Municipal Budgeting Certified Government Finance Officer (CGFO) EXAM REVIEW session November 15, 2012

1. Municipal BudgetingCertified Government Finance Officer (CGFO) EXAMREVIEW sessionNovember 15, 2012 Mary-Lou Pickles, CGFO, CMA Chris Lyons, CPA, CGFO, CPFO

2. Topics • Budget Process/Budget Types • Fiscal Policies & Best Practices • Performance Measurement • Revenue Management & Forecasting • CIP & Financial Planning • Budget Presentation Award • Additional Information and Source Material

3. Budget process/budget types

4. Budget Basics • 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

5. Budget Basics • 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

6. budget reform/approach • 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

7. Budget Reform types • Executive Budgeting • Performance Budgeting • Program Budgeting • Program-Planning Budgeting • Zero-Based Budgeting • Budget Allotment

8. Executive budget • 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

9. Performance Budgeting • 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

10. Program budgeting • 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

11. Program-Planning Budgeting • Originated by Department of Defense • Identify most cost effective way to achieve goal • Successful at DOD where results were easily quantified

12. Zero-based budgeting • 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

13. Budget Allotments • A portion of the budget is allocated to an interim period based on historical spending patterns and needs • Advantages include: • Avoidance of rushed year-end spending • Aids in cash flow • Provides for inventory planning needs

14. Aspects of the budgeting function • Financial: plan for future revenue collection and spending • Political: resolve conflicts due to allocation of scarce resources • Planning/Analytical: Effectively use government resource tools, such as, cost-benefits analysis, cost effectiveness, net present value analysis and strategic planning

15. Aspects of the budgeting function (continued) • Administrative: effectively coordinate the preparation of the budget and ensure expenditures are made in accordance with the adopted budget • Communicative: provide information that will assist with choices and promote stakeholder participation in the budget process • Strategic Planning: define the direction of making decision on allocating resources, link to budget, be outcome driven and be supported by elected officials

16. Six phases of the budget process • Budget manual (call) • Agency/Department budget requests • Preparation of the proposed budget • Legislature consideration and adoption • Implementation • Audit and evaluation

17. Phase 1 – budget manual • Responsibility for initiating budget cycle rests with the CEO, usually City Manager or Mayor • Budget call or manual is instructions sent to agency and department heads concerning the submission of information for the budget year

18. Budget manual (continued) • Statement from CEO or budget officer outlining fiscal position • Description of budget process • Budget calendar • Assumptions to be used for requests • Forms to be used with instructions

19. Phase 2 – budget requests • 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

20. Phase 3 – preparation • Budget staff reviews requests to ensure: • Compliance with priorities and objectives in budget manual • Revenues and expenditures balance • Revenue estimates are realistic and within guidelines, DOR provides information about revenue to local governments • Budget staff compile requests into a single budget document that is submitted to the legislative body for review

21. Phase 4 – legislative consideration and adoption • 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

22. legislative consideration and adoption (continued) • 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

23. legislative consideration and adoption (continued) • 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

24. legislative consideration and adoption (continued) • Chapter 200, F.S. TRIM (continued) • Requires taxing authorities to advise property appraiser of its proposed millage rate, its rolled-back 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.

25. Phase 5 - implementation • 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

26. Phase 6 – audit and evaluation • Budget officer monitors quarterly or monthly • Report actual compared to budget • Make budget adjustment as necessary • Monitor progress toward objectives

27. Multi-year budgeting types • Classic (traditional) • Both the spending and revenue plan for each budgetary year are approved at the same time • Rolling • Each year’s appropriations are adopted in each subsequent year • Recommended • Governments should prepare multi-year expenditure projections

28. Multi-year budgeting advantages • Improves • Financial management • Long-range strategic planning • Program monitoring and evaluation/benchmarking • Reduces staff time in budget development • Links operating and capital activities/spending • Reduces surprises • Pinpoints problem areas early

29. Multi-year budgeting disadvantages • Difficult to project into the future • Could reduce responsiveness to emergencies if too restrictive • Initial year may increase work and stress in departments

30. Multi-year budgeting safeguards • Amend existing financial and budget policies and procedures addressing: • Allowance/disallowance of carryovers from one year to the next • Level of acceptance of budget adjustments, if any • The amount of revenue reserves that can be used for unanticipated expenditures

31. Multi-year budgeting safeguards (CONTINUED) • 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

32. Multi-year budget vs. Multi-year financial plan • Budgets have more detail • Budgets have goals and/or objectives • Budgets are public documents • Budgets are approved by the governing body

33. Accounting basis • Governmental fund types: • Used to account for most, if not all, of a government’s taxable supported activities • Uses modified accrual basis of accounting which recognizes revenue when measurable and available • Five types: • General fund • Special Revenue funds • Debt Service funds • Capital Projects funds • Permanent funds

34. Accounting basis (continued) • Proprietary funds: • Used to account for a government’s business-type activities and serves internal and external customers • Uses accrual basis of accounting which recognizes revenue when earned • Two types • External – Enterprise funds • Internal – Internal service funds

35. Accounting definitions • Encumbrances: obligations incurred for which receipt of goods or services have not occurred • Mandate: when a higher level of government requires a lower level of government to perform a specific task or to meet a standard

36. Fiscal policies & best practices

37. National advisory council on state and local budgeting (nacslb) Four principles of the budget process Twelve elements each of the four principles of the budget process incorporates at least two of the twelve elements to help translate the guiding principles into action components

38. Nacslb – four principles • 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

39. Establish broad goals • Assess community needs, priorities, challenges and opportunities • Identify opportunities and challenges for government services, capital assets, and management • Develop and disseminate broad goals

40. Develop approaches • Adopt financial policies • Develop programmatic, operating, and capital policies and plans • Develop programs and services that are consistent with policies and plans • Develop management strategies

41. Develop budget • Develop a process for preparing and adopting a budget • Develop and evaluate financial options • Make choices necessary to adopt a budget

42. Evaluate performance • Monitor, measure and evaluate performance • Make adjustments as needed

43. operating budget policies • Define a balanced operating budget • Develop with goal to maintain structurally balanced budget (balance between operating expenditures and operating revenues) • Identify who is responsible for budget preparation - management

44. revenue policies • 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

45. FUND BALANCE policies • 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

46. stabilization policies • 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

47. contingency planning policies • Guide financial actions that will take place in the event of emergencies, natural disasters or other unexpected events • General guide to improve the ability to take timely action and to aid management when an emergency occurs

48. debt policies • 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

49. develop management strategies • 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)

50. Cost of Government services • Full Cost – Encompasses all direct and indirect costs related to that service • Direct Cost – salaries, wages and benefits of employees working exclusively on the delivery of the service and materials and supplies and other associated operating costs • Indirect Cost – shared administrative expenses in the work unit and in support functions outside the work unit