City(ULB) Finances & Budget Analysis Ravikant Joshi Meeting with Journalists – 19/01/2018 Urban Journalism Academy for World urban forum 9 Organized by UN Information Centre and UN Habitat New Delhi, 18-19 January 2018 Venue: UNDP Office, 55 Lodhi Road, New Delhi

The Context “Throughout the world cities are suffering from an acute crisis that hinders their capacity to develop sound policy and provide much-needed services to their residents: a crisis of accurate, useful information. - UN HABITAT Report 2006

The Context What city managers and citizens need to make better decisions is clear: increased local capacity for The collection (Reliable, up-to-date information on a meaningful set of indicators), of urban data An assessment of urban data and An application (the means to turn collected information into good policies and urban plans) of urban data. UN HABITAT Report 2006 Would like to add following – To bring in Efficiency, Transparency and accountability in municipal finances and budgeting we need increased capacity of urban journalist

Introduction Municipal Finances and Budgets simply does not get reported or even if reported does not get analysed Municipal Finances and Budgets Need to be analysed neutrally and independently, it need to get reported to all stakeholders through all types of media Main obstacle in such analysis is incomplete information and capacity or know how to analyse the information and to use it for decision making One will be required to ask additional information Which information should be asked ? For what analysis What analysis to be done and how to draw policy inferences from it

Areas of Financial Analysis What financial resources a ULB has? Increase or decrease over the years? How efficiently resources have been mobilized by the ULB? What is the share of own source revenue of a ULB against its total receipts and total expenditure Total amount available for development and actual development expenditure undertaken Total revenue potential and actual revenue mobilised Source wise and total revenue and expenditure annual growth and trend over the years Sector-wise /function-wise expenditure and its % share and changes over a time period, Area-wise amount allocated, per capita allocation Fiscal / Total Deficit Collection efficiency of a ULB

Areas of Budgetary Analysis How budget is organised? Is budget user friendly? How far budget is realistic? Ratio of projected vs actual Budget figures Complete actual accounts statement with opening and closing balance to know correctness of actual figures Budgeted and actual expenditure on poor and other special sections of society. Amount of spill over work or total works sanctioned against the funds available Amount of future budget booked in advance

Overall financial summary of ABC Urban Local Body (Rs. In Crore)  Particulars 2010-11 2011-12 2012-13 2013-14 2014-15 cagr   Budgeted Actuals Revised (in Rs. Cr) (in Rs Cr) % Opening Balance 3.19 11.01 Revenue Income 3196.1 2335.2 3247 2776.5 3633 2962.1 4167.5 4150.0 12.6 Revenue Expenditure 1208.7 1141.9 1345 1295.6 1732.3 1573.6 1989.6 1901.2 17.4 Revenue Surplus/Deficit 1987.5 1193.3 1902.0 1480.9 1900.7 1388.5 2177.9 2248.8 Capital Income Capital Expenditure 699.5 1230.9 1253.1 2177.8 33.8 Capital Surplus/ Deficit -1987.5 -699.5 -1902 -1230.9 -1900.7 -1253.1 -2177.8 -2248.8 Closing Balance 0.0  overall surplus /deficit 493.8 250 135.4 879.2

Core objectives of Municipal Financial Management including Budgeting Resource Management Resource Allocation Efficient and effective operations Fiscal Management Use of Public Resources Transparency Accountability Reduction in Poverty Fiduciary Risk Management Financial Control Framework Stewardship and Regulatory Compliance Oversight

Core objectives of Municipal Financial Management including Budgeting 1 Resource management 1.1 Fiscal management Local economic management of fiscal risk to fund municipal services, including financial balances, flows and the level of debt; levels and impact of tax and non-tax revenues; 1.2 Resource allocation Allocation and re-allocation of resources through the budget process to achieve municipal policies and priorities, the provision of public goods and to foster greater equity 1.3 Efficient & effective operations Undertaking municipal operations as effectively and efficiently as possible; financial resources are made available, as planned and when required, information is provided to managers to enable them to make optimal decisions and exercise control

Core objectives of Municipal Financial Management including Budgeting 2 Use of public resources 2.1 Transparency Making information available to stakeholders (including the general public) in a format and time that facilitates transparency in municipal financial operations and civil society participation. 2.2 Accountability Information is available in a format and time that enables municipal officials to be held accountable for their actions. Appropriate explanations are provided for any significant deviations from the agreed budget. Civil society participation is enabled and encouraged. 2.3 Poverty reduction Poverty reduction is a priority, including achievement of the Millennium Development Goals, whilst complying with the UN Global Compact. Financial capacity building is provided for: municipal employees the wider economy stakeholders including civil society

Core objectives of Municipal Financial Management including Budgeting 3 Fiduciary risk management 3.1 Financial control framework Financial procedures and information enable the management of financial risk at acceptable levels, including internal financial control, measures to minimise fraud or corruption and internal audit 3.2 Stewardship & regulatory compliance Resources are managed in compliance with all relevant laws, regulations and standards; considerations of ethics, equity and propriety are fulfilled. Appropriate compliance and relationships are maintained with national funding and regulatory bodies 3.3 Oversight Public oversight mechanisms, especially by independent audit, ombudsman and legislative review process. Timely review of financial resource use and regulatory compliance by the municipal council, civil society and other stakeholders. Significant findings by oversight bodies are promptly made public.

The Five Core Indicators 1. The average difference between the budget and actual figures for the main high- level budget headings over the last three years 2. Average total surplus/deficit over the last three years 3. The extent to which the annual audit report is submitted promptly to the municipal council and made public after the end of each financial year 4. The promptness with which the municipality makes its payments 5. The extent to which the municipality’s budget shows planned expenditure on poverty reduction

The Twenty Main Indicators 1. The municipality’s ability to deliver its spending plans 2. The extent to which municipal services are provided to the poor 3. The efficiency with which the municipality collects local taxes 4. The predictability of resources which were made available to departmental managers 5. The promptness with which municipal staff are paid each month 6. The promptness with which municipal pays for goods and services received 7. The extent to which the municipality is able to mobilise its own resources

The Twenty Main Indicators 8. The level of the municipality’s debt is adequately managed 9. The municipality’s capital investment and maintenance programme is implemented as planned 10. Revenue Deficit ( Also known as operating or Working) Ratio 11. Municipality encourages civil society participation in budget preparation 12. The municipality’s budget is promptly made public before the beginning of the financial year 13. The municipality is open about the awarding of its contracts 14.The municipality makes its annual report public each year

The Twenty Main Indicators 15. The municipality provides regular budget outturn reports to the public indicating poverty reducing expenditure 16. The municipality’s system of local taxation is progressive 17. The municipality has a formal risk management process 18. The municipality’s bank statements are regularly reconciled to its accounting records 19. The audit report on the annual financial statements for the last three years did not contain any major adverse findings or irregularities 20. The municipality council holds meetings, open to the public, staff and their trade unions to discuss its proposed budget and receive financial reports

Municipal Budgeting Municipal Finance Structure Receipts Side Payment Side Opening balance Tax Revenue Non Tax Revenue Revenue Grants Capital Receipts New Loans Capital Grants Extra – ordinary Deposits Received Advances recovered Establishment O & M Administrative Loan Interest Capital Expenditure Loan Repayment Extra –ordinary Deposits Refunded Advances Given Closing Balance

Municipal Budget - Structural Analysis

Municipal Budget - Receipts Analysis Tax Rev Non Tax Rev Grants Rev Income own cap rece New Loans Cap Grants Cap Income Deposits Funds Advances Extra Ordi Rece Total Receipts 1 2 3 1+2+3 = 4 5 6 7 5+6+7 = 8 9 10` 11 9+10+11 = 12 4+8+12 = 13 Gen Adm W S Sewerage Roads Public Works Health SWM Streetlight Fire Prim Edu

Municipal Budget - Expenditure Analysis Establishme Maintenance Loan Interest RevExpenditure own cap expenditu Loan Expend Cap Grants Exp Cap Expenditure Deposits Refund Funds Expend Advances Giv Extra Ordi Expenditur Total Expenditure 1 2 3 1+2+3=4 5 6 7 5+6+7=8 9 10` 11 9+10+11=12 4+8+12= 13 Gen Admi WS Sewerage Roads SWM Streetlight Pub Work Health Prim Edu

City Finances & Budget Analysis Thank You

Municipal Budget Analysis XYZ ULB Finances 2002-03 Receipts Side Expenditure Side Rs. In Crores Opening balance 51.27 Tax Revenue 189.08 N Tax & Others 43.43 Revenue Grants 121.91 Sub total 354.42 Capital Receipts 21.29 New Loans 69.93 Capital Grants 47.40 Extra – ordinary 138.94 Total 683.25 Establishment 128.62 O & M , Other 82.36 Loan Interest 32.16 Sub- total 243.14 Capital Expenditure 260.96 Loan Repayment 60.59 Extra –ordinary 83.32 Closing Balance 35.25 Total 683.25

Municipal Budget Analysis XYZ ULB Finances 2002-03 Rs. In Crores Amount Available for Development Revenue Surplus 111.28 Capital Receipts 21.29 Loan Account 9.34 Capital Grants 47.40 Total 189.31 Extra-ordinary a/c 55.63 Reduction in OB 16.02 Total 260.96 Amount Spent on Development Capital Expenditure 260.96 Thus large part of capital expenditure is achieved by diverting extra-ordinary receipt which is liability Opening Balance stands reduced Does not tell quality of capital expenditure

Municipal Budget Analysis XYZ ULB Finances 2003-04 Receipts Side Payments Side Rs. In Crores Tax Revenue 201.17 N Tax & Others 61.98 Revenue Grants 72.54 Sub total 335.69 Capital Receipts 23.18 New Loans 147.50 Capital Grants 24.13 Extra – ordinary 143.58 Total 674.08 Op. balance (40.98) 35.25 Grand Total (715.06) 709.33 Establishment 133.64 O & M , Other 122.20 Loan Interest 31.13 Sub- total 286.97 Capital Expenditure 263.10 Loan Repayment 47.77 Sub-total 310.87 Extra –ordinary 74.52 Total 672.36 Cl. Balance (42.70) 36.97 Grand Total(715.06) 709.33

Municipal Budget Analysis XYZ ULB Finances 2003-04 Rs. In Crores Amount Available for Development Revenue Surplus 48.72 Capital Receipts 23.18 Loan Account 147.50 Capital Grants 24.13 Total 243.53 Extra-ordinary a/c 19.57 Total 263.10 Amount Spent on Development Capital Expenditure 263.10 Thus large part of capital expenditure is achieved by increase in loan liability Opening Balance stands increased nominally Does not tell quality of capital expenditure