CAL Annual Conference Library Finance 101

CAL Annual Conference

Library Finance 101November 21, 2009

Andrew Romero, CGFM, Finance Director, High Plains LDChris Brogan, CGFO, Chief Finance Officer, Pueblo LDMichael Varnet, CPA, Chief Finance Officer, Pikes Peak LDSteve Wasiecko, MPA, Operations Manager, Aurora Municipal Library

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1 min: Introduction – Andrew Romero

5 min: District Revenue/Issues - Chris Brogan

5 min: Municipal Library Revenue/Issues - Steve Wasiecko

9 min: TABOR – Mike Varnet

5 min: Basic Financial Reports – Chris Brogan

15 min: Annual Fiscal Cycle - Andrew Romero

4 min: Q&A

Program OverviewNovember 21st, 2009 3:30pm – 4:15pm

Property tax – dedicated mill levy

Specific Ownership (SO) tax

Abatements & refunds – certify mill

-Revenue calculations

-5 ½% limit

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District Revenue

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District Revenue

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Municipal Revenue Sources

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Structural Sales Tax Problem

Household Spending Pattern Shift The Move to a Service Economy 1960 – 60% on taxable goods 2008 – 40% on taxable goods

Internet Sales

Revolving Retail Center Viability

Reliance on Consumer Spending

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Municipal General Fund Uses

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Moral of the Story: Become a DistrictLibrary Revenue Per Capita

Background

Key Issues (not all inclusive)

Tax limit

Property tax revenue limitation

Fiscal year spending limitation

Multi-year financial obligations

Emergency reserves

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TABOR

TABOR Definitions"District" means the state or any local government, excluding enterprises.

"Emergency" excludes economic conditions, revenue shortfalls, or district salary orfringe benefit increases.

"Enterprise" means a government-owned business authorized to issue its own revenuebonds and receiving under 10% of annual revenue in grants from all Colorado state and localgovernments combined.

"Fiscal year spending" means all district expenditures and reserve increases except, asto both, those for refunds made in the current or next fiscal year or those from gifts, federal Funds,

collections for another government, pension contributions by employees and pension fund earnings, reserve transfers or expenditures, damage awards, or property sales.

"Inflation" means the percentage change in the United States Bureau of Labor StatisticsConsumer Price Index for Denver-Boulder, all items, all urban consumers, or its successor index.

"Local growth" for a non-school district means a net percentage change in actual valueof all real property in a district from construction of taxable real property improvements, minusdestruction of similar improvements, and additions to, minus deletions from, taxable real property.

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TABOR Limitation Factors

Inflation

Consumer Price Index – Denver/Boulder/Greeley

Growth

Actual valuation information provided by County Assessor

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Tax LimitAdvance voter approval for:

Any new tax

Tax rate increase

Mill levy increase

Tax policy change causing a net tax revenue increase

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Property Tax Revenue Limitation

Current year limit – prior year base adjusted for

growth and inflation

Property tax revenue excluded from limit

Refund and abatements

Voter-approved adjustments

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Property Tax Revenue Limitation

Example

2009 property tax revenue $5,000,000

Inflation 1%

Growth 2.5%

Total TABOR factors 3.5%

2010 property tax revenue limit $5,175,000

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Fiscal Year Spending LimitReally a revenue limit

Current Year Limit = prior year FYS adjusted for inflation and growth

All governmental expenditures plus reserve increases with the exception of:

Gifts/donationsFederal fundsCollections for another governmentPension contributions by employees and pension

earningsReserve transfers or expendituresDamage awardsProperty sales

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Multi-Year Financial ObligationsProhibited by TABOR except for:

Voter approved

Setting cash aside irrevocably to cover debt service

Non-appropriation clause

Check with Legal Counsel

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Emergency Reserves3% of Fiscal Year Spending

Can’t be used for:

Economic conditions

Revenue shortfalls

Salary or fringe benefit increases

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Monthly reports – internalReports for board (balance sheet, cash flow, statement of revenue & expense)Reports for departments

Annual reports – externalGeneral Purpose Financial StatementsComprehensive Annual Financial Report

GFOA award program

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Basic Financial Reports

Annual Audit report (statutory requirement)

GASB 34 compliance1. Fund statements; Government-wide statements2. Capital assets – including capitalized books3. Depreciation

Submit report to Division of Local Government and State Auditor; bond holders; D&B; attorney; bond insurers; etc…..

Mount on web site

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Basic Financial Reportscontinued

The Process of Budget Development

Step 1: what the Library hopes to accomplish next year

Step 2: determine total financial resources necessary for what the library wants to accomplish in the coming year

Step 3: securing the funding needed to carry out the planned service program

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Annual Fiscal Cycle

Typical budget calendar

February-March: Review annual report and previous year’s data

Spring: Review long-range plan and library service goals in light of trends.

Mid-year:1. Review expenditures and revenues. 2. Begin budget process, establish budget calendar and guidelines.3. Review budget guidelines and obtain direction from board or Finance committee.

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Annual Fiscal Cycle

Typical budget calendar (cont.)

Late summer: Prepare draft budget.

Late summer / Early fall: Draft budget to governing body for approval.

Fall: Adjustments make if necessary, and approval needed before December 15th to meet deadline for mill levy certification.

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Annual Fiscal Cycle

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Annual Fiscal CycleAvailable at: www.dola.state.co.us/info_publications.html

Budget PreparationThe budget preparation process has two significant

categories. These categories can be approached separately or together when preparing the budget.

Operating budget: 1 Personnel 2 Ongoing expenses 3 Fixed costs 4 Ongoing funding sources (property tax, utility fees, charges

for services)

Capital Budget: 1 Long-term 2 Large projects 3 Equipment 4 Related funding/debt (mineral taxes, capital grant)

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Annual Fiscal Cycle

Library Finance Annual Fiscal CycleSample Format of a Minimal Library Budget - FY 2010

2008 2009 2009 2010Account Actual Budget Estimated Proposed

Revenues Taxes 19,783,000$ 21,377,000$ 21,548,000$ 23,231,000$ Intergovernmental 32,500 60,000 90,000 90,000 Fines and Fees 470,000 500,000 475,000 480,000 Interest Income 407,900 410,000 490,000 500,000 Other Revenue 180,600 192,500 158,000 163,000

Total Revenues 20,874,000 22,539,500 22,761,000 24,464,000

Expenditures Personnel Services 11,260,000 11,990,000 11,985,000 12,375,000 Supplies 395,700 542,700 525,000 520,000 Library Materials 3,108,000 3,200,000 3,300,000 3,238,000 Utilities 444,000 504,400 498,000 521,300 Telecommunication Costs 228,400 496,600 281,700 301,800 Contractual Services 1,853,100 2,100,000 2,095,000 2,300,000 Repairs and Maintenance 265,400 443,800 383,200 452,700 Other Services/Expenditures 768,500 884,000 858,200 971,900 Capital Outlay 1,686,900 1,993,000 1,993,000 1,667,500 Debt Service 48,000 48,000 48,000 20,000 Transfers to Other Funds 67,900 500,000 500,000 600,000 Other Financing Uses - - 178,800 -

Total Expenditures and Other Financing Uses 20,125,900 22,702,500 22,645,900 22,968,200

Excess(Deficit) Revenues Over Expenditures 748,100 (163,000) 115,100 1,495,800

Fund Balance - Beginning of Year 3,500,000 4,248,100 4,085,100 4,200,200

Fund Balance - End of Year 4,248,100 4,085,100 4,200,200 5,696,000

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AppendixBudget Resources US!

Colorado Financial Management Manualhttp://www.leg.state.co.us/osa/coauditor1.nsf/UID/0E8C123D05928FB687256E9000607525/$file/2003+FMM+with+NO+appForExempt.pdf?OpenElement

GFOA – Budget Practices http://www.gfoa.org/services/nacslb/

GFOA Budget Award Winners – budget documentshttp://www.gfoa.org/documents/budgetWinners 2004.doc

CGFOA membershttp://www.cgfoa.org

CML http://www.cml.org/info/reach/directory.aspx

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Appendix

TABOR Resources Colorado Financial Management Manual – Section 6

http://www.leg.state.co.us/OSA/coauditor1.nsf/UID/0E8C123D05928FB687256E9000607525/$file/2003+FMM+with+NO+appForExempt.pdf?OpenElement

Consumer Price Index – Denver/Boulder/Greeleyhttp://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUURA433SA0,CUUSA433SA0

Colorado Division of Local Affairswww.dola.state.co.us 

CPI forecasts – Department of Local Affairshttp://www.dola.state.co.us/dlg/ta/budgeting/inflation.html

COMMON ACRONYMS

CAFR – Comprehensive Annual Financial Report

CGFM – Certified Government Financial Manager

CGFO – Certified Government Finance Officer

CGFOA – Colorado Government Finance Officers Association

CPA – Certified Public Accountant

FASB – Financial Accounting Standards Board (private sector)

GAO - Governmental Accountability Office

GAAP – Generally Accepted Accounting Principles

GAAS - Generally Accepted Auditing Standards

GAGAS – Generally Accepted Government Auditing Standards

GAS – Government Auditing Standards (the Yellow Book)

GASB – Government Accounting Standards Board (issues statements for implementation)

GFOA – Government Finance Officers Association (professional association – makes

recommendation to GASB)

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Appendix

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AppendixPresenter Bios

Andrew Romero began his appointment as Finance Director for the District on June 5, 2006. Prior to this appointment, he was the Comptroller for the City of Greeley, in Greeley, Colorado, from 1994 to 2006. Mr. Romero is a graduate of the University of Arizona and holds a Bachelor of Science degree with a major in Accounting. He is a member of the Association of Government Accountants and the Government Finance Officers Association. He is a Certified Government Financial Manager (CGFM). (970) 506-8566/ [email protected]

Chris Brogan is currently the Chief Financial Officer for Pueblo City-County Library District, where she directs all of the budgeting, auditing, investing, and financial operations for the district. She has worked in public library finance for over thirty years. Chris holds Bachelor of Science degrees in Accounting and Public Administration from Regis University, and is certified through the Colorado Government Finance Officers Association as a Certified Government Finance Officer. She is active in both the local and national Government Finance Officers Associations, and is a founding member of the Front Range Library Finance Officers group. (719) 562-5652 / [email protected]

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AppendixPresenter Bios

Michael Varnet, CPA has been with the Pikes Peak Library District (El Paso County, Colorado) for 18 years. He has been the District’s CFO throughout his tenure at PPLD. In addition, he has served as part of PPLD’s Interim Leadership Team and he has served in the capacity of Interim Information Technology Officer and Interim Facilities Officer during his tenure. He has been a licensed Certified Public Accountant since 1981(Colorado, Utah and New Mexico). He holds a BA in Accountancy from the University of Illinois, and he is currently working on his Masters in Business Administration from the University of Colorado. He is also an active member of the Government Finance Officers Association. He is also a founding member of the Front Range Library Finance Officers group. (719) 5316333 ext. 1050 / [email protected]

Steve Wasiecko has been with the City of Aurora, Colorado for 23 years. He has served in the positions of Financial Analyst, Budget Officer, City Clerk, Manager of Administrative Services for the City’s Library, Recreation and Cultural Services Department overseeing Finance, Personnel, Marketing, Computer Systems , Courier Services, Facilities coordination and contracts. He currently is the Acting Library Operations Manager. He holds a BA in Economics and Political Science from the University of Colorado, Boulder and a Masters in Public Administration from Colorado State University. (303) 739-6632 / [email protected]

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AppendixTABOR MEMOPrepared by Mike Varnet, Pikes Peak Library District

TABOR DiscussionThe purpose of this report is to present an abbreviated discussion about TABOR, and to further discuss its implications on governmental

entities. The majority of the information included in this document comes from the Colorado Municipal League’s (CML) “TABOR – A Guide to the Taxpayer’s Bill of Rights” 1999 edition.

OverviewVoters in Colorado approved TABOR on November 3, 1992. TABOR became law on January 14, 1993. TABOR has several names:

Amendment 1, The Bruce Amendment, Article X, Section 20, The Taxpayer’s Bill of Rights and of course TABOR. TABOR contains multiple subjects, most of which are discussed below. The voters of Colorado at any point probably will never repeal TABOR in full in the future because, primarily as a result of TABOR, a constitutional amendment was added in 1994 that imposes a “single subject rule” on all statewide ballot issues. TABOR cannot be repealed in one initiated or referred measure.

Ten Things to Understand about TABORThe CML publication lists ten things that every government official should understand about TABOR to help ensure compliance with its many

provisions:Understand TABOR as a revenue limitationUnderstand what “De-Taboring” is and is notUnderstand the broad limitations TABOR places on “tax increases”Understand the difference between taxes and feesUnderstand that TABOR restricts a wide range of multiple fiscal year obligationsUnderstand TABOR’s strict limitation on election dates and procedures for fiscal ballot questionsUnderstand the “enterprise” exceptionUnderstand the TABOR defense against unfunded state mandatesUnderstand the potential liabilities created by TABORUnderstand that elected officials still have an important role to play in controlling governmental finances

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AppendixApplicability to Local GovernmentsTABOR applies to all state and local governments. TABOR does not apply to “enterprises”.

Fiscal Year Spending CalculationsTABOR includes several limits within its text. The first limit is called the Fiscal Year Spending limit (FYS). By definition, the FYS limit is not

really an expenditure limit, but rather a revenue limit. FYS is defined by TABOR as “total expenditures plus reserve increases less reserve decreases, less certain exclusions.” From an accounting perspective, this definition equates to revenue and other financing sources. So, in effect, FYS is really a revenue limit.

Many government entities have adopted was is called the “Black Box” theory. In short, this means all cash sources (inflows of funds – revenues or otherwise) are included in the FYS calculation, and only those funds that meet the exclusion definitions per TABOR are excluded from the FYS calculations. Some governments set their strategy to simply prevent funds from being entered into the “black box”.

The following list of items depicts those items that are excluded from FYS calculations (referred to as the base for the FYS limits):EnterprisesVoter approved revenue changesEmergency tax revenuesRefundsGifts (including grants from private foundations, but not grants from the State or any of its sub-organizations)Federal funds (including the CMAQ grant funds)Collections from another governmentPension contributions by employees and pension fund earningsReserve transfers or expendituresDamage awardsProperty salesLottery receiptsIn addition, the courts have now clarified that the proceeds from new debt or other financial obligations that are created with voter approval are

excluded from the FYS base.

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AppendixRevenue Limits and RefundsThere are no provisions in TABOR to implement any “income averaging” or otherwise accounting for cyclical swings in revenue that will occur

over a multi-year period. The base for the current year FYS is simply the prior year FYS, adjusted for CPI and growth (discussed later). This is also known as the “ratchet effect” of TABOR. Again, if revenue is down in one year, it cannot be recovered in subsequent years without voter approval. Revenue in the subsequent years can increase only by inflation and growth.

Inflation is defined as the CPI for Denver-Boulder, all items, all urban consumers. Local growth is defined by TABOR as “a net percentage change in actual value of all real property in a district from construction of taxable real property improvements, minus destruction of similar improvements, and additions to, minus deletions from, taxable real property.”

TABOR stipulates that excess revenue must be refunded to the district’s taxpayers within the next year unless voter approval is obtained to keep the excess revenue. There are several methods as how the excess revenue shall be collected. The Pikes Peak Library District has found that a temporary credit to the mill levy is the most expeditious method to refund excess revenue.

“De-Taboring” and Other Voter-Approved Revenue ChangesTABOR allows voters to approve a revenue change that is not a tax increase. The Supreme Court has recognized three different types of ballot

questions that allows entities to keep revenue in excess of TABOR’s various limitations:“Where a district proposes any of the forms of revenue increases…. such as a new tax, increased tax rates, or tax policy changes that result in

increased tax revenue;”“Where revenue actually collected exceeds the dollar amounts of the spending limits;” and“Where the revenues generated by a specific tax increase exceed the estimated maximum dollar amount included in the election notice and

ballot title under which the voters approved the tax increase.”“De-Taboring” is sometimes misconstrued that a local government is opting out of TABOR. Local governments have no such options. De-

Taboring applies only to excess revenue. It is a broad form of voter approval that allows the government to keep and spend revenue in excess of TABOR limits.

In drafting “De-Taboring” ballot questions, the following items must be considered:Reference to TABORDisclaimer of any tax increaseBroad form or dollar specificStarting yearTime limited or open endedRevenue sources to be “De-Tabored”Property tax revenues – reference to the 5.5% limitEarmarking generally, specifically or not at allDistricts that are successful in such elections still must calculate FYS annually because there are still requirements that FYS apply such as

future election notices in which FYS for the current year and four proceeding years must be presented, emergency reserve balances, which are calculated at 3% of FYS annually, and so forth. In addition, if the excess revenue issue is sunsetted, the district will need to know its base all along in order to calculate FYS properly when the term is up.

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AppendixProperty TaxesTABOR includes limits to property tax revenue. Similar to FYS limits, the property tax revenue limit basically equates to the prior year property

tax amount levied plus the same adjustment for inflation and local growth. In addition, unless voters have approved otherwise, government entities must also comply with the statutory 5.5% property tax revenue

limitation.TABOR prohibits any mill levy increases from the prior year without voter approval, even if the levy is raised in the face of declining valuations

simply to keep revenue constant.TABOR flatly prohibits the imposition of any emergency property tax. Governmental entities may be left totally helpless if the need to raise

emergency revenue is needed. In addition, the State can never adopt a statewide property tax.

EnterprisesTABOR defines an enterprise as “a government-owned business authorized to issue its own revenue bonds and receiving under 10% of its

annual revenue from grants from all Colorado state and local governments.” The Colorado Springs Department of Utilities and Memorial Hospital are two examples of enterprises under TABOR, and their revenue activities are excluded from TABOR limits.

Debt and Other Multiple Fiscal Year ObligationsTABOR does not allow multi-year debt or other financial obligations without voter approval or without adequate cash reserves pledged

irrevocably and held for payment in all future years. The courts have held that obligations with appropriate non-appropriation language included within the legal documentation do not equate multi-year debt per TABOR requirements.

Emergency ReservesGovernment entities are required to keep an “emergency reserve” on hand at all times. This reserve is defined as the amount equal to 3% of

the entities FYS amount. Should the government declare an emergency and taps into this reserve, it needs to be replenished within the next fiscal year. This reserve cannot be used for economic conditions, revenue shortfalls, or district salary or fringe benefit increases.

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AppendixTABOR Ballot IssuesTABOR requires a vote for 14 distinct types of propositions:New taxTax rate increaseMill levy above that for the prior yearAssessment ratio increaseExtension of an expiring taxTax policy change resulting in a revenue increaseRatification of an emergency taxDebt increasesMultiple year obligationsRevenue change not involving a tax increaseRetention of revenue in excess of a projected tax increaseFour year delay in votingAdditions to election noticesWeakening of other limitsThe CML publication provides detail as to what each of these issues represent. The CML publication provides detailed explanations for each

item listed above.

TABOR Ballot Issue ElectionsTABOR imposes various requirements on elections. This includes the timing of elections, timing of notices, the requirements of such notices,

pro and con statements, fiscal year spending disclosure requirements, and wording of the ballot issue itself. Many governmental entities participate in County-sponsored coordinated elections. The entity would enter into an Intergovernmental Agreement with the county, and it will stipulate the district’s share of the cost.