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Fundamentals of Local Government: Basic of Budgeting
for Small Communities
Pat WalkerPat Walker Consulting LLC
August 19, 20153:15-4:30PM
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AgendaAgenda• Introduction/
Overview• Development of
Budget Process• Small Community
Issues• Discussion• Questions
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Purpose of Purpose of BudgetingBudgeting
• To meet organizations strategic goals
• Process to determine what & how services will be delivered to citizens
• How the services will be financed
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Purpose of BudgetingPurpose of Budgeting Internal Control mechanism for
planning and controlling operations One of the most important activities
undertaken by governments Revenues MUST = Expenditures Bottom line, you can add revenues,
reduce expenditures or a combination of both!
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Purpose of Purpose of BudgetingBudgeting
Simplistic Version“On what basis shall it be decided to allocate X dollars
to activity A versus activity B?”
Not as easy as it sounds……
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Difference between Large & Small Cities/Towns
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Roles in Roles in BudgetingBudgeting
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Roles in Roles in BudgetingBudgeting
• Citizens• Elected Officials• Public Employees
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Roles in Roles in BudgetingBudgeting
Citizens:• Voice heard as to priorities/service levels and cost of providing desired priorities/service levelsElected Officials:•Set Policy Guidelines, Establish Priorities, Communicate Position to Constituents, Resolve Conflicts
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Roles in Roles in BudgetingBudgeting
Public Employees:•Department Staff - Develop Program Objectives, Identify Service Levels, Prepare Budget Requests•Executive Management - Prepare a Recommended, Balanced Budget, Incorporate Elected Priorities, Assess Service Levels
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Difference Between Large & Small Cities &
Towns• Roles for Citizens & Elected
Officials are the same• Only difference with
Department Staff and Executive Management – They may be one in the same!
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Building a Budget
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Two Sides to the EquationTwo Sides to the Equation
Revenues
Expenditures
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Never Ending CycleNever Ending Cycle
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• General Fund• Special Revenue Funds • Capital Projects• Enterprise Funds
FundsFunds
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General FundGeneral Fund
• Revenues to be used for any municipal purpose
• Contains most departments in the City/Town
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Special Revenue FundsSpecial Revenue Funds
Revenues collected for specific purpose and are restricted in their use
Highway User Revenue Fund (HURF)
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Capital Budgets (CIP)Capital Budgets (CIP)• Multi-year and of
considerable value of asset
• Long term Financing• Associated on-going
costs that impact operating budget
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Enterprise FundsEnterprise Funds• Like a business, needs to be “self
supporting”• Revenues cover cost of providing
service• User based versus tax based revenues• Enterprise Funds:
• Utilities (Water & Sewer)• Ambulance• Sanitation
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• Project out your revenues
• Expenses-One time versus on-going
• Fund balances
Budget ProcessBudget Process
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Preparation of Preparation of BudgetBudget
• Revenue Forecasting• Producing a “balanced budget”• Phantom deficit reductions that will
catch up with you• Unrealistic revenue projections• One-time versus on-going• Ducking the decision
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RevenuesRevenues
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• Local revenuesSales taxFranchise taxesLicenses, permits & feesFinesProperty taxes
RevenuesRevenues
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Local Sales TaxesLocal Sales Taxes
• Major Revenue Categories:RetailConstructionUtilitiesRentalServices
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Franchise TaxesFranchise Taxes Permission for utilities to use
City/Town’s right away for underground lines
Must be approved by vote of the people
Usually based on % of gross sales Cannot exceed 25 years
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Property TaxesProperty Taxes• Primary tax rate can be used for any
municipal purpose• Secondary rate can only be used for
payment of debt service (principal and interest) on bonds approved by voters
• 60 day notice required if property tax rate increases (not the levy)
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State Shared State Shared RevenuesRevenues
State Sales tax Income tax Auto LieuHighway User Revenue
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Other Finance Other Finance SourcesSources
• Bonds• General Obligation Bonds• Revenue Bonds• Highway User Revenue Bonds• Special Improvement District Bonds• Municipal Property Corporation Bonds• Water Infrastructure Financing
Authority (WIFA)
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“Expenditures for Services”…Citizens
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“Expenditures”… Council & Staff
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“Taxes are going up to pay for Services” -
Citizens
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• State Expenditure limitation• Alternative?
• Home Rule• Permanent Base Adjustment• One time override
Expenditure Limitation
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Types of Types of Budget Budget
ProcessesProcesses
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• Performance Based• Program• Zero Based • Modified Zero-Based (Target) • Incremental• Expenditure Control Based (ECB)• Line Item
Budget ProcessesBudget Processes
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• Council’s vision and goals • Fiscal picture for next year (Revenue
Projections/Expenditure estimates)• Instructions/rules to follow in
preparation• Budget justification• Cost Estimations
Preparation of Preparation of RequestsRequests
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Review of RequestsReview of Requests• Central Budget office "rules of
thumb”• Policy Rationale• Program changes• Trend analysis• Does it follow executive policy
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Requests Versus Available Resources
Advocates VersusGuardians
Collective Interests Versus Special Interests
Conflicts?
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Difference Between Large & Small Cities &
Towns• Processes can be used by large
or small communities• Small communities tend to get
into line item but that can cause losing sight of the “big picture”
• Same revenue sources, just at different levels
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Difference Between Large & Small Cities &
Towns• Expenditure projection process-
departments not as involved• Can become more political in
smaller communities• Expenditures not of same
magnitude but…..can be more than revenues base allows
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Budget Issues Impacting Arizona Communities
• Compensation• Growth-Related
Issues• Revenue Reliance
• Leakage• Inter-City
Competition• Shared
Revenue• Unfunded
Mandates
• Industry Attraction/Retention
• Water Supply/Allocations
• Regional Transportation
• Neighborhood Focus
• Community Development
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Capital Capital BudgetsBudgets
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• Multi-year and of considerable value
• Operating Impact of CIP
• Finance by pay as you go, grants, or borrowing
Capital Budgets (CIP)Capital Budgets (CIP)
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Major Revenue Sources•Bonds•Impact Fees•Grants•Current Revenues
Capital Capital BudgetsBudgets
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Difference Between Large & Small Cities &
Towns• Majority of small communities
do not have CIP’s• Funding availability for large
projects are through grants (CDBG,USDA, WIFA) or loans
• Reactive versus proactive
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Budgeting in Arizona – Keeping Budgeting in Arizona – Keeping it Legalit Legal
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• Must adopt a balanced budget
• Tentative budget must be adopted by third Monday in July
• No requirement for final budget unless City/Town has property tax
• Property Tax must be adopted by 3rd Monday in August but 14 days after final budget adoption
• Various restrictions on funds – HURF, Impact Fees
Budgeting in ArizonaBudgeting in Arizona
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Budgeting in ArizonaBudgeting in Arizona• Tentative budget is required to be itemized
per Auditor General Forms
• Published once a week for two consecutive weeks
• Notice of hearing date for final budget
• Both tentative and final must be published on City/Town website 7 business days after adoption
• Must remain posted for 60 months (five years)
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• Cities/Towns must establish and maintain an official internet website
• Posted no more than 7 days after estimates of revenues and expenditures are given to governing body
• A.R.S 42-17105 & 17103:• Requires adoption of expenditure estimates
(tentative budget)• Posting of tentative and final budgets for 60
months
Publication Publication RequirementsRequirements
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• Levy versus rate!• Bottom line, if current AV goes up,
truth in taxation may be required• Citizen perspective: If you had a
house that was valued at $100K last year and it is valued at $110K this year and the rate stays the same, your levy is going up!
Truth in TaxationTruth in Taxation
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AZ Auditor General AZ Auditor General FormsForms
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Important Budget Related Statutes
• 9-499.15. Proposed municipal taxes and fees; notification required; exception• If New or increased tax rate or fee,
provide written notice of the proposed increase on the home page of the municipality's website at least sixty days before the date the proposed new rate is approved or disapproved by the governing body of the municipality.
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Important Budget Related Statutes
• 9-511.01. Water and wastewater business; rates; procedures; responsibility for payments• Water & Wastewater rate, fee or service
charge must file a written report supporting increase at least 30 days prior to a public hearing
• Council adopt a “notice of intention” at a regular council meeting and set the public hearing date, but must be within 30 days.
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Budget Related Elections
Bonds•General Obligation Bonds – Yes!•Revenue Bonds – Yes! (Except Utility)•Highway User Bonds – Yes!•Municipal Property Tax Corporation Bonds – No!
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Budget Related Elections
• Establishment of a Primary Property Tax
• Alternative Expenditure Limitation (Home Rule) every 4 years
• Permanent Base Adjustment• One-time override
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Difference between Large & Small Cities &
Towns
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Small Communities
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Issues Facing Small Communities
• Decreasing tax base• Assessed valuation• Sales tax base
• Limited revenue options• Sales Tax• Fees & Charges• Property taxes
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Issues Facing Small Communities
• Deteriorating infrastructure• Water• Wastewater• Streets
• “Catch 22” with creating new jobs and attracting new businesses
• Services expected above revenues received
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Issues Facing Small Communities
• Hiring qualified personnel• Growth is not always welcomed• Keeping identity but not being
available to afford it (resistance to regionalization of services)
• Minority voice can become majority
• Deep culture---long history
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Issues Facing Small Communities
Audience Participation
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ResourcesGovernment Finance Officers Association
AZ Auditor General Office
AZ League of Cities & Towns-Budget and Finance Manual
http://www.azleague.org/
Pat Walker Consulting [email protected]
http:www.auditorgen.state.az.us
http://www.gfoa.org/budgetaward
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Questions?Questions?