Municipal Finance and Budget Process Overview

1. Municipal Finance and Budget Process Overview Newly Elected Officials Course Tuesday, December 11, 2007 Michael Foreman 412-565-5199 mforeman@state.pa.us Deborah Grass 412-565-2552 dgrass@state.pa.us Governor’s Center for Local Government Services, DCED www.newpa.com

2. Budgeting - Revenues • Taxes • Real Estate • Current – Collection rate • Delinquent • Liened • General and Special Purpose Levy • Real Estate Tax Collection Laws

3. Budgeting Continued-Revenues • Taxes Continued • Act 511 • Earned Income/Net Profits = compensation tax • Local Services Tax (LST) (Formerly OPT/EMST) • Per Capita Tax • Business Gross Receipts Taxes • Real Estate Transfer Tax • Amusement • Regional Asset District Tax – Sales Tax Distribution for Allegheny County only

4. Budgeting Continued –Revenues • Other Revenue Sources • Licenses & Permits • Cable TV License • Fines & Forfeits • State • Local - Magistrates • Interest and Rents

5. Budgeting Continued-Revenues • Municipal Charges for Services & User Fees • Purpose • Authorization • Municipal Codes & Municipalities Authorities Act • Ordinances and Resolutions • The Municipalities Planning Code • Collection Processes • Examples • Garbage and Recycling Fees • Public Records • Sewer/Water & Other Utilities • Services: Zoning Hearings, Recreation

6. Budgeting Continued-Revenues • Intergovernmental Revenue • General Fund/State Shared Revenue • Liquor License Allocation • Police Training-Act 120 Reimbursement • Act 205 Pension Aid • Foreign Fire Relief (Volunteer Fire Companies) • PURTA • Special Revenue • Liquid Fuels a.k.a. Highway Aid • Eligible Uses • PennDOT municipal services representative • State Road Turnback Fees

7. Budgeting Continued-Revenues • One-Time Revenues • Sale of assets • Real Property or Personal Property • Inventory • Procedures apply to sale • Exemptions • Another municipality, authority, library • Community Development Corporations • PA or US government • Refunds of Prior Year Expenses

8. Budgeting Continued-Other Financing Sources and Uses • Borrowing • Many tests determine when appropriate • Ability to pay back • Useful life • Usually only capital • Local Government Unit Debt Act • DCED Debt Management Handbook

9. Borrowing Continued • Debt Instruments • Bonds • General Obligations • Revenue Bonds • Rating Agencies • Bond Counsel • Notes • TAN/TRAN • Small Borrowing – Capital Purchases • Unfunded Debt Operating Loans • DCED Approval Process

10. Budgeting Continued-Expenditures • Operating Budget • Recurring Expenses • Personal Services • Wages, salaries, benefits, pension benefits • Contractual Services • Non-employee compensation • Contracts, like garbage collection • Professional Services like legal services • Insurance – Property, Casualty, Auto, Professional • Purchasing requirements—DCED Purchasing Manual

11. Budgeting Continued-Expenditures • Recurring Expenses Cont’d • Supplies and Commodities • Salt • Utilities – Gas, Electric, Water, Sewer • Communication – Telephone, Internet, Radios • Office Supplies • Data Processing • Purchasing Requirements—DCED Purchasing Manual

12. Fund Balance • Fund Equity includes “fund balance” • Fund balance generates interest because it is as close as governments gets to “profit” • Called Retained Earnings in Proprietary fund • Fund Balance increases by revenue and decreases by expenditures for any given period • Fund Balance can be legally reserved—set aside for future use • Second Class Twp. Operating Reserve Fund • Fund Balance can be designated to set aside for particular purposes

13. Budgeting Continued-Other Financing Sources Uses Cont’d • Use of Cash or Fund Balance • Accumulated Cash Available for 1 time use • Fund Balance is a part of Fund Equity which is the difference between Assets and Liability • Appropriate uses • Interfund Transfers • Transactions between funds of the governmental unit • Reimbursements from one fund to another for expenditures made on behalf of fund • Operating subsidy—I.E., Recreation fund that needs help from General Fund

14. Evaluating Financial Condition • What is the appropriate level of fund balance? • Rating agency tests? 5 – 10 % of revenues • Operating Test? Equal to 1 months expenditures? 2 months? • Fiscal Monitoring for Viability • Financial Monitoring Handbook, Governor’s Center for Local Government Services

15. Solvency Measures • Cash Solvency • Ability to generate sufficient cash to pay bills on 30-60 day basis • Budget Solvency • Ability to generate sufficient revenue over a 12 month period to pay operating obligations • Long Term Solvency • Ability to generate sufficient revenue to pay obligations over a multi-year period • Service Delivery Solvency • Ability to provide basic public services to meet health, safety and welfare of citizens

16. Solvency Measures • To assure Service Delivery Solvency assumes that a Municipality is able to sustain cash, budgetary, and long-term solvency over a multi-year period

17. Capital Improvements Planning • Nationally, capital represents 1/3 of all municipal spending • Paying for Capital Improvements • Current Revenue • User Fees • Grants • Special Assessments • Low Interest Government Loans • General Obligation Bonds • Revenue Bonds • Leases

18. Capital Improvements Planning • Appropriate Use of Capital Financing • Matching of Useful Life and Payback period • Policy questions—What projects are viable? • Utilize a formal process for determining capital needs—Capital Improvement Planning • Utilize objective criteria for decision making • Benefits of Capital Improvement Planning • Links master plans to financial plans • Controls Spending—Avoids sharp tax increases • Increases Public Confidence

19. Statement of Revenues and Expenditures Cont’d • If Funds exist then they should matter • Separated for legal reasons or because of the nature of the revenue and expenditures which are being tracked (i.e. Liquid Fuels vs. Sewer Fund vs. General Fund) • Fund Types are not the same as funds • Use as many funds as needed – but no more than absolutely necessary

20. Some Nuts and Bolts • Funds • Nature of Funds • Benefits of funds • You will have at least 2 funds • General Fund • Liquid Fuels • Chart of Accounts • Skeleton of Financial System • DCED Chart of Accounts • Example: 01.301.100 GL Real Estate Current • Example: 01.410.210 GL Police Office Supplies

21. Legal Environment for the Finance Function • Tax Rate and Budget Adoption by December 31 of each year • Public Inspection Period prior to budget adoption • Re-opening of Budget permitted in years immediately following municipal election; final adoption by February 15 • Annual Audit Report due to DCED by April 1

22. Careful Consideration Before Re-opening Budget • Do you have sufficient understanding of the adopted budget to make changes within the legal timeframe? • Financial Information • Program Information • Limitations on revenue sources • Non Discretionary expenses

23. Budgeting as an Art and Science • A Good Budget is • Policy Document • Financial Plan • Operations Guide • Communications Device • Budget Cycle/Calendar • Data to Collect/Who to Involve in Budget Development

24. Typical Budget Calendar

25. Budget Administration • Implementation • Transfer to Accounting System • Monitoring • Review on a regular basis • Modification • Make budget transfers as necessary • Budget Reporting