What You Should Know About Budgeting F G F O A Bootcamp Budget Workshop November 13, 2012 Jim Seuffert, Director Angie Bibler, Budget Division Manager Manatee County Financial Management Department What You Should Know About Budgets Topics Budget Policies & Process Budget Basics Legal Requirements/TRIM Budget Calendar Budget Review & Approval Budget Monitoring / Revisions The Government Budgeting Puzzle What product are we trying to create? What series of activities need to take place? What information do we need, how do we review it, and where do we get it from? Who is involved and what role do they play? What timeframe and deadlines do we have? What legal requirements must be met? What happens after the budget is adopted? General Requirements Should be based on legal requirements and best practices: Florida Statutes Best Practices – GFOA and other sources Generally Accepted Accounting Principles Legal Requirements Florida Statutes The budget shall be balanced Defines budget system & fiscal year Defines process & general guidelines Sets method for setting the millage for all taxing authorities (FS 200.065) Establishes budget procedures (FS129.03 for counties & FS 166.241 for cities) Budget must be posted on website Legal Requirements Budget shall conform to the state’s uniform chart of accounts Expenses are assigned to functional categories: Transportation Culture & Recreation General Government Human Resources Public Safety Reserves Debt Services Inter-fund Transfers Budget Policies Best Practices Fund balance reserve policy/working capital reserves (“rainy day” fund) Multiyear & realistic financial forecasting Monthly or quarterly financial reporting/monitoring Policies on nonrecurring revenue Budget Policies Best Practices Establish policy early Transparency and Clarity Pay-as-you-go capital funding policies Five-year capital improvement plan integrating operating costs of new facilities Communications Device Themes and Consistency Budget Policies Should Address: Budget Process & Budget Instruction Manual Reserves Fund Balance Debt Issuance and Debt Management Investments Revenue Diversification Capital Program Revenues Fees and Charges Expenditures Post Adoption Budget Policies Policies and Procedures Should be in writing Should be updated at least annually Should be included in the adopted budget Should be tailored to your local government Should be adopted by governing board Budget Policies GAAP – Generally Accepted Accounting Principles Fund Accounting Fund = self balancing set of accounts set up for a specific purpose Fund Types Governmental (general, special revenue, debt service, capital) Proprietary (Internal Service/Enterprise) Fiduciary (Trust/Agency) Budget Process Mission of a Budget Process: To help decision makers make informed choices regarding resource allocation and the provision of services and capital assets and to promote stakeholder participation in the decision process Budget Process It should provide the forum to: Review comparative financial and performance data in a common format Analyze and debate program merits Establish priorities & long-term goals Involve stakeholders Make service level and service cost decisions Focus on results & outcomes Budget Basics Why Do We Have Budgets? What Is A Budget? Types Of Budgets Capital Improvement Plan Multiyear Budgets & Forecasting Methods Of Budgeting Why Do We Have Budgets? A means to: Meet legal requirements Set and control spending Provide information to the public and policy makers Educate the public and elected officials Prioritize the needs of a community Outline the expenditures of government spending Justify and analyze programs and services What is a Budget? Webster’s Dictionary An itemized summary of probable expenditures and income for a given period A systematic plan for meeting expenses in a given period The total sum of money allocated for a particular purpose or time period Florida Statutes = Budget sets a legal limit Revised Budget if proper procedures are followed What Is A Budget? Best Practices Government Finance Officers’ Association Policy Document Financial Plan Operations Guide Communications Device It’s A Policy Document Explains and follows policy Identifies services and service levels that will be delivered over the upcoming twelve month fiscal period Summarizes the challenges that were faced and how they were addressed Provides detailed information such as major goals and objectives for each department, revenue sources, trends, operating funds, expenditure categories It’s A Financial Plan Outlines how much services and programs will cost and how they will be funded Overview of major revenue and expenditure categories Discusses the accounting structure and budgetary policies Summarizes the capital improvement program and identifies appropriations for the program Provides information on bonded debt It’s An Operations Guide Indicates how services will be delivered to the community Outlines number of full time positions Identifies department level appropriations Includes an organizational chart showing how government is structured to deliver the most efficient and effective services It’s A Communications Device Designed to be user friendly with summary information in text, tables, and graphs Includes a glossary of budget terms Provides a table of contents Includes a budget message or budget transmittal letter with a condensed analysis of the fiscal plan and challenges for the upcoming year Posted on internet, budget summary, handouts, etc Types of Budgets Operating Budget One year Multiyear – recommended practice Capital Budget Is adopted with the operating budget Developed from Capital Improvement Plan (CIP) Is funded (1st year of the CIP) Types of Budgets Operating Budget Personal Services Salaries and benefits Operating Expenditures Fuel, utilities, contracts, supplies, etc. Capital Expenditures Funded capital improvements Reserves Operating and cash requirements Savings for future uses Capital Improvement Plan Typically a five to twenty year plan Develop, review, debate separately from operating budget Adopted annually as a plan Included in adopted budget document “Smooth funding” requirements Plan for long-term debt, if needed Capital Improvement Plan Identifies funding sources Opportunities to develop alternative funding sources Identifies future capital needs and their operating costs – phase in Identifies future transportation needs including roads and sidewalks Supports capital improvement element (CIE) of the comprehensive plan What is a Multiyear Budget? A document that authorizes a government’s appropriations, anticipated revenues, and spending plans for two or more consecutive budgetary years. Rolling plan First year is adopted budget while second and future years are an adopted plan or tentative spending plan Two Year Budget Abbreviated budget cycle in off years 2nd year plan is adjusted in the “off year” and adopted 2nd year of the process produces a one year budget TRIM process required each year Multiyear Budget/Forecasting Greater emphasis on: Management & service delivery Program evaluation & monitoring Long-term perspective Early problem identification Link operating & capital planning Integrates strategic planning and goal-setting into the budget process Multiyear Budget/Forecasting Ability to “smooth expenditures” as new programs, services, or infrastructure is brought “online” Cost savings Frees staff to deliver services Viewed favorably by bond rating agencies Budget Methods Line Item Budget Follow uniform accounting practices and chart of accounts to meet annual financial reporting requirements per statute (FS 218.32) Other ways to develop, summarize and present the budget Program Budget Performance Based Budget Zero Based Budget Budget Methods Line Item Budget Focus on what is to be bought Expenditure control model Traditional approach Typically built upon last year’s cost Easiest to develop Lacks innovation and operational accountability Budget Methods Line Item Budget Personal Services Salaries Fringe Benefits Temporary Wages Overtime Total Operating Expenses Fuel Office Supplies Travel Total Capital Pick Up Truck Grand Total $5,000 2,000 1,000 500 $8,500 $3,000 1,000 500 $4,500 $6,000 $19,000 Budget Methods Program Budget Focus is on what is to be achieved Effectiveness model May cuts across department lines Identifies program cost and establishes performance measures Control and accountability challenges May lacks innovation and creativity Budget Methods Program Budget Development Review Program Public Works Fire/Rescue Environmental Protection Planning Building Inspections $2,000 1,000 500 2,500 500 Grand Total $ 6,500 Budget Methods Performance Based Budget Focus is on what is to be done Efficiency model Spending is better aligned with objectives and strategies What do you want to deliver? How much do you want to deliver? What delivery channels will you use? Aligned at department level but not at organizational level Budget Methods Performance Based Budget Fire Department Suppression Number of responses Cost per response Annual Cost 100 $ 60 $6,000 Prevention Number of Inspections Cost per Inspection Annual Cost 470 $4 $1,800 Budget Methods Zero Based Budget Focus is on what is to be prioritized Ranking model Let’s start from scratch What programs & services do you want to deliver? How much do you want to deliver? Difficult, time-consuming, and costly to develop Legal Requirements Florida Statutes Determination of Millage Provides for the process, timeframe, and advertising requirements that must be followed by each taxing authority Definitions and duties Method of fixing millage rates Millage limitations “TRIM” process County or City Charter, if applicable Statutory Timetable July 1 Property Appraiser certifies the taxable value July 15 Proposed Budget presented to Commission (counties) Aug 4 Millage certified to the Property Appraiser (all taxing authorities ) Aug 24 Property Appraiser mails out the Notice of Proposed Property Taxes (TRIM Notice) Sept 3/ Hold 1st public hearing on the tentative budget and Sept 18 proposed millage rate (Noticed on TRIM) Advertise the 2nd public hearing to adopt a final millage rate and budget to be held no less than 2 days or no more than 5 days after the day that the advertisement is published Sept 18 /Oct 3 Hold 2nd public hearing and adopt a final millage Budget Calendar Submit Budget Document to GFOA Jan/Feb Economic Forecast September Adopted Budget September Public Hearings Jan/Feb Priorities Periodic Budget Amendments & Monitoring Aug/Sept Board Changes & TRIM Mar/April Department Requests Apr/May/June County Administrator Meetings August BCC Workshops July Proposed Budget The Commission/Council Role Areas of Responsibility Practices to Avoid Budget Monitoring and Reporting The Commission/Council Role Areas of Responsibility Knowledge of Florida Statutes Policy, priorities, and goals Involved in the process Familiar with the documents Prepared for discussion and debate Approve the budget Listen Ask questions The Commission/Council Role Areas of Responsibility Address taxation issues locally Raise revenues Cut expenditures Targeted service level reductions Across the board cuts Cost saving measures Managed competition Consolidation of services The Commission/Council Role Practices to avoid Failure to reward good practices Ignoring operating costs associated with capital projects Deferring capital maintenance Undisciplined use of one time revenues to balance the budget Implementing across the board cuts Too strict line item control Borrowing to balance the operating budget Budget Administration Monitoring the budget Current year projections to year end Straight-line projections % of year completed vs. expenditure rate Seasonal fluctuations Sporadic payment schedules Payments for 12 months & only 12 months Budget Administration Amending the budget Budget transfers Moves budget between functions, no change to fund or department total (can be delegated to staff) Budget amendments (approved by Comm./Council) Moves budget from one fund or department to another, increase to one fund and decrease to another fund, or to appropriate unanticipated revenue Budget Administration Management reports Monthly or quarterly reports Financial models Fiscal trend monitoring Position Control Reports Other special reports Executive reports to Commission/Council Web site / Dashboard reports BUDGETING - A Practical Example Property Tax terminology Examples – Taxable Values &Millage Rates County-wide millage summary Revenue by Source and Appropriations by Function (State chart of accounts) Aggregate millage rates & “roll-back” TRIM example Property Tax Terminology (Not Greek, but Latin) Ad Valorem – taxes based on property value Millage Rate – tax rate; $1 per $1,000 of taxable value Assessed Value (just value) – total property value Exemption – amount determined by state law to be deducted from assessed value (for Homestead status, disabled, widows) Taxable Value – Assessed value less any exemptions TAXABLE PROPERTY VALUES Billions 40 35 34.4 30 31.7 30.6 28.7 25 20 24.8 24.7 21.1 23.6 23.3 15 $23.3 Billion 10 (July 1, 2012 Certified Taxable Value) 5 0 04 05 06 07 Tax Year 08 09 10 11 12 COUNTYWIDE MILLAGE RATES MILLAGE RATE 10 9 8 7 OPERATING MILLAGE 7.71 7.72 7.57 7.4 6 6.0 6.0 6.0 6.0 6.0 6.0 08 09 10 11 12 13 5 04 05 FISCAL YEAR 06 07 MILLAGE SUMMARY FUND FY11-12 ADOPTED FY12-13 PROPOSED CHANGE 5.4707 TRANSPORTATION .2625 LIBRARY .2328 VOTED DEBT SERVICE .1303 5.4707 0.0000 .2446 - 0.0179 .2507 + 0.0179 .1333 0.0030 6.0963 6.0993 0.0030 GEN. FUND TOTAL CO-WIDE COUNTYWIDE MILLAGE LEVIES Millage for the unincorporated area or for a municipality would be in addition to the millages below. COUNTY OPERATIONS 5.8327 MILLS (40%) SCHOOL BOARD 7.5890 MILLS (53%) VOTED DEBT/CHILDREN’S SVCS TAX .4666 MILLS (3%) OTHER TAXING AUTHORITIES .5608 MILLS (4%) REVENUE BY SOURCE PROPOSED BUDGET $464 MILLION OTHER TAXES $28 MILLION 6% CHARGES FOR SERVICES $174 MILLION 38% PROPERTY TAXES $152 MILLION 33% INTERGOVERNMENTAL (STATE, FED. & OTHER) $39 MILLION 8% LICENSES & PERMITS, FINES, INTEREST & MISC. $71 MILLION 15% APPROPRIATION BY FUNCTION PROPOSED BUDGET $464 MILLION PUBLIC SAFETY $132 MILLION 28% CULTURE & RECREATION $17 MILLION 4% GENERAL GOVT. $69 MILLION 15% OTHER $26 MILLION 6% CAPITAL OUTLAY $14 MILLION 3% HUMAN SERVICES $28 MILLION 6% TRANSPORTATION $42 MILLION 9% PHYSICAL ENVIRONMENT $136 MILLION 29% AGGREGATE TAX RATE Comparison to Rolled-Back (RB) Proposed Aggregate Rate* Aggregate Rate for RB* Mills below RB 6.7408 Mills (6.9042) Mills - .1634 Mills * The Proposed Aggregate rate is 2.37% below Rolled Back. The aggregate rate calculation reported on the DR-420 excludes Debt Service millage. Rolled-Back (RB) Taxes Tax Revenues budgeted last year Proposed Tax Revenues with same millage and increasing taxable value “Roll-back” would require lower millage to reduce tax revenues to receive the same amount as last year WITH FALLING PROPERTY VALUES Tax Revenues budgeted last year Tax revenues with falling value Rolled-Back rate = millage could be increased to produce the same taxes as last year $ 152 Million $ 155 Million $ ( 3 ) Million $ 156 Million $ 152 Million $ 4 Million TRIM = Truth in Millage Column 6 Taxes if Proposed Budget is Adopted Column 8 Taxes if budget was the same as last year’s (Roll Back) EMPLOYEES OF THE BOARD OF COUNTY COMMISSIONERS PER ONE THOUSAND POPULATION Summary of Budget Positions FY11 1,752 Actual FY12 1,658 Adopted FY13 1,658 Increase/ Decrease -0- Population Estimates used are per University of Florida/Bureau of Economic & Business Research (BEBR) Paradoxical Commandments of Government by Ken Miller 1. 2. 3. The reward for doing good work is more work. Do good work anyway. All the money you save being more efficient will get cut from your budget now and forever. Find efficiencies anyway. There is not time to think about improving what we do. Make time anyway. Thank You!