developing a policy driven budget department of commerce & economic opportunity community issues...

Developing A Policy Driven Budget

Department of Commerce & Economic Opportunity

Community Issues Satellite

Workshops

Developing a Policy Driven Budget

Policies can make budgeting, and your job, easierPolicies clarify the why and how of budgetingBuilding agreement on policies and desired outcomes helps focus budget debatesPolicies can provide clear direction to staff and other groups submitting budget requests

Caution

We will cover a variety of policy examples in this presentation. Each government should base their own policies on thoughtful and complete

trend analysis, revenue and expenditure forecasting, service level

and scope evaluation, and priority setting that reflect the unique

circumstance of each community.

What Is a Policy?

Strategic issue or purpose policies

Operational policies

Financial and budgetary policies

Purpose Policies

What purpose does this government serve?

What do we want our community to be in the near and long term future?

Purpose Policies (Con’t)

Sufficiently specific to help define the services to be emphasized and make difficult resource allocation decisions

May be necessary to define priorities among the broad goals

Base on assessment of community needs and opportunities

Incorporating a Strategic Plan in the Budget

Strategic planning

Mission or vision statements

Strategies

Strategic Planning

Integrate what to decide with how to decide

Move away from line item budgets

Compares with capital improvement budget process

Identifying Issues and Setting Priorities

Identify issues

Vital priorities

Limited number of strategic goals

Examples Of Purpose Policies

Metropolitan Wastewater Reclamation

District’s goal is:

“To keep pollution out of Lake Michigan”

Examples Of Purpose Policies

City of St. Charles mission statement:Maintain taxes and service fees at the

lowest possible levels while Providing responsive, timely, and competent public health and safety servicesCreating an atmosphere in which citizens feel safe, secure, and confident in city governmental operation

City of St. Charles Mission Statement, (Con’t)

Providing integrated and coordinated city-wide planning to maintain city character and accommodate changeProviding a reliable utility infrastructure that meets federal, state, and local standardsProviding a well-maintained transportation system meeting an adequate level of service

Purpose Policies

Work best when developed and agreed to well in advance of budgetingImportant to communicate to staff prior to budgetingCommunicate to citizens via the budget documentDollars allocated through budget reflect goals and priorities

Operational Policies

Services provided

Quantity and quality of services

Actions needed today to shape the future

Should relate to broad goals

Clarify the how the government will accomplish its goals

Examples Of Operational Policies

Essential services will receive priority for funding

Increased emphasis on community appearance through intensified street sweeping program as well as streetscape planning

Firm but fair enforcement of up-to-date codes

Examples of Operational Policies

Emphasize business retention as an important part of economic developmentEmphasis on preventive measures and practices rather than curesMaintain a balance between services provided by village employees and those provided by private sector, utilizing cost effectiveness and quality measures as determinants

Financial and Budgetary Policies

Guide the creation, maintenance, and use of resources

Financial trend analysis can help pin-point problem areas

Multi-year revenue and expenditure forecasting an important prelude to setting financial policies


Trend analysis can helpIdentify areas where the government is already reasonably strong in terms of protecting its financial condition

Identify existing or emerging problems in revenue sources, management practices, and infrastructure condition


Forecasting for the next 3 to 5 years can help focus financial policies

Consider external factors such as state and federal actions and bond marketIncorporate equipment and facility replacement plansIncorporate capital and economic development plansIncorporate collective bargaining and pension related impacts


Fund balance policiesMaintain a prudent level of financial resources to protect against reducing service levels or raising taxes and fees because of temporary revenue shortfalls or unpredicted one-time expenditures


Fund balance policies (cont)How and when the government builds up funds

Purposes for which funds may be used

Legally required reserves should be distinguished from discretionary reserves

Examples of Fund Balance Policies

To maintain the city’s credit rating and meet seasonal cash flow shortfalls, the budget shall provide for an anticipated undesignated fund balance between 5% and 8% for general government and enterprise fund types, of estimated annual revenues

Examples of Fund Balance Policies

The General Fund minimum undesignated fund balance is based on the equivalent of four months of the current fiscal year’s projected sales and service tax revenues

Should the fund balance fall below 5% of revenues, a plan for expenditure reductions and/or revenue increases shall be submitted to the city council

Contingency Policies

Policies on contingency planning are used as a general guide when an emergency or unexpected event occurs. A set of actions and strategies will be identified for each various situations

Contingency Policies

Examples of financial emergencies that require contingency plans are sudden and severe decreases in locally collected revenues or intergovernmental aid, and unexpected capital maintenance requirementsContingency planning in advance of such situations are viewed as a positive by rating agencies

Examples of Contingency Policies

To help maintain services during short periods of economic decline and meet emergency conditions, in addition to the fund balance, the budget shall provide for a contingency equivalent to 2% annual operating revenuesThe contingency is established to provide for nonrecurring unanticipated expenditures, or to meet small increases in service delivery costs

Revenue Policies One-time Revenue

Government should adopt a policy limiting the use of one-time revenues for ongoing expendituresBy definition, one-time revenue cannot be relied on in future budget periodsOne-time revenues and allowable uses for those revenues should be explicitly defined

Revenue Policies Revenue Diversification

All revenue sources have particular characteristics in terms of stability, growth, sensitivity to inflation or business cycle effects, and impact on tax and ratepayers

A diversity of revenue sources can improve a government’s ability to handle fluctuations in revenues

Examples of RevenueDiversification Policies

The city will strive to maintain a diversified and stable revenue system to shelter the government from short-run fluctuations in any one revenue source and ensure its ability to provide ongoing serviceThe village revenue mix shall combine elastic and inelastic revenue sources to minimize the effect of an economic downturn

Fees and Charges Policies

Identify the manner in which fees and charges are set and the extent to which they cover the cost of the service providedIdentify the cost of the program and the portion of the cost that will be recovered through fees and chargesPolicies may require periodic review of fees

Examples of Fees and Charges Policies

The city follows a “cost of service” approach which results in user fees, rates and customer charges being sufficient to cover the cost of providing the service. Each year the city will establish user fees, rates and charges at a level related to the cost of providing the service and to adjust for the effects of inflation


The city will set fees and user charges for each enterprise fund, such as water and sewer, at a level that fully supports the total direct and indirect cost of the activity. Indirect costs include the cost of annual depreciation of capital assets


A fee shall be charged for any service that benefits limited interests within the community, except for human needs type services to persons with limited ability to pay

Examples of Grant Acceptance Policies

The city shall aggressively pursue all grant opportunities; however, before accepting grants, the city will consider the current and future implications of both accepting and rejecting the monies


Intergovernmental assistance shall be used to finance only those capital improvements that are consistent with the capital improvement plan and local government priorities, and whose operation and maintenance costs have been included in operating budget forecasts


In recommending acceptance or rejection of inter-governmental grants the staff shall consider:

The amount of matching funds required

In-kind services that are to be provided

Length of grant and consequential


Disposition of service after the grant has ended

Related operating expenses

Related capital maintenance expenses

Indirect and administrative costs

Balanced Budget Policies

Encourages commitment to a balanced budget under normal circumstances

Balance should be defined to ensure that a government’s use of resources for operating purposes does not exceed available resources over a defined budget period

Examples ofBalanced Budget Policies

The city shall balance operating expenditures with operating revenues. The general fund shall not be balanced with with appropriations from the fund balance if to do so would drop the fund balance below 5% of operating revenue

Examples of Operating Budget Policies

The city shall attempt to conduct its operations on a pay-as-you-go basis from existing or foreseeable revenue sources. The control of costs will be emphasized. Achieving pay-as-you-go requires current operations, maintenance and depreciation costs to be funded with current revenues, direct and indirect costs of service to be fully identified, and sound revenue and expenditure forecasts must be prepared


All equipment replacement and maintenance needs for the next five years will be projected and the projection will be updated each year. A maintenance and replacement schedule based on this projection will be developed and followed

Replacement of capital outlay items shall be timed at fairly stable intervals so as not to spend excessively in one year and restrictively in the next


The budget shall provide sufficient funds for the regular repair and maintenance of all capital assets. The budget should not be balanced by deferring these expenditures


The city shall strive to pay prevailing market rates of pay to its employees. Prevailing market rate is defined to include both salary and fringe benefit levelsWhen establishing pay rates, such rates should not exceed the normal percentage increase in general fund revenue


The city’s workforce, measured in full time equivalents, shall not fluctuate more than 2% annually without corresponding changes in service levels or scope

Examples of Capital Improvement Program PoliciesA five year capital improvement plan shall be developed and presented annually by staff and approved by the city council. This plan shall contain all capital improvements from all funds and departments of the city. The first year of the plan shall constitute the next year’s capital budget

Examples of Capital Improvement Program PoliciesFuture operating and maintenance needs of all new or significantly expanded capital facilities will be fully costed out

Examples of Capital Improvement Program Policies

A high priority shall be placed on replacement of capital improvements when such improvements have deteriorated to the point of becoming hazardous, incur high maintenance costs, are negatively affecting property values, and/or no longer functionally serve their intended purpose

Debt Policies

Elements of policies on debt include:

Purposes for which debt may be issued

Matching the useful life of an asset with the maturity of the debt

Limitations on the amount of outstanding debt

Types of permissible debt

Debt Policies

Structural features, including payment of debt service and any limitations resulting from legal provisions or financial constraints

Refunding of debt

Investment of bond proceeds

Limitations on outstanding debt and maximum debt service

Assessing Financial Condition

Cash policy

Reserve policy

Budget policy

Debt policy

Other financial policies

Making The Connection Between Policies And Dollars

Objectives

Performance measures

Planning For The Long Term

Projections - 5 year

Analysis

Multi-year strategies

Other Related Policies

Risk management policies and plans

Investment policies

Accounting policies

developing a policy driven budget department of commerce & economic opportunity community issues...

Documents

financial policies

easier policies

priorities slide

budget debates policies

operational policies

purpose policies cont

purpose policies work

budget requests slide