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MEMORANDUM

TO: Robert Reichardt, Ph.D.

FROM: Inayet Hadi, Budget Analyst

DATE: 19 April 2007

RE: GFOA Budget Rating for City of Arvada

Introductory Section

I have evaluated the City of Arvada 2005-2006 Biennial Operating and Capital

Budget against the Distinguished Budget Presentation Awards Program (DBPAP) criteriaset forth by Government Finance Officers Association (GFOA). The budget is reviewed

under four major categories. The four major categories are, policy document, financialplan, operations guide, and the budget as a communication device. This memo will endwith a conclusion addressing how the budget serves as a tool to maintain and build public

trust.

My overall impression of the budget compared to the criteria set forth by GFOA

was the Citys budget could have achieved a higher form of alignment with non-mandatory recommendations proposed by GFOA. For instance, the recommendation to

have a policy on asset inventory was not present in the Citys budget, instead

management of fixed assets was regulated to a program to fix and maintain capital assets.This memo discusses mandatory criteria only as set forth by GFOA in the DBPAP. Non-

mandatory criterias discussion was eliminated from this memo due to an e-mail received

on 10 April 2007 instructing us to touch on each of the mandatory criteria.

Policy Document

1. GFOAs Adoption of Financial Policies (2001) recommended three financialpolicies for states and local governments to be clarified in their budget. First, have a

policy defining a balanced budget. The Citys budget uses internal and external

accounting controls to ensure that the adopted budget approved by the Council remainsbalanced each quarter, or every three months (Budget, p. 14). Second, have a policy on

long-range planning. The Citys budget recognizes this as sound, and describes the

process on how long-range planning is facilitated (Budget, p. 12). Finally, adopt a policy

on asset inventory. In the current budget there is no asset inventory policy present, butresponsibility for fixed assets management is placed under the Finance Department

authority (Budget, p. 109). The financial policies are listed under the section Financial

Overview beginning on page 16 of the Citys budget. The lack of discussion of how long-range planning is conducted, what major policy changes occurred, or targets set as result

of the long-range planning is missing from the budget. This serves as a potential

weakness. Having met two recommended practices out of three is rated as proficient.

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4. The City Manager highlighted policy changes, the economy, administrative

challenges facing the City, and etc... in the transmittal letter (letter). The recommended

action proposed by the City Manager are explained through out the budget, butsummarized in the letter. For instance, to contain the increasing salary and benefits costs

of City employees, the letter maintains that offering competitive compensation packages

will retain employees thus keeping costs at a predictable rate. The letter also mentionsprograms or services to be eliminated or new programs or services to be added. Previous

assumptions to the five-year model that were revised are mentioned in the letter. I think

the strength of the letter is that at the end of the letter, the City Manager mentions threeissues that remain unresolved and discussed in the budget. The three issues are discussed

briefly, and then requests guidance from the Council for further actions. Because the

letter address important issues facing the City Council, I rate this section as outstanding.

Financial Plan

2. The document provides an overview of revenues and expenditure sources

(Budget, p. 25). The expenditures and revenues are presented in two formats, in a matrix,and in a single schedule (Budget, p. 27-29). The revenues are presented by major types,

such as taxes, charges for services, intergovernmental revenues, etc Each major typeof revenue is further sub-categorized, for example, taxes is sub-divided into property tax,

auto use tax, building use tax, etc (Budget, p. 30-1). Expenditures are represented by

functional categories such as, professional services, debt services, capital improvement,

etc (Budget, p. 34). The strength of this section is that the description of majorrevenues and expenditures is easy to understand. This section also, receives an

outstanding score.

3. The budget presents a matrix with prior, current, and the budget year on the sameschedule (Budget, p. 27). The information presented in the matrix is for the entity as a

whole with each non-major funds included in the aggregate. Since this budget is a

biennial budget the finances sources and expenditures for the prior, current, and bothbudget years are presented in two separate schedules, one for each revenues and

expenditures. Having met the requirements of DBPAP criteria, the score is outstanding.

4. Individual revenue sources are described in the budget subtitled by majorcategory (Budget, p. 30-33). The trend analysis method is used to estimate revenues

based on budgets from previous years, and expected economy forecast. The revenues that

are described represent more then 75 percent of the total revenue of all appropriated

funds. The underlying assumptions about future revenues are described in general termswith an emphasis towards stability in future revenue collections based on previous

budgeted years (Budget, p. 271-2). The level of description of each revenue assumption

does not promote much faith, unless one has previous knowledge that the numbers usedare accurate, or the future revenues forecast will materialize. Because of the lack of trust

in the projections based solely on the presentation of the budget, I rate this section as

proficient.5. The budget provides a definition of a fund balance (Budget, p. 303). The fund

balance is presented for both the budget years, including the schedule showing beginning

fund balance, increase and decreases in total fund balance (Budget, p. 36). The fund

balance is presented for each major fund and non-major fund separately. The budget

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describes the process to be used during each quarter to determine the consequences in

increase or decrease of revenue by a significant amount. If a fund shows increase then

there is no change to the budget, but if the anticipated funds do not materialize then cutswill take place (Budget, p. 12). The change in fund equity is presented separately for both

years. I rate this section as proficient, because I could not find in the budget a statement if

there a particular line item that would increase or decrease by more then 10%.6. The Budget does not define capital expenditure. The budget does present in a pie

chart the total dollar amount of capital expenditure for the two budget years (Budget, p.

18). Significant non-routine capital expenditure is described with the dollar amountsshown (Budget, p. 245). I rate this section as outstanding, for meeting the requirements of

disclosing nonroutine expenditure items, even though capital expenditure is not defined.

8. Legal debt is not [to] exceed 3% of the assessed valuation of the taxable property

within the City as shown by the last preceding assessment (Budget, p. 261). The Citysbudget states explicitly that it does not have general debt outstanding, but does have

revenue bond outstanding. The revenue bonds that are outstanding are identified, and

described with the amount of interest rate charged, when the bond was issued, and

expected date of completion. The principal and interest payments are recorded under eachdebt service requirement (Budget, p. 262-4). A special section addressing long-term City

debt, and brief information explaining Citys bonds promotes transparency. For beingtransparent about debt ensures an outstanding rating.

Operations Guide

1. Each department has their own departmental chart, and a description of the

departments purpose presented along with their portion of the budget. This criterion is

rated as proficient because the actual description of the departments themselves is notdiscussed, except their stated purpose/mission statement along with extraneous

information.

3. The Citys organizational chart is presented at the beginning of the budget(Budget, p. iii). This chart deserves an outstanding rating, because at the top of the

hierarchy are the Citizens of Arvada, then below them the City Council.

4. A summary table of position is provided for the entire entity (Budget, p. 284-289).The table does not include the prior year, the current year, but only the budget year

position list is included. The weakness of this portion of the budget is that it does not

provide a position list for previous budget years or future budgeted years. Having

previous position lists in the budget allows the public to compare and contrast theproposed position list with previous position lists. For this reason, the budgets

presentation on position listing is rated as proficient.

Communications Device

3. Under the legal requirements heading, a process is described how the budget isdeveloped, reviewed, and adopted (Budget, p. 10). A budget calendar is provided that

encapsulates the budget processes (Budget, p. 14). How the budget can be modified is

described under the headings budget and accounting controls (Budget, p. 14-15). I rate

this section as proficient because the information presented on how a proposed budget

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becomes an approved budget was under a non-related section.

4. Charts and graphs have been extensively used to convey essential numerical

information that was disclosed in the budget itself. The numerical data was converted intocharts, tables, and graphs in order to for the numbers to have meaning to the reader. I rate

this section as outstanding, for the use of extensive graphics to explain numerical

information.6. A table of contents is provided to help the reader to locate information within

broad category. Almost, all the pages are numbered, except the transmittal letter is not

numbered. The page number identified in the table of contents agrees with the actualpage number. The table of contents is rated as proficient. It could have improved, if a

second detailed table of contents was provided for sections that had sub-headings within

them.

Conclusion

OpenTheGovernment.org is a broad coalition of civil society working together to

make the federal government a more open place. Maintaining public trust is described asthe government being openly accountable for its decisions, actions and mistakes. In

the transmittal letter the City Manager describes its decisions to eliminate, add, or reducefunding for programs or services, which ensured the City maintained the level of services

to its residents in unpredictable global economic environment.

The broad categorization given in the letter to justify its decisions gives an

impression that the Citys staff for the most part understood what was best in order tomaintain a balanced budget. The budget as a document provides a glimpse into the

operation of city government. However, the details of how city government was to be

operationalized was not discussed, except to provide broad categorization of purpose ofeach program within the Citys departments.

This budget creates an illusion that the City government is accountable to its

residents. However, the budget can still be used in general terms to check on theworkings of City Government, without really understanding objectively how City

Government becomes operationalized. It is this weakness that can serve as potential loss

of public trust.

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