.
– Each center expected to be self-supporting.
– Central services supported by a “tax” on revenue
centers.
• Advantages: Makes units much more aware of revenue
requirements; encourages cost reduction
• Disadvantages: creates winner and losers in
organization.
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Budget Innovations - Entrepreneurial
• Budgeting for Outcomes
– Articulate community wide goals
– Request for results prepared
– Bidders both inside and outside government
submit proposals
• Advantages: introduces competition into service
production
• Disadvantages: ignores the public nature of public
goods (non divisible and non excludable)
183
Expectation-Based Budgeting
O>E
or
O<E
Expected performance (E)
Optimum performance (O)
A>E
or
A<E
A>O
or
A<O
Actual performance (A)
E>O>A
Performance drag
A>O>E
Performance legacy
E>A>O
Performance dividend
O>A>E
Performance deficit
184
Budgeting for Capital Improvements
• Capital improvement plan identifies projects over
the next few years
• First year of the CIP becomes the capital budget
• Municipal bonds typically provide financing for
capital improvements
• Projects costs typically include engineers,
financial advisors, and a strong budget officer
• Recommended CIP committee assist in the
development and review of the CIP budget and
plans.
185
Budgeting for Capital Improvements
• Cornerstone is the (CIP) capital improvement plan
which identifies the local government wishes/projects
over the next few years.
• The first year of the CIP becomes the capital budget
and each year the CIP is updated.
• Municipal bonds typically provide local governments
the flexible means to finance capital improvements.
• These projects typically include engineers, financial
advisors, and a strong budget officer.
• It is recommended that a CIP committee assist in the
development and review of the CIP budget and plans.
Let’s Close it up…
What is Good Budgeting?
• Qualified and committed budget director and
analyst.
• Providing technology to support budget
preparation and implementation.
• A commitment to understand our entity’s
unique relationship by monitoring inputs,
outputs and outcomes.
188
What is Good Budgeting?
• A culture of accuracy in budget estimates –
quality of data used in budget deliberations
directly affect the quality of decisions.
• Have in place budget policies to guide
deliberations and manage conflict.
• Prepare a long-tem financial plan to assess the
impact of current spending and revenue
trends into the future.
189
What is Good Budgeting?
• Good financial policies and practices are the
most effective economic development tool for
a city of county.
– No amount of tax incentives can compensate for
poor budget and financial management.
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