Municipal Budgeting

1 Presented By: Patrick Roach, Chief Financial Officer

Topics of Focus: I. What is a budget and why is it important?

II. Budget Development

• Budget Blueprint

• State Budget Process

• District Budget Process

• Capital Budget Process

• Massachusetts General Laws

III. Budget Document Production

IV. Budget Management Process

• Financial Policies

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What is a budget?

• Definition: A plan for allocating resources over a definite period of time in order to meet a specific program’s goals and objectives.

• Balanced Budget: When funding sources are equal to or greater than estimated expenditures

• Importance of budget:

• Tool used to prioritize resource allocation

• Planning and Monitoring are key

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Types of Budgets There are various different approaches to budgeting. Some of the most common are:

• Zero-Based: Starting from scratch (zero) each year and building up.

• Staffing & Supply Allocation: Weighted formulas that assign staff and supply budgets based on student counts and demographics.

• Weighted Student Average: Students given weighted value based on demographics. Funding follows the students.

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Basis of Budgeting • Generally Accepted Accounting Principals (GAAP): A collection of

rules and procedures, set by authoritative policy boards, that companies use to compile financial statements.

• “Fund” basis: The basic procedure for recording revenues and liabilities in governmental financial reporting. The operations of each fund are budgeted independently.

• Modified Accrual Basis: All governmental funds are accounted for using this basis of accounting.

• Revenues are recognized when measurable and available to pay current liabilities.

• Expenditures are recognized when the liability is incurred.

• Chart of Accounts: Listing of all accounts a company has identified and made available for recording transactions. 5

Budget Process

The budget process consists of activities that encompass the development, implementation and evaluation of a plan for the provision of services and capital assets.

• Essential Features:

1. Long-Term Perspective

2. Links to Broad Organizational Goals

3. Focuses on Results and Outcomes

4. Provides Incentives to Management and Employees

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Budget Cycle

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Project Plan These tools keep the budget process on task:

1. Budget Calendar

2. Microsoft Project Plan

3. Communications Checklist (displayed below)

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Task Data Request Sent Due to Finance Analyst Sign Chief Sign

Schedule a Budget Review meeting with

Analyst 1/2/2013 1/11/2013

Narrative & Goals for Document 1/2/2013 2/1/2013

FY14 Level Service Budget Request, Staffing

List, Potential Revenue Opportunities, & New

Initiatives

1/2/2013 2/1/2013

FY14 Targeted Reductions and Impact

Statements 1/2/2013 2/15/2013

Grant/Special Revenue 1/2/2013 2/15/2013

Budget Hearing with Superintendent 1/2/2013 2/27/2013-3/13/2013

*Note – Requests should be completed in the above order; specifically level service budgets should be developed prior to reductions

being recommended. Also, Chiefs may choose to set earlier internal deadlines for Department Heads to review prior to the submission

to the Finance Department.

II. Budget Development Process

The mission of the budget process is to help decision makers make informed choices about the provision of services and capital assets and to promote stakeholder participation in the process.

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Example of a Process

STEPS IN SPRINGFIELD:

1. Funding level-service requests are made by departments • Aligned with accomplishing needs and priorities for next fiscal year

2. Departments list potential cuts separately

3. Departments list new initiatives separately

4. Departmental requests, district-wide costs and forecasted revenues are used to project any budget deficit

5. Balancing the budget – analyze departmental requests to find where cuts, efficiencies or revenues can be realized

GOAL: Balance the budget with minimum impact to classrooms and instruction. 10

Stakeholder Involvement

Stakeholder: anyone affected by or who has a stake in School Department’s Budget

ex. Students, teachers, parents, business community, etc.

Tools used in Springfield:

• Superintendents Budget Advisory Committee

• Budget Brochure

• Website with Updated Information

• School Committee’s Budget Survey

• Public Viewing / Public Hearing (Required)

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Budget Projections • 4 status updates are released to stakeholders throughout the fiscal year:

1. Initial Projection: “worst-case scenario” projection – allows for planning of potential contingencies. Loose budget assumptions are used to get a budget outlook for next year.

2. Governor’s Budget: (late January) During Development Phase – mainly based on the State budget. Initial Chapter 70 and foundation enrollment is updated into the budget outlook along with any new developments that the State may have released (i.e. Circuit Breaker)

3. Level Service Budget: Assumes the same level of service (not dollars) as the prior year.

4. Final Balanced Budget: Includes all approved cuts and new initiatives. After full vetting of the budget requests and revised assumptions, revenues are equal to expenses. 12

Budget Blueprint

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State Budget Process Fiscal Year 2014 Budget Documents Budget-Writing Steps

Governor's Budget

(January)

The budget begins as the Governor submits a bill on the 4th

Wednesday in January (or five weeks later if at the start of a

new term) to the House of Representatives.

House Ways & Means Budget

The House Ways and Means Committee reviews the

Governor's budget and then develops its own

recommendation.

House Budget

Individual representatives submit budget amendments, which

are then debated on the House floor. Once debated,

amended, and voted on by the full House, it becomes the final

House budget bill and moves to the Senate.

Senate Ways & Means Budget

(April)

The Senate Ways & Means Committee reviews both the

Governor's and House budgets and develops its own

recommendation.

Senate Budget

Individual representatives submit budget amendments, which

are then debated on the Senate floor. Once debated,

amended, and voted on, it becomes the final Senate's budget

bill.

H.1 Revised

State Finance law requires the Governor to submit budget

revisions to his proposed budget if revenue forecasts predict a

shortfall after the original submission.

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Fiscal Year 2014 Budget Documents Budget-Writing Steps

Governor's Budget

(January)

The budget begins as the Governor submits a bill on the 4th

Wednesday in January (or five weeks later if at the start of a

new term) to the House of Representatives.

House Ways & Means Budget

The House Ways and Means Committee reviews the

Governor's budget and then develops its own

recommendation.

House Budget

Individual representatives submit budget amendments, which

are then debated on the House floor. Once debated,

amended, and voted on by the full House, it becomes the final

House budget bill and moves to the Senate.

Senate Ways & Means Budget

(April)

The Senate Ways & Means Committee reviews both the

Governor's and House budgets and develops its own

recommendation.

Senate Budget

Individual representatives submit budget amendments, which

are then debated on the Senate floor. Once debated,

amended, and voted on, it becomes the final Senate's budget

bill.

H.1 Revised

State Finance law requires the Governor to submit budget

revisions to his proposed budget if revenue forecasts predict a

shortfall after the original submission.

State Budget Process Continued

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State Budget Process Continued

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Conference Committee Budget

House and Senate leadership assign members to a "conference

committee" to negotiate the differences between the House and Senate

bills. The conference committee report can only be approved or

rejected - no additional amendments can be made.

Vetoes

Once approved by both chambers of the Legislature, the Governor has

ten days to review it. The Governor may approve or veto the entire

budget, or may veto or reduce particular line items or sections, but

may not add anything.

Overrides The House and Senate may vote to override the Governor's vetoes.

Overrides require a two-thirds roll-call vote in each chamber.

Final Budget

(June)

The final budget is also known as the General Appropriations Act

(GAA) or "Chapter xxx of the Acts of 2013."

Budget Adoption

1. Operating budget is balanced

2. Superintendent’s proposed budget is sent to Budget and Finance Sub-Committee prior to the full School Committee meeting • Very successful process when Sub-Committee reviews first

3. State Legislature and District assumptions can be modified

4. Final revisions are made • Approved cuts and new initiatives implemented

5. Budget is adopted by the School Committee

6. Budget is also sent to Mayor to the City to be a part of the overall adoption by City Council

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Capital Budget Development Process

• Capital Project: A fixed facility, object, or asset costing more than $25,000 with an estimated useful life of ten years or more. [Capital Improvement Plan (CIP)]

GOAL: Improve existing infrastructure, extend its useful life, or

build or acquire new capital assets (investment)

M.G.L Ch. 44 §7 – All capital expenditures requiring debt service must be authorized by the Mayor and the City Council (the City cannot authorize its own debt)

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Capital Planning

• Assess needs

• Input needs into plan in order of priority

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Capital Plan Development

• Requests are gathered from Department Heads

• Review and analyze each project

• Capital Improvement Committee holds project hearings • Additional background information is requested

• Finalized cost estimates are provided

• After review, the Committee establishes project priorities and funding appropriations • Funding Examples Include:

• Issuing bonds

• General Fund

• Massachusetts School Building Authority (MSBA) 20

Capital Plan Adoption Phase

• Capital Improvement Committee submits a proposed CIP to the Mayor and the City Council for approval

• Final list is submitted to the City Council to be voted on as part of the overall budget process

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III. Budget Document Production • A budget document has multiple uses:

1. Policy Document: Provides what services a municipality will provide over the next fiscal year. It also includes a Executive Summary which summarizes short and long-term concerns, financial situations, and how the budget will address specific issues.

2. Operations Guide: States how departments and funds are organized to provides services.

3. Financial Plan: Summarizes detailed costs and how services will be funded. Revenues and expenditures are listed.

4. Communications Device: User-friendly guide by displaying information in charts, graphs, tables and text and also lists a glossary of terms, and table of contents so the reader can easily navigate.

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Best Practices

• Guidance is provided on websites such as:

• http://www.asbointl.org

• http://www.gfoa.org

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Policy Document

• Include information pertaining to:

• Mission Statements

• Executive Summary

• Administrative Organization

• Financial responsibilities with each department

• Massachusetts General Laws

• Chapter 30B – Procuring supplies & services

• Contract information

• Capital projects

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Operations Guide

• Department’s information should include:

• Mission statement

• Description of where money will be spent and its purpose

• Projected expenses

• Show percentages anticipated to be spent, compared to overall allocated budget

• Personnel information

• Number of staff

• Salaries & wages budgeted amount

• Expected outcome of services provided

• Goals for the future

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Communication Guide • Each section should include a graph, chart, or diagram for a

reader to easily understand where money is being spent

• Example: Total pension costs are increasing, due to people being healthier and living longer.

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Budget Awards

• Municipalities can submit their budget document to different organizations in order to receive awards based on certain criteria

• Organizations have specific criteria your budget document must adhere to in order to be considered for the award

• Examples of major budget award organizations include:

• ASBO – Association of School Business Officials International

• GFOA – Government Finance Officers Association of the United States and Canada

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ASBO & GFOA Awards

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Financial Plan

• Include information pertaining to:

• Projected revenues for general funds, federal grants, state grants, private grants, and revolving funds

• Projected revenues and expenses by department

• Budget trends and forecasts

• Compensation – including health plan costs, retiree costs, out-of-district tuition, charter tuition/school choice

• Grant information – including award amount and how the money will be spent

• Budget assumptions of revenues and expenses

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IV. Budget Management Process

• MUNIS: The financial system used to integrate all budgeting, accounting, and human resource function within the City.

• Fully auditable system = maximum transparency and control of the City’s resources

• Position Control: The (control) module used within MUNIS to help effectively manage the use of financial and human resources data.

• Usually over 70% or more of school budgets is personnel costs, so position control is critical in managing and monitoring the budget

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Budget Management Process • Transfers: Revisions to the adopted budget may be made

throughout the year by submitting a “Budget Transfer Request Form,” which must be approved by the Budget Director

• The Office of the Comptroller gives the final approval and processes the request.

• Monitoring: Accounts are reviewed by a team of financial analysts to ensure a balanced budget and proper accounting.

• Monthly meetings are help with Department Heads and Principals to review status of budget

• Accountability: Per M.G. L Ch. 41 §58, all department heads are legally responsible for not exceeding budgetary appropriations.

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Budget Management Process

• Auditing: The objective of the City’s annual audit is to obtain independent assurance that a community’s year-end financial statements are reliable, accurate, and complete.

Types of Audits Performed:

1. A-133 single act audit is required to ensure proper internal controls over financial reporting and on compliance with requirements that could have a direct and material effect on each major program under the federal grants award.

2. End of Year Report audit is required to ensure the District’s funds were spend in accordance with the compliance requirement described by the Massachusetts Department of Elementary and Secondary Education (DESE).

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Budget Management Process

Types of Audits Performed:

3. Student Activity Account audits are performed every three years to confirm proper internal controls and to ensure revenue and expenditure-recording procedures comply with M.G.L. Ch. 71 §47.

4. Ad-hoc audits are performed to analyze general ledger accounts, financial procedures, internal controls, system checks, and product analysis.

• Fraud Detection: A fraud hotline encourages employees to remain anonymous and report issues of known or suspected misappropriation of municipal funds or resources related to the City.

http://www.springfieldcityhall.com/finance/fraud-form.0.html

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Financial Policies

City of Springfield Example:

• The City will not balance the budget by using one-time or other nonrecurring revenues to fund ongoing expenditures, except transfers from “free cash” or a “stabilization reserve fund.”

• Written disclosure is required by the Chief Administrative and Financial Officer (CAFO) indicating:

• Size of the appropriation

• Remaining balance in reserve after the appropriation

• Projection showing how the City will finance these recurring expenses in upcoming fiscal years

• The City will not defer payments, or roll-over short term debt.

• Budgetary procedures will conform to existing state and local regulations. 34

City Financial Policies

Revenue:

• The City will estimate using conservative methods.

• Revenue line items may increase by no more than 3% from one fiscal year to the next.

• Any in excess of 3%, should be considered volatile revenue and may only be expended to increase reserve fund levels or to fund non-recurring capital expenditures.

• Exception: Chapter 70 (school) aid and school building assistance payments

• These shall be budgeted in an amount no greater than the estimates provided by the Commonwealth of Massachusetts

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Conclusion • Planning for the future and

managing finances is key

• Provides a financial roadmap for operations

• Accounting software like MUNIS helps automate the budget process • Provides control and monitoring

features to ensure accuracy and efficiency of accounting practices

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Questions

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