BUDGETING WAMCAT Winter Workshop February 2008. What is a Budget? “The master financial plan of your municipality”

BUDGETING

WAMCAT Winter Workshop

February 2008

What is a Budget?

“The master financial plan of your municipality”

Why have a budget?

• ACCOUNTABILITY - legitimatize public expenditures and account for control and usage.

• PLANNING - planning, coordinating and scheduling programs.

• EVALUATION - source for review of project effectiveness.

• INFORMATION - useful management and

communication documents.

What should a budget show?

•The proposed cost for each function of government. (Expenses)

•The proposed means for financing these activities.

(Revenues)

Different Budget Types

• Line Item Budget• Program Budget • Lump Sum Budget• Multi-Year Budget

“The basic law of budgets: You can only spend it once.”

Anonymous

Line Item Budgets- focus on

expenditure control

Strengths

• Familiar

• Simple

• Allows for single item consideration for cuts.

• Easily created

• Lends itself to control and accountability.

Weaknesses

• Focuses on purchases not services.

• Too restrictive.

• Improper line item reporting.

• Large chart of account.

Sample Line Item Budget

DEPARTMENT: FIRE

Personnel Services

Salaries $ 5,000

Temporary Wages 1,000

Overtime 500

Total $ 6,500

Supplies

Fuel $ 800

Office 200

Emergency Gear 400

Travel & Training 100

Contract Services 200

Total $ 1,700

Equipment

Hoses $ 500

Truck Equipment 2,000

Total $ 2,500

GRAND TOTAL $10,700

Program Budgets- focus on the product of the budgeting effort not what goes into it.

Strengths• Budget focus shifts to

accomplishments not individual purchases

• Total program and activity cost easily identified.

• Links to objectives and performance.

• Weaknesses• Too complex and detailed

if many variables are used.

• Harder for elected officials to learn.

• Increases internal record keeping and accounting burdens.

Sample Program Budget

PROGRAM: PUBLIC SAFETY

•Police $ 8,000

•Investigation 1,000

•Traffic Enforcement 3,000

•Fire Suppression 5,400

•Fire Training 500

•Fire Prevention 1,800

•Rescue 2,000

•Fire Administration 1,000

•Building Inspection 1,000

•Animal Control 1,500

•Traffic Engineering 500

•Street Lights 2,000

GRAND TOTAL $10,700

Lump Budgets- based on trust between elected officials and staff.

Strengths• Allows elected officials to set

goals and policy without being weighed down by line item detail.

• Gives department heads a high degree of freedom in managing their department.

• Budget funds not spent can be carried forward to next year-encourages saving.

Weaknesses• See Strengths.

“If the police chief gets a budget. If he wants to use it to buy police cars or to hire people, that’s his business. What I care about is that the city gets good police protection and he’s got money left over at the end of the year.”

Gale Wilson, Fairfield City Manager

Sample Lump Sum Budget

DEPARTMENT AMOUNT

•Fire $10,700

•Police 13,500

•Library 8,000

•Social Services 7,000

•Sanitation Services 11,000

•Public Works 22,000

•Planning 1,500

•Parks 2,900

• TOTAL $76,600

Multi-Year Budgets- saves staff time and money.

Strengths• Flexibility in using resources

because of the two year time frame.

• Less work in the second year.

• Provides long range planning.

• Can result in significant cost savings.

Weaknesses• Difficult to estimate second

year budget revenues.

• Newly elected officials may not want to accept budget.

• May not be practical if the state has an impact on local funding.

• Costly accounting, reporting modifications.

Bi-Annual Budgeting

W.S. 16-4-104(h) allows cities and town to employ a two (2) year budget cycle and adopt a two (2) year budget under the following conditions:

• The two (2) year period shall begin with the city’s or town’s first fiscal year following a budget session of the legislature;

• For the second year of the budget cycle, the budget officer shall prepare a budget adjustment that includes the original budget and any proposed changes, to be adopted by the governing body in the same procedure as a budget.

Budget Processes

• Preparation - the budget officer (YOU) collects financial data and provides program expense projections and funding needs to council for review.

• Adoption - must pass a budget ordinance during the last quarter of the fiscal year for the upcoming year.

• Execution - governing body must adopt the budget within 24 hours of their budget hearings, which must be held between the 2nd and 3rd Tuesday in June.

BUDGET DEVELOPMENT FILE

• Complaints about service.

• Census Data

• New program ideas, history, revenue trends, and new funding options.

• Newspaper/Magazine Articles

• Performance data (i.e.. Workload, service demands.)

• Audit recommendations

• New technology information.

• Letters of commendation

PROGRAM CONSIDERATIONS• Is it Mandated?

• Will productivity be increased?

• Will legal exposure be lessened?

• Will it cause an increased workload?

• Will it result in higher prices?

• Can the additional cost be offset by revenues?

• What new challenges are developing that will require resources?

• Is this something the elected officials want to see?

• What are the organizational goals set by the elected body?

BEGINNER’S MISTAKES• Failure to follow instructions or meet deadlines.

• Mathematical errors.

• Not asking for enough money to meet expense needs.

• Asking for too much money without justified need.

• Not recognizing the difference between controversial and routine proposals.

• Not asking “stupid” questions.

• Failing to research revenue trends.

• Not considering dedicated funding sources and knowing which can and cannot be used for other projects.

ERRORS COUNCILS NEVER MISS

• Spelling errors anywhere in the material.

• Columns that do not add correctly.

• Negative balance shown as a positive.

• Decimal in the wrong place.

• Inconsistent narrative in different parts of the budget.

“Big budgets, small budgets, they are all the same - just add or subtract a

few sets of zero’s.”Budget Director, New York City

Budget Questions

• Why is this needed?

• When is this item required and why?

• What are the total direct and indirect costs?

• What are the objectives?

• What are the personnel requirements?

• Can this item be phased?

• What is the program life-span?

• Who will benefit and what are the political impacts?

You should be able to answer these questions for any program or capital project.

• What additional training and equipment will be needed?

• What problems will it create?

• How much revenue will be generated?

• Can the cost be recovered?

• Where will we get the money to pay for it?

• Can it be financed through a grant?

• What will happen if it is not funded?

Budget Evaluation

• Did we meet our objectives?

• What adjustments were made?

• What was accomplished?

• What did we do wrong?

• What did we do right?

“A government which robs Peter to pay Paul can always depend on the support of Paul”

George Bernard Shaw

Presenting Budgets to Council and the Public

• Summarize the main issues up front.

• Be prepared to answer questions.

• Cite statistics, measures and sources.

• Humanize responses with specific examples.

• Provide an overall perspective. What does this mean?

• Utilize simple but meaningful graphics and visuals.

• Anticipate the critical issues and address them.

• Budget needs to be clear to the public.

Presenting Bad News

• Explain the issue in plain English.

• Get to the point.

• Present bad news promptly, don’t keep them guessing.

• Outline consequences.

• Show emotion.

• Focus on what is being done to deal with the issue.

• Articulate the assumptions being made.

• Express your best professional judgment.

• Leave them with the feeling they are in charge.

Statutory Requirements

Wyoming Statutes

Title 15 - Cities and Town, and;

Title 16 - City, County, State and Local Powers

Cities/Towns under 4,000

• Must prepare its budget in a format that complies with W.S. 16-4-104(f).– Shall be prepared in a timely fashion allowing the

governing body to meet the hearing date and notice requirements.

• Publish at least one week before the public hearing.

• Hearing held between 2nd and third Tuesday of June.

– The proposed budget shall set forth:• Actual revenue and expense in the last completed year.

• Estimated total revenues and expenses for current year.

• Estimated available revenue and expense for upcoming year.

• Must pass an appropriations ordinance during the last quarter of the year to take effect at the beginning of the new fiscal year. This will be May 1st unless otherwise provided by ordinance.

• Each budget shall be accompanied by a budget message outlining the proposed financial policies for the budget year, describing important features of the budgetary plan and reason for changes from previous years.

• Prior to adoption, the governing body must determine the amount of general taxes needed to provide for expenses and the amount of any special tax or levy needed.

• The budget officer must certify the amount to the county clerk:

• by the 4th Monday in May if the fiscal year begins on May 1; or

• by July 31st if the fiscal year begins on July 1.

Cities and Towns over 4,000

• Unless changed by charter, all incorporated first class cities or town with a population over 4,000 and all city manager cities must comply with the provisions of the Uniform Municipal Fiscal Procedures Act (W.S. 16-4-101 - 16-4-124).

• Fiscal years run from July 1 to the following June 30 (W.S. 16-4-102 (a)(x)).

Uniform Fiscal Procedures Act

• Department officials must submit budget requests to the budget officer by May 1st.

• Budget Officer must then prepare tentative budget and file with governing body by May 15th.

• Hearings scheduled between 2nd and 3rd Tuesday in June. At a time chosen by the governing body.

• Must be in a format that best serves the needs of the municipality.

• No later than 30 days after adoption of the budget the governing body shall provide the following information to the Legislative Service Office (W.S. 16-1-104(j)):– report the budget’s actual revenue/expense in the last

completed year.

– Estimate total revenue/expense for current year

– Estimated available revenue/expense for upcoming budget year.

• Budget must contain estimates with specific work programs and other supportive data requested by the governing body.

• Budget must be accompanied by a budget message outlining the proposed financial policies and explain any changes from previous years.

• A summary of the budget proposed for adoption must be entered in the minutes.

• The budget summary must be published at least one week before the date of the public hearing in a newspaper having general circulation or by posting the notice in three conspicuous places.

• A copy of the publication of the hearing must be sent to the state examiner.

• No appropriation in the final budget can be in excess of the estimated expendable revenue of the fund (W.S. 16-4-110).

• Within 24 hours of the public hearing, the governing body must, by resolution or ordinance, make the necessary appropriations and adopt the budget.

• Copy of certified budget must be furnished to the county commissioners on or before July 31st. (W.S. 39-2-401) and certified copies of the adopted budget must be on file in the budget office for public inspection.

Budget Amendments

• Budgets can be amended by the governing body adopting a resolution (W.S. 16-4-112 and W.S. 16-4-113).

• If an emergency exists, the governing body can make the expenditure from accumulated revenues upon notice of declaration of emergency published in the paper. (W.S. 16-4-114).

Budget Myths & Legends

• You have to have a balanced budget.

• You can’t budget for grants until you receive confirmation of award.

• You have to budget reserves as a revenue source.

Our budget is balanced. 50% of our numbers are real, and 50% are made up.”

The Unknown Comic

Brown’s Budget Beliefs

• Managers and supervisors are paid to manage, not be managed.

• Managers can find ways to do things more efficiently and with less money if given the freedom to innovate and control their resources.

• Self-imposed goals and deadlines are power motivators

• Interdepartmental competition is healthy.

• Managers should concentrate on the bottom line.

• Budgeting is a means to an end, not an end in itself.

• Given the freedom and the trust, people will do what’s right.

• Decisions about the best way to get things done are best made by those who are assigned to do them.

• If given an incentive to save money, and operate more efficiently, people will do so.

• Department managers or supervisors know more about their needs and priorities that the City Manager’s office or the Budget officer.

Don Brown, City Manager, distributed these budget beliefs to his staff.

Resources

• Wyoming Department of Audit – Municipal Accounting Handbook. -- http://audit.state.wy.us/PFUNDS/MANUALS%20and%20RFP%20form/Wyoming_Municipal_Accounting_Handbook_2003.pdf

• GFOA Recommended Budgeting Practices -- http://www.gfoa.org/index.php?option=com_content&task=view&id=120&Itemid=134

• ICMA – www.icma.org

• APTUS&C - http://www.aptusc.org/

• State of Wyoming – www.state.wy.us

Acknowledgements

This presentation was based on information provided in the following text resources:

• “Little Budget Book” A Portable Budgeting Guide for Local Governments, By Len Wood, Copyright 1993 & 2000 by Len Wood & Associates.

• WAMCAT Handbook

• Department of Audit Municipal Accounting Handbook

• Wyoming State Statutes