1. MARCH MADNESS—MARCH 7, 2018 APRIL HARING—OAKES CITY AUDITOR
BUDGET PREPARATION
MARCH MADNESS—MARCH 7, 2018
APRIL HARING—OAKES CITY AUDITOR

2. Time-consuming, boring task that must be endured every year, RIGHT?
The Budget----YUCK!
Time-consuming, boring task that must be endured every year, RIGHT?

3. What is the Budget?
A financial plan that shows how much money will be available, where it comes from, and how it will be used.
It is an…
Important financial tool
Essential part in planning
Aids in keeping local government accountable and transparent
Used in calculating the amount of property tax to be levied.
The budget is the plan for how the City will receive and spend money for the fiscal period.
It’s a tool that helps decision makers identify the ways and means of providing public programs and services now and in the future.
Such as the level of services for:
How often parks are mowed or sprayed
Number of times garbage is collected
When to repair or replace infrastructure
It’s a way to disclose financial information to the public and reduce misuse of funds.
The budget is also an essential part in determining property taxes.

4. Budget Steps Approval/ Adoption Evaluation/ Audit Preparation/
Review of expenditure estimates and projection of revenues; determine goals and prioritize
Preparation/
Planning
Preliminary estimates are submitted to governing body to review and modification with public input and the governing body approves or adopts
Approval/
Adoption
Budget is applied by all departments throughout the year and administered by the governing body
Implementation
Performance is monitored and measured at the end of the fiscal year, most cities complete an independent financial audit
Evaluation/
Audit
Budget Steps
The budget process varies from city to city but essentially there are four main steps: Preparation, Approval, Implementation, Evaluation.
The City Auditor has a major role in Step 1 of the process---Preparation and Planning.

5. Preparation & Planning
North Dakota Century Code
Review Chapter Municipal Budget Law
State law requirements on notices and filing deadline that will dictate planning
Contact County Auditor
Review requirements and deadlines
Meet with Committees and Manager
Review needs, wants, priorities
Discuss current and predicted financial position
The first step in preparing the budget is to review NDCC. The chapter outlines state law requirements on notices and filing deadlines.
Make sure to contact your County Auditor to go over questions or concerns about submitting budgets and reporting details.
Gather information regarding projected revenue and estimated/expected expenses. Schedule meetings with committees, managers, and departments.
Use these meetings as a tool to prioritize and determine needed resources and to review current finances.
The information gathered is an important part in drafting the budget.

6. Estimating & Projecting
Budgets are only estimates, not statement of facts! Success is not guaranteed!
Remember, you are trying to predict financial trends for almost 18 months in advance—chances are, something will not go as planned. All you can do is be realistic and responsible in preparation and planning.
For example, a typical budget process
Would begin in April with gathering information and researching.
In May, using the reports and information from meetings and research, the draft budget can be prepared.
This is then given to the governing board in June to allow them time to review.
At the July meeting, the draft budget is usually evaluated and adjustments are made as needed.
The approval of the preliminary budget is held on or before August 10th .
Notices are published and sent to the public.
The final adoption of the preliminary budget or final budget hearing is held no later than October 7th .
More information about the notices, timelines, and deadlines will be discussed later in this presentation.

7. Draft Budget
Collect current year financial information to use as tool to determine trends
Consider any unique incidents or exceptions that could skew normal expense and revenues
Review Rates and Fees
Review Capital Improvement Plan
Reserves?
At least 2 months of regular operating expenses
NDCC ; not be more than 75% of appropriations excluding debt
Some funding agencies require a certain amount of debt coverage
To create a draft budget begin researching and reviewing.
Use the current year expenses and revenues as references to determine the upcoming budget figures.
If current monthly expense for the office phone is $60; safe to assume that the amount will remain the same.
Take under consideration any out-of-ordinary events such as weather, emergency projects, etc.
Has the snow fall skewed the current expenses? Should we expect flooding costs?
Review rates and fees to determine if adequate to fund the department OR request a rate analysis to be completed.
Are you too dependent upon a small amount of customers in which a change in customer status will create a large financial impact?
Look at the current financial situation compared to the Capital Improvement Plan.
Should rates be increased for upcoming projects or should some expenses be re-evaluated?
Make sure to review reserve balances!
Is it adequate or realistic?
Government Finance Officers Association recommends at least two months of normal operating expenses be in a reserve.

8. Revenues
Any money received to help finance programs and services; raised through various means.
Project revenues for upcoming budget period—
Historical and current trends
Property valuation information
NDLC projections and forecasts
Be conservative, realistic and responsible
Understand the sources of revenues—
Where it originates
How often payment received
Is it a stable source of income
What are the restrictions
Determine a responsible projection by looking at trends, valuation changes in the community, and reports from NDLC.
Revenues not only include property taxes but also intergovernmental revenue such as cigarette tax and state aid distribution. Also can include user fees, permits and licenses, franchise fees, and sales tax.
Understand which are ongoing or one-time a year; stable or variable; if there are restrictions; what is controlled locally and what is determined by state or federal agencies.
When estimating revenue, it is best to err on the safe side and underestimate revenues—predicting too high can cause problems in the upcoming fiscal year.
City of Oakes breakdown: 45% Rates; 25% Intergovernmental; 15% Property Tax; 15% Miscellaneous

9. Any money used to provide services and facilities for the public.
Expenditures
Any money used to provide services and facilities for the public.
Estimate expenses for upcoming budget period—
Historical and current trends
Inflation
Significant changes in regional costs
Unpredictable circumstances
Be realistic and responsible
If cuts are determined to be necessary, be cautious—
Avoid exhausting reserves (could end up with detrimental consequences in long run)
Freezing hiring vacant positions (counterproductive as some position are critical to adequate public service)
Across the board cuts
Deferring maintenance costs and equipment purchases (could end up costing more)
Eliminating training (poorly trained employees cost money)
Expenditures include operating expenses such as salaries, benefits, and electricity; items typically consistent from year to year. Usually the changes are simple such as adjustments for inflation, but could have substantial changes such as those seen in fuel and health insurance costs.
Review the trends; consider unusual occurrences that have or may affect expenses; compare contracting or keeping services in-house; or the needs to cut back. But when cutting back, be cautious of a few things to avoid negative long term consequences.
Capital expenses are also included in the budget, these include major purchases and improvements and typically paid from grants, borrowing or saved money.
As in revenue, it is wise to be cautious and resist the temptation to estimate costs too low.

10. Evaluate & Balance Budget
Finalize numbers with committees and managers.
Review and evaluate, adjust if necessary.
Determine if balanced:
Cash plus estimated revenues less estimated expenses = $0 or more
A good budget provides sufficient recurring revenue to fund recurring expenses without requiring sharp increases in taxes or fees OR sharp decreases in programs and services funding.
To adequately evaluate the budget, do not compare to the previous budgets but rather the actual spending.
This comparison helps identify any issues that should be addressed before finalizing.
To ensure the budget is balanced; request elected officials, committee members, managers, or supervisors to review and recheck proposed budget numbers.
Once drafts are reviewed and acceptable, complete required worksheets to create preliminary budget.

11. CALCULATING THE BUDGET
(Proposed Budget / Projected Taxable Valuation)*1000 = Estimated Mills
Example: $367,727 proposed budget / $4,102,910 projected valuation *1000 = 90 mills
(compare to prior year of 84 mills)
6 mill increase OR $27 annual increase per $100,000 property value
The most common question from the governing board during their review is, “How will this affect taxes?”
To estimate the mill levy while calculating the budget,
Obtain the preliminary assessment values from the County Tax Director.
Use the proposed total budget and divide by the property values to get an estimated mill.
For Example: Use $367,727 proposed needed tax revenue divided by $4,102,910 projected valuation times 1,000 equals 90 mills. Compare this to the year before of 84 mills—Is a 6 mill increase acceptable? Or a $27 annual increase per $100,000 property value?
Keep in mind, there is discussion to go away from mills and use “dollars” instead.

12. Let’s backup….What’s a mill?
The mill levy is the “tax rate” that is applied to the assessed value of a property.
One mill is one one-thousandth of a dollar or $1 dollar per $1,000 of assessed value.
It can also be explained as 1/10 of 1 percent.
When you divide the requested tax revenue by the total valuation; convert the number to a percentage instead of multiplying by 1,000.
This percentage when multiplied by the assessed value will provide an estimated tax liability.
Using the percentage or dollar amount is usually an easier way to explain how taxes are calculated.
As you can see by the spreadsheet, an ideal situation would be for a taxing entity to maintain or increase the requested levy amount but end up reducing the tax amount (see years 2016 & 2015).
This is why adequately assessing property is a crucial part of the property tax system!
What’s a mill? A mill is one one-thousandth of a dollar. In other words, a mill is equal to $1 of tax for each $1,000 of assessment value. It can also be explained at one-tenth of one percent.

13. Special Revenue Funds could be Streets, Sales Tax, and Cemetery….
Required Forms
Schedule A – Certificate of Levy
List of funds requesting property tax levy
Schedule B – General Fund
Accounts for everything not included elsewhere, chief operating fund
Includes budgets for departments within the Fund
Schedule C – Special Revenue Funds
Funds with revenue used for a particular purpose restricted legally or administratively
Schedule D – Debt Service Funds
Funds for the accumulation of resources to make debt payments
Schedule E – Enterprise Funds
Funds used for business-type activities such as utilities
The required forms are available at the State Auditor Website, NDLC Website, or through your County Auditor.
The completed forms plus other preliminary budget information must be sent to your County Auditor by August 10th
If you use another type of form, make sure it is acceptable to your County Auditor.
A budget should be completed for every fund you operate using the forms.
Examples of General Fund departments that would be included in the budget are governing body, police, and attorney….
Special Revenue Funds could be Streets, Sales Tax, and Cemetery….
Enterprise Funds include utilities such as water, sewer, garbage, and electricity.
In addition, a City can have Capital Improvement funds, Trust and Agency funds, or Internal Service funds.

14. Revenue Section of Schedules
Enter in the actual revenues collected in the prior year.
Enter in the estimated revenues for the current year.
In the last column enter in projected revenue for next year
28, ,000
28, , xxxxxxx
11, , ,200
Enter in actual revenues collected in prior year, the estimated revenues for current year, and projected or estimated revenue for next year.
BUT leave estimated property tax section blank, this amount is calculated when forms are completed.
For Example: The 2019 Budget would include the 2017 Actual Revenues, 2018 Estimated Revenues and the 2019 Estimated or Projected Revenues.

15. Expenditure Section of Schedules
Enter in the actual expenses for in the prior year.
Enter in the estimated expenses for the current year.
Enter in requested/estimated expenses for next year.
The final column is completed by entering in the approved amounts by the governing body.
Enter in actual expenses spent in prior year, the estimated expenses for current year, and requested or estimated expenses for next year.
The final appropriation is filled in with the approved amounts by the governing board.
For Example: The 2019 Budget would include the 2017 Actual Expenditures, 2018 Estimated Expenditures and the 2019 Requested Expenditures. The 2019 Final Appropriation are the approved numbers from the Final Preliminary Budget Hearing.
(not 100% sure on this because I use a different spreadsheet and don’t have this column, my “requested” is my final)

16. Estimating Cash
The end of year estimated cash balance, next fiscal year revenue and expenses will be used to “balance” the budget and determine needed property taxes.
FINAL
2018 /
2018/
At the bottom of the final page there is a section just below the Totals Expenditures line. Enter the following in the column under the “Current Year”
Revenue Over (Under) Expend. – Difference of the total revenues & expenses
Balance – January 1 – Balance of all cash assets as of January 1 of the current year
Transfer In – Record any amounts of cash transferred in from another fund
Transfer Out – Record any amounts of cash transferred to another fund
Balance – December 31 – This amount will be calculated using the above items
Follow the steps in the form to estimate the cash balance.
Enter the difference of revenues less expenses for the current year and the budget year.
Enter the cash balance for January 1 of the current year.
Add and subtract the Transfers if applicable.
This calculates the current year’s estimated ending cash balance.
Carry this number to January 1 of the budget year column.
Complete the calculations for the budget year.
The last column is again completed with the final approved numbers from the governing body.
Here is an example for the 2019 Budget
These cash balances are needed to determine the levy.

17. Determining Levy Amount
1a. Final Appropriation Total Expenses Estimated for Next Year 1b. Budgeted Transfers Out Amount entered in final page of funds estimated to be transferred out Next Year 1c. Total Appropriation Line 1a plus Line 1b 2 Cash Reserve No required 3 Total Appropriation & Cash Reserve Line 1c plus Line 2 4 Cash & Investment, December 31 Projected Cash Balance for Current End of Year 5a. Estimated Revenue Total Projected Revenues for Next Year 5b. Estimated Transfers In Amount entered in final page of funds estimated to be transferred in Next Year 5c. Total Estimated Revenues & Transfers In Line 5a plus Line 5b 6 Total Resources Line 4 plus Line 5c 7 Levy Required Line 3 less Line 6; Total Appropriations minus Total Resources 8 Allowance for Delinquent Tax Line 7 multiplied by not more than 5%; this number accounts for properties not making property tax payments 9 Total Amount Levied Line 7 plus Line 8; amount that will be certified to County Auditor
106250
3500
109750
59500
169250
30407
129285
39965
1198
41163
Use Schedule B to calculate the levy for the General Fund.
Follow the steps provided in the form and fill in the amounts as instructed.
Note—Lines 2 and 8 are optional.
If the total amount requested to be levied is significantly higher than the prior year, go back to the draft budget and see where changes can be made.
Estimate mills and report to the governing board the different scenarios.
This allows them to decide what is acceptable and appropriate for the taxpayer.
Schedule B

18. Schedules C & D
Complete the forms for the remaining departments by following the steps similar to Schedule B.
CEMETERY
OTHER
REPAIRS
OPERATION & MAINTENANCE SUPPLIES
CEMETERY
1302 39
1341
As stated earlier, each operating fund should have a budget.
Forms for these funds are completed the same way as the General Fund.
The main differences are the revenues and expenditures are on one page instead of two,
and determining the levy is in one column, not an entire page.
Again, make sure to review and evaluate the total amount levied.

19. Preliminary Budget Stmt
On or before August 10th of each year, an itemized statement showing the amounts of money which will be required for proper maintenance, expansion or improvement of the city during that budget year. ~ NDCC
Public Budget Hearing Date must be included with Preliminary Budget Statement provided to County Auditor. This date cannot be earlier than September 7th or later than October 7th.
**For those requesting a levy less than $100,000, statement must be published in official newspaper and not sent to County.
Comments, protests, and objections are heard at the hearing. The governing body shall make any changes as deemed necessary and prepare the final budget.
The preliminary budget includes the breakdown of the estimated revenues and expenses for each fund of the City, basically the information in the forms just discussed.
According to NDCC, these completed budget forms are considered to be the preliminary budget.
In addition, a summarized statement can be included with entire budget or any other helpful information.
The preliminary budget and the preliminary hearing date (final hearing) must be sent to the County Auditor.
The hearing date and budget information will be included on the Notice of Estimated Taxes and Hearing Notice.
This notice is sent by the County Auditor to each taxpayer.
For those requesting a levy less than $100,000; the hearing notice must be published in the official paper rather then sent to the County Auditor and is not included in consolidated notice.

20. Schedule A – Certificate of Levy
Use this form to certify amounts to be levied against property. Use calculated levy amounts from Schedules B, C, and D and enter into appropriate lines. Complete form and submit to County Auditor after final approval by governing board.
41163
CEMETERY
42505
Once the preliminary budget hearing is complete in August, make any adjustments if needed---
REMEMBER, the final budget cannot be higher than the preliminary budget presented and approved in August!
Complete the schedules with the final approval amounts and complete the certificate of levy.
Present this at the Final Budget hearing and once approved, send to the County Auditor by October 10th.
An important thing to remember is PUBLIC EDUCATION.
Communicate the key issues and concerns, explain increases and changes.
Maybe provide a message from the Mayor or other official as a helpful tool for public understanding, it won’t be 100% effective but can help.

21. Interrogation
Can the assumptions used to determine estimated revenue/expenses be explained?
Why have particular revenues/expenses been increased/decreased?
Has anyone been consulted or had input on any part of budget?
Can level of service provided by any department be increased without an increase in funding? Is anything “padded”?
Are the departments doing things as efficiently as possible? Are there alternative cost-saving ways?
Are capital needs included and how are they addressed?
Are there ways we can save money without making cuts?
How does the budget compare to current fiscal year’s estimated actual revenues/expenditures?
Be prepared to be interrogated by not only the public but also your elected officials and supervisors!
These questions are asked throughout the process, not just at the final hearing.
Explain the processes for inflation or economic assumptions.
The insight into thought process or justification on estimates.
What input is included from other people or businesses.
Prove the level of services can meet the expectations as budgeted.

22. Just because it’s in the budget, it doesn’t mean it can be spent *
Just because it’s in the budget, it doesn’t mean it can be spent
The cash must be there to pay for the item
Estimates are only as good as the estimator’s ability to predict the future
Communication is the key to successful budget planning
April Haring
Final Thoughts…..
Just because it’s in the budget, it doesn’t mean it can be spent
The cash must be there to pay for the item
Estimates are only as good as the estimator’s ability to predict the future
Communication is the key to successful budget planning

23. NDCC Chapter 40-40, Municipal Budget Law
Property Tax Calendar
NDCC Title 57, Taxation
Levy Limitations
GFOA Best Practices
Handouts:
NDCC Chapter 40-40, Municipal Budget Law
Property Tax Calendar & NDCC Title 57, Taxation
Levy Limitations
GFOA Best Practices—Achieving a Structurally Balanced Budget