Budget process - Florida Government Finance Officers Association

Report
Mary-Lou Pickles, CGFO, CMA
Chris Lyons, CPA, CGFO, CPFO
1
I.
II.
III.
IV.
V.
VI.
VII.
Budget Process/Budget Types
Fiscal Policies & Best Practices
Performance Measurement
Revenue Management & Forecasting
CIP & Financial Planning
Budget Presentation Award
Additional Information and Source
Material
2
3
 Governments
allocate funds to programs
and services through the budget process
 Process should effectively involve major
stakeholders and reflect their needs and
priorities
 The budget process should:




Incorporate a long-term perspective
Establish linkage to broad organizational goals
Focus decisions on results and outcomes
Achieve consensus on decisions related to
goals, services, and resource allocation
4
 The

budget is a plan
If you don’t have a plan, how do you know
when you are done?
 Benefits






of the budget
Stable service delivery
Impact of current decisions
Thoughtful responses
Identifies future trends early
Builds credibility
Transparency
5
 Budget
process reforms are designed to
provide more and better information to
decision makers increasing the rationale
for budget decisions.
 Approach depends on management and
legislative body
6
 Executive
Budgeting
 Performance Budgeting
 Program Budgeting
 Program-Planning Budgeting
 Zero-Based Budgeting
 Budget Allotment
7
 Control
of budget preparation lies with
the Chief Executive Officer/City Manager
 Earliest version used a simple line item
format
 Cities and states were the first to adopt
this format
8
 First
major reform after Executive Budget
format
 Emphasizes purpose and accomplishments
 Primary features are efficiency and
effectiveness measures
 Expenditures are based on measurable
performance of activities and programs
 Sets primary focus on evaluation of the
efficiency of existing activities
9
A
budget wherein expenditures are based
on program of work and on character and
object class (GFOA definition)
 Organized by major programs
 Enables comparison of the costs and
benefits of major programs
 May encourage micro management of
department activity by CEO or legislative
body
10
 Originated
by Department of Defense
 Identify most cost effective way to
achieve goal
 Successful at DOD where results were
easily quantified
11
 Continued
existence of programs and
activities must be justified every year and
not taken for granted
 Purpose is to force conscious decisions
between disparate goals
 Designed to address the appropriateness
of each goal, rather than the most cost
effective program to achieve the goal
12
A
portion of the budget is allocated to an
interim period based on historical
spending patterns and needs
 Advantages include:



Avoidance of rushed year-end spending
Aids in cash flow
Provides for inventory planning needs
13
 Financial:
plan for future revenue
collection and spending
 Political: resolve conflicts due to
allocation of scarce resources
 Planning/Analytical: Effectively use
government resource tools, such as, costbenefits analysis, cost effectiveness, net
present value analysis and strategic
planning
14
 Administrative:
effectively coordinate the
preparation of the budget and ensure
expenditures are made in accordance with the
adopted budget
 Communicative: provide information that will
assist with choices and promote stakeholder
participation in the budget process
 Strategic Planning: define the direction of
making decision on allocating resources, link to
budget, be outcome driven and be supported
by elected officials
15
1.
2.
3.
4.
5.
6.
Budget manual (call)
Agency/Department budget
requests
Preparation of the proposed budget
Legislature consideration and
adoption
Implementation
Audit and evaluation
16
 Responsibility
for initiating budget cycle
rests with the CEO, usually City Manager
or Mayor
 Budget call or manual is instructions sent
to agency and department heads
concerning the submission of information
for the budget year
17
 Statement
from CEO or budget
officer outlining fiscal position
 Description of budget process
 Budget calendar
 Assumptions to be used for requests
 Forms to be used with instructions
18
 Prepared
by Agency/Department
 Budgets usually begin as requests
that contain three items



Budget schedules that detail the amounts
requested, usually in line item format
Supporting documentation
Transmittal letter that describes the
agency/department and provides justification
for its major objectives and initiatives for the
budget year
19
 Budget



staff reviews requests to ensure:
Compliance with priorities and objectives in
budget manual
Revenues and expenditures balance
Revenue estimates are realistic and within
guidelines, DOR provides information about
revenue to local governments
 Budget
staff compile requests into a
single budget document that is submitted
to the legislative body for review
20
 Executive
proposal is presented to
legislative body for consideration
 Legislative body reviews to ensure the
budget addresses their constituents’ needs
 Public hearings in compliance with State
Statutes dictate:


Date, Time, and Place of hearings
Publicized hearings that give citizen interest
groups the opportunity to raise issues related to
the allocation of resources
21
 Budget



document should:
Provide summary information for the public
and media
Include a transmittal letter that outlines key
policies and strategies
Be readable and understandable
 Chapter


200, F.S. Truth in Millage (TRIM)
Requires two public hearings for open
discussion of millage rates and budgets of
taxing authorities
Sets the maximum operating millage for cities
and counties at 10 mills
22
 Chapter



200, F.S. TRIM (continued)
Tax revenue is based on the Certification of
Value provided by the Property Appraiser and is
the valuation of taxable value within the
jurisdiction
Requires taxing authorities to utilize a minimum
of 95% of the certified taxable value
Defines a “county of special financial concern”
as a county where 1 mill will raise less than
$100 per capita
23
 Chapter
200, F.S. TRIM (continued)
Requires taxing authorities to advise property
appraiser of its proposed millage rate, its rolledback rate, and public hearing information within 35
days after receipt of certification of value
 Requires certification of statutory compliance be
sent to Department of Revenue
 Allows taxing authorities to readopt its prior year’s
adopted final budget, as amended, and expend
moneys based on that budget until such time as its
tentative budget is adopted if the fiscal year of the
taxing authority begins prior to adoption of the
tentative budget.

24
 Budget
officer implements
 Establish and record budget as
approved by legislative body
 Start new fiscal year
 Establish position control based on
approved positions, job description
and pay rate
25
 Budget
officer monitors quarterly or
monthly
 Report actual compared to budget
 Make budget adjustment as
necessary
 Monitor progress toward objectives
26
 Classic

(traditional)
Both the spending and revenue plan for each
budgetary year are approved at the same time
 Rolling

Each year’s appropriations are adopted in each
subsequent year
 Recommended

Governments should prepare multi-year
expenditure projections
27
 Improves
Financial management
 Long-range strategic planning
 Program monitoring and
evaluation/benchmarking

 Reduces
staff time in budget development
 Links operating and capital
activities/spending
 Reduces surprises
 Pinpoints problem areas early
28
 Difficult
to project into the future
 Could reduce responsiveness to
emergencies if too restrictive
 Initial year may increase work and
stress in departments
29
 Amend
existing financial and budget
policies and procedures addressing:



Allowance/disallowance of carryovers from one
year to the next
Level of acceptance of budget adjustments, if
any
The amount of revenue reserves that can be
used for unanticipated expenditures
30
 Create financial policies
 Balanced budget
 Revenue diversification
 Debt capacity
 Fund balance
 Other safeguards
 Examine key economic and fiscal indicators
 Perform analysis of existing revenue structure
 Update budget manual/call to reflect changes
31
 Budgets
have more detail
 Budgets have goals and/or
objectives
 Budgets are public documents
 Budgets are approved by the
governing body
32
 Governmental fund types:
 Used to account for most, if not all, of a
government’s taxable supported activities
 Uses modified accrual basis of accounting
which recognizes revenue when measurable
and available
 Five
1.
2.
3.
4.
5.
types:
General fund
Special Revenue funds
Debt Service funds
Capital Projects funds
Permanent funds
33
 Proprietary


Used to account for a government’s businesstype activities and serves internal and external
customers
Uses accrual basis of accounting which
recognizes revenue when earned
 Two


funds:
types
External – Enterprise funds
Internal – Internal service funds
34
 Encumbrances:
obligations incurred
for which receipt of goods or services
have not occurred
 Mandate: when a higher level of
government requires a lower level of
government to perform a specific task
or to meet a standard
35
36
Four principles of the budget process
Twelve elements each of the four
principles of the budget process
incorporates at least two of the
twelve elements to help translate
the guiding principles into action
components
37
1.
2.
3.
4.
Establish broad goals to guide
government decision making
Develop approaches to achieve
goals
Develop a budget consistent with
approaches to achieve goals
Evaluate performance and make
adjustments
38
1.
2.
3.
Assess community needs, priorities,
challenges and opportunities
Identify opportunities and
challenges for government services,
capital assets, and management
Develop and disseminate broad
goals
39
4.
5.
6.
7.
Adopt financial policies
Develop programmatic, operating,
and capital policies and plans
Develop programs and services that
are consistent with policies and
plans
Develop management strategies
40
Develop a process for preparing
and adopting a budget
9. Develop and evaluate financial
options
10. Make choices necessary to adopt a
budget
8.
41
Monitor, measure and evaluate
performance
12. Make adjustments as needed
11.
42
 Define
a balanced operating budget
 Develop with goal to maintain
structurally balanced budget
(balance between operating
expenditures and operating
revenues)
 Identify who is responsible for
budget preparation - management
43
 How
much change in the property tax
rate is acceptable in a given year
 How will one-time revenues be used
 How frequently should service charges
and fees be reviewed
 Example:
 Contribution
 Savings from bond issue
Don’t budget
 Not used for ongoing expenditures

44
 GFOA
recommends governments establish a
formal policy on level of Unrestricted Fund
Balance that should be maintained in
General Fund based upon a government’s
own specific circumstances considering:





Predictability of its revenues
Volatility of its expenditures
Risk to significant one-time outlays (disasters)
Commitments and assignments
Conformity with legal and regulatory constraints
45
 To
guide the creation, maintenance
and use of resources for financial
stabilization purposes
 Identify purpose for which funds can
be used
 Also referred to as rainy day funds,
unreserved, undesignated fund
balances and contingency funds
46
 Guide
financial actions that will take
place in the event of emergencies,
natural disasters or other
unexpected events
 General guide to improve the ability
to take timely action and to aid
management when an emergency
occurs
47
 Should
guide issuance and management of
debt
 What is the maximum long-term debt
burden that the government will incur
 What mix of long-term debt and current
revenues, if any, will be the basis for
financing capital improvements
 How will bond proceeds be used
 Under what conditions will short-term
debt be used
48
 Develop
mechanisms for budgetary
compliance


Appropriate management processes and
systems should be in place to ensure
compliance with the adopted budget
Institute procedures to review budget
periodically (actual-to-budget comparisons)
49
 Full
Cost – Encompasses all direct and
indirect costs related to that service
 Direct Cost – salaries, wages and benefits
of employees working exclusively on the
delivery of the service and materials and
supplies and other associated operating
costs
 Indirect Cost – shared administrative
expenses in the work unit and in support
functions outside the work unit
50
 Life-cycle
costs - Include costs in addition
to purchase price over the life of an asset
such as maintenance and repairs, failure
costs (downtime) and money costs
(interest and opportunity)

This concept is useful for decisions involving
the purchase of major equipment
51
 Opportunity
costs – The benefit of an
option that is forgone by choosing another
option (loss benefit)
 Sunk costs – A cost that has been incurred
and cannot be reversed

Should be ignored when evaluating future
decisions
52
 Marginal
Cost – Associated with expansion
of a service without any increase in fixed
costs (unused capacity)
53
54
 Performance
measurement - process for
determining how a program is accomplishing
its mission
 Four key steps:




Identification and definition of indicators
Collection of appropriate data
Analysis (comparing) performance to previous
results or benchmarks
Reporting the results
55
 Input
– resources used in producing an output
or outcome
 Output – completed activity, amount of work
done within the organization

Workload – the level of productivity of staff in
providing goods and services to customers
 Effectiveness
– the degree that goals and
objectives are met within deadlines
 Efficiency – measures the amount of
outcomes per unit of resources allocated to
an objective
56
 Performance
measures should be linked
to specific program goals and
objectives
 Give priority where goals are achieved
 Measures should be valid, reliable and
verifiable (quantified assessment)
 Performance budgeting (outcome) links
the budget by establishing
performance measures agreed upon by
managers and decision makers
57
 Answers key questions:
 How much did we do (quantity)?
 How well did we do it (quality)?
 How hard did we try (effort)?
 What change did we produce (effect)?
 Why Measure?
 To improve performance
 To enable good decision making (quantified)
 Enhance accountability
 Report to the public
58
 Clearly
defined service area
 Processes
 Activities and tasks
 Planned outcomes or achieved
results
 Link expenditures and revenues to
goals, objectives and outcome
 Expenditures and revenues are
related to specific functions
59
 SMART
 Specific
 Measurable
 Attainable
 Relevant
 Time-Bound
or Timely
60
 Should
be developed to aid in
assessing how well a function,
program or activity meets needs or
purpose
 Comparative standards that prove a
frame of reference for evaluating
program/service quality or
effectiveness
 Should be consistently defined and
measureable
61
62
 Estimating
revenue is the first step
in determining the level of resources
that will be available for budget
appropriations
 Influenced by:
 Administrative
factors
 Political factors
 Economic factors
 Policy factors
63
 Uses
analytical techniques to
estimate
 Should be decentralized with process
to achieve consensus on the forecast
 Establishes a spending target
 Projects the overall future financial
condition – capital spending and debt
 Should extend over a period of at
least 3 years
64
 Governments
should maintain a
revenue manual that documents
revenue sources and factors relevant
to present and projected future
levels of those resources
 Promotes
better understanding of
government’s resources
 Supports decision-making
 Internal staff training tool
65
 Qualitative
revenue forecasting methods
rely on judgments about future revenues
 Consensus - Group collectively reaches
agreement on revenue projections based
on previous collection patterns,
experience, and knowledge of historical
events.
Judgmental - Informed decision based on
history and general economic conditions.
 Expert - uses economists, demographers,
market researchers, and social scientists to
study trends.

66
 Weaknesses
Responds to political pressures
 Focus on current issues/events
 Lack of comparability over time

67
 Relies
on numerical data enabling
testing to see if underlying data
assumptions are met
 Requires extensive amounts of
historical data to generate
dependable projections
68
 Trend
analysis – forecasting future
revenues based on its short-term historic
trend
 Simple linear and multiple regression
analysis
 Time series analysis – forecasting
revenues based on financial data over
extended periods (e.g., 15 or more time
periods)
69
 Econometric
forecasting involves
projecting future revenues by taking into
account the economic factors that
influence that revenue source
Sales tax
 User charges (building & construction
permits)
 Real estate revenues

70
 Simple
technique for determining
whether a project will break-even
 Revenues
 Four
= Costs
variables
 Revenue
per unit
 Fixed costs
 Variable costs
 Number of units or users
71
 Method
of comparing the long-term
financial costs and benefits of
different alternatives
 Uses
discounting – process of
converting a future value into the
value it would be given today
The value of the
$ Promised in future
=
promise today
Discount factor
72
 To
form a Community
Redevelopment District, Florida
Statute 163.355 requires a
municipality to adopt a resolution,
supported by data and analysis,
which makes a legislative finding
that the conditions in the area meet
the criteria described in
s.163.340(7) or (8).
 Finding
of necessity
73
 Florida
Statute 205.0535 requires a
municipality to establish an equity
study commission before adopting a
new rate structure for business
taxes
 Florida Statute 218.25 constrains the
use of State Revenue Sharing for
debt service in excess of guaranteed
entitlement amount
74
75
 Capital
assets are government facilities,
infrastructure, equipment or networks

Enable the delivery of essential public sector
services
 Recommends
governments establish a
system for assessing their assets
 Plan and budget for any capital
maintenance and replacement needs

Inventory policy
76
 Prioritize
projects and funding sources for
period of time, usually 5 years
 Should involve citizens –
recommendations
 Should be included in budget document
and approved by the governing body
 Adopted at the same time
 Is a decision-making tool – future
considerations outside scope
 Is a financial management tool
77
 Is
part of long-term strategic plans
but doesn’t drive them
 Includes projects approved by key
officials (manager, council) waiting
for funding
 Projects are typically placed in out
years and move up until they are
included in the current year’s
capital budget
78
 Review
status of previously approved
projects
 Identify new projects
 Assess alternatives
 Complete forms
 Evaluate ability to fund
79
 Project
description
 Location map
 Justification
 Cost by year
 Impact of future revenues
 Future operating costs
80
 Criteria
 Should
be developed to select and rank
proposed CIP projects and agreed on by
everyone in the decision making
process.
 Consider
 If
taxes will have to be raised
 How many citizens will benefit
 Safety issues
81
 Current
revenues or fund balance
(pay-as-you-go)
 Debt (pay-as-you-use)
 Tax-Increment Financing Bonds
 Used
for projects within an area
expecting to benefit from economic
development
 Grants
 Impact
fees
82
83
Four categories:
 Budget as a policy document
 Budget as a financial plan
 Budget as an operations guide
 Budget as a communications device
27 Criteria:
 14
Mandatory requirements
84
 Statement
of entity-wide long-term
financial policies (mandatory)
 Budget message that articulates
priorities and issues for the budget
for the new year (mandatory)
85
 Summary
of major revenues and
expenditures, as well as other financing
sources and uses, to provide an overview
for all total resources
 Summaries of revenues, expenditures and
other financing sources and uses for the
prior year actual, current year budget
and/or estimated current year actual,
and proposed budget year
 Describe major revenue sources, explain
the underlying assumptions for the
revenue estimates and discuss significant
revenue trends
86
 Projected
changes in fund balances, as
defined by the entity in the budget
document
 Financial data on current debt obligations
and description of the relationship
between current debt levels and legal
debt limits
 Explain the basis of budgeting for all
funds, whether cash, modified accrual, or
some other statutory basis
87
 Describe
activities, services or
functions carried out by
organizational units
 Include an organizational chart
 Schedule or table summary of
personnel or position counts for
prior, current and budgeted years
88
 Description
of processes for
preparing, reviewing and adopting
the current year’s budget and
procedures for amending the budget
after its adoption
 Use charts and graphs to highlight
financial and statistical information
 Include a table of contents
89
 Stay
positive throughout the whole test and
try to stay relaxed

Take deep breaths to relax
 Read
the entire question and pay attention
to the details

Make sure you understand what question is
really asking you
 If
you don't know an answer, skip it and
come back to it later

Don't stay on a question that you are stuck on
 Only
change an answer if you misread or
misinterpreted the question

Your first answer is usually the correct one.
90
91






Chapter 200 - Determination of
Millage, specifically:
200.065
200.068
200.071
200.081
200.185
Chapter 205.035
Chapter 218.25
Chapter 163, Part III
http://www.leg.state.fl.us/
92
 Capital
Improvement Programming:
A Guide for Smaller Governments
 An Elected Official’s Guide to
Revenue Forecasting
 An Elected Official’s Guide to
Performance Measurement
 An Elected Official’s Guide to MultiYear Budgeting
93
 Cost
Analysis and ABC for Governments
 Decision Tools for Budgetary Analysis
 Financial Policies: Design and
Implementation
 The Operating Guide: A Guide for Smaller
Governments
Other Readings
An Elected Official’s Guide to Government
Finance
 An Elected Official’s Guide to Debt Issuance

94
 Chapter
1 - GAAP and the Governmental
Environment
 Chapter 2 - The Governmental Financial
Reporting Model
 Chapter 10 - Financial Statements
 Chapter 16 - Budgetary Integration and
Reporting
 Chapter 17 - Performance Measurement
95
 Friedman,
Mark. Trying Hard is Not Good
Enough. Trafford Publishing, 2005.
96
 Recommended
Budget Practices: A Framework
for Improved State and Local Government
Budgeting
http://www.gfoa.org/services/dfl/budget/Recommen
dedBudgetPractices.pdf
 Recommended
Policy
Practices: Budget and Fiscal
http://www.gfoa.org/services/rp/budget.shtml
 Distinguished
Budget Presentation Award
Program Criteria Guide and Explanations
http://www.gfoa.org/downloads/BudgetCriteriaLocati
on.pdf
http://www.gfoa.org/downloads/BudgetCriteriaExpla
nations.pdf
97
98

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