1. Basics of Budgeting: How to Read Your Municipal Budget August 20, 2014 3:15 PM Session Pat Walker Pat Walker Consulting LLC Katie Gregory City of Peoria Deputy Director of Finance & Budget

2. Agenda  Introductions/Overview  The Budget Process  Arizona Budget  How to read a budget  Distinguished Budget Presentation Award  Questions?

3. Purpose of Budgeting  To meet organizations strategic goals  Process to determine what & how services will be delivered to citizens  How the services will be financed  Pursue politically chosen goals

4. Purpose of Budgeting  Control mechanism for planning and controlling operations  One of the most important activities undertaken by governments  Described by one Mayor as “The World Series of Municipal Government”  AZ Revenues = Expenditures

5. Purpose of Budgeting Simplistic Version “On what basis shall it be decided to allocate X dollars to activity A versus activity B?” Not as easy as it sounds……

6. Roles in Budgeting

7.  Citizens  Elected Officials  Public Employees

8. Roles in Budgeting Citizens:  Voice heard as to priorities/service levels and cost of providing desired priorities/service levels Elected Officials:  Set Policy Guidelines, Establish Priorities, Communicate Position to Constituents, Resolve Conflicts

9. Roles in Budgeting Public Employees:  Department Staff - Develop Program Objectives, Identify Service Levels, Prepare Budget Requests  Executive Management - Prepare a Recommended, Balanced Budget, Incorporate Elected Priorities, Assess Service Levels

10. Types of Budget Processes

11. Budget Processes  Performance Based  Program  Zero Based  Modified Zero-Based (Target)  Incremental  Expenditure Control Based (ECB)  Line Item

12. Budget Processes Performance Based  Emphasize activity performance objectives  Budget is presented by activities  Workload and performance are measured  Quality of performance measurements  Looks at cost, not need of activity

13. Budget Processes Program  Defines goals of each agency  Identify organizational activities that contribute to the goal  Focuses on the subject of expenditures instead of type

14. Budget Processes Zero Based  Agency defends entire budget starting from zero  Focuses on shift of resources to other programs  Defines implications of not providing service  Decision Packages are prepared

15. Budget Processes Modified Zero (Target) Based  Budget office develops target budget for each agency(i.e. 80% of prior year)  Decision packages are prepared  Two are prepared; Within and outside of target  Packages are ranked from high to low impact on citizens

16. Budget Processes Incremental  Most widely used process  Starts with last year’s base  Focuses on adds, not existing  Can be combined with other processes

17. Budget Processes Expenditure Control Budgeting (ECB)  Starts with incremental budgeting  Decision packages are prioritized  Departments can transfer funds between line items without approval  Any savings are carried forward

18. Budget Processes Line Item  Budget by commodity or resource  Other processes begin from here  Expenditure control and accountability

19. Budget cycle  Preparation of requests  Review of requests  Preparation of budget  Implementation  Evaluation/Audit

20. Preparation of Requests  Council’s vision and goals  Fiscal picture for next year (Revenue Projections/Expenditure estimates)  Instructions/rules to follow in preparation  Budget justification  Cost Estimations

21. Preparation of Budget  Revenue Forecasting  Producing a “balanced budget”  Phantom deficit reductions that will catch up with you  Unrealistic revenue projections  One-time versus on-going  Ducking the decision

22. Review of Requests  Central Budget office "rules of thumb”  Policy Rationale  Program changes  Trend analysis  Does it follow executive policy

23. Capital Budgets

24. Capital Budgets (CIP )  Multi-year and of considerable value  Operating Impact of CIP  Finance by pay as you go, grants, or borrowing

25. Capital Budgets Major Revenue Sources  Bonds  Impact Fees  Grants  Current Revenues

26. Budgeting in Arizona – Keeping it Legal

27. Budgeting in Arizona  Must adopt a balanced budget  Tentative budget must be adopted by third Monday in July  No requirement for final budget unless City/Town has property tax  Property Tax must be adopted by 3 rd Monday in August but 14 days after final budget adoption  Various restrictions on funds – HURF, Impact Fees

28. Budgeting in Arizona  Tentative budget is required to be itemized per Auditor General Forms  Published once a week for two consecutive weeks  Notice of hearing date for final budget  Both tentative and final must be published on City/Town website 7 business days after adoption  Must remain posted for 60 months (five years)

29. Budgeting in Arizona  Primary Tax Rate Truth in Taxation – If tax levy minus amount contributable to growth, is higher than prior year a notice must be posted Publish at 14 days but no more than 20 days before public discussion 2nd notice at 7 days but no more than 10 days Specific guidelines and language on publication

30. Budgeting in Arizona  Secondary Property Tax Rate Only for the retirement of bonded indebtedness Rate is whatever it takes to pay off the bonds

31. AZ Auditor General Forms

35. Distinguished Budget Presentation Award (A Best Practice Guide) The Government Finance Officers Association (GFOA) established the Distinguished Budget Presentation Awards Program in 1984 to encourage and assist state and local governments to prepare budget documents of the very highest quality that reflect both the guidelines established by the National Advisory Council on State and Local Budgeting and the GFOA’s best practices on budgeting and then to recognize individual governments that succeed in achieving that goal.

36.  Policy Document  Financial Plan  Operations Guide  Communication Device Distinguished Budget Presentation Award Mandatory Award Criteria

37. Policy Document  The document shall include a budget message that articulates priorities and issues for the upcoming year.  The message should describe significant changes in priorities from the current year and explain the factors that led to those changes.

38. Policy Document  The document should include a coherent statement of entity- wide long-term financial policies.

39. Policy Document  The document shall describe the process for preparing, reviewing, and adopting the budget for the coming fiscal year.  It also should describe the procedures for amending the budget after adoption.

40. Financial Plan  The document shall present a summary of major revenues and expenditures, as well as other financing sources and uses, to provide an overview of the total resources budgeted by the organization.

41. Financial Plan  The document must include summaries of revenues and other financing sources, and of expenditures and other financing uses for the prior year actual, the current year budget and/or estimated current year actual, and the proposed budget year.

42. Financial Plan  The document shall include projected changes in fund balances, as defined by the entity in the document, for appropriated governmental funds included in the budget presentation.

43. Financial Plan  The document shall describe major revenue sources, explain the underlying assumptions for the revenue estimates, and discuss significant revenue trends.

44. Financial Plan  The document should include budgeted capital expenditures, whether authorized in the operating budget or in a separate capital budget.

45. Financial Plan  The document shall include financial data on current debt obligations, describe the relationship between current debt levels and legal debt limits, and explain the effects of existing debt levels on current operations.

46. Operations Guide  The document shall include an organization chart(s) for the entire entity.

47. Operations Guide  A schedule or summary table of personnel or position counts for prior, current, and budgeted years shall be provided.

48. Operations Guide  The document shall describe activities, services, or functions carried out by organizational units.

49. Communications Device  A document shall include a table of contents that makes it easier to locate information in the document.

50. Operations Guide  The document should provide an overview of significant budgetary items and trends. An overview should be presented within the budget document either in a separate section or integrated within the transmittal letter or as a separate budget-in- brief.

51. Resources  Government Finance Officers Association  AZ Auditor General Office  AZ League of Cities & Towns-Budget and Finance Manual - http://www.azleague.org/  Pat Walker Consulting pwalkerconsulting@aol.com  Katie Gregory Katie.Gregory@peoriaaz.gov http:www.auditorgen.state.az.us http://www.gfoa.org/budgetaward

52. Questions?