Municipal Finance and Budget Process Overview
Newly Elected Officials CourseTuesday, December 11, 2007
Michael Foreman 412-565-5199 [email protected]
Deborah Grass 412-565-2552 [email protected] Governor’s Center for Local Government Services,
DCED
www.newpa.com
Budgeting - Revenues Taxes
Real Estate Current – Collection rate Delinquent Liened General and Special Purpose Levy Real Estate Tax Collection Laws
Budgeting Continued-Revenues
Taxes Continued Act 511
Earned Income/Net Profits = compensation tax Local Services Tax (LST) (Formerly OPT/EMST) Per Capita Tax Business Gross Receipts Taxes Real Estate Transfer Tax Amusement
Regional Asset District Tax – Sales Tax Distribution for Allegheny County only
Budgeting Continued –Revenues
Other Revenue Sources Licenses & Permits
Cable TV License Fines & Forfeits
State Local - Magistrates
Interest and Rents
Budgeting Continued-Revenues Municipal Charges for Services & User
Fees Purpose Authorization
Municipal Codes & Municipalities Authorities Act Ordinances and Resolutions The Municipalities Planning Code Collection Processes Examples
Garbage and Recycling Fees Public Records Sewer/Water & Other Utilities Services: Zoning Hearings, Recreation
Budgeting Continued-Revenues Intergovernmental Revenue
General Fund/State Shared Revenue Liquor License Allocation Police Training-Act 120 Reimbursement Act 205 Pension Aid Foreign Fire Relief (Volunteer Fire Companies) PURTA
Special Revenue Liquid Fuels a.k.a. Highway Aid
Eligible Uses PennDOT municipal services representative
State Road Turnback Fees
Budgeting Continued-Revenues One-Time Revenues
Sale of assets Real Property or Personal Property Inventory Procedures apply to sale
Exemptions Another municipality, authority, library Community Development Corporations PA or US government
Refunds of Prior Year Expenses
Budgeting Continued-Other Financing Sources and Uses Borrowing
Many tests determine when appropriate
Ability to pay back Useful life Usually only capital
Local Government Unit Debt Act DCED Debt Management Handbook
Borrowing Continued Debt Instruments
Bonds General Obligations Revenue Bonds Rating Agencies Bond Counsel
Notes TAN/TRAN Small Borrowing – Capital Purchases Unfunded Debt Operating Loans
DCED Approval Process
Budgeting Continued-Expenditures
Operating Budget Recurring Expenses
Personal Services Wages, salaries, benefits, pension benefits
Contractual Services Non-employee compensation Contracts, like garbage collection Professional Services like legal services Insurance – Property, Casualty, Auto,
Professional Purchasing requirements—DCED Purchasing
Manual
Budgeting Continued-Expenditures
Recurring Expenses Cont’d Supplies and Commodities
Salt Utilities – Gas, Electric, Water, Sewer Communication – Telephone, Internet,
Radios Office Supplies Data Processing Purchasing Requirements—DCED
Purchasing Manual
Fund Balance Fund Equity includes “fund balance” Fund balance generates interest because it is
as close as governments gets to “profit” Called Retained Earnings in Proprietary fund Fund Balance increases by revenue and
decreases by expenditures for any given period
Fund Balance can be legally reserved—set aside for future use
Second Class Twp. Operating Reserve Fund Fund Balance can be designated to set aside
for particular purposes
Budgeting Continued-Other Financing Sources Uses Cont’d
Use of Cash or Fund Balance Accumulated Cash Available for 1 time use Fund Balance is a part of Fund Equity which is the
difference between Assets and Liability Appropriate uses
Interfund Transfers Transactions between funds of the governmental
unit Reimbursements from one fund to another for
expenditures made on behalf of fund Operating subsidy—I.E., Recreation fund that needs
help from General Fund
Evaluating Financial Condition What is the appropriate level of fund
balance? Rating agency tests? 5 – 10 % of revenues Operating Test? Equal to 1 months
expenditures? 2 months? Fiscal Monitoring for Viability
Financial Monitoring Handbook, Governor’s Center for Local Government Services
Solvency Measures Cash Solvency
Ability to generate sufficient cash to pay bills on 30-60 day basis
Budget Solvency Ability to generate sufficient revenue over a
12 month period to pay operating obligations Long Term Solvency
Ability to generate sufficient revenue to pay obligations over a multi-year period
Service Delivery Solvency Ability to provide basic public services to
meet health, safety and welfare of citizens
Solvency Measures
To assure Service Delivery Solvency assumes that a
Municipality is able to sustain cash, budgetary, and long-term solvency
over a multi-year period
Capital Improvements Planning
Nationally, capital represents 1/3 of all municipal spending
Paying for Capital Improvements Current Revenue User Fees Grants Special Assessments Low Interest Government Loans General Obligation Bonds Revenue Bonds Leases
Capital Improvements Planning
Appropriate Use of Capital Financing Matching of Useful Life and Payback period Policy questions—What projects are viable?
Utilize a formal process for determining capital needs—Capital Improvement Planning
Utilize objective criteria for decision making Benefits of Capital Improvement Planning
Links master plans to financial plans Controls Spending—Avoids sharp tax
increases Increases Public Confidence
Statement of Revenues and Expenditures Cont’d If Funds exist then they should
matter Separated for legal reasons or because
of the nature of the revenue and expenditures which are being tracked (i.e. Liquid Fuels vs. Sewer Fund vs. General Fund)
Fund Types are not the same as funds Use as many funds as needed – but no
more than absolutely necessary
Some Nuts and Bolts Funds
Nature of Funds Benefits of funds You will have at least 2 funds
General Fund Liquid Fuels
Chart of Accounts Skeleton of Financial System DCED Chart of Accounts Example: 01.301.100 GL Real Estate Current Example: 01.410.210 GL Police Office Supplies
Legal Environment for the Finance Function Tax Rate and Budget Adoption by
December 31 of each year Public Inspection Period prior to budget
adoption Re-opening of Budget permitted in
years immediately following municipal election; final adoption by February 15
Annual Audit Report due to DCED by April 1
Careful Consideration Before Re-opening Budget
Do you have sufficient understanding of the adopted budget to make changes within the legal timeframe? Financial Information Program Information Limitations on revenue sources Non Discretionary expenses
Budgeting as an Art and Science A Good Budget is
Policy Document Financial Plan Operations Guide Communications Device
Budget Cycle/Calendar Data to Collect/Who to Involve in
Budget Development
Typical Budget Calendar
Due Date Budget ActivityResponsible
PersonSeptember 1 Obtain annual budget forms Secretary
September 15Post current year ependituers and revenues or estimates Secretary
September 30Municipal pension obligations sumitted to governing body
Chief Administrative Officer of Pension Plan
October 1Project revenue estimates for the next budget year
Secretary consulting with other officers
October 30Submit activitiy expenditures to the secretary Department Heads
November 15
Enter expenditure requests and revenue estimates in annual budget form Secretary
November 20 Conduct full review of budget Governing BodyNovember 20-30 Tenative adoption Governing BodyNovember 30 Submit advertisement to newslaper Governing Body
December 3 -23Make Budget available for public inspection Secretary
December 27Adpted budget and ordinance setting real estate tax rate Governing Body
January 1Create budget accounts and enter amount in ledger Secretary
Source: Fiscal Management Handbook , DCED
Budget Administration Implementation
Transfer to Accounting System Monitoring
Review on a regular basis Modification
Make budget transfers as necessary Budget Reporting