Municipal Finance and Budget Process Overview

Newly Elected Officials CourseTuesday, December 11, 2007

Michael Foreman 412-565-5199 mforeman@state.pa.us

Deborah Grass 412-565-2552 dgrass@state.pa.us 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