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OperatingBudget
1
Part 1
Essay
Training forFinance
Managers
2
OperatingBudget
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Essay
Bill
Revenue Manual
SummaryThis essay will describe how to designand implement an operating budgetsystem at the local level of government.We will define operating budget termi-nology and examine the benefits andpotential obstacles associated withestablishing and using a system. Wewill also discuss the steps involved inpreparing, reviewing, adopting andmonitoring the operating budget.
Definitions and conceptsOperating budgeting terminology canbe confusing. Definitions differ be-tween local governments due to na-tional and local laws. To help minimizethe confusion, the following terms anddefinitions will be used in this essay.
• Operating budget—plan for currentexpenditures and the proposedmeans of financing them; it is theprimary means for controlling mostof the financing, acquisition,spending and service deliveryactivities of a local government.
• Capital budget—a budget thatcontains capital projects includedin the first year of the capitalprogram; a plan for proposedcapital improvements projects andthe means of financing them.
• Basis of accounting—when ac-counts are kept on a “cash” basis,expenses are recognized only whenthe cash payments are made for thecost of goods received or services
rendered. When accounts are kepton the “accrual” or “modifiedaccrual” basis, expenses are recog-nized when the goods are receivedor services rendered whether cashpayments have been made or not.
• Reserves—an account used toindicate that a portion of the city’scash balance is legally restricted fora specific purpose and not avail-able for appropriation and subse-quent spending.
• Appropriations—legal authoriza-tions granted by a localgovernment’s governing body tomake expenditures and incurobligations for specific purposes.These authorizations usually arelimited by the amount and thetimeframe in which expenditures orobligations are to be made.
• Encumbrances—commitmentsrelated to unperformed contractsfor goods or services. Used inbudgeting, encumbrances are notconsidered accounting expendituresor liabilities, but they representestimated expenditures resultingfrom the completion of a contractin process.
• Expenditures—current financialobligations requiring the use of cityfunds.
• Generally accepted accountingprinciples (GAAP)—uniformminimum standards and guidelinesfor financial reporting and account-ing in the United States.
• Governmental accounting stan-dards board (GASB)—the authorita-tive accounting and financialreporting standards-setting body forgovernmental entities.
• Administrative, organization,department—these terms are usedinterchangeably.
Training forFinance
Managers
4• Governing body, city council,
legislative, council, councilors,parliament, elected officials—theseterms are used interchangeably.
• City, town, village, municipality,self-government, government,governmental entity—these termsare used interchangeably.
• City manager, executive, chiefexecutive officer, administrativeofficer—these terms are usedinterchangeably.
• Assumed city structure—theorganizational structure which isan underlying assumption through-out this essay.
• Citizen participation—any processthrough which citizens influencepublic decisions that affect theirlives and the lives of other citizens.
• Function—a group of relatedactivities aimed at accomplishing amajor service or regulatory pro-gram for which a city is respon-sible. Public safety and sanitationare examples of functions.
• Activity—a specific and distin-guishable service performed by acity to accomplish a function forwhich the city is responsible. Forexample, the police department,fire department or health depart-ment all can be activities withinthe public safety function. Sewagetreatment and disposal, wastecollection, waste disposal andstreet cleaning are activities per-formed in carrying out the functionof sanitation.
• Cost center—a specific organiza-tional unit, program or activityunder the control of a manager
CityCouncil
Finance
Chief Exec Officer
BudgetOfficer
Parks Streets Engineering/Design Social Care
who has authority to incur andcontrol costs. Examples of costcenters are parks, street cleaning,procurement, building inspection,custodial service and vehicle repair.
• Program—a group of activities,operations or organizational unitsdirected to achieving specificpurposes or objectives.
• Line-item budget—a budget that isbased on departmental lists ofgoods and services, such as wages,supplies, utilities and capital itemsto be purchased. These lists areusually at the character or objectlevel of expenditure.
• Program budget—a budget thatbases expenditures primarily onprograms of work and, secondarily,on the relation of character andobject class with performance.
• Performance budget—a budget thatbases expenditures primarily uponmeasurable performance of activi-ties and work programs. A perfor-mance budget may also incorporateother bases of expenditure classifi-cation, such as character andobject class, but these are second-ary to activity performance.
• Zero-based budget—a budget thatconducts an annual evaluation ofeach program’s purpose andpriority, weighing it against allother spending possibilities.
• Target-based budget—in its sim-plest form, each department isgiven a maximum amount for itsbudget request.
• Performance measures—quantifythe resources used, services pro-vided, results and cost of services.Used to determine the extent towhich objectives are accomplished.
• Objectives—statements of desiredor planned accomplishment thatare measurable within a giventime.
• Outcome (output) measures—report the results and quality ofservices provided. These measures
OperatingBudget
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BenefitsThere are a number of benefits result-ing from the operating budget prepara-tion process. These include:
The budget as a legal document:
• Ensuring compliance with appli-cable laws or statutes through anestablished budget preparationprocess.
The budget as a policydocument:
• Manifestingadoptedpoliciesthrough goals,objectives, orpriorities, anddeterminingways to reachthem.
• Establishing priorities amongvarious service needs, especiallyamong new and expanded pro-grams.
• Providing an avenue for allocatinglimited resources.
Budget purposeThe purpose of the budget is to estab-lish a clear, logical plan for the alloca-tion of city resources to essential publicservice programs such as parks andrecreation, public safety, street andbridge maintenance and construction,and other functions supporting a safe,healthy, and pleasant communityenvironment. When properly prepared,the budget is the means for officiallydocumenting the financial and programpolicy of the city council, the bodyultimately responsible for the welfare ofthe community.
describe the extent to whichservices are accomplishing theirintended mission, goals, andobjectives.
• Providing a way to reflect theimpact of political changes on theactivities of the municipality, thelevel of services and financialprosperity.
• Giving official recognition to newfinancial and non-financial prob-lems important to the city officials.
The budget as a financial plan:
• Fulfillingthe princi-pal purposeof anoperatingbudget as ameans forregulatingannual financial operations.
• Providing an overview of currentand last year’s financial activitiesby department or function, includ-ing expenditures for the currentand prior year.
• Projecting the city’s financial statusat the end of the year.
• Giving an overview of current andproposed revenue sources.
• Showing a clear relationshipbetween the operating and capitalbudgets where debt service pay-ments are budgeted for the repay-ment of principal and interest.
The budget as a managementplan:
• Managingservicesandexpendi-tures byallocatingmoney tospecificprograms designed to accomplishclearly defined objectives.
• Setting forth a detailed plan forwhat services will be provided andhow.
Sk
Training forFinance
Managers
6• Providing the basic guideline
through which elected officialscontrol the staff in providingservices.
• Outlining the categories, serviceobjectives and financial system thatcan be used as the basis for peri-odic reports on the status of cityoperations.
The budget as acommunications tool:
• Providing arationalefor electedofficials inpresentingchanges in
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priorities, reasons for decisions andfuture changes.
• Giving public officials a means foracquiring information on the needsof the population as well as onpublic attitudes towards the activi-ties of the city.
• Publicizing, in an understandableform, what the city will be doingduring the fiscal year and theamount or extent of services to beperformed.
• Illustrating unfilled needs; that is,highlighting programs that aredesirable but which cannot befinanced.
ReflectionFrom time to time in this handbook we will pause to allow you an opportunity toreflect on what is being discussed and relate it to your own experience with themunicipal budgeting process. Review the five benefits of budgeting enumeratedabove. Which of them would be likely to be given the greatest weight by officialsin your local government? Why do you think so? Which of them would be giventhe least weight? Why? As you consider these questions, use the space below tomake some notes.
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OperatingBudget
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Line item budget
A line item budget (also called anobject-of-expenditures budget) providesa list of the goods and services to bepurchased by each department with acost estimate for each. Examplesinclude labor, supplies, utilities, andcapital outlay. A list of specific items tobe purchased emerges from a workplan that lists the items needed to carry
out the work plan. A list of specificitems makes it possible to compare thecosts of these items to the costs ofsimilar items purchased elsewhere.This, in turn, makes it possible todetermine the reasonableness of afunding request. Once the councilapproves the budget, the departmentscan start procuring the authorizedgoods and services.
Types of BudgetsHistorically there have been five majortypes of budgets developed in theUnited States.
Approved budget (in Sk ’000)
5104 CITY POLICE 7,800Wages and salaries 5,600
611 Tariff salaries, basic salaries 3,000612 Bonuses 2,060613 Compensations for waiting times 30614 Payoffs 510
Goods and other services, CAPEX 2,200631 Travel expenses 30632 Energies, water, telecommunications 232633 Materials and supplies 888634 Transport costs 316635 Routine and standard maintenance 177636 Rental fees 4637 Other goods and services 231
Capital assets acquisitions711 Purchase of land and intangible assets 22713 Purchase of furniture and office equipment 190715 Purchase of operating equipment and machinery 100716 Project documentation development 10
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Line-item budgeting
Program budgeting
Performance budgeting
Zero-based budgeting
Target-based budgeting
Training forFinance
Managers
8Performance budget
The purposes of a performance budgetare to:
• Produce a work plan that justifiesthe budget total;
• Provide a basis for comparing thecost and quality of services; and
• Provide a running check onwhether programs are achievingtheir goals.
Workload measures, such as number ofclients served or number of arrestwarrants issued, help justify thebudget. Cost and input measures, suchas cost per client or cost per warrantissued, help evaluate whether servicedelivery is efficient and economical.Outcome and impact measures such asthe amount of citizen participation,length of waiting period for clients, orrecidivism rate, reveal to what extentprograms are achieving their goals.Ideally, the budget should compare theperformance level budgeted for thecoming year with the actual perfor-mance levels of prior years.
Another handbook in this series,Performance Measures, providesextensive guidance on the preparationand use of performance measures.
Program-based budget(including planning,programming budgetingsystems—PPBS)
Program budgeting, also called PPBS,came about as a result of attempting tofind a way to choose among alterna-tives for providing services, andaddresses the following questions:
• What are we trying to accomplish(goal)?
• How much will it cost to meet thisgoal?
This method of budgeting provides amethod for organizing activities intoprograms (activities or services with acommon goal), identifying alternativesfor achieving each goal, determiningthe costs and benefits for each alterna-tive, and selecting the alternative tomaximize benefits. Since total cost andperformance levels are what matter—not the cost of each line item—budget-ary allocations can be provided “lumpsum” by program rather than in tradi-tional department line items. Programbudgeting is often accompanied byvarious kinds of performance mea-sures.
PPBS, in its fullest sense, requires atremendous amount of analysis andpaperwork. Remnants of the methodol-ogy have been used in other forms ofbudgeting such as performance andzero-based budgeting. So, local govern-ments still use many of PPBS’ featuressuch as developing goals for eachprogram and reporting budget informa-tion by program rather than by depart-ment.
OperatingBudget
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PROGRAM: Line maintenance DEPARTMENT: Water
Summary of Responsibilities: The water line maintenance division is responaiblefor the repair and maintenance of the water distirbution main lines, service lines,valves, fire hydrants, and manholes. Major activities include digging up and repair-ing or replacing leaking or burst main and service lines, including service connec-tions; operating and repairing inoperable or malfunctioning fire hydrants and watermain valves; and adjustments in the height of water meters, main valves, and firehydrants. This division operates a central warehouse providing parts and equip-ment in support of the fleet.
1997-98 Accomplishments:Repaired 1,510 main breaks.Installed 25 valves, 5 hydrants, and 10 mains.Completed 8,875 jobs for the year.
1998-99 Objectives:Provide an effective water distribution system while minimizing loss of service andrelated expenses.
Provide efffective support through the efficient operation of the central warehouseand equipment maintenance program.
Establish an efffective customer service relationship with the public.
Identify problems within the distribution system and assist in finding solutions tothe identified problems.
Performance Measures:97-98 98-99 99-00
Actual Actual Target
Repair main breaks in an average of 4.5 hours or less 4.3 4.4 4.5
Replace services in an average of 3.5 hours or less. 3.3 3.4 3.5
Maintain fleet downtime at 2% or below. 0.68% 0.77% 2.0%
The following example represents how most cities have integrated program andperformance budgeting into current budgets.
Training forFinance
Managers
10Target-based budget (TBB)
Target-based budgeting reversed thetrend towards increasingly complexbudget preparation. In its simplestform, each department is given amaximum amount, or target, for itsbudget request. Targets are based onrevenue estimates for the coming fiscalyear, adjusted for any changes inpriorities communicated by councilmembers. The more complex part ofTBB involves estimating eachdepartment’s current services budget.Generally, the current services budgetis the department’s current year appro-priation plus or minus some adjust-ments (i.e., one-time purchases, ormoney for a position that was filledwell into the fiscal year). Once estab-lished, the target typically is set atsome percentage of the current servicesbudget—for example, 95 percent forlower priorities in the current year or105 percent for higher priorities.Although TBB includes some elementsof ZBB, it greatly reduces conflict andthe use of subjective judgment sincedepartments know up front theirprobable level of funding for the nextyear.
Target-based budget forms are the basisfor the 10 steps in budgeting later inthe essay.
Zero-based budget (ZBB)
The framework of zero-based budget-ing is to conduct an annual evaluationof each program’s purpose and priority,weighing it against all other spendingpossibilities. Each program prepares a“base level” budget reflecting theminimum requirements to continue theprogram. “Enhancement packages” areprovided for areas of the programwhere additional services can beprovided. Council members can thenmake decisions like: not renewing anexisting program, choosing instead tofund an enhanced spending packagefor another program, or even to pro-vide base-level funding for an entirelynew program.
Like program budgeting, remnants ofZBB are still used by United Statescities in the form of “decision pack-ages” which present incrementalspending levels for varying levels ofeffort and cost. Each decision unit (thelowest level in the organization atwhich budgetary decisions are made)prepares at least three packages:
• A base level package, which meetsonly the most basic service needs,
• A current service package, whichensures delivery of services at thecurrent level, and
• An enhanced package, whichallows the decision unit to extendits services to currently unmetneeds.
Decision units can prepare more thanone enhanced package, each represent-ing a different level of expanded effort.Packages from all the decision units arethen ranked according to the perceivedneed for the package. Unlike PPBS,which uses more objective criteria forfunding, ZBB relies on the subjectivejudgment of council members inranking packages.
A sample zero-based budget requetform is oj the opposite page.
Current status of budgeting
These five budget formats have evolvedand developed over the last century,and municipal operating budgets in theUnited States today are a blend ofthem. The operating budget in manycities will contain some “line item”information, “performance” measures,and even enhancement (”ZBB”)packages for new spending. Depart-ments even may be given “target”funding levels at the beginning of theprocess.
OperatingBudget
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Training forFinance
Managers
12
Advantages and disadvantages of the five budgeting systems
Advantages Disadvantages
• Very familiar; council membersmay not want to change budgetsystems because of a concern forgetting less information.
• The more detailed the objects ofexpenditure, the greater thecouncil’s control over the depart-ment.
• Provides information only on theresources or inputs used in provid-ing public services—it does notprovide any information on what isaccomplished with the use of theresources.
• The more detailed the line items,the less flexibility managers have.
• The level of detail may be over-whelming to citizens.
• Usually based on an incrementalapproach. Prior year’s expendituresare the base, with amounts addedto reflect inflation, increaseddemand or improved level ofservices provided. The incrementalmethod does not deal with issuessuch as: how to reduce costs whilekeeping the same service level orhow the service provided corre-sponds to current needs.
Line-item budgeting
Program budgeting
• Emphasizes the quality and cost ofservices as opposed to the cost ofthings purchased (line item).
• Usually accompanied by perfor-mance measures for output.
• Gives managers the flexibility toachieve “service level targets” inany way that works (i.e., notlimited by line items) as long asthey stay within the overall budgetallocation.
• Increasingly complex.
• Very analysis and paperworkoriented.
• May intensify conflict because itreveals that if one service is in-creased another must be decreased.For example, for police patrols tobe increased so that 5% of citizensfeel safer, there may have to be a30% decrease in opportunity forkids to play soccer.
OperatingBudget
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• Determination of the budget forcurrent services is somewhatsubjective.
Performance budgeting
Zero-based budgeting
Target-based budgeting
• Improves program efficiency.
• Allows for better evaluation ofresults of program operations.
• Provides council members and thepublic with better information onthe quality of services.
• Increasingly complex; more infor-mation must be provided.
• Focuses attention on efficiency andeffectiveness, but does not addressmore fundamental questions suchas whether a program is necessaryat all or how best to allocatelimited resources among competingprograms.
• Allows council members to deter-mine whether a program is neces-sary at all, or to choose betweenvarying levels of service.
• Proposals are assigned priorities.
• Discretionary items are fundedbased on council’s goals andobjectives.
• Identifies unmet needs.
• Increasingly complex; much moreinformation must be provided.
• May generate conflict betweencompeting programs.
• Department heads resist disclosingestimates of the cost of minimumservice levels because to do soinvites deep cuts in services ifspending must be reduced.
• Less detailed information has to beprovided. Less conflict.
• Proposals are assigned priorities.
• Discretionary items are fundedbased on council’s goals andobjectives.
• Identifies unmet needs.
Training forFinance
Managers
14Budgeting and accounting
The accounting system must parallelbudget programs in order to implement,measure and report budget results. So, ifa new budget program is established ina particular department, all related costsof the program should be identified andrelated to the program within theaccounting system. The accountingsystem must be in a form that answerskey financial control questions andmatches the format used in the budget.Without the continuous flow of infor-mation from the accounting system,local governments cannot take timely,corrective action when necessary.
Fund accounting
Accounting is the art of analyzing,recording, summarizing, evaluating, andinterpreting a city’s financial activitiesand status, and communicating theresults. Since all facets of a city’sfinancial operations are affected by legalor quasi-legal requirements, financialand administrative controls are morestringent than in private enterprises inorder to ensure compliance.
Purpose
The fundamental purpose of the fundstructure is fiscal control. Not only
must the entire budget balance, butevery part of it—that is, every fund—must balance as well. Moreover, asurplus in one fund may not necessar-ily be available to liquidate a deficit inanother. The fund structure thusforces governments to meet a moreexacting standard of balance thanprivate sector organizations.
The term “fund,” when used in acommercial or private enterprise, issimply a portion of its assets that hasbeen restricted to specific uses. A“fund,” as used in governmental ac-counting, is a separate and distinctaccounting entity established to meetspecific legal or accounting require-ments. Each fund receives revenue fromdifferent sources and functions as if itwere a self-contained business with itsown set of accounts and financialreport. The expenditures from each fundhave to be covered by the revenues tothat fund, plus any transfers of revenuefrom other funds. Because of the fundstructure, governments do not have asingle bottom line, but many bottomlines—one for each fund. A localgovernment may have anywhere from ahalf dozen to several hundred fundsdepending on its size and the complex-ity of its funding sources
Funds are like pockets on a shirt.
General fund
Water fund
Employee pension fund
Revenues for the pension fund goonly into the pension fund pocket, and not to the water fund pocket. Expenditures ofthe general fund are to be paid out of the
general fund pocket—not from the water or pension fund pockets. Revenues can bemoved between "pckets" by an act of the
city council.
Three functions of funds• By ensuring balance of the parts,
funds ensure balance of thewhole budget.
• Because it is more difficult tobury transactions in separatefunds (each of which mustbalance and have its own report)than in one large, undifferenti-ated fund, segregated fundsensure that earmarked revenue isbeing spent for the purposesintended.
• Individual funds are smaller, lesscomplicated, and easier to viewthan a whole, consolidatedbudget.
OperatingBudget
15Categories (groups) of funds
Where a private sector business com-bines results of the operations of all itssubsidiaries into one consolidated
report, a local government creates aseparate report for each of its groups offunds. The groups are governmental,proprietary, and fiduciary.
Governmental
General
Special revenue
Debtservice
Capitalprojects
Proprietary
Enterprise
Internalservice
Fiduciary
Nonexpendabletrust
Expendabletrust
Pensiontrust
Agency
Usually the largest and most important, the general fund is the primary operatingfund. Any transaction that cannot be accounted for in another fund must be recordedin the general fund. A city can have only one general fund.
There can be multiple special revenue funds, each with a particular name, such asthe Hotel/Motel Tax Fund. Funds are established to account for the proceeds ofrevenue sources earmarked or restricted by law for particular purposes. Localgovernments often use special revenue funds to account for grants.
These funds account for resources used to pay the principal and interest on long-term, general debt. The purpose of establishing a separate fund for the repayment ofbonded debt is to demonstrate that money to pay back the debt has been set asideand will not be used for anything else.
These funds account for financial resources used to construct or acquire capitalfacilities. Revenues flowing into the fund may include GO bond proceeds that wereauthorized for the project, state and federal grants, and current taxes. Expendituresflowing out of the fund are usually payments to contractors for project design andconstruction.
These funds are similar to enterprise funds, except that they account for the activities ofcity departments that do work for (or provide equipment to) other departments rather thanto the public. For example, a motor pool, which provides vehicles for various departments,may be fully funded by the charges levied on other departments. Its rates may include bothoperating and capital costs (e.g., the cost of replacing vehicles).
These funds account for government services that derive a substantial portion oftheir income from user charges. Examples are: water and wastewater services.Accounting for enterprises in separate funds makes it easier to see whether theseenterprises are bringing in enough revenue to cover all their costs.
Fiduciary funds account for resources that cities hold in trust for individuals or othergovernments; with a few notable exceptions such as the U.S. social security trustfund—fiduciary funds are typically excluded from the operating and capital budgetsof governments. Fiduciary funds are of four subtypes:
These are funds the principal of which may not be spent—for example, an endowedscholarship fund.
In the case of an expendable trust fund, both the principal and accrued interest maybe spent.
Pension funds are treated like nonexpendable trust funds. They are held in trust forpayment of employee retirement benefits.
Agency funds are similar to expendable trust funds. They are established by one unitof government to hold money in trust for another unit of government. For example, ifa state government collects a sales tax on behalf of its municipalities and counties,the state may hold the money in trust in a local sales tax fund until disbursing it.
Training forFinance
Managers
16Interfund transactions
Interfund transactions are one of thepotential trouble spots in financialaccountability. One of the purposes ofthe fund structure is to ensure thatearmarked money has been spentappropriately. Interfund transactionscan muddy the waters, making itdifficult to determine the purpose forwhich the money was spent. If revenueis transferred twice—that is, from onefund to another and then from thatfund to a third fund—the switch isvirtually impossible to trace. Althoughthe use of revenue in one fund to closea gap in another can help balance thebudget, excessive interfund transac-tions can give rise to a number ofproblems. Therefore, they are generallyregulated by law, precedent, or both.
Basis of accounting
Local governments tend to be morefiscally conservative in accounting forrevenues than private sector entities—an approach that helps prevent overes-timating revenues and underestimatingexpenditures. This approach is calledthe “modified accrual basis.” Forexample, before recording revenues(income), finance officials generallywait until they know exactly when andhow much revenue will be received;that is, until the revenue is available(or nearly so) to be spent. In otherwords, in an accrual system, expendi-tures are recognized when the liabilityis incurred or obligated.
Separating the budget into fundswithin a category allows different typesof funds to be treated differently froman accounting standpoint. While theprivate sector uses only the accrualmethod of accounting, governmentsuse the modified accrual method forgovernmental funds and the accrualmethod for proprietary funds. The useof separate funds, in combination withthe use of these different bases ofaccounting for recognizing transac-tions, makes governmental accountingmuch more complex than its privatesector counterpart.
Budgetary accounting
So that revenues and expendi-tures can be monitored, the
accountingsystem providesa record-
keeping frameworkto log transactions autho-
rized by the budget. Every financialtransaction is recorded, whether a bankdeposit, the receipt of property taxes, orthe payment of a bill for roof repair atthe community center. These individualtransactions are aggregated in variousways and included in interim reportsissued throughout the year. At year’send, all transactions are gathered andreported in a traditional format calledthe comprehensive annual financialreport (CAFR). Interim reports helpmaintain balance during the year. TheCAFR looks backward to determine howwell the government maintained bal-ance and how close actual figures wereto the budget as amended.
In summary, the accounting systemtells department heads how muchmoney they have left to spend; it tellsthe budget office whether revenues areavailable to commit; and it tells every-one whether the government suc-ceeded in balancing the budget, andhow closely budget implementationfollowed the budget.
Impact of accountingrequirements on budgeting
There is some inconsistency betweenthe assumptions that underlie thebudget and the standards that guide theaccounting system and the reports thatit generates. Budgets reflect the need topay bills incurred during the budgetperiod—that is, the fund’s cash condi-tion. The value of fixed assets such asthe city hall or a water tower is of lessimportance because the imputed valuewill not be available to pay bills. Ac-counting for governmental fundsfocuses on whether a fund’s totalrevenues equal or exceed its expendi-tures—that is, its financial condition.(For proprietary funds, the focus broad-ens further to include the fund’s eco-nomic condition-current and fixedassets, current and tong-term liabilities.)
OperatingBudget
17As a result of these differences inperspective, totals in the budget and inthe annual financial reports based onthe accounting data often differ—although intuitively, they shouldmatch, since the accounting recordsreflect every financial transaction.From the point of view of fiscal con-trol, however, summaries of assets andliabilities in the year-end accountingreports are less important than thecontinuing and even daily reports ofexpenditures that the accountingsystem provides.
Classification of accounts
The mechanism relating accounting tothe budget is the classification or chartof accounts. A chart of accountsorganizes into categories all the itemsthat might be purchased and all thetransactions that might occur. Allrecording depends on the chart of
100 201 3010 2100Code
Fund Department Division Expenditure(Revenue)
General Finance Accounting Salaries
Evaluate your chart of accounts:Overall
___ Does a systematically determined number identify each fund?
___ Does a systematically determined number identify each program, activity ordepartment within the appropriate fund?
___ Does each type of cost have an identifying number? An illustration of uniformcoding would be to number the cost or object code for expenditures forregular salaries in the police department with the same object code as regularsalaries in the street department.
___ Are the categories in the chart of accounts small enough to be informative butlarge enough to be flexible?
___ Can the chart adapt gradually to changing purchases, revenues, or financialcontrol requirements without being radically altered?
___ Are all related costs charged to this account?
Revenues___ Does the chart of accounts lump together a number of different revenue
sources under the general heading of miscellaneous income?
___ Is the level of aggregation in, for example, miscellaneous income, so high thatit obscures important patterns—for example, increases or decreases in particu-lar revenue sources; variations in the way that revenue sources respond torecessions or decreases in revenue caused by collection problems?
___ Does the level of aggregation of revenues provide a level of detail sufficient formanagement’s needs? Note: it is important to avoid creating categories that aretoo small and too numerous.
accounts. If the chart of accounts doesnot contain useful categories, theaccounting system will not produceuseful information.
Any accounting system must be tai-lored to the needs and capabilities ofthe user local government. Telephonecosts, for instance, may justify aseparate cost or object code because ofthe need to relate communicationscosts to different program accounts. Onthe other hand, should specific infor-mation for communications not benecessary, then telephone, gas, electric-ity and water costs might be groupedunder an object code named “Utilities.”Below is a sample classification codestructure.
Training forFinance
Managers
18
Roles in the budgetprocess
The chief executive, council members,budget analysts, department heads,citizens, and interest group representa-tives should all participate in budgetdecision making. The goal of budgetparticipation is to allow potentiallycontradictory demands on the budgetto be expressed and resolved ratherthan suppressed or ignored, while atthe same time ensuring that conflictdoes not overwhelm the process orrender decision making impossible.
Chief executive
Thechiefexecu-tivenormallyisrespon-sible for carrying out the followingbudget tasks:
• Preparing the draft budget to bereviewed by the council;
• Explaining the current and pro-jected financial status of themunicipality;
• Implementing the budget as ap-proved by council; and,
• Monitoring and reporting on thestatus of the budget throughout thebudget year.
The executive may choose to delegatesome of these tasks to other staffmembers such as the budget officer.
Chief executives should provide overallguidance to the budget process byidentifying any issues to be addressedand surfacing other expectations thatshould be met in the budget prepara-tion process.
The chief executive’s active involve-ment in the budget process is impor-tant because there are inevitablyconflicts among the goals the budgetprocess is intended to achieve. It is partof the chief executive’s job to set
priorities when goals clash. For ex-ample, the goal of making the budgetmore open and interesting may in-crease the level of conflict and delaydecisions. Creating more opportunitiesfor citizen participation may subjectthe council to a barrage of contradic-tory advice which may, in turn, giveway to deep conflicts within thecommunity and on the council.
Budget officer and budget staff
Assuming that most budget-ary tasks will be delegatedby the chief executiveofficer to thebudget officer,the budgetofficer has akey role to playin the budgetingprocess. The role usuallytakes one of the following forms:
Coordinator of the budgetingprocess
The budget officer may play a limitedrole in the budget process as coordina-tor of budget-related documents. In thisrole, the budget officer does not evalu-ate the requirements presented by thedifferent departments, submits nosuggestions, and does not matchrevenues with expenditures. The role isto provide for the adherence to thebudget-related schedules, for accurateand complete budget-related docu-ments presented in a uniform andintelligible format. Some of the follow-ing duties may be delegated to budgetstaff members:
• Setting up the budgeting calendar.
• Drafting budget-related forms andworksheets.
• Assisting departments in formulat-ing their performance indicators.
• Compiling instructions for depart-ment heads to guide them in fillingout budget-related forms.
• Controlling the accuracy andcompleteness of budget-related
OperatingBudget
19forms submitted by departmentheads..
• Preparing revenue estimates.
• Coordinating budgeting activitiesincluding timing and planning ofmeetings.
Guidance of the budgeting process
In this role, the budget officer (andbudget staff), in addition to coordina-tion, has some analytical and controlfunctions, such as
• Developing instructions for depart-ments concerning reducing orexpanding services and providingany assumptions to be consideredin budget development.
• Reviewing department requests toensure adherence to guidelines.
• Setting budget objectives includingany restrictions.
• Matching budget requests withexpected revenues.
• Preparing recommendations forcouncil members.
Control of the budgetingprocess
The third role is direct control of andresponsibility for tasks related to budgetimplementation. In this role the budgetofficer (and budget staff) will be:
• Ensuring that departments do notexceed budget authorization. Thisis accomplished through regularmonitoring of revenues and expen-ditures.
• Reviewing requirements for transferof budget funds between depart-ments.
• Developing and updating budgetingprocess procedures.
• Providing progress reports onbudget implementation for thechief executive officer and the citycouncil.
• Monitoring department activities toprevent negative developments.
Council (policy makers,parliament)
Legislative bodies (councils) of localgovernments define municipal budget-
ary policies. In approvingthe budget, a councilestablishes government
policy anddirection andsets priorities forprovidingservices to thepublic. Thecouncil isresponsible formaximumpossible satisfac-
tion of public service needs withinexisting resources.
Early in the budget preparation pro-cess, policy makers should help setpriorities among goals and informmanagement of their preferences onallocation issues. Council membersmay not always be willing to set policyor interested in doing so, but theyshould be given the opportunity.
The appointed staff should create thebest possible conditions for the mayorand council to make policy. Staffshould help frame the policy issuesand, where appropriate, make recom-mendations on preferred policy alterna-tives. Framing makes it less difficult forthe council to make decisions. Morepolitically divisive issues are bestreserved to the council, with staffproviding objective analyses of themerits of each alternative.
The budget office may frame someissues, especially those dealing withfinance or budget format, and makerecommendations in those areas. Thebudget office should undertake somepolicy analysis too, such as determin-ing how much revenue will be gener-ated by various changes in tax rates orwhether leasing is more economicalthan purchasing.
Training forFinance
Managers
20Citizens
The publicshouldplay asubstan-tial rolethrough-out thebudget-making process. Itis especially important, how-ever, to involve citizens when commu-nity goals are being developed and toseek their opinions on key policydecisions related to taxation andexpenditures. In practice, however,public involvement in local budgetmaking is superficial and undertakenonly to satisfy legal requirements.
There are three typical concernsexpressed by local government officialsabout citizen participation in thebudget preparation process:
• Elected officials do not want toraise expectations they cannotsatisfy. Thus, many local govern-ments resist greater public involve-ment because they fear thatcitizens’ expectations for spendingor for tax reductions will beunrealistic. There also may be fearthat the costs of responding to thepublic’s wish list will be unbear-able to the community as a wholeor to wealthier taxpayers.
• A second reason for resisting publicinvolvement in budgeting is that
different areas of the communitymay want different or evencontradictory programs, leavingpublic officials in the difficultposition of not knowing how
much of what to deliver to whom.
• A third argument raised by localofficials is that citizens are simplynot interested in participating andthat trying to involve them is timeconsuming and frustrating.
Although there is some basis for theseconcerns, all of them can be addressedin ways that will allow budget makersto benefit from citizen participation.Strategic planning sessions, focusgroups, neighborhood councils, citizenbudget commissions, and capitalbudget committees are all ways ofinvolving the public in the budgetprocess before final approval. Once thebudget is final, the chief executive canmake press presentations and take thebudget proposal on the road, present-ing it to meetings of civic groups,service clubs, and neighborhood andhomeowners associations. Anotherhandbook in this series, Citizen Par-ticipation, provides excellent sugges-tions for getting citizens involved inthe budgeting process.
OperatingBudget
21
ReflectionConsider, for a moment, the budget roles played by officials in your own localgovernment. In what ways are they similar to the role descriptions presentedhere? In what ways are they different? If you could change the ways budget tasksare assigned within your local government, what would you change? We haveprovided some space below for you to make notes on your answers to thesequestions.
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Training forFinance
Managers
22Obstacles
Prepara-tion of theoperatingbudgetcan be atime-consum-ing, costly,and attimes,difficultprocess.Obstaclesare oftenencountered when changing thecurrent budget preparation process.
Management resistance
Management, especially departmentheads, may be concerned that electedofficials, citizens and the media willuse any new information generated bya change in the current budget processto assign blame and withdraw re-sources to cut costs. Some managersmay view changes in the budgetprocess as a “passing fad” or “makework” exercise and see no benefit in it.
Political resistance
If modifying the budget format oradding a different orientation to thebudgeting process, the political supportof elected officials can be won byinvolving them early in the process.Elected officials need to be informedabout the benefits of proposed changes
Budget policiesBudgeting in every local governmentshould be guided by a set of policiesadopted by the local governing body.Another handbook in this series,Financial Policy Making, providescomprehensive information on formu-lating policies.
in the budget process and how thesechanges will produce informationhelpful to them in making betterpolitical decisions. Elected officialsneed to be asked from time to time ifthe operating budget information theyare receiving is useful and if they wantanything done differently.
Lack of resources
A substantial obstacle may be the lackof analytical staff, time, funds andinformation technology to implementchanges in the budget process. Ob-stacles can be reduced by training in-house staff through the use of a pilotproject—for example, to implementzero-based or target-based budgeting inone or two departments. Use theinformation gained from the pilotproject to determine how the processmight be improved and if you want touse the new process with other depart-ments.
Can you find answers to the following questionsin your operating budget policy?
___ To what extent are the operating and capital budgets integrated? An operat-ing budget policy should specify whether the two budget cycles will proceedconcurrently or separately and briefly explain the reasons for the choice.
___ Does the policy specify which funds should be reported in the operatingbudget?
___ When does the budget have to be balanced: when the executive proposes it,when the governing body adopts it, or at the end of the fiscal year?
___ Which revenues or expenditures can be counted toward the current year’sbalance?
OperatingBudget
23
___ Can borrowing be used as a strategy to balance the budget?
___ Are revenues left over from last year treated as current revenues, and canthey be used to balance this year’s budget?
___ To protect against unforeseen events or to accumulate money for futurepurposes, local government’s establish reserve accounts in various funds,then earmark the money for some specified purpose. Does your local govern-ment have any of the most common types of reserves:
___ Cash flow requirements___ Revenue stabilization (rainy day funds)___ Unforeseen contingencies___ Equipment replacement___ Building repair or other improvements___ Debt service
___ Who is assigned principal responsible for budget preparation?
___ What is the authority of the responsible position—for example, the authorityto standardize budget documentation, to prepare the budget calendar, and toreview departmental budget requests for accuracy and conformity to budgetguidelines?
___ Are performance and efficiency parameters required for each activity whererelevant?
___ Who is responsible for forecasting revenue?
___ What is the frequency with which revenue forecasts are to be prepared?
___ Who specifically is responsible for overseeing budget implementation—including preparing and reviewing interim financial reports, monitoringrevenues, reviewing departmental expenditure requests for conformity withthe budget, authorizing transfers across accounts or departments, and re-viewing supplementary appropriation requests?
___ Are one-time or temporary revenues used to obtain capital assets (equip-ment, buildings, and land) or to make other nonrecurring purchases?
___ Are user fees reviewed annually to ensure that they are covering all costsassociated with providing the municipal service?
___ Which enterprise funds are expected to balance themselves-and, of those thatare not expected to balance, what proportion of costs can be subsidized bythe general fund?
___ Are there clear procedures for amending the budget during the fiscal year?
___ Is there some limit on the amount that can be transferred by executiveauthority before the consent of the council is required?
___ What is the nature and frequency of budget status reports?
___ Are the accounting, financial reporting, and auditing standards to be usedspecified.
Training forFinance
Managers
24
ReflectionTake a few minutes now to think about the policy basis for budgeting in yourown local government and use the space below to write down some ideas. Arethe budgeting practices of your local government guided by written statements ofpolicy? To what extent is the city council involved in making budget policy? Inwhich of the budget areas discussed could your government benefit most bypolicy guidance from the city council?
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OperatingBudget
25Steps in the budgetingprocess
An effective budgeting system shouldhave the following characteristics:
1. Important policies and proceduresare explicitly stated, fully docu-mented, and communicated to allnecessary parties.
2. The system is workable and under-standable to both policy-levelpersonnel and operating personnel.
3. The budget structure is compatiblewith the accounting system so thatactual results can be readily com-pared to budgeted amounts.
4. The process is fully documented.
5. Outputs or performance measuresare an integral part of the budget.
Within the framework of an effectivebudgeting system, we have identifiedten steps in the operating budgetpreparation process. Your local govern-ment may combine one or more ofthese into a single step. The steps areprovided for guidance only:
Step 1: Organize the process
Step 2: Departmental requests
Step 3: Revenue estimates
Step 4: Budget review by the budgetofficer / chief executive officer
Step 5: Prepare the draft budgetdocument
Step 6: Council review with depart-ment heads
Step 7: Public hearings on theproposed budget
Step 8: Budget review and approval
Step 9: Amendments, emergencyappropriations and transfers
Step 10: Budget administration
Appendix A provides a managementchecklist for budgeting.
Step 1: Organize the process
The chief executiveofficer, or designatedstaff member, isresponsible fordevelopingbudget tools –a set of rulesand principlesas well as forms and guidelines toregulate budget preparation andimplementation. One of the mostimportant tools is a budget manual.
Budget Manual
To assist department heads in theproper and complete preparation ofbudget requests, the chief executiveofficer or budget officer should providethem with a budget instruction manual.The manual should provide overallpolicies as well as step-by-step instruc-tions for preparing the budget request.
Policies
The budget manual should provide areview of the expected financial situa-tion for the upcoming fiscal year andfurnish department managers withprinciples or financial policies neededto guide budget preparation. Depart-ment managers should be encouragedto use this information to reassess thebenefits of current service activities aswell as justify requirements for anynew and/or expanded services.
Budget Calendar
The budgetmanual alsoincludes a calen-dar or detailedtime/event sched-ule that identifiesdue dates forbudget-related activities. It lists all stepsto be taken during budget preparation,the person or group responsible for eachstep, and the date on which each stepmust be completed. Preparation of thebudget calendar might start with the dateon which the city’s fiscal year begins andwork in reverse from that time, allowingadequate time for each step, and provid-ing for scheduling as fixed by state law.(See sample calendar below.)
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 28 29 30 3127
Training forFinance
Managers
26
Guidelines
Specific guidelines should be providedby the chief executive or budget officerfor how departments are to handleeach of the following:
• Inflation adjustments.
• Mandates for other levels of gov-ernment.
• Labor agreements.
• Service demand, especially anyplanned increases or decreases.
• Population changes.
Evaluation of the1997 budgetImplementationof the 1998budget
Control of the1998 budgetimplementation
Setting up of the1999 budget
January August
Setting up ofthe 1998budget
Approval ofthe 98 budget
Approval of the1999 budget
Evaluation of the1998 budget
Implementationof the 1999budget etc.
December
1997
1988
1999
Budget Calendar
• Workload changes.
• Service standards.
• Social indicators.
• New positions.
• New and expanded programs.
• New revenue sources.
• Unmet needs.
• Non-departmental estimates suchas benefits, pensions, insuranceand debt service.
• •
• •
• •
• •
• •
• •
•
OperatingBudget
27
Time Plan of Budget Preparation for the City of Lucenec for 1996
Responsibility for the taskcompletion
DeadlinesTasks
1. Reviewing the revenue assump-tions
Aug.31,1995 Finance Dept.
Sept.15, 19952. Setting priorities for 1996 Arises from the electionprogram of the Mayor andfrom the development conceptsof the various areas as submit-ted by City Parl. Commissions,Mayor’s General Meeting
3. Analysis of budget implementation Oct.15, 1995 Finance Dept.4. Review of 96 budget concept and
philosophyby Oct.17, 1995by Oct. 23, 1995
Economy Commission of CPOther CP Commissions andMayors General Meeting
6. City Parliament members´ inquiry between Oct.26-Nov. 3, 1996
Finance Dept.
7. List of all suggestions for actionranked according to priorities
Nov. 10, 1996 Finance Dept.
8. Qualification and quantificationof commitments under existingagreements
Nov.11,1995 Finance Dept.Section administrators
Finance Dept.Section administrators
Nov.10, 19959. Qualification and quantificationof commitments to provide fornecessary operation of theMunicipal Office and simplereplacement needs
Section administratorsCP CommissionsChairmen
by Nov.20, 199510. Reviewing of partial suggestions,by sections, by relevant CPCommisions and reviewing ofsuggestions submitted by con-tributory municipal organisations
by Nov. 28, 1996 Finance Dept.11. Setting up of first draft of budgetrevenues and expendituressections by positions
12. Draft budget balance and re-viewing of the specific draft
Finance Dept.CP Economy CommissionMayor’s General Meeting
by Nov. 29, 1996
5. Collection of public commentinput for 1996 budget
by Nov.3, 1995 Finance Dept.
13. Reviewing of draft budget by CPmembers political clubs
Finance Dept.Vice-Mayor
by Dec.1, 1995
14. Submission to City Council ofdraft budget
Dec.7, 1996 Finance Dept.EconomyCommission Chairman
15. Publishing of the 1996 draftbudget
Dec.8, 1995 Finance Dept.
16. Preparation and submission toCity Parliament of draft budget forapproval
Finance Dept.Economy Commission Chair-man
Dec.8, 1995
Training forFinance
Managers
28Forms
Budget forms to be completed, to-gether with examples and necessaryinstructions, should be provided by amunicipality’s budget office. On thefollowing pages are examples of typicalused to forms needed to develop andcompile an annual operating budget.
Basic budgetary forms
These forms are scans of actual formsor are derived from actual budgetforms used by the city of Fort Worth,Texas. They are intended for use assamples and may be modified, asneeded, to meet a city’s particularneeds.
OperatingBudget
29
Det
aile
d s
alar
y sc
hed
ule
The
det
aile
d sa
lary
sch
edul
e pr
ovid
es a
lis
ting
of
the
auth
oriz
ed p
osit
ions
for
eac
h de
cisi
on u
nit.
Info
rmat
ion
is p
rovi
ded
for
each
pos
itio
n, incl
udin
g th
eti
tle,
a k
ey c
ode
and
the
amou
nt o
f m
oney
nee
ded
to b
e bu
dget
ed in
orde
r to
fun
d th
e po
siti
on f
or t
he
next
yea
r. A
sum
mar
y sa
lary
am
ount
for
eac
hde
cisi
on u
nit
is p
rovi
ded.
Training forFinance
Managers
30
Det
aile
d b
udge
t re
qu
est
The
base
budg
et r
eque
st is
the
hear
t of
the
bud
get
subm
itta
l. A
pro
per
budg
et r
eque
st f
orm
pro
vide
s th
ree
year
s ex
pend
iture
his
tory
in d
etai
l, c
urr
ent
year
-to-
date
exp
endi
ture
s an
d th
e cu
rren
t ye
ar a
dopt
ed b
udge
t fi
gure
.
OperatingBudget
31
If y
our
loca
l go
vern
men
t is
usi
ng a
tar
get-
base
d bu
dget
ing
proc
ess,
the
n yo
ur d
epar
tmen
t ha
s be
en p
rovi
ded
wit
h t
he d
epar
tmen
tal ta
rget
am
ount
for
this
budg
et y
ear. D
etai
led
budg
et r
eque
st f
orm
s ar
e co
mpl
eted
for
eac
h de
cisi
on u
nit.
The
sum
of
the
deci
sion
uni
ts s
hou
ld n
ot e
xcee
d th
e to
tal de
part
men
tal
targ
et a
mou
nt.
Training forFinance
Managers
32
Rev
enu
e det
aile
d b
udge
t re
qu
est
Thi
s fo
rm is
used
to
esti
mat
e re
venu
es c
urre
ntly
rec
eive
d by
the
dec
isio
n un
it.
OperatingBudget
33Revenue worksheet form
This form should be prepared for any new revenue account that has been created orrevised during the last fiscal year or will be created for the upcoming budget year.
REVENUE TITLE: FUND:
LEGAL AUTHORIZATION: ACCOUNT:
RESPONSIBLE DEPARTMENT: CENTER:
DESCRIPTION: FORMER ACCOUNT NUMBER:
FEE SCHEDULE:
AUTHORIZED EXEMPTIONS:
PREVIOUS RATES AND FEES:
FACTORS AFFECTING REVENUE COLLECTIONS:
REVENUE COLLECTION HISTORY:
FY ___________________________
FY ___________________________
FY ___________________________
–
–
–
Use additional pages, if necessary
Training forFinance
Managers
34Reduction and improvement decision packages
Program improvement decision package form
This form can be used to identify improvements to current service levels. Informationshould be provided explaining why the city council should fund this program, theaffect the program will have on existing operations of the municipality and how theprogram meets specific service needs.
DEPARTMENT FUND/CENTER
TITLE
DEPARTMENT RANK: of ______ A.P.
PROGRAM IMPROVEMENTFISCAL YEAR 1998-99
YEAR 1 YEAR 2 YEAR 3BUDGET IMPACT FY 1998-99 FY 1999-00 FY 2000-01
Personal Services $ $ $
Supplies
Contractual
Capital
Total Cost $ $ $
DISCUSSION (detail positions, supplies, contractual services and capital outlay requirements)
CONSEQUENCES OF NOT FUNDING
OperatingBudget
35Program reduction decision package
This form can be used to identify programs that could be eliminated with the leastnegative impact to the department if reductions become necessary. Informationshould be provided on the number of positions to be lost, the ramifications of reduc-ing or eliminating the program, as well as the impact on service levels if the reduc-tion is approved. Some local governments require submission of any reductiondecision packages that total five percent or more of the department’s current operat-ing budget.
DEPARTMENT FUND/CENTER
TITLE
DEPARTMENT RANK: of ______ A.P.
PROGRAM REDUCTIONFISCAL YEAR 1998-99
BUDGET IMPACT FY 1998-99
Personal Services $
Supplies
Contractual
Total Cost $
DISCUSSION (detail positions, supplies, contractual services and capital outlay requirements)
Training forFinance
Managers
36
SUPPORTING DETAIL FOR DECISION PACKAGE
KEY CODE PERSONAL SERVICES-POSITIONS A.P. SALARY ANALYSTUSE
ONLY
PERSONAL SERVICES-OTHER
SUBTOTAL
ESTIMATEDCOST
ACCOUNT
SALARIES
GROUP HEALTH INSURANCE
RETIREMENT
MEDICARE
TOTAL-PERSONAL SERVICES
SUPPLIES
TOTAL SUPPLIES
CONTRACTUAL SERVICES
TOTAL-CONTRACTUAL SERVICES
CAPITAL OUTLAY
TOTAL-CAPITAL OUTLAY
TOTAL/NET COST
ANNUAL COST (if different from total cost)
TOTAL SAVINGS
This form can be used to provide support for program reductions or program im-provements.
OperatingBudget
37Capital outlay request form
A capital outlay request form is required for every item that has a unit cost of $1,000or more and a useful life of at least three years. (Note: different local governmentswill use different dollar amounts and/or useful lives.)
Training forFinance
Managers
38Departmental objectives and measures form
Departmental objectives and measures provide the city council and citizens withpertinent information regarding the department’s purpose, goals, and progresstowards achieving stated objectives. Objectives and measures form the basis for adepartment’s operations and are the yardstick against which the department’s ser-vices are measured. All objectives and measures must be quantifiable and mustrepresent goals that are achievable if the council adopts a department’s base budgetrequest.
DEPARTMENT
DEPARTMENTAL OBJECTIVES AND MEASURES
DEPARTMENT PURPOSE
1998-99 DEPARTMENTAL OBJECTIVES
DEPARTMENT MEASURES ACTUAL1996-97
ESTIMATED1996-97
PROJECTED1998-99
OperatingBudget
39Departmental objectives and measuresshould include information such as theprimary purpose of the departmentconsidering:
• What is the department’s majorcontribution to city operations?
• Why does the department exist as aseparate entity?
• What is unique about thedepartment’s responsibilities?
• What role does the department playin providing services to the public?
• What is the primary reason for thedepartment’s existence?
• What is the department’s overallobjective, the common aim of alldivisions and centers (sub-depart-ments)?
Objectives should focus on presentingthe department’s basic work plan forthe upcoming fiscal year.
• Effectiveness objectives—demon-strate how well the departmentperforms or implements a service,program, or department function inrelation to those who benefit fromthe service.
• Efficiency objectives—illustrate thecost and service-level parametersfor particular departmental activi-ties or functions.
• Workload objectives—demonstratethe amount of work completedwithin a specific period of time.
Ensure that objectives are:
• Consistent with departmentalresponsibilities,
• Achievable within base budgetrequest,
• Specific, quantifiable, and measur-able,
• Challenging and progressive.
At least one objective should be devel-oped for each division (sub-depart-ment) or decision unit in a department.
Objectives should be listed in descend-ing order with the highest priorityobjectives first.
Department measures indicate theprogress the department is making inachieving stated objectives.
• Develop at least one performancemeasure for each objective; how-ever, an objective may have mul-tiple performance measures.
• Quantify each performance mea-sure; for example, a percentage orratio, numerical quantity, or dollaramount.
Training forFinance
Managers
40Policy issues form
Policy issues generally describe programs or services that require review, direction,and/or approval by the council. For the most part, policy issues have city-wideapplication and often include current or future near budget implications.
DEPARTMENT:
POLICY ISSUES
OperatingBudget
41Grant summary form
This form should be completed for each grant a department anticipates receivingduring the upcoming budget year.
GRANT DESCRIPTION
GRANT TITLE DEPARTMENT
Grant Performance Measures Estimated Projected
FUNDING AGENCY (IES)
TIME PERIOD OF GRANT
FROM TO
RESOURCE ALLOCATION
Actual
Non-DepartmentalCash Match
CityRequired
Bonds
FiscalYear
TotalCost
FundingAgency
Contribution
DepartmentIn-KindMatch
Training forFinance
Managers
42Training
Training, based on the budgetmanual, should be provided eachyear to prepare staff for efficienthandling of the budget preparationprocess.
ReflectionRecall for a minute the budget preparation process used by your local govern-ment – the policies, procedures, scheduling, forms, training, etc.
What do you consider the best features of the process currently in use? Describethese features below.
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What aspect or aspects of your process are most in need of improvement? What,in your opinion, needs to be done?
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OperatingBudget
43Step 2: Departmental requests
The staff ofeach depart-ment shouldcomplete thebudget formscontained inthe budgetmanual.Forms shouldbe submittedto the budgetoffice inaccordancewith thebudget calendar. The following aresome questions for the departmentaldirector to consider when preparingbudget requests.
1. Does the base budget allow thedepartment to continue providingservices at the current level?
2. Does the proposed service leveljustify the budget request?
3. Are resources being put to the bestuse, or can money be used betterin another program?
4. Are the department’s objectivesworthwhile?
5. Is the best approach being taken toachieve the objectives?
6. Is there adequate funding for theservice level proposed?
7. Will spending more on the servicenext year save money in the longrun?
Public Works Department
Public lighting
Public streetsmaintenance
Street cleaning
Public parks
8. Can costs be reduced by perform-ing existing services in moreefficient ways?
9. Is the department organized so asto prevent duplication of work?
10. Have price changes, inflation,salary increases, etc., been takeninto account?
11. Do the proposed capital outlayrequests coincide with the long-range objectives of the municipal-ity?
12. If there isn’t enough money to fundall services, which should beeliminated first?
13. Is the budget too conservative, or isit heavily padded?
14. Is this the right time to attempt toraise additional revenues, changeuser fees or introduce new revenuesources?
Department heads should be given theopportunity to request all the resources(personnel, materials, and equipment)they feel are needed to perform theservices desired by citizens. Decisionpackages for program improvementprovide this opportunity. Obviously,there will never be enough money tomeet all the requests. However, theneeds might never be expressed unlessthe department head is given theopportunity to fully explain them.Besides, if department heads are notgiven the opportunity, they may feellittle or no responsibility for the budgetplan approved by the council.
Training forFinance
Managers
44Step 3: Revenue estimates
The experience of pastyears is a widely usedmethod for estimat-ing revenues. Theamount of revenuescollected from agiven source for afive-year periodprovide a goodstarting pointfor estimating revenues. Five years’data show performance for severalyears, revealing seasonal fluctuationsand extraordinary changes. These dataprovide a reliable picture of normalgrowth in a revenue source. Otherconsiderations should be taken intoaccount besides historical data. Thenature of primary business activity inthe community also should be consid-ered. A municipality that relies prima-rily on tourism for income shouldconsider the prospect for travel orconventions in the coming year.Heavily industrialized cities shouldconsult local business indices. Smalltowns dominated by one manufactur-ing concern or one major industryshould contact the company andinquire about projected sales for thecoming year, anticipated expansions orcut-backs that might affect employ-ment, etc. Bankers are also a goodsource for information about the localeconomy. Another handbook in thisseries, Financial Planning, providesinformation on trend monitoring aswell as other revenue estimatingtechniques.
The finance or budget departmentusually develops revenue estimates.Also, if a revenue source is specific to adepartment, the department may berequested to provide estimates.
New revenue sources
Local governments are constantlylooking for new sources of revenue.The following checklist provides a wayto evaluate your municipality’s processfor identifying new revenue sources:
___ Is the municipality (or key employ-ees) a member of professionalassociations that inform their mem-bership of new revenue sources forspecific or general purposes?
___ Is one employee responsible forreview of professional and techni-cal publications in the governmentsector that provide information oninnovative examples of revenuesources used by other cities?
___ Does the municipality maintain aninventory of revenues that it islegally permitted to collect?
___ Does the municipality maintainclose liaison with key officials inhigher levels of government for thepurpose of obtaining additionalrevenues or for obtaining informa-tion on potential sources of funds?
___ Does the municipality periodicallydetermine that fees and servicecharges are adequate to cover thecosts of providing the service?
___ Does the municipality compare itsuser fees and rates with other,comparable cities?
___ Does the municipality use theservices of professional municipalfinance advisors in identifyingpotential revenue sources?
___ Does the municipality maintainhistorical data on general fundrevenues for at least five years?
___ Does the municipality use this datato help forecast general fundrevenues by examining trends andpatterns?
___ Does the municipality maintaincontact with sources such asbanks, local industry, and plannersfor the purpose of obtaining infor-mation on economic projections forthe local economy?
___ Does the municipality perform ananalysis of potential revenuesversus the additional costs whenmaking annexation decisions?
OperatingBudget
45Step 4: Budget review by the
budget office/chiefexecutive officer
The information provided by depart-ments on standardized forms providesa basis from which evaluation andassimilation can begin. Careful investi-gation of each department’s basebudget request by budget analysts(budget office staff) and the budgetofficer, along with a review of rankingforms, will give a better idea of thevalidity of the requests and provide aless biased view of the importance ofeach request. When target-basedbudgeting is used in conjunction withdecision packages, department headshave a more direct influence on prioritysetting than in the past when thebudget office ranked the proposedchanges in service.
Technical review
Each department’s request should bereviewed by the assigned budgetanalyst for numerical accuracy andcompleteness. The budget office maychoose to provide a checklist fordepartments to ensure that all neces-sary forms and supporting materialsare turned in on time.
Program review
Each program request should bereviewed to ensure that the currentlevels of service are still providedwithin the base budget. Also availableshould be service goals, objectives, andperformance measures that ensure thecurrent level of service is maintained,.
Revenue review
If target-based budgeting is used,revenues were established early in theprocess so that departments wouldhave target amounts on which to basetheir budget requests. Regardless of thebudgeting method in use, each revenue
source or category of revenue sourcesshould be reviewed again, at this pointin the process, for numerical accuracyand reasonableness.
Departmental hearings
Consultations with department headsafter departmental requests have beensubmitted can be valuable in getting abetter idea of the nature of the re-quests. A meeting with the individualdepartment heads can help clarify theoverall requests of each departmentand thus aid the budget officer / chiefexecutive officer in making decisions orrecommendations.
If the budget officer is not thechief executive officer
After careful consideration of each ofthe departmental requests, the budgetofficer is ready to confer with the chiefexecutive officer. The budget officershould have recommendations pre-pared for balancing the proposedexpenditures to the estimated revenues.Whether this means finding additionalfunds or trimming the requests, thebudget officer should be prepared tomake and defend his or her recommen-dations.
Conferences with the chiefexecutive officer
If the chief executive chooses to do so,department heads may have an oppor-tunity to meet and explain their bud-gets. In larger cities, department headsmay meet with assistant city managersor the deputy administrative officialprior to meeting with the chief execu-tive officer. At the conclusion of all ofthese conferences, the budget officerdevelops a summary of the draftbudget, as it then stands, and conferswith the chief executive.
In choosing which services will berecommended to the council, the chiefexecutive officer must do more thanmerely consider the cost of the ser-vices. He/she must weigh the pros andcons of each, consider the requests ofthe department heads and the recom-mendations of the budget officer, anddecide on an overall program of mu-nicipal services that will be of greatest
Training forFinance
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46benefit to the citizens. The chiefexecutive officer is the key person inrecommending municipal priorities forthe coming year. It is this official whoshould make all final decisions aboutthe magnitude and specifics of theproposed budget to be submitted to thegoverning body.
Review by the chief executiveofficer
The following questions a very similarto those suggested for use by thedepartment head when preparing thebudget request. As the chief executiveofficer prepares for recommending adraft budget to the city council, thefollowing factors should be considered:
1. Does the proposed service leveljustify the budget request? Couldthe money be put to better useelsewhere?
2. Are the objectives of the serviceworthwhile? Is the best approachbeing taken to achieve the objec-tives? Is there adequate financingfor the service level proposed?
3. Will spending more on the servicenext year save money in the longrun?
4. Can doing existing services in waysthat are more efficient reducecosts?
5. Is each department organized toprevent duplication of work?
6. Have price changes been taken intoaccount?
7. Do the proposed capital outlayplans of the department go alongwith the long-range objectives ofthe municipality?
8. If there isn’t enough money to fundall services, which can be elimi-nated first?
9. What is the general budgetaryapproach of each department head?Is one too conservative whileanother overly extravagant?
10. Are the estimated revenues suffi-cient to meet long-term needs? Isthis the right time to attempt toraise additional revenues?
OperatingBudget
47Step 5: Preparing the draft
budget document
The ideal budget should provide apicture of both the work to be per-formed in the coming year and thefinancial program which will enablethis work to be carried out. The budgetshould be easy to read, simple enoughfor ordinary citizens to understand, yetcomplete enough to satisfy the needs offinancial experts. Budget documentsvary widely in style and content.Appendix B contains hints for budgetlayout. But, good budgets have anumber of characteristics in common.They: (1) meet basic legal require-ments; (2) include all the necessarycomponents; (3) focus on informationessential to decision making; and, (4)present information in a clear andaccessible way.
Legal requirements
Above all, a budget document mustconform to the law. A local government’scharter may include detailed budgetprovisions, requiring, for example, theuse of a line-item format.
Some state governments requireparticular financial information in thebudget and may even provide theforms on which the budgets are to befilled out. Fortunately, requirementsincluded in state laws have servedprimarily as a minimum for budgetdocuments. Once they have compliedwith state law, local governments aregenerally free to set up more sophisti-cated budgeting systems if they wish.
Necessary components
A good budget document must includeall the requisite components. Not everybudget document will have every
component, but most good budgetscontain the following:
Budget message or transmittalletter
A budget typically begins with abudget message or a letter of transmit-tal. A budget message, usually a longdocument, outlines the proposedbudget for the city council. The budgetmessage usually includes:
• A summary of the government’sfinancial status;
• A list of policies reflected in thecurrent budget;
• A list of major accomplishmentsachieved during the past year;
• The overall size of the proposedbudget accompanied by the taxlevel necessary to pay for it; and,
• If the budget contains cutbacks, adescription of and rationale for thecuts.
By contrast, a letter of transmittal maybe brief and formal:
“I herewith transmit the budget pro-posal for fiscal year 1999 to the citycouncil. The total budget is$15,234,670. The property tax levy willbe $3,245,000.”
Even a brief transmittal letter usuallyincludes the size of the proposedbudget and the tax rate, but it maycontain little more. If the mayor writesa brief transmittal letter, the budgetdirector may write a budget messagedescribing the important elements ofthe proposal.
Appendix C has a checklist for thebudget transmittal letter.
Table of contents
The table of contents follows thebudget message or transmittal letter. Itshould divide the budget documentinto main sections. These mightinclude, for example, an overview offinancial conditions, revenues, andexpenditures by fund, expendituredetails by department, capital projects,
ProposedBudget
Training forFinance
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48
“Budget in brief”Many local governments have developed a short version of their budget to handout to citizens and the press. If the budget is long, multi-volume, and difficult tounderstand, then such a summary may have a number of advantages: First, givingaway multiple copies of the budget-in-brief is less expensive than distributing thewhole budget. Second, it is always easier to speak to one audience than to mul-tiple audiences, and the intended audience for the budget summary is clear. Athird advantage of such a publication is that it can be lighter in tone, with lots ofgraphics, but without giving the impression that officials do not take governingseriously.
debt repayment plans, personnel detail,and glossary.
Introduction
The introduction sets the context forthe rest of the budget. It may list goalstatements and describe both thebudget process and the policies thatshaped the budget. If the local govern-ment uses a target-based or zero-basebudget, the results may be summarizedor laid out in detail.
Summary tables
The budget should include at least twosummary tables:
• One that shows total revenues andexpenditures for each fund,
• A second that provides projectedrevenues by source and expendi-tures by department for the generalfund.
A similar table providing revenues bysource and expenditures by departmentcan be included for each fund otherthan the general fund. If information isnot included here, it should be in-cluded later in the budget.
Expenditure details
The next section of the budget usuallypresents detailed information onproposed expenditures. The informa-tion is presented by department, byprogram, or by both department andprogram. Information usually includes:
• historical data comparing prioryears’ proposed and actual spend-ing,
• proposed and estimated spendingfor the current year compared withthe budget request for the nextbudget year.
Personnel summaries by departmentand program can be included here, ascan descriptions of performance goals,prior year’s accomplishments, andexplanations for changes from year toyear. The departments’ explanationsfor year-to-year changes are oftencalled “budget highlights.”
Capital outlays and debt
This section should include a descrip-tion of debt and debt repaymentschedules and a summary of majorprojects planned for the budget year.The detailed description of specificprojects may be presented as anappendix or as a separate document.
Supporting material
The budget may include supporting orexplanatory material of various types—for example, a detailed position classifi-cation (this may be mandated by law),a glossary, an index. Some localgovernments include a brief statisticalsection listing the number of lane-milesof streets, fire, and police stations,squad cars, books in the library, andmovie theaters and restaurants. Thestatistical section may also includedemographic data as general back-ground for policy making. Given theirpolitical sensitivity, performancereports are often presented in a sepa-rate volume so that circulation will belimited.
OperatingBudget
49Selecting and displayinginformation
Budget design
The physical appearance of the budgetaffects whether people will read it andwhat they will gain from it. The designof the budget is an important factor inits overall quality. In fact, poor design—confusing charts, page after crowdedpage of unbroken text—may ultimatelyinterfere with the role of the budget inproviding governmental accountability.It is not enough for information to bepresent in the budget, it must also beaccessible.
Layout of the budget document
Since layout of the budget has a strongimpact on the understandability andtransparency, it represents an importantelement of the budget document. Basicrules that may help to improve thereadability of the budget documentinclude:
• Alternating text with graphs,illustrations, tables, schedules andmaps,
• Wide margins and spaces in thetext; crowded pages reduce thegeneral overview,
• A simple style,
• Use of illustrations for crucialpoints,
• Coordination of text and graphics.
Three reasons for using graphics• Graphics can be used to capture
the essence of a point and makeit quickly and dramatically. Forexample, a bar chart showing theproperty tax yield and the totaltax yield over time enablesreaders to grasp the relationshipat a glance. (If charts and graphsrequire a great deal of scrutiny tobe understood, they probablyshould be simplified.)
• Graphics make it easier forreaders to find their way aroundwhat can be a large and confus-ing document. Pages (or pageseparators) of different colors canbe used to distinguish betweenvarious sections of the budget;sketches on divider pages canalso be used to indicate thecontents of each section.
• Graphics increase visual diversity,which makes the budget easier toread. The particular choice ofillustrations can also help rein-force for readers the budget’scentral focus: the delivery of localgovernment services. A sketch ofa snowplow in action can drama-tize the work of city hall; a sketchof a visiting nurse caring for anelderly woman can bring homethe connection between publichealth expenditures and everydaylife.
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50
ReflectionHow satisfied are you with the contents and layout of your local government’soperating budget? What one or two changes do you feel are most needed? Youmight use the space below to describe these.
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OperatingBudget
51Step 6: Council review with
department heads
The chief executive officer’s budgetshould bedistributedto eachcouncilmember atleast oneweekbefore themeetingwhen thecouncilwill firstconsider the proposed budget. Thisgives each member a chance to becomefamiliar with the contents and natureof the budget before being called uponto make comments or to ask questions.
Many local governments have citycouncil work sessions at which depart-ments make budget presentations tothe council and answer questions.Citizens can attend these sessions, butthey are designed primarily to givecouncil members an opportunity to askquestions of department heads in a lessformal setting.
Step 7: Public hearings on theproposed budget
Legal requirements
Most local governments have a legalobligation to create conditions forcitizen input into the budgeting process.Some municipalities do nothing morethan hold the legally required budgethearing. At that time, citizens areallowed to comment and ask questionsabout the proposed operating budget.Other municipalities go to great lengthsto publicize the operating budget.
Press releases, presentations,forums
In some communities, after the budgetproposal has been made final, the chiefexecutive and the budget directorpresent the budget to citizens byholding press conferences and makingpresentations to civic organizationsand neighborhood groups. Somemunicipalities solicit citizens’ viewsbefore formulating the budget andcirculate the budget proposal widelyafter it has been assembled.
Other local governments take a differ-ent approach when taking their budgetproposals to the community. Councilmembers may have forums in theirdistricts throughout the year. When theproposed budget is ready, councilmembers may use these forums to givecitizens’ a chance to respond to theproposals.
Another handbook in this series,Citizen Participation, goes into greatdetail on ways to involve citizens inthe operating budget process.
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ReflectionIn what ways do you believe that your local government could benefit by greaterinvolvement of citizens in the budget process? What are the most successfulthings you are already doing to involve citizens? What more are you consideringor might you consider?
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OperatingBudget
53Step 8: Budget review and
approval
After the public budget meetings, thechief executive officer and the govern-ing body must prepare a final budgetfor the coming year. Responsibility forthe budget now passes from the chiefexecutive officer to members of the citycouncil. Their action will determine thefinal form of the operating budget.
While reviewing the proposed budget,the governing body should be perform-ing a number of functions beyondthose of “broad policy determination”which is so frequently emphasized asthe major role of the council. Specifi-cally, council review should accom-plish the following:
1. Increased council understanding ofcurrent policies and service levels,and an improved capacity forcomparing them with proposedchanges in policy or service levels.
2. An opportunity for general over-sight of administrator performancethus enabling councilor to reachbetter informed conclusions aboutthe competence of administrators.
3. Create the conditions for expansionof community understanding ofmunicipal activities and perfor-mance.
4. Permit citizens to voice their viewsregarding proposed service levels.
5. Insight by council members intospecific weaknesses in the budgetthat may not have been identifiedby the chief executive officer.
6. Establish policies and service levelsfor the following year consistentwith both revenues and expendi-tures.
Governing body consideration of theproposed budget should not be aroutine procedure of ratifying what thechief executive officer has recom-mended. It should be a serious consid-eration of the services to be providedby the municipality in the coming year.In considering the budget, a governingofficial should ask:
1. Does it provide properly for theneeds of the community?
2. Have adequate plans been made toensure that monies are to achievethe best possible services forcitizens?
3. Are revenue estimates reasonable?Are expenditure requests adequatefor the service levels proposed?Have all the costs been considered?
4. Will the budget, in its presentform, provide the services desiredby the community?
5. Have long-range plans been ad-hered to?
6. Will the proposed budget beconsistent with established policyand past governing body action?
A well-written and well-documentedbudget will answer most of thesequestions. If it does not, the councilshould request further explanations orsupporting documentation.
The governing body will then makewhatever changes it believes arenecessary and formally approves thebudget by adopting one or moreappropriation laws, or ordinances. Thisaction gives the chief executive and hisor her designees the legal authority tomake financial obligations. So, anappropriation does not grant depart-ments money. Rather, it grants thembudget authority—authority to enterinto binding agreements, such ascontracts and purchase orders, that willresult in the disbursement (payment)of money. Most Western democraciesrequire some sort of legislative, govern-ing body or council approval before theexecutive (or any other branch ofgovernment) may make financialcommitments.
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54
ReflectionHow would you describe the budget review process as practiced by your citycouncil? If is perfunctory in nature or an educational opportunity for councilmembers? Use the space below to enter your observations.
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OperatingBudget
55Step 9: Appropriations,
amendments, and transfers
Length of appropriations
Most appropriations granted by a citycouncil are for one year. So, at the endof the fiscal year, any unused budgetfunds or expenditure authority lapses—“use it or lose it”—meaning that thefunds cannot be redirected to otherpriorities in the following year’s bud-get. Thus, program managers closelymonitor their available spendingauthority (budget funds) to ensure thatall appropriated funds are obligatedbefore the end of the fiscal year.
Multiyear appropriations typically givedepartments or grant recipients budgetauthority for two or three years.Multiyear appropriations allow pro-gram managers more latitude forplanning and enable them to makelonger-term commitments to suppliersand contractors. Some local govern-ments approve their capital budgets onthis basis. Doing so enables projectmanagers to enter into contracts thatwill run for the duration of a construc-tion project.
Budget amendments,supplemental appropriations,unappropriated surplus
The budget amendment (also called asupplemental appropriation) is aformal process requiring legislativeapproval. When amendments aremade, any changes are incorporatedretroactively into the legally adoptedbudget. Budget amendments may occurin cases of emergency, such as a fire,water or flood damage to park facili-ties, adding funds (appropriated) to thedepartmental budget so that repairscan be made. The budget also can beformally amended to account forrevenues that are lower or higher thananticipated.
Many state laws allow, and municipalpolicy may permit supplementalappropriations or budget amendmentsafter some percentage (e.g., 90%, 95%,100%) of the total budgeted revenuesfor any fund have been collected. Othercities do not appropriate 100% of
budgeted revenues, thus retaining anunappropriated surplus. Supplementalappropriations can also be made fromthese funds.
During the final quarter of the fiscalyear, revised estimates are usuallymade of the anticipated closing statusof the unappropriated surplus account.A close watch is essential if appropria-tions from this account have beenproposed or enacted for the next year.
Transfers
Transfers at the local level are of twotypes:
Budget transfers
Budget transfers may constitute areimbursement for services, such as thepolice department paying centralsupply for rental of a photocopymachine. Typically, a department headcan initiate this type of transfer on hisor her own authority, usually with aninterdepartmental order.
Inter fund transfers
The second type of transfer occursbetween funds—for example, from awater fund to the general fund. Sincelocal governments are forbidden to rundeficits, legal transfers from a fundrunning a surplus to one with a deficitmay be important in balancing thebudget. Such transfers often havepolicy implications that require councilreview and approval. Because interfundtransfers are sometimes abused, somestate laws either forbid them or requirethat they receive council approval.Transfers out of earmarked funds aretightly controlled as a rule to preventthe money being spent for a purposeother than specified by law.
Training forFinance
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56
Bill
Revenue Manual
There are four main reasons for budget administration and control. These are to:
1. Provide an orderly means for the achievement of approved, annual levels ofexpenditure for a service.
2. Assure that no expenditures are undertaken unless they have been authorized.
3. Manage prudently the resources of the local government as required to achieve agiven service level for the current budget year.
4. Provide for an accounting, at appropriate intervals, of the manner in whichaccountability for the use of entrusted resources is being managed.
Step 10: Budget administration
Administration of the adopted budgetrequires a complex mix of leadership,shared responsibility, operationaldirectives, controls, new and adjustedplanning and programming, andfrequent reviews and reappraisals.Administration of the approved budgetvaries widely from one local govern-ment to another. In some organiza-tions, administration amounts to littlemore than establishing budgetaryaccounts and recording expenditures asthey are processed for payment. Inothers, management controls are inplace that involve the establishment ofprocedures that require, for example,management approval before personnelvacancies are filled and before largeexpenditures are made.
Program budgeting and performancebudgeting, if properly used, haveintroduced further devices for budgetadministration. These kinds of budgetsset goals and establish work programs.The council can attempt to hold thechief executive officer and departmentheads accountable for these productionor performance targets. Likewise, thechief executive can measure depart-mental operations on a performancebasis, and heads of departments can,in turn, fix responsibility for perfor-mance by their subordinates.
Under the older, more conventional typeof budget control, the question asked bythe governing body is: “Has manage-ment lived within the dollar limits set?”Under the newer, more progressive typeof budget control, the questions are morelikely to be: “Did management performas promised?” “Was performance withinthe cost standards laid down?” There is,of course, no reason to say that one typeof budget control is inherently betterthan the other. Rather, the adequacy ofthe system in use is measurable only byits ability to achieve the goal of deliver-ing public services at a reasonable cost.
Departmental responsibilities
Responsibility for budget control isprimarily at the department level.Departments must provide the servicesthat have been authorized. They holdthe key to success or failure in achiev-ing the objectives laid out in the budgetrequests approved by the council.
Budget office responsibilities
City budgets, generally, are revenuedriven—meaning that the amount ofspending approved in the budget mustbe less than or equal to expectedrevenue. The budget office tries toestimate revenues as accurately aspossible. Of course, the exact amountand timing of revenues cannot beknown in advance. Therefore, actualspending must be monitored andmatched to the revenues as they comein. If actual revenues turn out to behigher than budgeted, the budget canbe amended or set aside in the unap-propriated surplus of the fund balance.If revenues fall short of budget esti-
OperatingBudget
57Tools of the budget office
There are a number of controls the budget office can use to ensure that expenditures do not exceedrevenues.
Position controlThe approved budget usually details the number and level of positions authorized for eachdepartment. Since as much as 80% percent of the expenditures for general governmentoperations (e.g., public safety, health, and recreation) can be for personnel-related costs, thisis an essential cost category to monitor. As a way of monitoring expenditures, the budgetoffice reviews and approves all requests for new hires, to fill vacant positions, or to reclassifyexisting positions. This is a very powerful cost control tool. Position control is especiallyimportant when revenues are not coming in as planned. Positions are sometimes “frozen” tocurtail spending. Even though the adopted budget might grant approval to hire an additionalperson, or to fill an unfilled position, the budget office may delay the hiring on the groundsthat money is not currently available. The budget office must always balance the permissiongiven in the adopted budget against actual funding availability, with the latter taking priority.
Salary savingsTo create a small amount of savings for reallocation during the year, budget offices sometimeshold up permission to hire even when the money is available. This creates some flexibility andallows adaptations during the year. Such funds can also be reallocated by the council to meetan unexpected political need. Departments may also choose to temporarily not fill a positionso that “salary savings” can be used for another purpose such as a capital purchase notapproved in the budget.
Capital outlayEven though the purchase of capital outlay has been approved in the adopted budget, thebudget office still may ask to review and approve the purchase before funds are actuallycommitted. If revenue shortfalls occur, capital outlays may be delayed for either a short periodor indefinitely.
Allotments or allocationsSome cities have found it advantageous to establish an allotment system under which expendi-ture estimates for the fiscal year are broken down into shorter time spans, usually quarterly ormonthly. The allotment system, when established properly, provides a check on expendituresand avoids year-end deficits without the prior knowledge and approval of the city council. Forexample, the total budgetary appropriation for motor fuel for the police department may bedivided into four equal allotments. The allotment should be sufficient to purchase fuel forthree months. The police budget is then monitored during the three months to ensure that theallotment is not exceeded. In more sophisticated budget systems, allotments can be used tohold department heads responsible for the work actually performed in relation to planned. Ifthe workload measures do not indicate that the work is occurring in proportion to the expendi-tures made to-date, then the chief executive officer or budget officer may choose to makefunds for the remainder of the year available on an allotment basis.
Encumbrance controlsAnother device that helps prevent departmental overspending is a system of encumbrances.An encumbrance is a way of “setting aside” part of a department’s budget that has not yetbeen spent (expenditure) but that is obligated. Accounting systems in United States citiesdivide a department’s budget into three general categories: one in which funds have beenspent (expenditures); one that is set aside (encumbered) to pay for items that have beenordered but not yet received (or billed); and, one that is available (unencumbered) forexpenditure. Each time a purchase order or contract is entered into the accounting system,funding is shifted from the unencumbered to the encumbered column from which bills arepaid. Once the unencumbered portion is reduced to zero, no further spending will be ap-proved.
RescissionsWhen it becomes clear that revenues are not keeping pace with projections, something mustbe done quickly so that the government can end the budget year in the black. Since there isnot enough time to mobilize support for, pass, and implement a tax increase, the only realisticoption is a spending reduction. Rescissions may be handled formally through a council-approved budget reduction amendment or informally through a reduction of available depart-mental balances in the accounting system.
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Governing body responsibility
The governing body’s most directmeans of maintaining control over thebudget is through the level of detail inthe appropriation ordinance. At thelocal level, the appropriation ordinancemay specify a lump-sum amount ofbudget authority for each department,or the budgetary authority may be at afund level.
To carry out their fiduciary responsibili-ties, city council members must reviewthe periodic budgetary and perfor-mance reports to ensure that the budgetis being administered as adopted.
Reports for council
The monthly accounting report enablesthe budget office to monitor the budgetstatus of each department—and of eachline-item appropriation within thedepartment—and to identify potentialareas of concern. This information maythen be summarized to show the
Checklist for accounting reports___ Do you receive a monthly financial
report of actual expenditures foryour departments(s)?
___ Is the report timely?
___ Is the report accurate?
___ Is the report useful and meaningful?
___ Does the report indicate preciselywhere the department standsrelative to the adopted budget?
___ Does the report show encum-brances accurately?
mates, the city must reduce spendingor use some of the unappropriatedsurplus from the fund balance to coverthe gap. The budget has to be imple-mented more or less as passed, andbalance has to be maintained.
Accounting office responsibility
Accountants play a major role inbudget administration. Budgetaryaccounting supplies the control mecha-nism for enforcing allotment andappropriation limits, namely encum-brance accounting and periodic inter-nal budget reports. Cost accounting, oradaptations of financial accountingwhich produce cost figures, plusstatistical reporting, permit the produc-tion of work unit costs and comparisonwith performance and cost standards.Project budgets for construction, workschedules, cost centers, performancestandards, standard costs per workunit, and reports all constitute theaccountant’s stock-in-trade.
Accounting reports provided on amonthly basis are a must for anyeffective fiscal control system. Keypersonnel in the departments must bekept informed of their available bal-ances in order for them keep expendi-tures within authorized limits. By thesame token, the city council must havereports of both revenues and expendi-tures in order to effectively govern andguide the municipality. The detail andfrequency of these reports must be
tailored to the needs and capabilities ofeach municipality. However, it issuggested that these reports be donemonthly.
Chief executive officerresponsibility
The chief executive officer also has aresponsibility for control. If any of thedepartments does not produce theservices that have been promised, thenboth the department and the chiefexecutive officer have failed.
It is essential that the chief executiveofficer have in force a number ofprocedures to help ensure that:
1. The promised level of service isachieved.
2. The service level is achieved withinthe dollars approved by the govern-ing body (expenditure projections).
3. Any significant deviations from theoriginal plans upon which theadopted budget was based areprevented or called to the chiefexecutive officer’s attention at theearliest time.
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59proportion of the year that has elapsedand the proportion of the total budgetthat has been expended. The summa-rized information should be providedto the council.
If 55 percent of the budgeted total hasbeen spent or committed by the sixthmonth of the fiscal year, that figuremay or may not represent a problem,depending on the department’s sea-sonal spending patterns. If expendi-tures should be relatively constantthroughout the year, the expectationwould be that about 50 percent of thebudget would have been spent halfwaythrough the year
If the expenditure and revenue reportssuggest that revenues are fallingseriously short and are not being madeup by unexpected increases in revenuesfrom other sources, the budget officeshould recommend corrective action.
Alternatively, monthly budgetaryinformation can be summarizedgraphically to give council members apictorial representation of the trends inactual revenues and expenditures. Or, aone-line-per-department summary byfund showing the status of revenues,expenditures, and encumbrances maybe provided.
Performance reports
Just as the financial situation should bereported, so also, should performanceor work statistics be reported periodi-cally. The council and the citizensdeserve to know what is being accom-plished with the expenditure of publicfunds.
Budget reserves
Budget reserves are an essential part ofa local government’s budget controlstrategy. There are different kinds ofreserves. These range from veryinformal to “council-adopted” formal.Examples of informal budget reservesare: (1) gradually releasing fundsdesignated for other purposes (e.g.,snowplowing); or, holding backcommitments for a short time (e.g.,delay awarding a contract for a renova-tion project). Salary savings—thefunds that become available when aposition is vacated and not filledimmediately or when a senior personquits or retires and another person ishired at a lower salary—are anothersource of reserves. Others, sometimescalled “rainy day” funds, are formallyestablished to protect against emergen-cies, to satisfy the requirements ofbond-rating companies, or to copewith an uneven flow of revenue.
The formal kind of budget reserve maybe an account or fund set up explicitlyto deal with unexpected events. Thesereserves may be located in the budgetof each major department, centralizedunder the chief executive officer, putin a segregated portion of the generalfund balance, or established as aseparate fund.
Size of reserves
What is the appropriate size forreserves? For U.S. cities, the mostinfluential guidance comes from bondrating firms, which use a “rule ofthumb” of at least 5 percent of annualoperating expenditures. Others viewfrom thirty to ninety days of operatingexpenditures as an acceptable level forreserves.
Perhaps one of the best criteria is theinstability of a local government’srevenue base—the more unstable thebase, the larger its reserves should be.For example, local governments thatrely on revenues such as sales andexcise taxes should maintain a higherlevel of reserves to compensate forfluctuation in the amount of revenuethese sources produce.
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60Performance audits andthe operating budget
Performance audits address elusive-type ques-tions, suchas why themoney wasspent, whatresults wereachieved,andwhether acity’sprograms could be more economicallyand efficiently run.
Some of the questions an auditor willconsider in assessing management’sperformance include:
• Have the goals of the previousyear(s) been achieved?
• Have standards for measuring thedegree of goal accomplishmentbeen sharpened?
• Has management abandonedobsolete goals, organizationalstructure, and activities?
• Were alternative means considered,tested, and evaluated?
• Are necessary management analyti-cal techniques in use? Can they beimproved?
Annual financial auditsand the operating budget
Financial and compliance audits areconcerned mainly with the questions ofhow much was spent and whether thespending was in conformity with laws.In the United States, an independentaudit is legally required for most cities.
Departmental use of audits
Some of the information in the compre-hensive annual financial report (CAFR)may be of interest to department headsand program managers. For example,for each fund, the CAFR presents thebeginning balance, revenues, expendi-tures, total transfers in and out, andthe end-of-year fund balance. This part
Elected officials need to decidewhether to create separate reservefunds, set up reserve accounts withinexisting funds, or both. A separate fundis more visible and thus more likely toattract the attention of both citizensand the council. Citizens may want toknow why a government is building asurplus instead of reducing taxes.Council members may want to use themoney for a more politically attractivepurpose. The advantage of creating aseparate fund, however, is that thepurpose and the procedures for usingthe resources can be explicitly definedin law.
Reasons why citiesestablish reserves
• Providing a cushion against the upsand down of revenues, such as theuneven flow of tax revenues,
• Money for adverse court decisionsinvolving cash settlements,
• Natural or technological disasters,
• Unanticipated delays in receivingstate or federal aid,
• Need to accumulate sufficientfunds to replace a building or alarge piece of equipment.
• To ensure the timely payment ofdebt service (principal and inter-est). Bond-rating agencies placeconsiderable emphasis on debtrepayment reserves. Local govern-ments that fail to maintain suchreserves are given lower bondratings.
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What a financial audit offersWhat are the specific advantages afinancial audit offers to those whomust make the day-to-day decisionsabout directing the course of amunicipality’s finances and to thosewhose lives are most affected by thesedecisions? How does an audit providethese advantages?
• Verifies the key information onwhich certain decisions should bebased—council as well as adminis-trative.
• Establishes ways to ensure that thisinformation is placed in properperspective and made available, inthe most helpful form.
• Reveals weaknesses in an account-ing system that may be obscuringthe true financial picture, multiply-ing confusion, or promoting wasteof funds and services.
of the report shows not only whetherthe budget was in balance at the end ofthe year, but also whether operatingrevenues covered operating expendi-tures, whether the fund balance wasdrawn down to cover a revenue short-age, or whether transfers were used tobalance the budget. In some localgovernments, this part of the annualreport may be the only source for suchinformation.
Council use
The annual audit report includes astatement comparing the budget withactual revenues and expenditures.Because the CAFR is concerned withlegal compliance, it uses the budget asamended, rather than the originalbudget, as the basis for this compari-son. This is not always a useful com-parison. For example, if the budget isamended the day before the books areclosed, and the actuals are measuredon the next day, the CAFR will makethe government appear to have ad-hered closely to the budgeted figure.Although the actual figures maycomply with the law, they may, in fact,diverge widely from the originalbudget. This part of the report wouldbe more useful if it included theoriginal budget along with the amend-ments.
Interfund transfers
One more piece of information thatshows up in the annual report and thatis useful for financial control is a list ofinterfund transactions. Although thelist does not indicate precisely wheretransferred funds originated or endedup, it does note the total amounts oftransfers into and out of each fund.These figures allow the reader to see,at a glance, which funds are importingresources and what the level of trans-fers is in relation to fund totals. Bycomparing these figures across variousannual reports, an analyst can deter-mine whether the level of transfers isgoing up as a proportion of the bud-get—and if so, where the increases areoccurring.
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ReflectionWhat controls over the budget process have been established by your localgovernment? Describe them in the space below.
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Which official or work unit has primary responsibility for budget administrationand controls?
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What reserve funds are in use and for what purpose?
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Does your local government engage in any kind of auditing? If auditing is done,what kind? Is it done because the law requires it or for other reasons? If auditingis not done, whatm, in your opinion, are the financial hazards or risks of notengaging in this process regularly?
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Glossary
CAPITAL BUDGET A budget that contains capital projects included in the firstyear of the capital program; each year, the first year of thecapital program becomes the capital budget; a plan ofproposed capital improvement projects and the means offinancing them.
CAPITAL INVESTMENTS (ASSETS) Investments or assets of significant value and having auseful life of several years. Capital assets are also calledfixed assets.
EFFICIENCY MEASURES Show the costs of outputs and outcomes in terms ofdollars or employee hours per unit.
GOAL A general purpose statement describing what a localgovernment functional unit would like to accomplish inthe future.
OBJECTIVES A statement of desired or planned accomplishment that ismeasurable within a given time.
OPERATING BUDGET Plan for current expenditures and the proposed means offinancing them; it is the primary means by which most ofthe financing, acquisition, spending and service deliveryactivities of a government are controlled.
OUTCOME (OUTPUT) MEASURES Reports the results and quality of services provided. Thesemeasures describe the extent to which services are accom-plishing their intended mission, goals, and objectives.
PERFORMANCE MEASURES Quantify the resources used, services provided, results andcost of services. Used to determine the extent to whichobjectives are accomplished.
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Procedures___ Are comprehensive written procedures published and used in the budget process?
___ Are the procedures in a form that makes modification easy if required?
___ Is enough time allowed for preparation of the budget?
Do the written procedures include the following (evaluate separately):
___ Identification and responsibilities of all individuals (or groups) involved in thebudgeting process?
___ Deadlines for completion of specific tasks (e.g., a budget calendar)?
___ Standardized formats for financial schedules and other budget documents?
___ Required supporting documentation for specific requests?
___ Adequate procedures for determining that the operating budget requests havebeen integrated with the comprehensive plan of the city?
___ Procedures to assure that the impact of capital projects coming on-line on theoperating budget is properly assessed?
___ Budget review, in detail, by the mayor, city manager, or designated official priorto submission to the city council for approval?
___ Formal city council approval of the budget?
___ Control by city ordinance of administrative transfers between line items in organi-zational unit or departmental budgets?
___ A monthly report generated by the accounting system of actual versus budgetedexpenditures?
Responsibilities___ Is overall responsibility for coordinating the budgeting process assigned to one
person or a group?
___ Do department managers prepare budget requests covering all activities andoperations for which they are responsible?
___ Is responsibility for the budgeting of certain general governmental expendituresassigned to the appropriate individual?
Revenues___ Are preliminary revenue projections made early in the budget process?
Appendix A:Management checklist for budgeting
OperatingBudget
65Policies___ Are key assumptions (i.e., population growth rates, inflationary factors, etc.)
communicated to department managers so budget requests are consistent in theuse of such information?
___ Is a statement of budget policy issued by a designated official such as the mayorand/or city manager early in the process?
___ Have policies been established that identify the conditions under which anapproved budget is revised during the fiscal period?
Budgetary information___ Are all funds (including enterprise funds), revenues and expenditures budgeted?
___ Is adequate historical and current information on financial operations provided toindividuals responsible for preparing budget requests?
___ Are revenues and expenses required to be budgeted at an appropriate level ofdetail (reasonable number of line items)?
___ Is the number of individual positions for each department required to be autho-rized and budgeted?
Performance information___ Does the budget document include explicit statements of department goals and
objectives and measures?
Final budget document
Does the final approved budget document include:
___ A statement or message from the mayor setting forth important features of thebudget?
___ Summary revenue and expenditure information for a recent period of years?
___ A summary of current budgeted revenues and expenditures by fund?
___ The number of full-time equivalent (FTE) personnel by department or otherappropriate organizational unit?
___ Interfund charges and contributions?
___ A summary of expenditures by major type?
___ Does the budget document disclose how grant funds that specify a different fiscalyear are to be handled?
___ Are significant changes in revenues and/or expenditures from prior year ex-plained in the budget document?
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Design issues___ Alternate charts, graphs, and
illustrations with solid text.
___ Leave wide margins and a reason-able amount of white space aroundtext; filling all available space mayoverwhelm the reader.
___ Keep tables and diagrams as simpleas possible—they make up asignificant portion of the budget
___ Keep the art simple.
___ Use graphics to underscore themain points.
___ Coordinate the text with thegraphics.
Graphics___ Use graphics to introduce impor-
tant information that will highlightthe object of the budget.
___ Used correctly, graphics representthe strongest visual tool.
___ Place graphics after the text thatintroduces the information orbefore the text that deals with theinformation in detail.
___ Eliminate graphics if they do notsignificantly contribute to theunderstandability of text.
___ Graphics should be appropriate forthe purpose. Tables, charts, andgraphs should be simple—with oneor two clear points—and the mainpoints should be repeated in thetext.
___ Some graphics are designed to leadthe eye to important parts of thepage. Such graphics may be decora-tive but should not be too fussy.For example, arrows can point toparts of a table that are discussedin the text. The reader sees in-
stantly that the highlighted mate-rial should be compared to thematerial in black and white.
___ Use histograms to illustrate devel-opment or to compare certainparameters over time. Use them forexample, to compare unemploy-ment rates within the local govern-ment with the averageunemployment rates at the nationallevel for the most recent five yearperiod.
___ Fill in bar graphs with shapes thatrepresent the subject; for example,in a graph showing the volume ofgarbage picked up daily, barrels ordumpsters can be used as the bars.
___ Use line diagrams to illustratetrends, cycles, or relationshipsamong variables.
___ Use pie diagrams to representcircles subdivided into “slices” thatillustrate the relationship of theselected part to the whole—theyadd up to 100%.
___ Use pie charts to illustrate theshare of the various types ofrevenues or expenditures.
___ Surrounding information with abox calls attention to the box’scontents.
___ Outline sketches can also be usedto frame material. For example,performance measures for theambulance service might appearwithin the outline of an ambu-lance.
___ Use a frame around each page;various frames can be used todistinguish one program, depart-ment, or type of information fromanother.
Appendix B:Hints for budget layout
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67___ Limit the number of columns in
tables to avoid confusing or over-whelming readers.
___ Lines on graphs should be thickand dark, and the key should beclear so that the points stand out.
___ Graphics can be tedious if they alllook alike (e.g., if all use the samedotted lines or plus signs; the samefaint type; and the same color,shape, and size).
___ Vary line graphs by filling in thespace under the line, which makesan interesting shape.
___ Transform a static picture intosomething that is moving andvisually interesting. For example,substitute an arrow for a line on agraph—pointing in whateverdirection the line is headed.
Table of contents
___ If the budget document is morethan 15 pages long, a table ofcontents should be added.
___ The table of contents shows thestructure of the document.
___ Provide page numbers to helpreaders find the section they arelooking for.
___ The contents should show themajor sections and subsections.
___ Use large or highlighted charactersfor line or column headings.
___ Separate headings from data andgroups of data in lines and col-umns by lines as necessary.
___ Use shadows to highlight importantdata.
___ If the budget includes an index, ageneral table of contents maywork; but, if there is no index, thetable of contents should be detailedenough to indicate, for example,the page on which the policedepartment expenditures can befound.
Introduction
___ This is a natural location forattractive graphics.
___ If your local government usestarget-based budgeting, list thetotal for the funded requests, thendescribe the criteria used to deter-mine whether supplementaryrequests would be funded (e.g.,whether the project would reduceoperating costs within a relativelyshort period or whether the projectfits in with the municipality’scurrent goals). The descriptions ofthe target-based budget outcomesshow the trade-off made during thebudget process and link spendingto city goals. This shows citizenswhat they are getting for their taxdollars.
___ Include a detailed description ofrevenues by source and a history ofthe local government’s finances.
___ Describe each of the localgovernment’s major revenuesources in everyday language,showing the estimate for eachrevenue source and the reasons forthat estimate. For example, thesection on sales taxes could brieflydescribe the law that enables thecity to raise sales taxes, includingany limits, exemptions, or man-dates. The section might go on todescribe projected sales tax rev-enues for the upcoming year andthe assumptions underlying theprojection.
___ Include tables showing the propor-tion of tax revenue generated byeach major revenue source overtime to help highlight trends. If, forexample, the proportion of total taxrevenue generated by propertytaxes is dropping and the propor-tion generated by sales taxes isrising, the city may be increasinglyvulnerable to recessions.
___ Include tables showing trends inthe level and proportion of totalrevenues generated by state andfederal grants and payments. Thiscan be useful in signaling depen-dence on an unreliable source.
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68___ Include a table showing the as-
sessed valuation, tax rate, and taxlevy over a ten-year period.
___ If the city has been running defi-cits, a description of the origin ofthe deficits and of efforts to elimi-nate them should appear here.
___ If the city has been struggling todeal with tax limits, the introduc-tion should describe the results ofefforts to diversify the revenuebase.
___ If the community has been growingquickly in land area or population,graphics can be used to map outthat growth, showing thejurisdiction’s boundaries at inter-vals of five years, for example, ordepicting the rate of populationgrowth at regular intervals.
___ Include a list and explanation ofinterfund transfers included in theproposed budget. The budget officecan include historical data, whichmakes large increases or decreasesin transfers visible and requiresexplanation of the changes.
___ Include a comparison of last year’splanned and actual transfers withexplanations for any discrepanciescan also be useful. Clear descrip-tions of transfers may reduce thetemptation to balance one fund atthe expense of another fundwithout identifying and resolvingunderlying problems.
___ Reporting on transfers takes verylittle space and helps ensure that:(1) earmarked money, such asutility revenue, is spent for thedesignated purposes; and, (2)enterprise fees are set to coverexpenditures.
___ Any subsidies to or from enterprisefunds should be a matter of policyand clearly described as such; theyshould not be the result of unre-ported interfund transfers duringthe year.
___ Include a description of outstand-ing debt. It should list, for eachbond and note, the date the money
was borrowed, the due date, theinterest rate, and the principal andinterest payments by year untilmaturity.
Expenditure details___ A line-item budget might list, for
each department, personnel costs,insurance, training, travel, andequipment, or it might break downthese costs into more detaileditems.
___ A program budget usually dividesdepartments into programs. Forexample, the police departmentmight include programs for therecovery of stolen goods, drugprevention, and traffic safety.Examples of programs that crossdepartments include policy mak-ing, resource management, andhealth and safety. For each pro-gram, full-time equivalent staffingand total dollar costs should belisted. A hybrid of line-item andprogram budgeting breaks outprogram costs into line items.
___ In a performance budget, eachprogram has a series of measuresto describe demand, workload,output, outcome, and impact.Program managers build, in par-ticular, workload levels and prom-ise a particular quantity and qualityof outputs for a particular level ofbudget allocation. Prior years’promises and actual levels ofservice can be reported here so thatcouncil members can judge thelikelihood that promises underlyingthe current budget proposal will befulfilled.
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Appendix C:Budget message checklist
The budget message can be one of the most important portions of the budget docu-ment. It provides an opportunity for the chief executive officer to explain variousaspects of city government which are not reflected by the budget numbers. Thefollowing points are recommended for inclusion in the budget message.
___ An outline of policies reflected in the proposed budget.
___ summarize the plan of operations reflected in the numbers
___ outline the basis for the requests that have been recommended
___ An outline of major changes in municipal services.
___ comment on job being done by each department
___ comment on the important or unusual items that have caused extraordi-nary changes in any departments’ expenditures or in total expenditures ofthe city (i.e., insurance costs, chemicals)
___ comment on the principal dollar items (i.e., salaries)
___ comment on or point out more economical methods of operation thatenables a department to do the same job at no additional cost, or pointout unavoidable changes that caused a department to greatly increase itsbudget
___ An outline of trends in revenue collections, expenditures, and growth patterns.
___ A summary of financial operations proposed for the budget year.
___ Comment on last year’s budget including:
___ remarks concerning the accuracy with which it was followed
___ the extent to which it forecasted revenues and expenditures properly
___ any major departures from the adopted budget
___ Comment on state of affairs in the community including:
___ whether the city is adequately performing the services it has undertaken
___ comments relative to the progressiveness of the community as comparedto communities of comparable size
___ financial position of the municipality as compared to same time last year
___ Outline long-range plans with comments on what portion of the plans are beingaccomplished with the proposed budget. This is helpful to ensure that long-rangegoals are accomplished.
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