Post on 24-Nov-2021
transcript
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UNDERSTANDING Y0UR FINANCIAL OVERSIGHT RESPONSIBILITIES
Martie Simpson, CPA ‐ Executive Director ‐ GFOAT
GFOAT Mission
Statement
Promoting Excellence in Government
Finance
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What is Our Agenda Today?
• Fund Basics•Budgeting Basics•Capital Budget Basics• Tax Rates• Key Financial Policies• Financial Process• Funding Sources
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Fund Basics: What are Funds?What are the types of Funds?
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Funds and Fund
Balance
• City finances are organized on the basis of Funds – based on function and purpose
• Each Fund is a separate, self‐contained set of accounts, assets, liabilities, revenues and expenditures
• Smaller cities can operate with only one fund
• Each fund must operate as a separate entity
Fund Types
GovernmentalEnterprise
Funds/Business‐Type Funds
Trust and Agency Funds
Component Units
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General Fund
• Used to account for all financial resources except those required to be accounted for in another fund.
• Resources are generated by property and other taxes, franchise fees, fines, licenses and fees for services.
• Operating expenditures support the service provided by the following functional areas:
• General Government
• Public Safety
• Public Works
• Community Services
• Best practice per GFOA is to maintain a target of no less than 45 days of working capital.
Special Revenue Funds
• Special Revenue Funds – account for the accumulation and disbursement of restricted resources.
Economic Development Incentive
Criminal Investigation
GrantPublic Access
Channel
Public Safety Communications (911 reserve fund)
Municipal Court Technology
Memorial Library Seized Assets Libraries Animal Shelter Donations
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Debt Service Fund
• A fund used to account for the monies set aside for the payment of interest and principal to holders of the City's general obligation and revenue bonds, the sale of which finances long‐term capital improvements, such as facilities, streets and drainage, parks and water/wastewater systems.
• When the tax rate is set the debt service is to be paid back first
Internal Service Funds
• Account for the financing of goods or services provided by one department for another.
Equipment Maintenance Fund (includes the
Equipment Replacement Fund)
Municipal Warehouse Technology ServicesRisk Management
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Capital Projects Funds
• Account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary type funds). These are typically bond proceeds and restricted other than the Capital Maintenance Fund.
Capital Maintenance
Street Improvements
Municipal Facilities
Park Improvements
DART Park ServicesPublic
Infrastructure
Enterprise Funds
• Account for operations that are financed and operated in a manner similar to private business – where the intent of the City is that costs of providing the goods or services to the general public on a continuing basis will be financed or recovered through user charges.
Water and Sewer
Environmental Waste Services
Municipal Drainage
Convention and Tourism
Municipal Golf Course
Downtown Center
DevelopmentRecreation
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Trust & Agency Funds
• Agency funds are restricted in how funds can be expended.
• Developers escrow is monies received from developers that must be returned to them once a project is completed.
• Unclaimed property must be held for the rightful owners.
• Trust funds are held in trust for the benefit of employees.
• Other Post‐Employment Benefits
• Retirement Security Plan
Component Units
Consideration to be classified as a component unit• Organization is legally separate
• City appoints a voting majority of the organizations board
• City is able to impose its will
• Organization has the potential to impose a financial burden on the City
• There is a fiscal dependency by the organization on the city
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Budget Basics
Why Budget?
It’s the Law
Hearings and Notices
Inspection
Authorized by Ordinance
Structurally Balanced
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Best Practices
• Government Finance Officers Association (GFOA) – www.gfoa.org
• 172 Best Practices covering 9 topic areas
• Distinguished Budget Award Program
• Certificate of Achievement for Excellence in Financial Reporting Program
• Elected Officials Guide Series
• National Advisory Council on State and Local Budgeting (NACSLB) ‐www.gfoa.org/services/nacslb.org
• Report issued in 1998
• Four principles and 58 recommendations
• Joint effort by 8 public sector associations
What is a Balanced Budget?
• Balanced Budget
Beginning Balance + Revenues
>= Expenditures
‐ Required by charter or state law
• Structurally Balanced Budget
Revenues = Expenditures• No use of fund balance to pay for expenses
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Results of Good Budgeting Practices
•Good budgeting results in a number of positive financial outcomes •Balanced Budgets•Positive Budget Variances•Positive Fund Balances• Improved Bond Ratings•Avoidance of Enterprise Fund Subsidies/Transfers•Stable Finances
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Phases of the
Budget Cycle
Establish Budget Focus
Three‐Year Financial Forecast
Revenue Estimates
Develop Proposed Budget
Budget Preparation: January ‐June
City Manager Recommended Budget submitted to Council
City Council reviews and approves budget & tax rate
•Adoption of the Budget & CIP first
•Tax Rate second
Budget Approval:
July ‐September
Periodic reporting and monitoring
Publish and submit Budget & CIP
Execution & Implementa
tion:October
The purpose of the audit is to ensure that the financial statements present fairly, in all material respects, the financial position of the City and have been prepared in accordance with U.S. generally accepted accounting principles and governmental accounting standards.
Annual Audit:January
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Budget Management• Budget management is a continual process
• If we are not preparing a budget we are monitoring and reporting on the current budget
• Monthly reporting on finances
• Summarize key revenues and monitor expenditures
• Allows for early identification of potential issues
• Important to assess budget proposal on a long range forecast
• Decisions made this year impact every future year
• Budget needs to be sustainable
Why Develop a CIP?
“If You Fail to Plan, You Plan to Fail”
Benjamin Franklin
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Capital Improvements Overview
What is a CIP?
Why Develop a Capital Plan
Community Input
The Budget Connection
What is a CIP?
• Capital Improvement Project: Construction, Major Maintenance and Improvement Projects. Includes Infrastructure Upgrades and Replacement
• Capital Improvement Plan: A 5 to 10 Year Plan
• Update Annually – Not “One and Done”
• Approved by Council
• Future Capital Improvement Projects
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Why Develop a Capital Plan
Inform Your Citizens of what Projects are Planned
Inform Your Citizens of what Projects are Planned
Provides Certainty for the Future
Provides Certainty for the Future
Aides in Outreach and Construction Coordination
Aides in Outreach and Construction Coordination
Prioritizes Capital Construction & Maintenance
Prioritizes Capital Construction & Maintenance
Helps Forecast /Coordinate Long‐
term Needs
Helps Forecast /Coordinate Long‐
term Needs
Ensures Infrastructure is Maintained & Upgraded
Ensures Infrastructure is Maintained & Upgraded
Provides a Plan for Funding
Provides a Plan for Funding
Maintain High Bond RatingsMaintain High Bond Ratings
Allows Time to Plan for Large
Projects
Allows Time to Plan for Large
Projects
Killeen‐Fort Hood Regional Airport
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Killeen/Fort Hood Joint Use Airport Project
Existing Airport – 5,500 Foot Runway
City Began Discussion with Fort Hood for a Joint Use Facility
October 1997 –Fort Hood’s Commanding
Officer Approved Concept
March 1998 –Assistant
Secretary of the Army for
Installation, Logistics and the Environment Approved Concept
August 2000 –$2.8 M Contract Awarded for Taxiway
90% Funded by FAA Airport Improvement
Program (AIP)
September 2000 – Texas
Transportation Commission
Approved $12.6 M for Road Construction
City begins ROW Acquisition
Preliminary Design of Terminal Building
Killeen/Fort Hood Joint Use Airport Project
Jan. 2001
FAA Selected Killeen for the Military Airports Program
•$5 M a Year for 5 Years
•Total $25 M
11 Sep. 2001
World Trade Center and Pentagon Attacks
•Total Redesign of Terminal Building
•Adding 16,000 Square Feet
•Additional $10 M Cost
•FAA Approved 90% Funding
18 Sep. 2001
Ribbon Cutting on Taxiway
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Killeen/Fort Hood Joint Use Airport Project
August 2, 2004 – Killeen‐Fort Hood Regional Airport Opened
87,000 Square Foot Terminal Building
10,000 Foot Long Runway
Over 800 New Jobs Created
Approximately $3M Fiscal Impact
Total Cost – Approximately $83 M
Combination of Federal, State, County and City Funds
FAA – Over $50 M
City – Over $17 M
Community Input
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The Budget Connection
The Budget Connection –
How do These
Projects Fit
Funds Identified for Initial Construction
Annual Budgets Must Include Operating and Maintenance Costs
Inflation Should be Factored in to the Equation
Set Aside Contingency Funds
Internal Service Funds Used to Set Aside Funds for Future Purchases
SCBA
I Information Technology
Long Term Forecasting Included in the Annual Budget Process
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Capital Maintenance Program
• Deferred Maintenance Increases Future Capital Costs
• On‐going Capital Maintenance is Included in Operating Budget
• Internal Service Funds ‐ “Lease” Equipment to Departments
• Lease Fees Fund Capital Repairs and Replacement
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ALL TAXING UNITS
MUST PROPOSE A
TAX RATE
Tax Rate
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Property Tax Rates Have Two Components:
Interest & Sinking (I&S)/Debt Service Tax Rate – Debt Service Fund
Maintenance & Operations (M&O) Tax Rate – General Fund
Tax Rate
Texas Constitution
Makes Taxpayers Aware of Rate Proposals
Can Limit Tax Increases
What is Truth‐in‐Taxation
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Tax Code
Education Code
Water Code
Special District Local Laws Code
Where Do You Find TNT
What is Truth‐In‐ Taxation
Also Known as TNT
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Appraisal District Provides Value
Governing Body Drafts Budgets
Tax Assessor Calculates Rates, May Publish Notices
Governing Body Proposes Rate/Holds Hearings
Governing Body Adopts Tax Rate
Tax Assessor Mails Bills
A Brief Review of the Process
Keep Last Year’s Revenue Using Current Year’s
Taxable Values
Truth‐In‐Taxation
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Truth‐In‐Taxation
Old Terms
• Effective Tax Rate
• Rollback Tax Rate
New Terms
• No‐New‐Revenue Tax Rate
• Voter‐Approval Tax Rate
• De Minimis Rate
• Unused Increment Rate
2019 Truth‐In‐Taxation
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Senate Bill 2
No‐New‐Revenue Tax Rate Calculation – Replaced Effective Rate
PriorYear’s Taxes
÷ Current Value of Property Taxed in the Prior Year
X $100 = No‐New‐Revenue Tax Rate
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NO-NEW-REVENUE TAX
RATE
- DEBT RATE = NO-NEW-REVENUE MAINTENANCE &
OPERATIONS RATE
NO-NEW-REVENUE
MAINTENANCE &
OPERATIONS RATE
X 1.035
+ CURRENT
DEBT RATE
+ UNUSED INCREMENT
=VOTER-
APPROVAL-TAX RATE
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Unused Increment
Rate
3‐Year Rolling Sum of Adopted Amount Less than 3.5% Voter‐Approval Rate (8% ‐ Adopted Provision under Disaster Proclamation)
Beginning in 2020 Tax Year
• 2020 – ½ cent below VAR
• 2021 – 1 cent below VAR
• 2022 – ½ cent below VAR
In 2023, the City Could Add up to 2 cents to Voter‐Approval Tax Rate
Small Cities – Less Than 30,000 in Population
• De Minimis Rate
• Rate that will Generate $500,000 in Tax Revenue
• 3% of Registered Voter’s Can Petition an Election If:
• De Minimis Rate Exceeds Voter‐Approval Rate
• Adopted Rate is Equal to or Lower than De Minimis Rate
• Greater than 8% M&O Portion
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De Minimis Rate – Cities Less than 30,000 in Population
No‐New‐Revenue Maintenance and Operations Rate
+The Rate Applied to
Current Value That Will Impose a Rate Equal to
$500,000
+ Current Debt Service
Senate Bill 2
• Reduces Public Hearings from Two Back to One
• Effective January 1, 2020
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What Are the Most Common Policies?
•Budget•Revenues/Expenditures• Fund Balance/Reserves•Accounting, Auditing and Financial Reporting
• Internal Control•Asset Management
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OtherPolicies
• Capital Improvements and Maintenance
• Debt Management
• Investment
• Grants
• Economic Development
• Risk Management
• COVID 19
• Remote Work
• Safety Protocol
• Opening up City Offices
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Financial Reporting Policies: What Governs Financial Reporting?
•State Law (TML Resources)
• Local Charter•Federal Agencies (SEC/MSRB)
• Industry Standards (GASB)•Management Policies
Asset Management
• Investment Policy
• Reviewed Annually by Council
• Confirms to Legal Requirements
• Governed by PFIA
• Required Training
• Adopted Policies
• Regular Reporting ‐ Quarterly
• Fixed Assets
• Capitalization Criteria ‐ $5,000
• GASB 34 Requirements
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Debt Management
• 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 % of CurrentRevenues
• Debt Tax Rates as Percent of Total Tax Rate
• Sale Process
• Competitive vs. Negotiated
• Full and Continuing Disclosure
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Types of Debt
• General Obligation
• Tax Supported and Voter Approved
• Certificates of Obligation
• Tax Supported
• Issued by Council after Notice Process
• Revenue Bonds
• Repaid through Rates
• Self‐Supporting Debt
• Tax Debt PAID FROM OTHER SOURCES
• Internal Borrowings
• Between Funds Within the City
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Other Funding Alternatives
• Provides Guidelines on Alternative Funding for New Projects
• Grants• Documents Grant Funding Process
with Council• Use of Reserve Funds
• Used for Debt Management Purposes
• Developer Contributions• Links to Development Regulations
• Leases• Impact Fees• CARES Act
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Accounting & Financial Reporting
• Provide Quarterly/Monthly Reports to Council
• Outside Audit Annually of all City Accounts
• Accountable Directly to City Council
• Prepare (CAFR)
• Follow GFOA Standards and Best Practices
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Internal Controls
• Deterrents
• Stop it Before it Starts
• Detection Controls
• If Can’t Stop it, Detect it Early
• Actively Pursue
• Acknowledge Risks that Arise from Staff Cuts
• Internal Control Program / Audits
• Written Policies Reviewed Annually
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Dixon, Illinois
• Rita Crundwell – Treasurer/Comptroller
• 1990 – Set Up Secret Reserve Sewer Capital Development Account
• Embezzled $53.7 M
• Fictitious Invoices for Capital Projects
• Dixon Budget
• GF ‐ $9 M
• All Funds ‐ $23 M
• Arrested April 17, 2012
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Financial Reserves
• Fund Balance Policy – 25‐30%
• 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
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Revenue ProjectionsWhere does the money come from?
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Forms of Revenue (General Fund)
Ad Valorem Sales Tax
Franchise Fees
Fines and Forfeitures
Permits
Forms of Revenue (Non‐General Fund)
Water & Sewer Fund
Solid Waste Fund
Municipal Drainage Fund
Convention and Tourism Fund
Recreation Fund
Golf Course
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Policy Review & Benchmarking
•Review financial policies annually 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”
Conclusion
Allow policies to guide City’s financial operations
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Adhere to the guidelines addressed in the policies
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Benchmark to ensure policies are reasonable and achieve desired goals
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Communicate policies and guidelines to citizens and employees
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