Preparing & Implementing

the BUDGET

Micki Rundell, CFO

City of Georgetown

TML – June 5, 2015

“IT’S CLEARLY A BUDGET. IT’S GOT A LOT OF NUMBERS IN IT.”

George W. Bush

What Budgeting Should Be:

• Opportunity to establish community goals.

• Ability to incorporate those goals into the budget.

• Allocates resources to accomplish goals.

Additionally a Good Budget…• Reflects the Goals & Objectives of the

Organization as well as the Community• Is a Tool for Planning & Management

of community resources– Remember… it’s “their” money

• Is Monitored Routinely• Reflects Organizational Structure and

Control

Lots of Types/Methods for Budgets

Operations Budget– Zero-Based Budget– Lump Sum Budget– Line Item Budget– Program Budget– Results Oriented / Performance Budget

Capital Budget– Multi Year Capital Planning

FIND THE ONE THAT WORKS FOR YOUR ORGANIZATION

Budgets based on “Funds”• Operations are organized on the basis

of Funds–Separate, self-contained set of accounts

• Assets, liabilities, revenues & expenditures–Smaller cities may operate only 1 fund

• Georgetown has over 30 funds• Plano has 130

• Each fund operated as separate entity• Each is addressed within the Budget

Annual Budget DocumentsAnnual Operating Budget– Required by State Statute & City Charter– Allocates resources

• Based on Council Priorities – Serves as a Policy Document

Capital Budget– Plan acquisition/construction of major capital items– 5-year planning horizon is recommended

• Project scope identified• Potential Funding Sources Identified

– 1st year of CIP appropriated in Annual Budget– Other Years are for Planning Only

Operating Budget• Structurally Balanced

–Operating revenues should fund on-going expenses

–PY Excess or 1-time funds should be used for 1-time expenses

• Appropriated for One Fiscal Year–Appropriations usually lapse at YE– Yet, outstanding encumbrances or

purchase orders can be paid in the following year

Operating Budget• Should Include:

–Overall Summary of Issues, Challenges & Opportunities

–Summary & Explanation of Revenues and Expenditures by Fund

–Defined Programs & Objectives–Staffing Levels–Performance Measures

Capital Budget

Capital projects are different from programs adopted in the operating budget: • Often represent very large project• Can have involve major financial obligations • May span two or more fiscal years• FUNDS the CAPITAL IMPROVEMENT PLAN

Capital Improvement Program

• Preparation - update 5-Year CIP schedule can include:– Citizen involvement– At least 5 years forward– Identifies plan for funding capital improvements– Include estimated operational impacts

• “Year 1” is formally adopted as the “Capital Budget”

Capital Budget

Capital budgets should include: Descriptions of scope of each project Estimated costs of project based on recent and

accurate sources of information Schedule for completion of each project

• Phasing: Engineering, Design, Construction

Identified funding sources for all phases of project• Current Year Appropriation• Future Year Funding Sources

Any impact on the operating budget

should also be identified

Creating the Annual Budget Document• Revenues

– Identify & estimate revenues by fund including:• Property Tax• Sales Tax• Charges for Services

• Expenses/ Expenditures– Total amounts to be spent during the year

• By Fund• By Department/ Program

• Fund Balance/ Cash Reserves– What are the expected ending balances?– How do they compare to policy requirements?

KEY FINANCIAL & BUDGETARY POLICIES

Good budgeting begins with a good policy….

Why have a Financial/Budget Policy?

• Provides “fiscal discipline”• Achieve & maintain long-range stable

and positive financial condition– Rating agencies and bond market rely on it

• Provide guidelines for day-to day planning & operations of City’s financial management

Identify the Budget Process

• Operating plan – 1 to 2 years• Capital plan – 1 to 5 years• Link to long-term, comprehensive plan

–Budget based on performance & outcomes• Determine time line for preparation• Assign control & accountability of funds

–Transfers between funds/departments–Document the Budget Amendment process

Revenue Management• Define “conservative” revenue projection

philosophy• User-based fees and service charges

– “Cost of service”• Property Tax Revenues/Tax Rate

– Relation to effective rate and rollback rate– Portion allocated to Operations vs. Debt

• Administrative Services Charges– Transfers between Funds

Expenditure Policies

• Current Funding Basis– On-going revenue fund on-going

expenses– Excess revenue funds 1-time expense

• Defined CIP Process– 5 year capital plan with funding impacts to

tax payers and rate payers• Address Capital Maintenance

Capital Maintenance Program• Deferred maintenance increases future

capital costs• On-going capital maintenance is

included in operating budget• Use Internal Service Funds - “lease”

equipment to departments –Lease fees fund capital repairs and

replacement

Debt Management Policy• Use of Debt Financing

– Future use against future payment– Long-life capital assets

• Affordability Targets– Debt per capita– Debt as a percent of taxable value– Debt service payments as percent of current revenues– Debt tax rates as percent of total tax rate

• Sale Process– Competitive vs. Negotiated

• Full and Continuing Disclosure

Financial ReservesIdentify “rainy day” funds…. Georgetown:• Requires 75 days citywide operating

“contingency” reserves– Rainy day fund for unexpected emergency– 90 day reserve in General Fund

• 30 days = “Emergency” Funds–Offset sudden tax increase–Replenished next budget cycle

• 60 days = Long-term reserves

Develop a “Budget Contingency Plan”

• Establish guidelines for managing revenue shortfalls– Immediate actions include freezing hiring of

new positions–Delay all “non-essential” spending

• Service level reductions addressed by Council– Includes workforce reductions

Annual Budget Document includes

• Transmittal Letter– Summary of key issues & factors driving proposed budget

• Three Year Historical Summary (Total Budget)– PY ending ACTUAL numbers– Current FY BUDGET & PROJECTED FYE– PROPOSED Budget

• Proposed Budget by Fund– Written Summary – Revenue Schedule– Proposed Expenditures by Department

• Appendix– Supplemental Information & Schedules

Outline Accounting & Financial Reporting Requirements

• Provide quarterly/monthly reports to Council

• Outside audit annually of all City accounts–Accountable directly to City Council

• Prepare Comprehensive Annual Financial Report (CAFR)–GFOA standards

Maintaining the Financial & Budgetary Policy

• Review annually with the Council during the budget process

• Clarify areas that may be confusing• Look for new ways to improve the policy

–Example: Addition of a “revenue shortfall contingency plan”

Implementing the BUDGET

On-going Responsibilities

Understand the Budget Cycle• Forecasting & analysis• Preparation• Presentation/ Formal Filing• Workshops & Public Hearing• Formal Adoption• Implementation• Monitor & Adjust if Necessary

PREPARE FOR YEAR-END AUDIT

Budget Amendment Process

Determined by State Law and Charter

“Emergency or Expenses that were not known when budget was adopted”

• Adopted by ordinance and filed with City Secretary

• Clearly identifies appropriation and funding source

Budget Management• Continual process• Monthly reporting on finances

– Summarize key revenues & monitor expenditures– Early identification of potential issues

• Important to assess budget proposal within a long range forecast– Decisions made this year impact every future year – Budget needs to be sustainable

• LONG-TERM FINANCIAL PLAN

Monitoring Spending• Budgetary control at line item level

– Detail of planned spending – Budget transfers between line items

• “Encumbrance” thru Purchase Orders ensures funds are available when needed

• Prompt payment of invoices– Records expenditure on the General Ledger and

releases encumbrance thru PO• Most departmental spending should be within

% of prior year– Exceptions due to seasonality

Departmental Accountability• Allow flexibility for changes during the year

– Moving funds between line items w/n department• Require appropriate detail in budget

submission• Establish service level expectations

– Performance indicators• Monitor & report on performance• Directors & Managers held accountable for

budget and related results

Year End Estimates/ProjectionsDone as part of budget process• Re-estimate revenues• Departments provide projections, identify savings

or potential overage• Estimate ending fund balances

– Gives a good starting point for next year• Allows corrective action to be taken if necessary• Formally adopted as final budget amendment of

the year in September– Presented in budget document– Explanation for projection vs original budget

GFOA Awards Program

Distinguished Budget Presentation Award– Criteria defined & explained– Reviewed by financial professionals – Feedback from reviewers on areas to improve

Criteria focused on document presentation– Introduction & Overview– Financial Structure, Policy & Process– Financial Summaries– Capital & Debt

– Departmental Information

Conclusion• Good budgeting guides operations and

ensures long-term financial stability– Council & community support & involvement

• Develop financial policies that are adhered too and enhance long-range financial planning– Adhere to the guidelines addressed in the policy

• Focus on desired results– The “Budget” outlines how we manage resources– Demonstrates fiduciary responsibility to citizens

Technical Resources

• GFOA – www.gfoa.org–Best Practices–Elected Officials Guide Series

• TML Series – www.tml.org• GFOAT - www.gfoat.org

–Finance Forum

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Questions?Contact info:

Micki Rundell, Chief Financial Officer

City of Georgetown

Micki. Rundell@georgetown.org