1. Mary-Lou Pickles, CGFO, CMA Chris Lyons, CPA, CGFO, CPFO
Municipal Budgeting Certified Government Finance Officer (CGFO) EXAM REVIEW session November 15, 2012
Mary-Lou Pickles, CGFO, CMA
Chris Lyons, CPA, CGFO, CPFO

2. Topics Budget Process/Budget Types Fiscal Policies & Best Practices
Performance Measurement
Revenue Management & Forecasting
CIP & Financial Planning
Budget Presentation Award
Additional Information and Source Material

3. Budget process/ budget types

4. Budget Basics
Governments allocate funds to programs and services through the budget process
Process should effectively involve major stakeholders and reflect their needs and priorities
The budget process should:
Incorporate a long-term perspective
Establish linkage to broad organizational goals
Focus decisions on results and outcomes
Achieve consensus on decisions related to goals, services, and resource allocation

5. Budget Basics The budget is a plan Benefits of the budget
If you don’t have a plan, how do you know when you are done?
Benefits of the budget
Stable service delivery
Impact of current decisions
Thoughtful responses
Identifies future trends early
Builds credibility
Transparency

6. budget reform/approach
Budget process reforms are designed to provide more and better information to decision makers increasing the rationale for budget decisions.
Approach depends on management and legislative body

7. Budget Reform types Executive Budgeting Performance Budgeting
Program Budgeting
Program-Planning Budgeting
Zero-Based Budgeting
Budget Allotment

8. Executive budget
Control of budget preparation lies with the Chief Executive Officer/City Manager
Earliest version used a simple line item format
Cities and states were the first to adopt this format

9. Performance Budgeting
First major reform after Executive Budget format
Emphasizes purpose and accomplishments
Primary features are efficiency and effectiveness measures
Expenditures are based on measurable performance of activities and programs
Sets primary focus on evaluation of the efficiency of existing activities

10. Program budgeting
A budget wherein expenditures are based on program of work and on character and object class (GFOA definition)
Organized by major programs
Enables comparison of the costs and benefits of major programs
May encourage micro management of department activity by CEO or legislative body

11. Program-Planning Budgeting
Originated by Department of Defense
Identify most cost effective way to achieve goal
Successful at DOD where results were easily quantified

12. Zero-based budgeting
Continued existence of programs and activities must be justified every year and not taken for granted
Purpose is to force conscious decisions between disparate goals
Designed to address the appropriateness of each goal, rather than the most cost effective program to achieve the goal

13. Budget Allotments
A portion of the budget is allocated to an interim period based on historical spending patterns and needs
Advantages include:
Avoidance of rushed year-end spending
Aids in cash flow
Provides for inventory planning needs

14. Aspects of the budgeting function
Financial: plan for future revenue collection and spending
Political: resolve conflicts due to allocation of scarce resources
Planning/Analytical: Effectively use government resource tools, such as, cost- benefits analysis, cost effectiveness, net present value analysis and strategic planning

15. Aspects of the budgeting function (continued)
Administrative: effectively coordinate the preparation of the budget and ensure expenditures are made in accordance with the adopted budget
Communicative: provide information that will assist with choices and promote stakeholder participation in the budget process
Strategic Planning: define the direction of making decision on allocating resources, link to budget, be outcome driven and be supported by elected officials

16. Six phases of the budget process
Budget manual (call)
Agency/Department budget requests
Preparation of the proposed budget
Legislature consideration and adoption
Implementation
Audit and evaluation

17. Phase 1 – budget manual
Responsibility for initiating budget cycle rests with the CEO, usually City Manager or Mayor
Budget call or manual is instructions sent to agency and department heads concerning the submission of information for the budget year

18. Budget manual (continued)
Statement from CEO or budget officer outlining fiscal position
Description of budget process
Budget calendar
Assumptions to be used for requests
Forms to be used with instructions

19. Phase 2 – budget requests
Prepared by Agency/Department
Budgets usually begin as requests that contain three items
Budget schedules that detail the amounts requested, usually in line item format
Supporting documentation
Transmittal letter that describes the agency/department and provides justification for its major objectives and initiatives for the budget year

20. Phase 3 – preparation Budget staff reviews requests to ensure:
Compliance with priorities and objectives in budget manual
Revenues and expenditures balance
Revenue estimates are realistic and within guidelines, DOR provides information about revenue to local governments
Budget staff compile requests into a single budget document that is submitted to the legislative body for review

21. Phase 4 – legislative consideration and adoption
Executive proposal is presented to legislative body for consideration
Legislative body reviews to ensure the budget addresses their constituents’ needs
Public hearings in compliance with State Statutes dictate:
Date, Time, and Place of hearings
Publicized hearings that give citizen interest groups the opportunity to raise issues related to the allocation of resources

22. legislative consideration and adoption (continued)
Budget document should:
Provide summary information for the public and media
Include a transmittal letter that outlines key policies and strategies
Be readable and understandable
Chapter 200, F.S. Truth in Millage (TRIM)
Requires two public hearings for open discussion of millage rates and budgets of taxing authorities
Sets the maximum operating millage for cities and counties at 10 mills

23. legislative consideration and adoption (continued)
Chapter 200, F.S. TRIM (continued)
Tax revenue is based on the Certification of Value provided by the Property Appraiser and is the valuation of taxable value within the jurisdiction
Requires taxing authorities to utilize a minimum of 95% of the certified taxable value
Defines a “county of special financial concern” as a county where 1 mill will raise less than $100 per capita

24. legislative consideration and adoption (continued)
Chapter 200, F.S. TRIM (continued)
Requires taxing authorities to advise property appraiser of its proposed millage rate, its rolled- back rate, and public hearing information within 35 days after receipt of certification of value
Requires certification of statutory compliance be sent to Department of Revenue
Allows taxing authorities to readopt its prior year’s adopted final budget, as amended, and expend moneys based on that budget until such time as its tentative budget is adopted if the fiscal year of the taxing authority begins prior to adoption of the tentative budget.

25. Phase 5 - implementation
Budget officer implements
Establish and record budget as approved by legislative body
Start new fiscal year
Establish position control based on approved positions, job description and pay rate

26. Phase 6 – audit and evaluation
Budget officer monitors quarterly or monthly
Report actual compared to budget
Make budget adjustment as necessary
Monitor progress toward objectives

27. Multi-year budgeting types
Classic (traditional)
Both the spending and revenue plan for each budgetary year are approved at the same time
Rolling
Each year’s appropriations are adopted in each subsequent year
Recommended
Governments should prepare multi-year expenditure projections

28. Multi-year budgeting advantages
Improves
Financial management
Long-range strategic planning
Program monitoring and evaluation/benchmarking
Reduces staff time in budget development
Links operating and capital activities/spending
Reduces surprises
Pinpoints problem areas early

29. Multi-year budgeting disadvantages
Difficult to project into the future
Could reduce responsiveness to emergencies if too restrictive
Initial year may increase work and stress in departments

30. Multi-year budgeting safeguards
Amend existing financial and budget policies and procedures addressing:
Allowance/disallowance of carryovers from one year to the next
Level of acceptance of budget adjustments, if any
The amount of revenue reserves that can be used for unanticipated expenditures

31. Multi-year budgeting safeguards (CONTINUED)
Create financial policies
Balanced budget
Revenue diversification
Debt capacity
Fund balance
Other safeguards
Examine key economic and fiscal indicators
Perform analysis of existing revenue structure
Update budget manual/call to reflect changes

32. Multi-year budget vs. Multi-year financial plan
Budgets have more detail
Budgets have goals and/or objectives
Budgets are public documents
Budgets are approved by the governing body

33. Accounting basis Governmental fund types: Five types:
Used to account for most, if not all, of a government’s taxable supported activities
Uses modified accrual basis of accounting which recognizes revenue when measurable and available
Five types:
General fund
Special Revenue funds
Debt Service funds
Capital Projects funds
Permanent funds

34. Accounting basis (continued)
Proprietary funds:
Used to account for a government’s business- type activities and serves internal and external customers
Uses accrual basis of accounting which recognizes revenue when earned
Two types
External – Enterprise funds
Internal – Internal service funds

35. Accounting definitions
Encumbrances: obligations incurred for which receipt of goods or services have not occurred
Mandate: when a higher level of government requires a lower level of government to perform a specific task or to meet a standard

36. Fiscal policies & best practices

37. National advisory council on state and local budgeting (nacslb)
Four principles of the budget process
Twelve elements each of the four principles of the budget process incorporates at least two of the twelve elements to help translate the guiding principles into action components

38. Nacslb – four principles
Establish broad goals to guide government decision making
Develop approaches to achieve goals
Develop a budget consistent with approaches to achieve goals
Evaluate performance and make adjustments

39. Establish broad goals
Assess community needs, priorities, challenges and opportunities
Identify opportunities and challenges for government services, capital assets, and management
Develop and disseminate broad goals

40. Develop approaches Adopt financial policies
Develop programmatic, operating, and capital policies and plans
Develop programs and services that are consistent with policies and plans
Develop management strategies

41. Develop budget Develop a process for preparing and adopting a budget
Develop and evaluate financial options
Make choices necessary to adopt a budget

42. Evaluate performance Monitor, measure and evaluate performance
Make adjustments as needed

43. operating budget policies
Define a balanced operating budget
Develop with goal to maintain structurally balanced budget (balance between operating expenditures and operating revenues)
Identify who is responsible for budget preparation - management

44. revenue policies Example:
How much change in the property tax rate is acceptable in a given year
How will one-time revenues be used
How frequently should service charges and fees be reviewed
Example:
Contribution
Savings from bond issue
Don’t budget
Not used for ongoing expenditures

45. FUND BALANCE policies
GFOA recommends governments establish a formal policy on level of Unrestricted Fund Balance that should be maintained in General Fund based upon a government’s own specific circumstances considering:
Predictability of its revenues
Volatility of its expenditures
Risk to significant one-time outlays (disasters)
Commitments and assignments
Conformity with legal and regulatory constraints

46. stabilization policies
To guide the creation, maintenance and use of resources for financial stabilization purposes
Identify purpose for which funds can be used
Also referred to as rainy day funds, unreserved, undesignated fund balances and contingency funds

47. contingency planning policies
Guide financial actions that will take place in the event of emergencies, natural disasters or other unexpected events
General guide to improve the ability to take timely action and to aid management when an emergency occurs

48. debt policies Should guide issuance and management of debt
What is the maximum long-term debt burden that the government will incur
What mix of long-term debt and current revenues, if any, will be the basis for financing capital improvements
How will bond proceeds be used
Under what conditions will short-term debt be used

49. develop management strategies
Develop mechanisms for budgetary compliance
Appropriate management processes and systems should be in place to ensure compliance with the adopted budget
Institute procedures to review budget periodically (actual-to-budget comparisons)

50. Cost of Government services
Full Cost – Encompasses all direct and indirect costs related to that service
Direct Cost – salaries, wages and benefits of employees working exclusively on the delivery of the service and materials and supplies and other associated operating costs
Indirect Cost – shared administrative expenses in the work unit and in support functions outside the work unit

51. Cost of Government services (continued)
Life-cycle costs - Include costs in addition to purchase price over the life of an asset such as maintenance and repairs, failure costs (downtime) and money costs (interest and opportunity)
This concept is useful for decisions involving the purchase of major equipment

52. Cost of Government services (continued)
Opportunity costs – The benefit of an option that is forgone by choosing another option (loss benefit)
Sunk costs – A cost that has been incurred and cannot be reversed
Should be ignored when evaluating future decisions

53. Cost of Government services (continued)
Marginal Cost – Associated with expansion of a service without any increase in fixed costs (unused capacity)

54. Performance measurement

55. Performance measurement
Performance measurement - process for determining how a program is accomplishing its mission
Four key steps:
Identification and definition of indicators
Collection of appropriate data
Analysis (comparing) performance to previous results or benchmarks
Reporting the results

56. Performance measures
Input – resources used in producing an output or outcome
Output – completed activity, amount of work done within the organization
Workload – the level of productivity of staff in providing goods and services to customers
Effectiveness – the degree that goals and objectives are met within deadlines
Efficiency – measures the amount of outcomes per unit of resources allocated to an objective

57. PERFORMANCE measures
Performance measures should be linked to specific program goals and objectives
Give priority where goals are achieved
Measures should be valid, reliable and verifiable (quantified assessment)
Performance budgeting (outcome) links the budget by establishing performance measures agreed upon by managers and decision makers

58. PERFORMANCE measures Answers key questions: Why Measure?
How much did we do (quantity)?
How well did we do it (quality)?
How hard did we try (effort)?
What change did we produce (effect)?
Why Measure?
To improve performance
To enable good decision making (quantified)
Enhance accountability
Report to the public

59. Program components Clearly defined service area Processes
Activities and tasks
Planned outcomes or achieved results
Link expenditures and revenues to goals, objectives and outcome
Expenditures and revenues are related to specific functions

60. Good objectives SMART Specific Measurable Attainable Relevant
Time-Bound or Timely

61. Performance benchmarks
Should be developed to aid in assessing how well a function, program or activity meets needs or purpose
Comparative standards that prove a frame of reference for evaluating program/service quality or effectiveness
Should be consistently defined and measureable

62. Revenue management & forecasting

63. Forecasting revenue
Estimating revenue is the first step in determining the level of resources that will be available for budget appropriations
Influenced by:
Administrative factors
Political factors
Economic factors
Policy factors

64. Forecasting revenue (CONTINUED)
Uses analytical techniques to estimate
Should be decentralized with process to achieve consensus on the forecast
Establishes a spending target
Projects the overall future financial condition – capital spending and debt
Should extend over a period of at least 3 years

65. Forecasting revenue (CONTINUED)
Governments should maintain a revenue manual that documents revenue sources and factors relevant to present and projected future levels of those resources
Promotes better understanding of government’s resources
Supports decision-making
Internal staff training tool

66. Qualitative methods
Qualitative revenue forecasting methods rely on judgments about future revenues
Consensus - Group collectively reaches agreement on revenue projections based on previous collection patterns, experience, and knowledge of historical events.
Judgmental - Informed decision based on history and general economic conditions.
Expert - uses economists, demographers, market researchers, and social scientists to study trends.

67. Qualitative methods (CONTINUED)
Weaknesses
Responds to political pressures
Focus on current issues/events
Lack of comparability over time

68. Quantitative methods
Relies on numerical data enabling testing to see if underlying data assumptions are met
Requires extensive amounts of historical data to generate dependable projections

69. Forecasting revenue methods
Trend analysis – forecasting future revenues based on its short-term historic trend
Simple linear and multiple regression analysis
Time series analysis – forecasting revenues based on financial data over extended periods (e.g., 15 or more time periods)

70. Forecasting revenue methods (continued)
Econometric forecasting involves projecting future revenues by taking into account the economic factors that influence that revenue source
Sales tax
User charges (building & construction permits)
Real estate revenues

71. BREAK-EVEN ANALYSIS
Simple technique for determining whether a project will break-even
Revenues = Costs
Four variables
Revenue per unit
Fixed costs
Variable costs
Number of units or users

72. Calculate net present value
Method of comparing the long-term financial costs and benefits of different alternatives
Uses discounting – process of converting a future value into the value it would be given today

73. Revenue restrictions
To form a Community Redevelopment District, Florida Statute requires a municipality to adopt a resolution, supported by data and analysis, which makes a legislative finding that the conditions in the area meet the criteria described in s (7) or (8).
Finding of necessity

74. Revenue restrictions
Florida Statute requires a municipality to establish an equity study commission before adopting a new rate structure for business taxes
Florida Statute constrains the use of State Revenue Sharing for debt service in excess of guaranteed entitlement amount

75. Capital improvement plan (cip) and Financial planning

76. Capital assets (GFOA POLICY)
Capital assets are government facilities, infrastructure, equipment or networks
Enable the delivery of essential public sector services
Recommends governments establish a system for assessing their assets
Plan and budget for any capital maintenance and replacement needs
Inventory policy

77. Cip planning
Prioritize projects and funding sources for period of time, usually 5 years
Should involve citizens – recommendations
Should be included in budget document and approved by the governing body
Adopted at the same time
Is a decision-making tool – future considerations outside scope
Is a financial management tool

78. Cip planning (continued)
Is part of long-term strategic plans but doesn’t drive them
Includes projects approved by key officials (manager, council) waiting for funding
Projects are typically placed in out years and move up until they are included in the current year’s capital budget

79. Steps to identify CIP projects
Review status of previously approved projects
Identify new projects
Assess alternatives
Complete forms
Evaluate ability to fund

80. Evaluate new projects Project description Location map Justification
Cost by year
Impact of future revenues
Future operating costs

81. Ranking cip Criteria Consider
Should be developed to select and rank proposed CIP projects and agreed on by everyone in the decision making process.
Consider
If taxes will have to be raised
How many citizens will benefit
Safety issues

82. Methods to finance CIP
Current revenues or fund balance (pay-as-you-go)
Debt (pay-as-you-use)
Tax-Increment Financing Bonds
Used for projects within an area expecting to benefit from economic development
Grants
Impact fees

83. Budget Presentation award

84. Requirements for award
Four categories:
Budget as a policy document
Budget as a financial plan
Budget as an operations guide
Budget as a communications device
27 Criteria:
14 Mandatory requirements

85. budget as a policy document
Statement of entity-wide long-term financial policies (mandatory)
Budget message that articulates priorities and issues for the budget for the new year (mandatory)

86. Budget as a financial plan
Summary of major revenues and expenditures, as well as other financing sources and uses, to provide an overview for all total resources
Summaries of revenues, expenditures and other financing sources and uses for the prior year actual, current year budget and/or estimated current year actual, and proposed budget year
Describe major revenue sources, explain the underlying assumptions for the revenue estimates and discuss significant revenue trends

87. financial plan (continued)
Projected changes in fund balances, as defined by the entity in the budget document
Financial data on current debt obligations and description of the relationship between current debt levels and legal debt limits
Explain the basis of budgeting for all funds, whether cash, modified accrual, or some other statutory basis

88. Budget as an Operations Guide
Describe activities, services or functions carried out by organizational units
Include an organizational chart
Schedule or table summary of personnel or position counts for prior, current and budgeted years

89. Budget as a Communications Device
Description of processes for preparing, reviewing and adopting the current year’s budget and procedures for amending the budget after its adoption
Use charts and graphs to highlight financial and statistical information
Include a table of contents

90. Tips for taking tests
Stay positive throughout the whole test and try to stay relaxed
Take deep breaths to relax
Read the entire question and pay attention to the details
Make sure you understand what question is really asking you
If you don't know an answer, skip it and come back to it later
Don't stay on a question that you are stuck on
Only change an answer if you misread or misinterpreted the question
Your first answer is usually the correct one.

91. source materials

92. Source materials – Florida Statutes
Chapter Determination of Millage, specifically:
Chapter
Chapter
Chapter 163, Part III

93. Source materials - GFOA
Capital Improvement Programming: A Guide for Smaller Governments
An Elected Official’s Guide to Revenue Forecasting
An Elected Official’s Guide to Performance Measurement
An Elected Official’s Guide to Multi- Year Budgeting

94. Source materials - GFOA
Cost Analysis and ABC for Governments
Decision Tools for Budgetary Analysis
Financial Policies: Design and Implementation
The Operating Guide: A Guide for Smaller Governments
Other Readings
An Elected Official’s Guide to Government Finance
An Elected Official’s Guide to Debt Issuance

95. Source materials - GAAFR
Chapter 1 - GAAP and the Governmental Environment
Chapter 2 - The Governmental Financial Reporting Model
Chapter 10 - Financial Statements
Chapter 16 - Budgetary Integration and Reporting
Chapter 17 - Performance Measurement

96. Source materials
Friedman, Mark. Trying Hard is Not Good Enough. Trafford Publishing, 2005.

97. Source materials - Web
Recommended Budget Practices: A Framework for Improved State and Local Government Budgeting dedBudgetPractices.pdf
Recommended Practices: Budget and Fiscal Policy
Distinguished Budget Presentation Award Program Criteria Guide and Explanations on.pdf
nations.pdf

98. questions