2015-2016 Budget Presentation VILLAGE OF VINTON, TEXAS

What is a Budget? Budget ‐ budg∙et [buhj‐it] • A budget (from old French bougette, purse) is a list of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important concept in micro economics, which uses a budget line to illustrate the trade‐offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms.

•A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. • A budget may be prepared simply using paper and pencil, or on computer using a spreadsheet program like Excel, or with a financial application like Quicken or QuickBooks. • The process for preparing a monthly budget includes: – Listing of all sources of monthly income – Listing of all required, fixed expenses, like rent/mortgage, utilities, phone – Listing of other possible and variable expenses.

• In summary, the purpose of budgeting is to: – Provide a forecast of revenues and expenditures i.e. construct a model of how our business might perform financially speaking if certain strategies, events and plans are carried out.

– Enable the actual financial operation of the business to be measured against the forecast. • There are multiple types of budgets that can be developed.

Budget Types

• Lump Sum – Distributed totals

• Formula – Calculations based on formulas

• Line‐Item – Categorized by accounting tracks

• Program – Cost categories by program

• Performance – Tied to indicators / functions

• PPBS – Program + Performance

• Zero‐Based – Substantiate into decision packages

• Responsibility Centered –Dept. centered

Budget Types: Lump Sum • Each department receives a certain amount of funds and the department head decided on how to allocate those funds and develops the budget.

– Advantages: Flexibility to move funds where they are needed.

– Disadvantages: Lack of accountability and vision.

Budget Types: Formula • Formula funds are allocated by numbers (miles, population) and further allocated by additional formulas.

– Advantages: Response to growth in numbers and can be modified easily with formula adjustments.

– Disadvantages: Allocations can decrease easily.

More difficult to add line items to an existing budget due to the total reallocation of formulas

Budget Types: Line‐Item • There is a line for each revenue and expenditure item with a percentage for allowable variations from budget.

– Advantages: Easy to construct and typically based on prior year funding.

– Disadvantages: Across the board cuts may not be realistic to actual expenditures ( i.e.. 10% cuts).

Also, the do not show the costs of individual programs or services.

This type of budget is utilized for the General Government portion of the budget.

Budget Types: Program • Ties all costs to specific programs. Difficult to set up, but easy to maintain. It is important to keep accurate records and statistics documenting usage.

– Advantages: Closely tied to the mission, goals and objectives. Total costs are kept together so accounting is easier.

– Disadvantages: Everything must be tied to a program, so proration of expenses may be difficult.

Budget Types: Performance

• Tie a program’s functions to various performance indicators. Provides for easy cost‐accounting of municipal services traceable to per unit charges.

– Advantages: Easy to track costs of services and their respective efficiencies.

– Disadvantages: Emphasizes economy over service.

Budget Types: PPBS

• Planning, programming, budgeting system is a combination of program and performance based budgeting. Planning and cost benefit analysis plays an important role.

– Advantages: Easiest budget format for cost analysis. Individual staff performance can be analyzed.

– Disadvantages: Does not assess the quality of service. Only indicated cost of providing service.

Budget Types: Zero Based

• Based on what is needed for the future. Each program begins with zero and you must justify the related costs.

– Advantages: Common goals and limited resources are pooled to accomplish the common goals.

– Disadvantages: Very time consuming.

This type of budget is utilized for General Administration, Public Works, Police Department, Planning & Zoning, and Municipal Court budgets.

Budget Types: Responsibility Centered • All operating expenditures and revenue should be assigned to that center. Incentives should exist to reduce costs and promote priorities. Each department is expected to be self‐supporting.

The centers are: Cost Center, Revenue Center and Profit Center

– Advantages: Each Dept. self supports

– Disadvantages: Over collaboration of centers

Budget Policy • The budget begins with a budget policy statement that is approved by the governing body.

• The budget policy statement includes:

– The financial forecast for the year

– Description of factors that will influence the revenues and expenditures.

– Priorities and goals.

– Department preparation guidelines/ templates.

– Recommendation for the budget officer.

Checklist: Steps to Budgeting

Identify the person who will coordinate the budgeting process and will train staff in methods, definitions, document formats, assign responsibilities and communicate deadlines

Create a Budget Policy Statement

Align goals and objectives with strategic plans, staffing requirements and budget estimates

Prioritize services and goals in order to construct the budget details

Analyze yearly operational objectives and service goals with staff.

Prepare Budget Worksheets

Present Budget

Adopt Budget

Budget Process Players • Budget Officer

– Prepares the forms and instructions

– Distributes them to the department heads

– Controls the timeline

– Makes the revenue forecasts

– Presents the balanced budget to the municipal clerk for distribution to the city council

– Monitors departmental compliance

– Tracks the performance of the budget

• City Council

– Publishes notices for and conducts the public hearing on the proposed budget

– Writes the budget policy statement

– Hold budget workshop sessions that are open to the public

– Adopts the budget in a timely manner

Budget Process Players contd.

• Department Heads

– Request budgetary needs for the coming year – Analyze community needs – Propose service modifications – Provide long range input to capital improvements. Typically include: streets, drainage, buildings and other multiyear projects

• The Public – The budget must be publically available to be reviewed – The public provides input at the budget hearings and is allowed to provide insight, opinions and recommendations to the budget

Budget Cycle

Forecasting

Analysis

Preparation

Presentation

Public Hearing

Adoption

Budget Cycle: Forecasting

– Estimation / Calculation and Best Guestimates of anticipated revenues and expenditures

• Bank Statements

• General Ledger

• Prior budget worksheets

• Accounting reports

• Price indexing from prior year numbers

• Publication data, economic data, vendor data

February 2015 Municipal Cost Index

The Municipal Cost Index, developed exclusively by American City & County, is designed to show the effects of inflation on the cost of providing municipal services. State and local government officials rely on American City & County's Municipal Cost Index to stay on top of price trends, help control price increases for commodities, make informed government contract decisions and intelligent budget planning. Since 1978, readers have loyally referred to the Municipal Cost Index to determine the cost of inflation and, hence, the rising cost of doing business as a local government.

Budget Cycle: Analysis

• Ensuring all revenues and expenses are identified and organized

• Develop budget instructions and targets

• Departmental data is compiled and integrated into the budget building worksheets and forms

• Departmental review for accuracy and consistency

Estimating Revenues

• Based on:

– Revenues collected during the fiscal year

– Budgeted for collection for the coming fiscal year

– Projected for the coming fiscal year

– Anticipated changes:

• Community retail and industry

• More or less jobs

• Demographic issues

• Housing changes

Revenue

• Listed in the budget by source:

Property taxes: No State property Tax. Appraisals based on market value as of Jan. 1. Assessment used to for the purpose of levying the property taxes Sales Taxes: Retail sales of merchandise. Currently Texas has a 6.25% tax. Municipalities can levy up to an additional 2% for a total of 8.25% Franchise Fees: Charged to telecom, cable, gas and electric utilities for the right to solicit customers in the community. Based as a percentage of the revenue generated and is negotiated with the community Beer, mixed drink: Taxes on alcoholic beverages and drinks Fines & Fees: Collected from citations through the Municipal Court

Licenses and permits: Food service, building permits, daycare permits Interest: Collected on cash deposits Contracts: Services provided to other entities from which costs may be reimbursed. User fees: Users of services (bus fees, golf courses, rec. classes) Special assessment: Owners of benefit from improvements (roads, curbs) Capital recovery fees or Impact Fees: Sewers, water lines, roads, schools, parks

Expenditures

• Typically grouped by type:

– Personnel services: includes vacation, sick leave, payroll taxes

– Operating expenses: any expenses for day to day operation

– Contractual expenses: expenses charged by a third party to render services in Vinton.

– Capital outlays: Construction projects

– Debt service: Funds necessary to repay long term debt owed by city.

Estimating Expenditures

• Based on the known expenditures and other potential issues:

– Tax base

– Building, staff, benefits

– New services and existing services

– Grants and alternative income

– Laws, contracts

– Interest expenses

Budget Cycle: Preparation

• Publish a calendar identifying deadlines for tasks and individual responsibilities

• Ensure worksheets and documents cover all areas of the budget details and process

• Confirm accuracy and data flow throughout the budget worksheets

Budget Structure

• Depends on the size of the entity – (Small)

• Public Works incorporates Streets, Parks, Building Maintenance and Heavy Equipment

• Public Safety includes Police, Emergency Mgmt.

• General Administration includes Village Clerk, Accounting, Grants, Planning & Zoning, Outreach, etc.

• Each area might has its own supervisor

Budget Components ‐ Funds

Municipal Accounts are called funds.

• General Funds –

– Operating funds

• Special Revenue Funds

– Ear‐marked for a special purpose or project (grants)

• Enterprise Funds – Revenue & Expenses for programs outside general government departments.

– Primarily funded by user fees

– Raise their own revenue

• Capital Revenue

– Ear-marked for specific Capital improvement Projects

– Carry over from year to year

– Not comingled with General Fundspension funds, sales tax).

Budget Cycle: Presentation Basic Guidelines:

– Easy to understand with basic information.

– Explain the budget in terms of priorities.

– Be honest and do not exaggerate or mislead.

– Be able to justify each item in the budget.

– Be able to explain cuts and their ramifications.

– Be able to provide proof of service effectiveness.

– Know the facts of each department

– Be prepared for scenarios on the budget

Budget Cycle: Public Hearing

• The public may express their opinions.

– If a tax rate is proposed, notice must be given at least 7 days before the initial hearing, giving date, time and place of hearing.

– The second hearing may not be held earlier than 3 days after the initial hearing

• Texas Tax Code §26.06 outlines the specific requirements for tax rate adoption

Budget Cycle: Adoption

• The adoption is typically an agenda items after all the required and publicized public meetings.

• The budget for the next fiscal year is adopted with an ordinance.

Bill Payment

• Texas has a prompt payment law which established when payments are due.

• (Chapter 2251, Government Code)

– “Payment for goods and services are due 30 days after the goods are provided, the service completed, or a correct invoice is received, whichever is later”.

Encumbrances

• Funds that are committed, but not yet spent.

– Example: Salary for the year

– Actual costs are tracked verses the encumbrances.

• Encumbrances are common to ensure:

– No large balances are shown in the planning process initially.

– Bills are paid by the end of the fiscal year.

Next Step

•In order to meet the demand of services or programs, the municipal government will adjust fees or rates to recover the costs of programs or services.

•The Texas Local Government Code defines the process to set and approve the property tax rate. The governing body must set a rate to cover all costs as defined in the budget and to repay any outstanding debt.

Municipal Budgeting… by the Book

Texas Local Government Code

§ 102.001 ‐ § 102.011

Texas Local Government Code § 102.001. BUDGET OFFICER.

(A) THE MAYOR OF A MUNIC IPALITY SERVES AS THE BUDGET OFF ICER FOR THE GOVERNING BODY OF THE MUNICIPALITY EXCEPT AS PROVIDED BY SUBSEC TION (B) .

(B ) I F THE MUNIC IPALITY HAS THE C ITY MANAGER FORM OF GOVERNMENT, THE C ITY MANAGER SERVES AS THE BUDGET OFF ICER.

A C T S 1 9 8 7 , 7 0 T H L E G . , C H . 1 4 9 , § 1 , E F F. S E P T. 1 , 1 9 8 7 .

Texas Local Government Code § 102.002. ANNUAL BUDGET REQUIRED

THE BUDGET OFFICER SHALL PREPARE EACH YEAR A MUNICIPAL BUDGET TO COVER THE PROPOSED EXPENDITURES OF THE MUNICIPAL GOVERNMENT FOR TEXAS LOCAL GOVERNMENT CODE THE SUCCEEDING YEAR. ACTS 1987, 70TH LEG., CH. 149, § 1, EFF. SEPT. 1, 1987.

§ 102.003. ITEMIZED BUDGET; CONTENTS. (a) THE BUDGET OFFICER SHALL ITEMIZE THE

BUDGET TO ALLOW AS CLEAR A COMPARISON AS PRACTICABLE BETWEEN EXPENDITURES INCLUDED IN THE PROPOSED BUDGET AND ACTUAL EXPENDITURES FOR THE SAME OR SIMILAR PURPOSES MADE FOR THE PRECEDING YEAR. THE BUDGET MUST SHOW AS DEFINITELY AS POSSIBLE EACH OF THE PROJECTS FOR WHICH EXPENDITURES ARE SET UP IN THE BUDGET AND THE ESTIMATED AMOUNT OF MONEY CARRIED IN THE BUDGET FOR EACH PROJECT.

AC T S 1 9 8 7 , 7 0 T H L EG . , C H . 1 4 9 , § 1 , E F F. S E PT. 1 , 1 9 8 7 .

§ 102.003. ITEMIZED BUDGET; CONTENTS. Contd.

(B ) T HE BUDGET M UST CON TA I N A COM PLET E F I N A NCIAL STAT EM EN T OF T HE M UN I C I PA L IT Y T HAT T EXA S LOCA L GOVER N M ENT CODE SHOWS:

(1 ) T HE OUTSTA N DI NG OBL I GAT ION S OF T HE M UN I C I PA L IT Y; (2 ) T HE CA SH ON HA N D TO T HE CR EDI T OF EACH FUN D; (3 ) T HE FUN DS R ECEI VED FROM A LL SOURCES DUR I N G T HE

PR ECEDI NG YEAR ; (4 ) T HE FUN DS AVA I LABLE FROM A LL SOURCES DUR I N G T HE

EN SUI N G YEA R ; (5 ) T HE EST I M ATED R EVEN UE AVA I LABLE TO COVER T HE

PROPOSED BUDGET; A ND (6 ) T HE EST I M ATED TA X R AT E R EQUI R ED TO COVER T HE

PROPOSED BUDGET.

A C T S 1 9 8 7 , 7 0 T H L E G . , C H . 1 4 9 , § 1 , E F F . S E P T . 1 , 1 9 8 7 .

Texas Local Government Code § 102.004. INFORMATION FURNISHED BY MUNICIPAL OFFICERS AND BOARDS.

IN PREPARING THE BUDGET, THE BUDGET OFFICER MAY REQUIRE ANY MUNICIPAL OFFICER OR BOARD TO FURNISH TEXAS LOCAL GOVERNMENT CODE INFORMATION NECESSARY FOR THE BUDGET OFFICER TO PROPERLY PREPARE THE BUDGET.

AC T S 1 9 8 7 , 7 0 T H L EG . , C H . 1 4 9 , § 1 , E F F. S E PT. 1 , 1 9 8 7

Texas Local Government Code § 102.005. PROPOSED BUDGET FILED WITH MUNICIPAL CLERK; PUBLIC INSPECTION.

(a) The budget officer shall file the proposed budget

with the municipal clerk before the 30th day before

the date the governing body of the municipality makes its tax levy for the fiscal year.

(b) The proposed budget shall be available for inspection by any taxpayer.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Texas Local Government Code § 102.006. PUBLIC HEARING ON PROPOSED BUDGET.

(a) The governing body of a municipality shall hold a public hearing on the proposed budget. Any taxpayer of the municipality may attend and may participate in the hearing.

(b) The governing body shall set the hearing for a date occurring after

the 15th day after the date the proposed budget is filed with the municipal clerk but before the date the governing body makes its tax levy.

(c) The governing body shall provide for public notice of the date, time,

and location of the hearing. Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Texas Local Government Code § 102.0065. SPECIAL NOTICE BY PUBLICATION FOR BUDGET HEARING.

(a) The governing body of a municipality shall publish notice before a public hearing relating to a budget in at least one newspaper of general circulation in the county in which the municipality is located.

(b) Notice published under this section is in addition to notice required by

other law, except that if another law requires the governing body to give notice, by publication, of a hearing on a budget this section does not apply.

(c) Notice under this section shall be published not earlier than the 30th or

later than the 10th day before the date of the hearing. Added by Acts 1993, 73rd Leg., ch. 268, § 24, eff. Sept. 1, 1993.

Amended by Acts 2001, 77th Leg., ch. 402, § 9, eff. Sept. 1, 2001.

Texas Local Government Code § 102.007. ADOPTION OF BUDGET.

(a) At the conclusion of the public hearing, the governing body of the municipality shall take action on the proposed budget.

(b) The governing body may make any changes in the

budget that it considers warranted by the law or by the best interest of the municipal taxpayers.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Texas Local Government Code § 102.008. APPROVED BUDGET FILED WITH MUNICIPAL CLERK.

On final approval of the budget by the governing body of the municipality, shall file the budget with the municipal clerk.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987

Texas Local Government Code § 102.009. LEVY OF TAXES AND EXPENDITURE OF FUNDS UNDER BUDGET; EMERGENCY EXPENDITURE.

(a) The governing body of the municipality may levy taxes only in accordance with the budget.

(b) After final approval of the budget, the governing body may

spend municipal funds only in strict compliance with the budget, except in an emergency.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Texas Local Government Code § 102.009. LEVY OF TAXES AND EXPENDITURE OF FUNDS UNDER BUDGET; EMERGENCY EXPENDITURE. Contd.

(c) The governing body may authorize an emergency expenditure as an amendment to the original budget only in a case of grave public necessity to meet an unusual and Texas Local Government Code unforeseen condition that could not have been included in the original budget through the use of reasonably diligent thought and attention. If the governing body amends the original budget to meet an emergency, the governing body shall file a copy of its order or resolution amending the budget with the municipal clerk, and the clerk shall attach the copy to the original budget.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Texas Local Government Code § 102.009. LEVY OF TAXES AND EXPENDITURE OF FUNDS UNDER BUDGET; EMERGENCY EXPENDITURE. Contd.

(d) After the adoption of the budget or a budget amendment, the budget officer shall provide for the filing of a true copy of the approved budget or amendment in the office of the county clerk of the county in which the municipality is located.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.

Texas Local Government Code § 102.010. CHANGES IN BUDGET FOR MUNICIPAL PURPOSES.

This chapter does not prevent the governing body of the municipality from making changes in the budget for municipal purposes.

Acts 1987, 70th Leg., ch. 149, § 1, eff. Sept. 1, 1987.