Basics Basics of of Local Local Government Government Finance Finance

Basics Basics of of Local Local Government Government Finance Finance & & Budgeting Budgeting 2010 2010 In-Service In-Service Training Training Alan Probst Local Government Specialist UW-Extension Local Government Center (608) 262-5103

Fund Fund Accounting Accounting Local government accounting is Fund Accounting All revenues and expenditures must be assigned to a specific fund GASB guidelines

Funds Funds Revenues General Fund Special Revenue Funds Debt Service Fund Capital Fund Proprietary/Enterprise Funds Fiduciary Funds

Revenues Revenues All incoming funds from any source are included in revenues In Wisconsin, revenues primarily come from four sources: Property taxes State shared revenues Fines and fees for services Sales taxes

Expenditures Expenditures All funds expended by a local government must appear in one of the fund other than Revenue

Restricted Restricted funds funds Some funds are considered “Restricted” Restricted funds include: Proprietary Funds Fiduciary Funds Enterprise Funds Special Revenue Funds

Restricted Restricted Funds Funds Can only be used for the restricted purpose for which they exist Cannot be used to cover deficiencies in the General Fund Can be borrowed from to assist General Fund ONLY by resolution with payback plan

Deficit Deficit Spending Spending Wisconsin local government cannot operate in a deficit mode If insufficient funds exist to cover expenses, local governments must borrow to cover those deficiencies

Cash Cash Flows Flows Cash flows must always be considered when local governments expend funds Budgeted for does not mean the money is available Property taxes come in two payments State shared revenues come in two payments

Cash Cash Flows Flows Major purchases or expenditures must be scheduled to coincide with points when cash is available unless borrowing is planned or a sufficient reserve exists to cover the expenditure

Reserve Reserve Maintaining a General Fund reserve or Contingency Fund is essential to cover unplanned expenditures or when an expenditure cannot wait for a revenue payment A common rule for General Fund reserve or Contingency is six (6) month’s normal operating expenditures

Undesignated Undesignated or or “Slush” “Slush” Funds Funds In local governments, all incoming revenue must be shown in budget documents and assigned to a fund All expenditures must be accounted for under the budget “Slush Funds” are not allowable

Debt Debt Borrowing money for major purchases and projects is as essential for most local governments as it is for the average citizen Borrowing should be according to a plan (capital improvement, strategic, etc.) and managed

Local Local Government Government Budgets Budgets Section 65.90 of Wisconsin Statutes REQUIRES local governments to produce a budget Some other states allow the passage of an appropriation ordinance in lieu of a budget but this is not allowed in Wisconsin

Budgets Budgets The preparation and approval of a budget is probably the single most important duty of local government officials because it determines what services will be provided, to what extent they will be provided, and how they will be funded. This affects every citizen in their community.

Official’s Official’s Responsibility Responsibility Local government officials have a fiduciary responsibility to manage public funds in the most responsible manner their abilities and the local situation allow Misuse of public funds is the most frequent cause for public official indictments

Local Local Government Government Budgets Budgets Local Government Budgets are normally organized according to Governmental Accounting Standards Board (GASB) recommendations. www.gasb.org

Local Local Government Government Budgets Budgets Budgets, like all aspects of the government finance and accounting system, should also comply with Generally Accepted Accounting Principles (GAAP)

What What is is the the Purpose Purpose of of aa Budget? Budget? An accounting document (record & control expenditures) A management document (determines who can spend how much) Decision-making document (basis for sound decision-making by council & staff) Communications document (informing public of how their money is being spent)

Budget Budget Approaches Approaches Line-Item Budgets Program Budgets Performance Budgets Zero-Based Budgets

Line-Item Line-Item Budgets Budgets Most common format Connects & reports information on inputs used to produce government services Emphasizes control & oversight Downplays trust, communication & flexibility

Line Item Operating Budget

Line-Item Line-Item GENERAL FUND FY 09/10 100 Administration Description 101 101-1 101-2 Dept 100 FY04 Budget Wages & Salaries FY04 Actual Comments 1,513,880 152,420 1,609,210 82,000 82,000 84,525 84,525 95,000 Board directed increase 46,000 46,293 47,000 47,442 49,816 Increase per labor contract 111,967 114,816 Office Staff Secretary 12.75 per hour 26,520 Insurance clerk 11.20 per hour 23,296 49,816 108,000 Benefits FY06 Budget 1,461,320 Total 102 FY05 Project 1,463,450 City Manager Total FY05 Budget 108,293 111,525

Program Program Budgets Budgets A Program Budget allocates money to major program areas or activities rather than to specific line items More centralized than other approaches Focuses on program goals Examines all alternatives that may achieve program goals

Program Program Budgets Budgets Program budgets include both revenue and expenses for the major activities of an organization. Helps managers focus on sources of profits and losses of programs that could be expanded or discontinued. ( 000’s) Oncology Rhinoplasty Revenues 40,000 8,150 Expenses 37,000 17,000 Profit/ 3,000 (8,850) (Loss) Cardiac Total 50,000 98,150 100,000 46,000 4,000 (1,850)

Program Program Budgets Budgets Program budgets allocate money to major program areas or activities rather than specific line items A Police Department might be broken down as such: 1. 2. 3. 4. Administration Patrol Investigation Community support Instead of by line items

Program Program Budget Budget Challenges Challenges Goals can be difficult to formulate and define Goals are subject to change; program structure must be changed in response Sometimes difficult to obtain objective measures of benefits Can be difficult to determine interprogram efficiency

Performance Performance Budgeting Budgeting Under a performance budget approach, a program budget format is adopted to the existing organizational structure A performance budget is essentially a program budget with performance measurement methodology used to make budget decisions.

Performance Budgeting Initiative in budget preparation lies with performance unit Government activities are divided into major functions Each activity must yield an identifiable output Management, administration, and overhead costs are distributed among the various activities of the performance unit

Purposes Purposes of of Performance Performance Budgeting Budgeting Better evaluates results of program operations Provides decision-makers and public with better information on quality of public services More popular as citizens lose confidence in government

Zero-Based Zero-Based Budgeting Budgeting Zero-Based Budgeting (ZBB) organizes information into decision packages, i.e. incremental spending levels that reflect varying levels of effort and costs

Zero-Based Budgeting In theory, each department prepares at lest three (3) packages: A base-level, meeting the program’s minimum requirements Current-level funding Enhanced package – to address unmet needs

Zero-Based Budgeting Packages from all departments are then ranked according to perceived need for the package Unlike PBB, which uses more objective criteria, ZBB relies on subjective judgment of decision-makers in ranking packages

Incremental Incremental vs. vs. Zero-Based Zero-Based Budgeting Budgeting Incremental budgeting starts with current revenues and projects next year by adjusting for inflation, volume, efficiency, technology, etc.

Incremental Incremental vs. vs. Zero-Based Zero-Based Budgeting Budgeting Zero-Based Budgeting: calls for a total re-evaluation of all programs and activities requires that decision packages be prepared for each separable activity or level of activity Ranks the packages Selects packages for adoption or rejection

Why Why the the “zero” “zero” in in ZBB? ZBB? In theory, decision-makers conduct an annual evaluation on each program’s purpose and priority, weighing it against all other spending possibilities As a result, decision-makers may decide not to renew funding for existing program and shift those funds to another, possibly entirely new, program In reality, this reallocation rarely occurs

Local Local Government Government Budgets Budgets 1. 2. 3. 4. 5. 6. 7. 8. 9. Generally comprised of several separate sections: Overview Summary Revenues General Fund Special Revenue Funds Debt Service Fund Capital Fund Proprietary/Enterprise Funds Fiduciary Funds

OVERVIEW OVERVIEW Narrative Narrative used used to to give give the the reader reader an an idea idea of of what what the the budget budget hopes hopes to to accomplish, accomplish, what what is is different different from from last last year’s year’s budget, budget, and and any any pertinent pertinent information information not not obvious obvious in in the the budget. budget.

SUMMARY SUMMARY Wisconsin Statutes REQUIRE the summary to show the percentage difference between the current budget and proposed budget for: 1. 2. 3. General Property Taxes Total Revenues Total Expenditures

REVENUES REVENUES Where the budget shows your projected income for the coming fiscal year Includes all anticipated incoming money Don’t receive them all at beginning of the year, funds come in incrementally

REVENUES REVENUES Includes: Property tax revenue State Shared Revenues Fees for Services Sales tax revenue (where applicable) Anticipated grants, loans, etc.

REVENUES FY 07/08 Code 010 Description 011 Property Taxes FY06 Budget FY07 Projected FY008 Budget FY06 Actual FY07 Budget Comments 1,463,450 1,461,320 1,513,880 152,420 1,609,210 New subdivision complete in 2006 1,187,204 1,185,647 1,199,250 1,197,521 2,014,415 Down 3% from FY 04/05 162,500 165,770 171,400 169,340 202,500 1,349,704 1,351,417 1,370,650 1,366,861 2,216,915 750,000 694,230 750,000 751,892 1,250,000 012 State Shared Revenues General aids Transportation aids Total 013 Sales Taxes New big box in 2006

014 Fines/Fees/Misc. Police Fines 147,000 189,655 160,000 231,400 200,000 New Deer Haven subdivision construction starts Building Permits 245,000 244,124 250,000 251,250 260,000 Parking Permits 55,000 53,200 55,000 54,150 55,000 Inspection Fees 85,000 83,400 85,000 87,240 90,000 532,000 570,379 550,000 624,040 605,000 EDA Grant 0 0 0 0 250,000 For industrial Park infrastructure Meth Abatement 0 0 0 0 100,000 From Homeland Security; Drug Task Force TOTAL 0 0 0 0 350,000 4,095,154 4,077,346 4,184,530 2,895,213 6,031,125 TOTAL 015 Grants Grand Total

COMPUTING COMPUTING THE THE PROPOSED PROPOSED TAX TAX LEVY LEVY Total Proposed Operating Expenditures and Reserves (Minus) Total Proposed Non-Property Tax Revenues EXAMPLE: Proposed 2006 Operating Tax Levy County X proposed expenditures -- 50 Mill. - Non-Tax Revenues (State /Local) --38 Mill. Proposed Tax Levy 12 million

Funds Funds General Fund Special Revenue Capital Project Debt Service Proprietary Funds Fiduciary Funds

General General Fund Fund This is where your day to day operations are budgeted Payroll purchases Benefits Office Supplies Fuel Small IT Electricity Vehicle repairs

GENERAL FUND FY 05708 100 Administration Dept 100 FY05 Projected Description FY04 Budget FY04 Actual FY05 Budget 101 Wages & Salaries 1,463,450 1,461,320 1,513,880 1,512,420 1,609,210 101-1 County Administrator 62,000 62,000 64,525 64,525 65,000 Board directed increase 101-2 Office Staff 46,000 46,293 47,000 47,442 49,816 Increase per labor contract 111,967 114,816 Secretary 12.75 per hour 26,520 Insurance clerk 11.20 per hour 23,296 Total Total 108,000 FY06 Budget 49,816 108,293 111,525 Comments

102 Benefits 102-1 Medical Insurance 26,500 28,941 Family 2x 1,100 per month 26,400 Single 1x 540 per month 6,480 Total 102-3 30,000 30,190 32,880 32,880 FICA 7,750 6.75% of total wages 102-4 Retirement 4,019 3.5% of total wages TOTAL 26,500 28,941 95,760 30,190 44,649

TOTAL PERSONNEL COSTS 134,500 137,234 207,285 FY04 Budget FY04 Actual FY05 Budget 104-1 Office Supplies 2,000 2,198 2,000 2,318 2,000 105-1 Copier Maint. Contract 3,800 3,800 4,000 4,000 4,200 Description 142,157 FY05 Projected 159,465 FY06 Budget 107-1 Fuel Oil (Courthouse) 21,000 21,420 22,000 23,120 22,000 TOTAL 26,800 27,418 28,000 29,438 28,200 161,300 164,652 235,285 171,595 187,665 Grand Total Comments Thermostat will be reduced to 66 degrees

Special Special Revenue Revenue Funds Funds “Insulated Departments” Library Systems -- Special Tax & Charges Public Health Dept. -- Special Tax & State grants Highway Commission -- State Road Aids

Capital Capital Budget/Fund Budget/Fund The Capital Budget is where major purchases and projects are planned and budgeted for. A common guideline is that any program or purchase of a non-expendable piece of equipment valued at over 10,000 should be listed as a capital budget item

Debt Debt Service Service The Debt Service portion of a government budget includes the payments of principal, interest, and fees on loans, bonds, and any other government debt. Proper accountability of debt service is essential for future borrowing.

DEBT SERVICE FY 07/08 Code 500 FY05 Budget FY05 Actual FY06 Budget 501 2004 General Revenue Bond 203,750 203,748 201,800 201,801 200,050 501-1 Principal 180,000 180,000 180,000 180,000 180,000 23,450 23,448 21,500 21,501 19,750 300 300 300 300 300 502 1998 Alternative Revenue Bond 95,250 95,247 94,650 94,562 93,000 Sewer Plant I & I Progect 502-1 Principal 87,500 87,500 87,500 87,500 87,500 Note: Paid off in 2006 7,400 7,397 6,800 6,712 5,000 350 350 350 350 500 Description 501-2 Interest 501-3 Fees 502-2 Interest 502-3 Fees FY06 Projected FY07 Budget Comments For County Courthouse addition Higher fee for bond closure

Proprietary Proprietary Funds Funds Enterprise Funds Internal Service Funds

Enterprise Enterprise Funds Funds The portion of a budget supporting an enterprise, such as a water & sewer utility, a government owned electric utility, or other specialized, restricted use funds such pension funds

Internal Internal Service Service Funds Funds Motor Pool Equipment Health Insurance

Fiduciary Fiduciary Funds Funds Public Pension Trusts Investment Trusts Private Purpose Trusts Agency Funds

Managing Managing the the Budget Budget Monthly budget reports Monthly expenditures should relate directly to what proportion of the year has passed Major purchases made when planned and cash flow allows Monitor cash flow closely Mid-Year review

Managing Managing the the Budget Budget Manage debt, plan for borrowing Investment plan Following the Capital Plan essential

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