Preparing & Implementing the BUDGET Micki Rundell, CFO City of Georgetown TML – June 5, 2015

“IT’S CLEARLY A BUDGET. IT’S GOT A LOT OF NUMBERS IN IT.” George W. Bush

What Budgeting Should Be: Texas Municipal Clerks Program What Budgeting Should Be: Opportunity to establish community goals. Ability to incorporate those goals into the budget. Allocates resources to accomplish goals. This presentation will utilize the budgeting function as the vehicle for explaining a typical government’s financial structure and how the system can be used to realize the best in government or abused to bring out the worst in a community. June 2005

Additionally a Good Budget… Reflects the Goals & Objectives of the Organization as well as the Community Is a Tool for Planning & Management of community resources Remember… it’s “their” money Is Monitored Routinely Reflects Organizational Structure and Control

Lots of Types/Methods for Budgets Operations Budget Zero-Based Budget Lump Sum Budget Line Item Budget Program Budget Results Oriented / Performance Budget Capital Budget Multi Year Capital Planning FIND THE ONE THAT WORKS FOR YOUR ORGANIZATION

Budgets based on “Funds” Operations are organized on the basis of Funds Separate, self-contained set of accounts Assets, liabilities, revenues & expenditures Smaller cities may operate only 1 fund Georgetown has over 30 funds Plano has 130 Each fund operated as separate entity Each is addressed within the Budget

Annual Budget Documents Annual Operating Budget Required by State Statute & City Charter Allocates resources Based on Council Priorities Serves as a Policy Document Capital Budget Plan acquisition/construction of major capital items 5-year planning horizon is recommended Project scope identified Potential Funding Sources Identified 1st year of CIP appropriated in Annual Budget Other Years are for Planning Only

Operating Budget Structurally Balanced Operating revenues should fund on-going expenses PY Excess or 1-time funds should be used for 1-time expenses Appropriated for One Fiscal Year Appropriations usually lapse at YE Yet, outstanding encumbrances or purchase orders can be paid in the following year

Operating Budget Should Include: Overall Summary of Issues, Challenges & Opportunities Summary & Explanation of Revenues and Expenditures by Fund Defined Programs & Objectives Staffing Levels Performance Measures

Capital Budget Capital projects are different from programs adopted in the operating budget: Often represent very large project Can have involve major financial obligations May span two or more fiscal years FUNDS the CAPITAL IMPROVEMENT PLAN

Capital Improvement Program Preparation - update 5-Year CIP schedule can include: Citizen involvement At least 5 years forward Identifies plan for funding capital improvements Include estimated operational impacts “Year 1” is formally adopted as the “Capital Budget”

Capital Budget Capital budgets should include: Descriptions of scope of each project Estimated costs of project based on recent and accurate sources of information Schedule for completion of each project Phasing: Engineering, Design, Construction Identified funding sources for all phases of project Current Year Appropriation Future Year Funding Sources Any impact on the operating budget should also be identified

Creating the Annual Budget Document Revenues Identify & estimate revenues by fund including: Property Tax Sales Tax Charges for Services Expenses/ Expenditures Total amounts to be spent during the year By Fund By Department/ Program Fund Balance/ Cash Reserves What are the expected ending balances? How do they compare to policy requirements?

Key Financial & budgetary policies Good budgeting begins with a good policy…. Key Financial & budgetary policies

Why have a Financial/Budget Policy? Provides “fiscal discipline” Achieve & maintain long-range stable and positive financial condition Rating agencies and bond market rely on it Provide guidelines for day-to day planning & operations of City’s financial management

Identify the Budget Process Operating plan – 1 to 2 years Capital plan – 1 to 5 years Link to long-term, comprehensive plan Budget based on performance & outcomes Determine time line for preparation Assign control & accountability of funds Transfers between funds/departments Document the Budget Amendment process

Revenue Management Define “conservative” revenue projection philosophy User-based fees and service charges “Cost of service” Property Tax Revenues/Tax Rate Relation to effective rate and rollback rate Portion allocated to Operations vs. Debt Administrative Services Charges Transfers between Funds

Expenditure Policies Current Funding Basis Defined CIP Process On-going revenue fund on-going expenses Excess revenue funds 1-time expense Defined CIP Process 5 year capital plan with funding impacts to tax payers and rate payers Address Capital Maintenance

Capital Maintenance Program Deferred maintenance increases future capital costs On-going capital maintenance is included in operating budget Use Internal Service Funds - “lease” equipment to departments Lease fees fund capital repairs and replacement

Debt Management Policy Use of Debt Financing Future use against future payment Long-life capital assets Affordability Targets Debt per capita Debt as a percent of taxable value Debt service payments as percent of current revenues Debt tax rates as percent of total tax rate Sale Process Competitive vs. Negotiated Full and Continuing Disclosure Debt to Market Av < 2.5-3% Debt/capita <1000 = low > 2500 = high OVERLAPPING DEBT

Financial Reserves Identify “rainy day” funds…. Georgetown: Requires 75 days citywide operating “contingency” reserves Rainy day fund for unexpected emergency 90 day reserve in General Fund 30 days = “Emergency” Funds Offset sudden tax increase Replenished next budget cycle 60 days = Long-term reserves

Develop a “Budget Contingency Plan” Establish guidelines for managing revenue shortfalls Immediate actions include freezing hiring of new positions Delay all “non-essential” spending Service level reductions addressed by Council Includes workforce reductions

Annual Budget Document includes Transmittal Letter Summary of key issues & factors driving proposed budget Three Year Historical Summary (Total Budget) PY ending ACTUAL numbers Current FY BUDGET & PROJECTED FYE PROPOSED Budget Proposed Budget by Fund Written Summary Revenue Schedule Proposed Expenditures by Department Appendix Supplemental Information & Schedules

Outline Accounting & Financial Reporting Requirements Provide quarterly/monthly reports to Council Outside audit annually of all City accounts Accountable directly to City Council Prepare Comprehensive Annual Financial Report (CAFR) GFOA standards

Maintaining the Financial & Budgetary Policy Review annually with the Council during the budget process Clarify areas that may be confusing Look for new ways to improve the policy Example: Addition of a “revenue shortfall contingency plan”

Implementing the BUDGET On-going Responsibilities

Understand the Budget Cycle Forecasting & analysis Preparation Presentation/ Formal Filing Workshops & Public Hearing Formal Adoption Implementation Monitor & Adjust if Necessary PREPARE FOR YEAR-END AUDIT

Budget Amendment Process Determined by State Law and Charter “Emergency or Expenses that were not known when budget was adopted” Adopted by ordinance and filed with City Secretary Clearly identifies appropriation and funding source

Budget Management Continual process Monthly reporting on finances Summarize key revenues & monitor expenditures Early identification of potential issues Important to assess budget proposal within a long range forecast Decisions made this year impact every future year Budget needs to be sustainable LONG-TERM FINANCIAL PLAN

Monitoring Spending Budgetary control at line item level Detail of planned spending Budget transfers between line items “Encumbrance” thru Purchase Orders ensures funds are available when needed Prompt payment of invoices Records expenditure on the General Ledger and releases encumbrance thru PO Most departmental spending should be within % of prior year Exceptions due to seasonality

Departmental Accountability Allow flexibility for changes during the year Moving funds between line items w/n department Require appropriate detail in budget submission Establish service level expectations Performance indicators Monitor & report on performance Directors & Managers held accountable for budget and related results

Year End Estimates/Projections Done as part of budget process Re-estimate revenues Departments provide projections, identify savings or potential overage Estimate ending fund balances Gives a good starting point for next year Allows corrective action to be taken if necessary Formally adopted as final budget amendment of the year in September Presented in budget document Explanation for projection vs original budget

GFOA Awards Program Distinguished Budget Presentation Award Criteria defined & explained Reviewed by financial professionals Feedback from reviewers on areas to improve Criteria focused on document presentation Introduction & Overview Financial Structure, Policy & Process Financial Summaries Capital & Debt Departmental Information

Conclusion Good budgeting guides operations and ensures long-term financial stability Council & community support & involvement Develop financial policies that are adhered too and enhance long-range financial planning Adhere to the guidelines addressed in the policy Focus on desired results The “Budget” outlines how we manage resources Demonstrates fiduciary responsibility to citizens

Technical Resources GFOA – www.gfoa.org TML Series – www.tml.org Best Practices Elected Officials Guide Series TML Series – www.tml.org GFOAT - www.gfoat.org Finance Forum 35

Questions? Contact info: Micki Rundell, Chief Financial Officer City of Georgetown Micki. Rundell@georgetown.org