Basics of Local Government
Finance & Budgeting
2010 In-Service Training
Alan Probst
Local Government Specialist
UW-Extension Local Government Center
(608) 262-5103
Fund Accounting

Local government accounting is Fund
Accounting

All revenues and expenditures must be
assigned to a specific fund

GASB guidelines
Funds







Revenues
General Fund
Special Revenue Funds
Debt Service Fund
Capital Fund
Proprietary/Enterprise Funds
Fiduciary Funds
Revenues
All incoming funds from any source are
included in revenues
In Wisconsin, revenues primarily come
from four sources:
Property taxes
 State shared revenues
 Fines and fees for services
 Sales taxes

Expenditures
All funds expended by a local
government must appear in one of
the fund other than Revenue
Restricted funds
Some funds are considered “Restricted”
Restricted funds include:
Proprietary Funds
Fiduciary Funds
Enterprise Funds
Special Revenue Funds
Restricted Funds



Can only be used for the restricted
purpose for which they exist
Cannot be used to cover deficiencies in
the General Fund
Can be borrowed from to assist
General Fund ONLY by resolution with
payback plan
Deficit Spending

Wisconsin local government cannot
operate in a deficit mode

If insufficient funds exist to cover
expenses, local governments must
borrow to cover those deficiencies
Cash Flows

Cash flows must always be considered when
local governments expend funds

Budgeted for does not mean the money is
available

Property taxes come in two payments

State shared revenues come in two
payments
Cash Flows
Major purchases or expenditures must
be scheduled to coincide with points
when cash is available unless
borrowing is planned or a sufficient
reserve exists to cover the expenditure
Reserve

Maintaining a General Fund reserve or
Contingency Fund is essential to cover
unplanned expenditures or when an
expenditure cannot wait for a revenue
payment

A common rule for General Fund reserve or
Contingency is six (6) month’s normal
operating expenditures
Undesignated or “Slush”
Funds

In local governments, all incoming revenue
must be shown in budget documents and
assigned to a fund

All expenditures must be accounted for
under the budget

“Slush Funds” are not allowable
Debt


Borrowing money for major purchases
and projects is as essential for most
local governments as it is for the
average citizen
Borrowing should be according to a
plan (capital improvement, strategic,
etc.) and managed
Local Government Budgets

Section 65.90 of Wisconsin Statutes
REQUIRES local governments to produce a
budget

Some other states allow the passage of an
appropriation ordinance in lieu of a budget
but this is not allowed in Wisconsin
Budgets
The preparation and approval of a budget
is probably the single most important
duty of local government officials
because it determines what services
will be provided, to what extent they
will be provided, and how they will be
funded. This affects every citizen in
their community.
Official’s Responsibility

Local government officials have a
fiduciary responsibility to manage
public funds in the most responsible
manner their abilities and the local
situation allow

Misuse of public funds is the most
frequent cause for public official
indictments
Local Government Budgets
Local Government Budgets are
normally organized according to
Governmental Accounting
Standards Board (GASB)
recommendations.
www.gasb.org
Local Government Budgets
Budgets, like all aspects of the
government finance and accounting
system, should also comply with
Generally Accepted Accounting
Principles (GAAP)
What is the Purpose of a
Budget?




An accounting document (record & control
expenditures)
A management document (determines who
can spend how much)
Decision-making document (basis for sound
decision-making by council & staff)
Communications document (informing public
of how their money is being spent)
Budget Approaches

Line-Item Budgets

Program Budgets

Performance Budgets

Zero-Based Budgets
Line-Item Budgets

Most common format

Connects & reports information on inputs
used to produce government services

Emphasizes control & oversight

Downplays trust, communication & flexibility
Line Item
Operating
Budget
Line-Item
GENERAL FUND
FY 09/10
100
Administration
Description
101
101-1
101-2
Dept 100
FY04 Budget
Wages & Salaries
FY04 Actual
Comments
$1,513,880
$152,420
$1,609,210
$82,000
$82,000
$84,525
$84,525
$95,000
Board directed
increase
$46,000
$46,293
$47,000
$47,442
$49,816
Increase per labor
contract
$111,967
$114,816
Office Staff
Secretary
$12.75 per hour
$26,520
Insurance clerk
$11.20 per hour
$23,296
$49,816
$108,000
Benefits
FY06 Budget
$1,461,320
Total
102
FY05 Project
$1,463,450
City Manager
Total
FY05 Budget
$108,293
$111,525
Program Budgets

A Program Budget allocates money to major
program areas or activities rather than to
specific line items

More centralized than other approaches

Focuses on program goals

Examines all alternatives that may achieve
program goals
Program Budgets
Program budgets include both revenue and expenses
for the major activities of an organization. Helps
managers focus on sources of profits and losses of
programs that could be expanded or discontinued.
($000’s)
Oncology
Rhinoplasty
Cardiac
Total
Revenues
$40,000
$ 8,150
$50,000
$ 98,150
Expenses
37,000
17,000
46,000
100,000
$ 3,000
$(8,850)
$ 4,000
$(1,850)
Profit/(Loss)
Program Budgets


Program budgets allocate money to major
program areas or activities rather than
specific line items
A Police Department might be broken down
as such:
1.
2.
3.
4.
Administration
Patrol
Investigation
Community support
Instead of by line items
Program Budget Challenges




Goals can be difficult to formulate and
define
Goals are subject to change; program
structure must be changed in response
Sometimes difficult to obtain objective
measures of benefits
Can be difficult to determine interprogram efficiency
Performance Budgeting

Under a performance budget approach,
a program budget format is adopted to
the existing organizational structure

A performance budget is essentially a
program budget with performance
measurement methodology used to
make budget decisions.
Performance Budgeting




Initiative in budget preparation lies with
performance unit
Government activities are divided into major
functions
Each activity must yield an identifiable
output
Management, administration, and overhead
costs are distributed among the various
activities of the performance unit
Purposes of Performance
Budgeting



Better evaluates results of program
operations
Provides decision-makers and public
with better information on quality of
public services
More popular as citizens lose
confidence in government
Zero-Based Budgeting
Zero-Based Budgeting (ZBB) organizes
information into decision packages, i.e.
incremental spending levels that reflect
varying levels of effort and costs
Zero-Based Budgeting
In theory, each department prepares at
lest three (3) packages:

A base-level, meeting the program’s minimum
requirements

Current-level funding

Enhanced package – to address unmet needs
Zero-Based Budgeting

Packages from all departments are then
ranked according to perceived need for
the package

Unlike PBB, which uses more objective
criteria, ZBB relies on subjective
judgment of decision-makers in ranking
packages
Incremental vs. Zero-Based
Budgeting
Incremental budgeting starts with current
revenues and projects next year by
adjusting for inflation, volume,
efficiency, technology, etc.
Incremental vs. Zero-Based
Budgeting
Zero-Based Budgeting:
 calls for a total re-evaluation of all
programs and activities
 requires that decision packages be prepared
for each separable activity or level of activity
 Ranks the packages
 Selects packages for adoption or rejection
Why the “zero” in ZBB?



In theory, decision-makers conduct an
annual evaluation on each program’s
purpose and priority, weighing it against all
other spending possibilities
As a result, decision-makers may decide not
to renew funding for existing program and
shift those funds to another, possibly entirely
new, program
In reality, this reallocation rarely occurs
Local Government Budgets

1.
2.
3.
4.
5.
6.
7.
8.
9.
Generally comprised of several separate sections:
Overview
Summary
Revenues
General Fund
Special Revenue Funds
Debt Service Fund
Capital Fund
Proprietary/Enterprise Funds
Fiduciary Funds
OVERVIEW
Narrative used to give the reader an
idea of what the budget hopes to
accomplish, what is different from
last year’s budget, and any pertinent
information not obvious in the
budget.
SUMMARY

Wisconsin Statutes REQUIRE the
summary to show the percentage
difference between the current budget
and proposed budget for:
1.
2.
3.
General Property Taxes
Total Revenues
Total Expenditures
REVENUES
Where the budget shows your projected
income for the coming fiscal year
Includes all anticipated incoming money
Don’t receive them all at beginning of the
year, funds come in incrementally
REVENUES
Includes:





Property tax revenue
State Shared Revenues
Fees for Services
Sales tax revenue (where applicable)
Anticipated grants, loans, etc.
REVENUES
FY 07/08
Code 010
Description
011
Property Taxes
FY06
Budget
FY07
Projected
FY008
Budget
FY06 Actual
FY07 Budget
Comments
$1,463,450
$1,461,320
$1,513,880
$152,420
$1,609,210
New subdivision complete
in 2006
$1,187,204
$1,185,647
$1,199,250
$1,197,521
$2,014,415
Down 3% from FY 04/05
$162,500
$165,770
$171,400
$169,340
$202,500
$1,349,704
$1,351,417
$1,370,650
$1,366,861
$2,216,915
$750,000
$694,230
$750,000
$751,892
$1,250,000
012
State Shared
Revenues
General aids
Transportation
aids
Total
013
Sales Taxes
New big box in 2006
014
Fines/Fees/Misc.
Police Fines
$147,000
$189,655
$160,000
$231,400
$200,000
New Deer Haven
subdivision construction
starts
Building Permits
$245,000
$244,124
$250,000
$251,250
$260,000
Parking Permits
$55,000
$53,200
$55,000
$54,150
$55,000
Inspection Fees
$85,000
$83,400
$85,000
$87,240
$90,000
$532,000
$570,379
$550,000
$624,040
$605,000
EDA Grant
$0
$0
$0
$0
$250,000
For industrial Park
infrastructure
Meth Abatement
$0
$0
$0
$0
$100,000
From Homeland Security;
Drug Task Force
TOTAL
$0
$0
$0
$0
$350,000
$4,095,154
$4,077,346
$4,184,530
$2,895,213
$6,031,125
TOTAL
015
Grants
Grand Total
COMPUTING THE PROPOSED TAX LEVY


Total Proposed Operating Expenditures and Reserves
(Minus) Total Proposed Non-Property Tax Revenues =

EXAMPLE:
Proposed 2006 Operating Tax Levy
County X proposed expenditures -- $50 Mill.
- Non-Tax Revenues (State /Local) --38 Mill.
Proposed Tax Levy = $12 million
Funds




General Fund
Special Revenue
Capital Project
Debt Service


Proprietary Funds
Fiduciary Funds
General Fund
This is where your day to day operations
are budgeted
Payroll
Benefits
Office Supplies
Fuel
Small IT purchases
Electricity
Vehicle repairs
GENERAL FUND
FY 05708
100
Administration
Dept 100
FY05
Projected
Description
FY04 Budget
FY04 Actual
FY05 Budget
101
Wages & Salaries
$1,463,450
$1,461,320
$1,513,880
$1,512,420
$1,609,210
101-1
County Administrator
$62,000
$62,000
$64,525
$64,525
$65,000
Board directed
increase
101-2
Office Staff
$46,000
$46,293
$47,000
$47,442
$49,816
Increase per
labor contract
$111,967
$114,816
Secretary
$12.75 per
hour
$26,520
Insurance
clerk
$11.20 per
hour
$23,296
Total
Total
$108,000
FY06 Budget
$49,816
$108,293
$111,525
Comments
102
Benefits
102-1
Medical Insurance
$26,500
$28,941
Family
2x$1,100 per
month
$26,400
Single
1x$540 per
month
$6,480
Total
102-3
$30,000
$30,190
$32,880
$32,880
FICA
$7,750
6.75% of total wages
102-4
Retirement
$4,019
3.5% of total wages
TOTAL
$26,500
$28,941
$95,760
$30,190
$44,649
TOTAL PERSONNEL
COSTS
$134,500
$137,234
$207,285
FY04 Budget
FY04 Actual
FY05 Budget
104-1
Office Supplies
$2,000
$2,198
$2,000
$2,318
$2,000
105-1
Copier Maint.
Contract
$3,800
$3,800
$4,000
$4,000
$4,200
Description
$142,157
FY05
Projected
$159,465
FY06 Budget
107-1
Fuel Oil
(Courthouse)
$21,000
$21,420
$22,000
$23,120
$22,000
TOTAL
$26,800
$27,418
$28,000
$29,438
$28,200
$161,300
$164,652
$235,285
$171,595
$187,665
Grand Total
Comments
Thermostat
will be
reduced to 66
degrees
Special Revenue Funds
“Insulated Departments”

Library Systems -- Special Tax & Charges

Public Health Dept. -- Special Tax & State
grants

Highway Commission -- State Road Aids
Capital Budget/Fund
The Capital Budget is where major
purchases and projects are planned
and budgeted for.
A common guideline is that any program
or purchase of a non-expendable piece
of equipment valued at over $10,000
should be listed as a capital budget
item
Debt Service
The Debt Service portion of a government
budget includes the payments of principal,
interest, and fees on loans, bonds, and any
other government debt.
Proper accountability of debt service is
essential for future borrowing.
DEBT SERVICE
FY 07/08
Code 500
FY05
Budget
FY05
Actual
FY06
Budget
501
2004
General Revenue
Bond
$203,750
$203,748
$201,800
$201,801
$200,050
501-1
Principal
$180,000
$180,000
$180,000
$180,000
$180,000
$23,450
$23,448
$21,500
$21,501
$19,750
$300
$300
$300
$300
$300
502
1998
Alternative Revenue
Bond
$95,250
$95,247
$94,650
$94,562
$93,000
Sewer Plant I & I
Progect
502-1
Principal
$87,500
$87,500
$87,500
$87,500
$87,500
Note: Paid off in
2006
$7,400
$7,397
$6,800
$6,712
$5,000
$350
$350
$350
$350
$500
Description
501-2
Interest
501-3 Fees
502-2
Interest
502-3
Fees
FY06
Projected
FY07
Budget
Comments
For County
Courthouse addition
Higher fee for bond
closure
Proprietary Funds

Enterprise Funds

Internal Service Funds
Enterprise Funds
The portion of a budget supporting an
enterprise, such as a water & sewer
utility, a government owned electric
utility, or other specialized, restricted
use funds such pension funds
Internal Service Funds

Motor Pool Equipment

Health Insurance
Fiduciary Funds




Public Pension Trusts
Investment Trusts
Private Purpose Trusts
Agency Funds
Managing the Budget





Monthly budget reports
Monthly expenditures should relate directly
to what proportion of the year has passed
Major purchases made when planned and
cash flow allows
Monitor cash flow closely
Mid-Year review
Managing the Budget



Manage debt, plan for borrowing
Investment plan
Following the Capital Plan essential
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