What You Should Know About Budgeting

1. What You Should Know About Budgeting F G F O A Bootcamp Budget Workshop November 13, 2012 Jim Seuffert, Director Angie Bibler, Budget Division Manager Manatee County Financial Management Department

2. What You Should Know About Budgets Topics • Budget Policies & Process • Budget Basics • Legal Requirements/TRIM • Budget Calendar • Budget Review & Approval • Budget Monitoring / Revisions

3. The Government Budgeting Puzzle • What product are we trying to create? • What series of activities need to take place? • What information do we need, how do we review it, and where do we get it from? • Who is involved and what role do they play? • What timeframe and deadlines do we have? • What legal requirements must be met? • What happens after the budget is adopted?

4. General Requirements • Should be based on legal requirements and best practices: • Florida Statutes • Best Practices – GFOA and other sources • Generally Accepted Accounting Principles

5. Legal Requirements • Florida Statutes • The budget shall be balanced • Defines budget system & fiscal year • Defines process & general guidelines • Sets method for setting the millage for all taxing authorities (FS 200.065) • Establishes budget procedures (FS129.03 for counties & FS 166.241 for cities) • Budget must be posted on website

6. Legal Requirements • Budget shall conform to the state’s uniform chart of accounts • Expenses are assigned to functional categories: • Transportation • Culture & Recreation • General Government • Human Resources • Public Safety • Reserves • Debt Services • Inter-fund Transfers

7. Budget Policies • Best Practices • Fund balance reserve policy/working capital reserves (“rainy day” fund) • Multiyear & realistic financial forecasting • Monthly or quarterly financial reporting/monitoring • Policies on nonrecurring revenue

8. Budget Policies • Best Practices • Establish policy early • Transparency and Clarity • Pay-as-you-go capital funding policies • Five-year capital improvement plan integrating operating costs of new facilities • Communications Device • Themes and Consistency

9. Budget Policies • Should Address: • Budget Process & Budget Instruction Manual • Reserves • Fund Balance • Debt Issuance and Debt Management • Investments • Revenue Diversification • Capital Program • Revenues • Fees and Charges • Expenditures • Post Adoption

10. Budget Policies • Policies and Procedures • Should be in writing • Should be updated at least annually • Should be included in the adopted budget • Should be tailored to your local government • Should be adopted by governing board

11. Budget Policies • GAAP – Generally Accepted Accounting Principles • Fund Accounting • Fund = self balancing set of accounts set up for a specific purpose • Fund Types • Governmental (general, special revenue, debt service, capital) • Proprietary (Internal Service/Enterprise) • Fiduciary (Trust/Agency)

12. Budget Process Mission of a Budget Process: To help decision makers make informed choices regarding resource allocation and the provision of services and capital assets and to promote stakeholder participation in the decision process

13. Budget Process • It should provide the forum to: • Review comparative financial and performance data in a common format • Analyze and debate program merits • Establish priorities & long-term goals • Involve stakeholders • Make service level and service cost decisions • Focus on results & outcomes

14. Budget Basics • Why Do We Have Budgets? • What Is A Budget? • Types Of Budgets • Capital Improvement Plan • Multiyear Budgets & Forecasting • Methods Of Budgeting

15. Why Do We Have Budgets? • A means to: • Meet legal requirements • Set and control spending • Provide information to the public and policy makers • Educate the public and elected officials • Prioritize the needs of a community • Outline the expenditures of government spending • Justify and analyze programs and services

16. What is a Budget? • Webster’s Dictionary - • An itemized summary of probable expenditures and income for a given period • A systematic plan for meeting expenses in a given period • The total sum of money allocated for a particular purpose or time period • Florida Statutes = Budget sets a legal limit • Revised Budget if proper procedures are followed

17. What Is A Budget? Best Practices Government Finance Officers’ Association • Policy Document • Financial Plan • Operations Guide • Communications Device

18. It’s A Policy Document • Explains and follows policy • Identifies services and service levels that will be delivered over the upcoming twelve month fiscal period • Summarizes the challenges that were faced and how they were addressed • Provides detailed information such as major goals and objectives for each department, revenue sources, trends, operating funds, expenditure categories

19. It’s A Financial Plan • Outlines how much services and programs will cost and how they will be funded • Overview of major revenue and expenditure categories • Discusses the accounting structure and budgetary policies • Summarizes the capital improvement program and identifies appropriations for the program • Provides information on bonded debt

20. It’s An Operations Guide • Indicates how services will be delivered to the community • Outlines number of full time positions • Identifies department level appropriations • Includes an organizational chart showing how government is structured to deliver the most efficient and effective services

21. It’s A Communications Device • Designed to be user friendly with summary information in text, tables, and graphs • Includes a glossary of budget terms • Provides a table of contents • Includes a budget message or budget transmittal letter with a condensed analysis of the fiscal plan and challenges for the upcoming year • Posted on internet, budget summary, handouts, etc

22. Types of Budgets • Operating Budget • One year • Multiyear – recommended practice • Capital Budget • Is adopted with the operating budget • Developed from Capital Improvement Plan (CIP) • Is funded (1st year of the CIP)

23. Types of Budgets • Operating Budget • Personal Services • Salaries and benefits • Operating Expenditures • Fuel, utilities, contracts, supplies, etc. • Capital Expenditures • Funded capital improvements • Reserves • Operating and cash requirements • Savings for future uses

24. Capital Improvement Plan • Typically a five to twenty year plan • Develop, review, debate separately from operating budget • Adopted annually as a plan • Included in adopted budget document • “Smooth funding” requirements • Plan for long-term debt, if needed

25. Capital Improvement Plan • Identifies funding sources • Opportunities to develop alternative funding sources • Identifies future capital needs and their operating costs – phase in • Identifies future transportation needs including roads and sidewalks • Supports capital improvement element (CIE) of the comprehensive plan

26. What is a Multiyear Budget? • A document that authorizes a government’s appropriations, anticipated revenues, and spending plans for two or more consecutive budgetary years. • Rolling plan • First year is adopted budget while second and future years are an adopted plan or tentative spending plan • Two Year Budget • Abbreviated budget cycle in off years • 2nd year plan is adjusted in the “off year” and adopted • 2nd year of the process produces a one year budget • TRIM process required each year

27. Multiyear Budget/Forecasting • Greater emphasis on: • Management & service delivery • Program evaluation & monitoring • Long-term perspective • Early problem identification • Link operating & capital planning • Integrates strategic planning and goal-setting into the budget process

28. Multiyear Budget/Forecasting • Ability to “smooth expenditures” as new programs, services, or infrastructure is brought “online” • Cost savings • Frees staff to deliver services • Viewed favorably by bond rating agencies

29. Budget Methods • Line Item Budget • Follow uniform accounting practices and chart of accounts to meet annual financial reporting requirements per statute (FS 218.32) • Other ways to develop, summarize and present the budget • Program Budget • Performance Based Budget • Zero Based Budget

30. Budget MethodsLine Item Budget • Focus on what is to be bought • Expenditure control model • Traditional approach • Typically built upon last year’s cost • Easiest to develop • Lacks innovation and operational accountability

31. Budget MethodsLine Item Budget Personal Services Salaries $5,000 Fringe Benefits 2,000 Temporary Wages 1,000 Overtime 500 Total $8,500 Operating Expenses Fuel $3,000 Office Supplies 1,000 Travel 500 Total $4,500 Capital Pick Up Truck $6,000 Grand Total $19,000

32. Budget MethodsProgram Budget • Focus is on what is to be achieved • Effectiveness model • May cuts across department lines • Identifies program cost and establishes performance measures • Control and accountability challenges • May lacks innovation and creativity

33. Budget MethodsProgram Budget Development Review Program Public Works $2,000 Fire/Rescue 1,000 Environmental Protection 500 Planning 2,500 Building Inspections 500 Grand Total $ 6,500

34. Budget MethodsPerformance Based Budget • Focus is on what is to be done • Efficiency model • Spending is better aligned with objectives and strategies • What do you want to deliver? • How much do you want to deliver? • What delivery channels will you use? • Aligned at department level but not at organizational level

35. Budget MethodsPerformance Based Budget Fire Department Suppression • Number of responses 100 • Cost per response $ 60 • Annual Cost $6,000 Prevention • Number of Inspections 470 • Cost per Inspection $ 4 • Annual Cost $1,800

36. Budget MethodsZero Based Budget • Focus is on what is to be prioritized • Ranking model • Let’s start from scratch • What programs & services do you want to deliver? • How much do you want to deliver? • Difficult, time-consuming, and costly to develop

37. Legal Requirements Florida Statutes Determination of Millage • Provides for the process, timeframe, and advertising requirements that must be followed by each taxing authority • Definitions and duties • Method of fixing millage rates • Millage limitations • “TRIM” process • County or City Charter, if applicable

38. Statutory Timetable

39. Jan/Feb Economic Forecast September Adopted Budget Jan/Feb Priorities Periodic Budget Amendments & Monitoring September Public Hearings Mar/April Department Requests Aug/Sept Board Changes & TRIM Apr/May/June County Administrator Meetings August BCC Workshops July Proposed Budget Budget Calendar Submit Budget Document to GFOA

40. The Commission/Council Role • Areas of Responsibility • Practices to Avoid • Budget Monitoring and Reporting

41. The Commission/Council Role Areas of Responsibility • Knowledge of Florida Statutes • Policy, priorities, and goals • Involved in the process • Familiar with the documents • Prepared for discussion and debate • Approve the budget • Listen • Ask questions

42. The Commission/Council Role Areas of Responsibility • Address taxation issues locally • Raise revenues • Cut expenditures • Targeted service level reductions • Across the board cuts • Cost saving measures • Managed competition • Consolidation of services

43. The Commission/Council Role Practices to avoid • Failure to reward good practices • Ignoring operating costs associated with capital projects • Deferring capital maintenance • Undisciplined use of one time revenues to balance the budget • Implementing across the board cuts • Too strict line item control • Borrowing to balance the operating budget

44. Budget Administration • Monitoring the budget • Current year projections to year end • Straight-line projections • % of year completed vs. expenditure rate • Seasonal fluctuations • Sporadic payment schedules • Payments for 12 months & only 12 months

45. Budget Administration • Amending the budget • Budget transfers • Moves budget between functions, no change to fund or department total (can be delegated to staff) • Budget amendments (approved by Comm./Council) • Moves budget from one fund or department to another, increase to one fund and decrease to another fund, or to appropriate unanticipated revenue

46. Budget Administration • Management reports • Monthly or quarterly reports • Financial models • Fiscal trend monitoring • Position Control Reports • Other special reports • Executive reports to Commission/Council • Web site / Dashboard reports

47. BUDGETING - A Practical Example • Property Tax terminology • Examples – Taxable Values &Millage Rates • County-wide millage summary • Revenue by Source and Appropriations by Function (State chart of accounts) • Aggregate millage rates & “roll-back” • TRIM example

48. Property Tax Terminology(Not Greek, but Latin) Ad Valorem – taxes based on property value Millage Rate – tax rate; $1 per $1,000 of taxable value Assessed Value (just value) – total property value Exemption – amount determined by state law to be deducted from assessed value (for Homestead status, disabled, widows) Taxable Value – Assessed value less any exemptions

49. TAXABLE PROPERTY VALUES Billions Tax Year

50. COUNTYWIDE MILLAGE RATES MILLAGERATE OPERATING MILLAGE FISCALYEAR