1. Council Special Education Session Presented by Darcy Chapman
Budgeting 101
Council Special Education Session
Presented by Darcy Chapman
Municipality of Meaford
July 15, 2019

2. The Annual Budget
Incorporates planning, coordination and control features throughout the year
Single most important document and decision making exercise undertaken by a municipality
Necessary to set tax rates, water/wastewater rates, and establish fees and charges
Budget establishes both current and capital expenditures
Municipality of Meaford
July 15, 2019

3. Current Expense
Incurred for services in the performance of an ongoing program
For goods that are consumable or that have a short life (under 18 months)
For expenditures on projects of constantly recurring nature and have no lasting value
Non tangible
Municipality of Meaford
July 15, 2019

4. Capital Expense
Results in the acquisition of an asset of a fixed or permanent nature (more than 18 months)
Improves an existing asset
Extends the useful life of an existing asset
Must meet minimum value threshold as contained in Municipal Tangible Capital Asset Policy
Municipality of Meaford
July 15, 2019

5. Current Budget Known as the Operating Budget
Sections 289 and 290 of Municipal Act require a municipality to adopt a budget “including estimates of all sums required during the year for the purpose of the municipality” including
Amounts sufficient to pay all debts
Amounts to be raised for sinking funds or retirement funds
Amounts required for any boards or commissions
The budget must set out all revenues to be raised from taxes and shall provide that the estimated revenues are equal to the estimated expenditures (balanced budget)
Is the culmination of a process that selects the priorities and establishes the goals to be adopted by the municipality
Municipality of Meaford
July 15, 2019

6. Capital Budget
There is no requirement under the Municipal Act to complete a capital budget
New legislation and provincial initiatives have increased the importance of capital budgets
Financial Planning and PSAB 3150 – Tangible Capital Assets
Long term strategic management of capital needs through Asset Management Plans
New requirements to meet grant funding criteria
Debt management
Sustainable Water and Sewage Systems Act
Cost recovery plans
Full cost of providing the service must be passed on to the end user
Municipality of Meaford
July 15, 2019

7. Capital Budget – Continued
Adoption of Current budget should provide a link to the Capital budget by way of financing through tax levy, debt, user fess, etc.
All long term expenditures regardless of how they are financed are reported in the capital fund
Capital expenditures are to be fully financed which will ultimately affect the current budget
Municipality of Meaford
July 15, 2019

8. Capital Budget – Making Hard Choices
As the Municipality develops and refines its inventory of assets, the need to maintain these assets will be more pronounced.
At the same time the demand for new assets will likely remain.
Local governments need to decide where limited resources are best spent which involves balancing investment among service areas, asset classes and new and existing assets.
Most importantly the process must be perceived as fair and legitimate. Capital spending is a high stakes affair and if many ratepayers believe the spending decisions are unfair, asset management and the overall budgets reputation and support will suffer.
Municipality of Meaford
July 15, 2019

9. Preparing the Budget
Creation of budget timeline by Financial Services – typically in August
Developing budget Framework and Foundation – based on previous year experience and known change factors
Initiation of process through departments and divisions to begin the process of estimating anticipated revenues and expenses
Receive budget guidelines from Council
Processing and evaluation of budget
Internal between department and Financial Services
Internal through SMT meetings
External through Council
External through Public Engagement
Compilation of overall budget document for approval by Council – typically in December
Municipality of Meaford
July 15, 2019

10. Preparing the Budget Staff draft four budgets annually
Tax Supported Operating
User Pay Supported Operating
Tax Supported Capital
User Pay Supported Capital
Municipality of Meaford
July 15, 2019

11. Budget Format – Line Item
Oldest and simplest budgetary form
Emphasizes input of resources for individual objects of expenditures
Salaries
Wages
Materials
Supplies
Interest
Straightforward, fairly easy to prepare and administer
Easily understood by staff, Council and the public
Highly reflective of the Municipality’s accounting system
Classifies expenses and revenues in categories required for year end financial statements
Municipality of Meaford
July 15, 2019

12. Budget Format – Alternatives
Can provide some advantages over traditional line item budgeting
There is no perfect budget system that will incorporate everything a municipality desires
Performance Based Budgeting
Program Based Budgeting
Zero Based Budgeting
Priority Based Budgeting
Municipality of Meaford
July 15, 2019

13. Budget Format – Performance Based
Focus in the productivity of activities
Expands process to include consideration of whether or not the planned expense fulfilled the intended purpose
Need to collect and calculate information about unit costs
Adds a management focus on the control focus of line item budgeting
Provides information to consider ways of improving management and minimizing costs
Does not provide techniques for future planning and does not provide enough information to make tradeoffs among programs
Municipality of Meaford
July 15, 2019

14. Budget Format – Program Based
Shifts attention from details of spending objects to purposes of spending
Looks at the set of activities that relate to one another and that collectively define a municipal function or purpose
Budget reflects the programs being provided versus the department from which the spending originates
Information provided gives decision makers an indication of what they are getting for the dollar spent and what services and facilities are being provided
Encourages discussion around program choices versus getting bogged down in the line by line details
Required long term planning and rigorous analysis of planning, programming and budgeting systems
Very complex to implement effectively given the rational model required
Municipality of Meaford
July 15, 2019

15. Budget Formats – Zero Based
Developed as a variation of the Program Budget model
Requires decision makers to assign explicit priorities to municipal programs and activities
Involves the identification of decision units – activities for which a single manager has the responsibility for successful performance
Common element is that there needs to be a measurable output resulting from the resources committed to the decision unit in the budget year.
Accounting systems typical inhibit the identification of decision units
Service are reflected during early budget discussions with three options – maintain, reduce or increase.
Provides decision makes with a significant amount of information to assist in determining funding levels
Provides council with costs on the refinements in service levels
Municipality of Meaford
July 15, 2019

16. Budget Format – Priority Based
Newest public sector budget format – designed to work with the positives of all past budget processes
Establishes the following;
What is the local government uniquely qualified to provide?
What is the community truly mandated to provide and what does it cost to fulfill those mandates?
What programs are most appropriate to fund by establishing or increasing user-fees?
What programs are most appropriate for establishing P3’s?
What services might the local government consider “getting out of the business” of providing?
Where is the local government potentially competing against private businesses within its own community?
Costly to first establish, highly analytical at the front end, yet to be widely accepted in Canada
Municipality of Meaford
July 15, 2019

17. Budget Formats - Summary
Embracing any one system may result in neglecting some other important consideration
Advantages can include:
A focus on outputs as well as inputs
A focus on entire programs
Directing attention to high priority or higher cost programs
Providing information that can enhance management decisions such as
Name of program
Description of program
Objectives of program
Cost information for delivering program at same level as prior year
Estimates for any enhancements or providing program to increased population or users
Efficiency and effectiveness performance measures
Municipality of Meaford
July 15, 2019