GOVERNMENT FINANCE OFFICERS ASSOCIATION (GFOA) BUDGET ANALYSIS

Evaluation & Analysis of the City of Weslaco’s Municipal Budget, 2014-2015

E. Rey Garcia, MPA Candidate

The University of Texas Rio Grande Valley (UTRGV)

PAFF 6304: Public Budgeting & Finance

Fall 2015, Module One

Dr. Aziza Zemrani

Revision 1.0

GFOA Budget Analysis – City of Weslaco 1

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GFOA Budget Analysis – City of Weslaco 2

Public Budgeting & Finance

Government Finance Officers Association (GFOA) Budget Analysis Evaluation & Analysis of the City of Weslaco’s Municipal Budget, 2014-2015

**********

E. Rey Garcia, MPA Candidate

The University of Texas Rio Grande Valley (UTRGV)

College of Liberal Arts

Master of Public Affairs-Administration

PAFF 6304: Public Budgeting & Finance

Fall 2015, Module One

Dr. Aziza Zemrani

September 29, 2015

Rev. 1.0 November 23, 2015

About the Cover:

GFOA Budget Analysis – City of Weslaco 3

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GFOA Budget Analysis – City of Weslaco 4

Table of Contents

I. Introduction 6

About the City of Weslaco 6

Executive Summary 7

Financial Reporting 7

II. The Analysis: Budget Ratings and Evaluation Methodology 8

Policy Document - (Category 1) 8

Financial Plan - (Category 2) 9

Operations Guide - (Category 3) 9

Communications Devices - (Category 4) 10

Score 10

III. Budget Structure 10

Theory in Budgeting 11

Public Participation/Accountability 11

The Executive Budget Model 12

Types of Budgeting 13

Zero-Based Budgeting 13

Program Budgeting 13

Management of Objectives (MBO) 13

Performance Budgeting 13

IV. Conclusion/Recommendations 14

V. References 17

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Public Budgeting & Finance

Government Finance Officers Association (GFOA) Budget Analysis Evaluation & Analysis of the City of Weslaco’s Municipal Budget, 2014-2015

E. Rey Garcia, MPA Candidate

September 29, 2015/ Rev. 1.0 November 23, 2015

I. Introduction

What is a budget? According to Lee, Public Budgeting Systems, 9th Edition (2014), “a budget is a

document or a collection of documents that refers to the financial condition and future plans of an

organization (family, corporation, government), including information on revenues, expenditures,

activities, and purposes or goals.”

About The City of Weslaco

Weslaco is a city with a population of approximately 37,000 and is centrally located in the mid-

Rio Grande Valley, making it a great place for travel, lodging, dining, shopping, education,

medical needs, and economic development. It is home to three nature centers, Estero Llano

Grande (World Birding Center), Frontera Audubon, and the Valley Nature Center. The Mid-

Valley Airport, caters to private planes and business travelers. The South Texas College division

provides higher education within reach of mid-Valley residents. Knapp Medical Center, a Level

III Trauma hospital, providing medical services to residents of the mid-Valley. Shopping is just

minutes away from the Rio Grande Valley Premium Outlets. The City of Weslaco has

experienced a boost of economic growth and it is noticeable with the high-ratings from the budget

auditors, Standard & Poor’s and Moody’s as reported in the city’s Comprehensive Annual

Financial Report (CAFR).

GFOA Budget Analysis – City of Weslaco 7

Executive Summary

Traditionally, the budget development of the City of Weslaco is responsibility of the City

Administrator and the Finance Director, who work with all of the Department Heads to research

and propose the upcoming fiscal year’s expenditures. This is done by gathering data research,

involving historical empirical findings from the previous budgets. Once the City Administrator,

Finance Director and Department Heads have come to a consensus, the budget is then ready for

the submission and justification process, in which all allocated expenditures must be accounted

for in the form of receipts, proposed applications, expenditures, and any relevant financial

reports, vendor-supplier quotes and estimates and contracts. This is done in the form of public

budget meetings and budget workshops. Once all budget information has been justified and

accounted for, the budget is ready for execution, where it is taken to the Mayor and City Council

for review and approval. Once the budget passes with a majority vote, it is signed by the Mayor

and becomes a binding legal document.

Financial Reporting

The GFOA has established the Certificate of Achievement for Excellence in Financial Reporting

Program (CAFR Program) in 1945 to encourage and assist state and local governments to go

beyond the minimum requirements of generally accepted accounting principles to prepare

comprehensive annual financial reports that evidence the spirit of transparency and full disclosure

and then to recognize individual governments that succeed in achieving that goal. The goal of the

program is to ensure that users of their financial statements have the information they need.

Reports submitted to the CAFR program are reviewed by selected members of the GFOA

professional staff and the GFOA Special Review Committee (SRC), which comprises individuals

with expertise in public sector financial reporting and includes financial statement preparers,

independent auditors, academics, and other finance professionals.

GFOA Budget Analysis – City of Weslaco 8

II. The Analysis: Budget Ratings and Evaluation Methodology

The City of Weslaco’s budget ratings and evaluation are based on the following methodology and

grading criteria illustrated in Table 1: Rating and Evaluation.

Grade Description

A-, A, or A+ Excellent (4.0)

B-, B, or B+ Average to Above

Average (3.0)

C-, C, or C+ Below Average (2.0)

F Failed (1.0)

Table 1: Rating and Evaluation

Note: The scores are based on the judging and eligibility requirements, as noted in the award

methodology of the Government Finance Officers Association (GFOA).

1) Policy Document - (Category 1)

The policy document prepared by the city’s Finance-Purchasing Department, it is one of

many policies used by the city to govern the overall organization. The policy document is

policy, adopted by the Mayor and City Council outlining the organization’s spending

practices.

To contact the Finance Department or the Finance Director, Ms. Mary Barrera go to:

http://www.weslacotx.gov/Finance.html or by calling 956.968.3181.

Score: B- / Average / 3.0 - The city has no policy document available online. In order to see

such a document, one must either be an employee of the city or obtain a City Records

Request Form and submit it to the Office of the City Secretary, Ms. Elizabeth Walker and

wait until it is approved and ready for pick-up at City Hall. This shows a lack of transparency

and therefore creates a lack of trust from the community.

GFOA Budget Analysis – City of Weslaco 9

2) Financial Plan - (Category 2)

The City of Weslaco’s financial plan is not available to the public. After reaching out to the

administration, it was evident that neither the administration, Mayor and City Council ever

enacted a financial plan that conveys to the departments, staff, bureaus, and all offices

involved, and especially to the Finance Department, the importance of such a plan. A

financial plan must have a comparison-contrast of previous fund spending, including the

previous year’s General Fund spending and the proposed spending for the upcoming year.

The city is still recovering from the re-organization of 2010, where the elimination of mid-

management was necessary in order to avoid bankruptcy, with a General Fund balance of

($-34,000).

To contact the Finance Department or the Finance Director, Ms. Mary Barrera go to:

http://www.weslacotx.gov/Finance.html or by calling 956.968.3181.

Score: F / Failed / 1.0 – The city has no financial plan available, and despite the

reorganization of 2010, no financial plan has be adopted by the Mayor and City Council. The

score given to the city was based on the compliancy requirements of the GFOA. Furthermore,

there is a lack transparency by not making a financial plan available to the public via the

Internet, website or social media.

3) Operations Guide - (Category 3)

An operations user manual is a guide for city employees on the step-by-step process on how

to operate the agency’s financial and budget reporting system. The city uses Incode, by Tyler

Technologies, a software product-suite that provides local governments with the ability to

execute day-to-day business functions with efficiency and ease. It provides the integration of

financial management, personnel and HR management, and citizen services, tax, court and

public safety software packages, (http://www.tylertech.com/solutions-products/incode-

product-suite).

GFOA Budget Analysis – City of Weslaco 10

Score: C / Below Average / 2.0 – The city lacks compliance program requirements of the

GFOA. In order to obtain a copy of the operations guide, one must either be an employee of

the city or obtain a City Records Request Form and submit it to the Office of the City

Secretary, Ms. Elizabeth Walker and wait until it is approved and ready for pick-up at City

Hall. This shows a lack of transparency and therefore creates a lack of trust from the

community.

4) Communications Devices - (Category 4)

Methods used by the city to communicate budget information to the public. The city’s

Information Technology Department manages the information systems technology that

allows the flow of information services to the public from the city’s main data servers

through a secure encrypted network to computers, laptops, tablets and other smart devices.

Score: B+ / Above Average / 3.0 – The city is compliant with program requirements of the

GFOA. The Information Technology Department provides a level of transparency by the use

of the city’s portal website, mobile web, and social media network.

5) Score: The overall score given to the City of Weslaco’s Municipal Budget from 2014-15 is a

C- or Below Average, based on the total points divided by categories: (9.0/4 = 2.25).

III. Budget Structure

The City of Weslaco’s Municipal Budget for year(s) 2014-2015 is evaluated and analyzed using

both literature and empirical findings. It addresses the city’s theory of budgeting, public

participation and staff accountability, the type of budget model adopted by the city, and the types

of budgeting practices the city uses to justify expenses, itemize costs, manage goals, and show the

relationships between the funds provided to the public and the outcome of these services.

GFOA Budget Analysis – City of Weslaco 11

1) Theory in budgeting – In public administration, budgeting consists of two kinds of theories,

descriptive and normative. Descriptive is based on observation or participation. Normative

is based on advice and narrow observations and is based on values rather than observations.

The City of Weslaco’s budget consists of the following funds: The General Fund, which

refers to the expenditures and revenues associated with the delivery of services such as

property taxes, income taxes, charges & fees, and state shared taxes. The Debt Service Fund,

a reserve established to service the Library, Police, Fire, and Code Enforcement. The

Economic Incentives Fund, this fund is used by the city to provide assistance to the Weslaco

Economic Development Corp. as a tool providing tax incentives and innovative solutions for

businesses expanding in or relocating to Weslaco. The Internal Services Fund, is used to

report on capital expenditures for equipment that provides services to other funds,

departments, or agencies. The Water Fund, an Enterprise Fund that stablishes a separate

accounting and financial reporting mechanism for municipal services, such as Public Utilities,

for which a fee is charged in exchange for goods or services. The Solid Waste Fund, the

Wastewater Fund and the Airport Fund, are all Enterprise Funds of the city. The

Hotel/Motel Fund, is tax collected from hotel/motel rates and is used for tourism and the

promotion of Weslaco. The Capital Projects Fund, is used for multi-million dollar projects,

such as buildings and roads.

The City of Weslaco’s budget is based on the Normative Theory. The budget has line item

controls in which the individual financial statement items are grouped by cost centers or

departments. The planning of the budget includes a work-plan, which is drafted by each

assigned department to itemize the department’s overall operations costs, equipment, staff

salaries, vendor and supplier contracts, travel expenses, conferences and training, etc.

2) Public Participation/Accountability – The participation of the community is evident in the

City of Weslaco’s city council meetings and budget workshops. By completing a Public

Forum or a request to speak form, prior to the regular meeting, citizens can address the city

GFOA Budget Analysis – City of Weslaco 12

council directly during public comments of the regular council meeting. During regular

meetings, the council cannot respond to the citizens, they can only listen. Budget workshops

are less-formal “round-table style” meetings where staff, city council, vendors and suppliers,

media, and the public discuss the budget in greater detail, allowing a two-way communication

between the staff and the community. The city promotes accountability by encouraging

public comments and participation, and earns both trust and credibility from the community.

3) The Executive Budget Model – This model involves a three-step budget process

development, submission, and approval. Literature review suggests that the success of the

normative theory has been underestimated. Reform has been widely adopted and accepted by

the people. The Executive Budget Model was adopted by the federal government and most

states and nearly all local governments with populations of 10,000 or more.

Other forms of adoption are keeping the Enterprise Funds separate, setting rates for public

enterprises so as not to make a profit, and using the modified accrual-basis of accounting,

an accounting method used by government agencies that combines accrual-basis accounting

with cash-basis accounting, recognizing revenues when they become available and

measurable and expenditures when liabilities are incurred. Available funds are divided into

separate entities within the organization to ensure that the money is being spent where it was

intended.

The City of Weslaco uses the Executive Budget Model as a basis for establishing the yearly

budget. The city’s budget process follow the model in the form of three phases: (1) budget

development, in which department heads and senior staff draft recommendations to the City

Administrator and the Finance Director, (2) submission and justification, which includes

historical data, receipts, expenditures, proposed appropriations, and any relevant financial

reports and vendor and supplier estimates and contracts, and the (3) execution of the budget,

where the Mayor and City Council vote and adopt the budget into a binding legal document.

GFOA Budget Analysis – City of Weslaco 13

4) Types of Budgeting – The City of Weslaco has adopted the following types of budgeting to

justify expenses, to itemize costs, to manage attainable goals, and show the relationships

between the funds provided to the public and the outcome of these services.

a. Zero-Based Budgeting – A form of budgeting in which all expenses must be

justified for each new period.

b. Program Budgeting – A form of budgeting developed by U.S. president Lyndon

Johnson, a budgeting system, contrary to conventional budgets, describes and gives

the detailed costs of every activity and program that is to be carried out in a budget.

c. Management of Objectives (MBO) – According to Peter Drucker, MBO is “a

systematic and organized approach that allows management to focus on achievable

goals and to attain the best possible results from available resources.”

d. Performance Budgeting – Investopedia defines performance budgeting as “a budget

that reflects the input of resources and the output of services for each unit of an

organization. This type of budget is commonly used by the government to show the

link between the funds provided to the public and the outcome of these services.”

GFOA Budget Analysis – City of Weslaco 14

IV. Conclusion/Recommendations

The City of Weslaco should strive for the prestigious award issued by the Government Finance

Officers Association, the Certificate of Achievement for Excellence in Financial Reporting

Program (CAFR Program). This award is given to government that go beyond the minimum

requirements of generally accepted accounting principles to prepare comprehensive annual

financial reports, are transparent and fully disclose all financial activity.

The Judging Process - Each CAFR is reviewed using a checklist designed to determine:

Compliance with generally accepted accounting principles (GAAP),

Compliance with program policy as established by the GFOA’s Special Review

Executive Committee and the GFOA Executive Board.

Reviews are performed by GFOA staff and members of the GFOA’s Special Review

Committee, which is composed of individuals from government, the public accounting

profession, and academe who possess specialized expertise in governmental financial

reporting, typically as a result of either preparing or auditing a CAFR that has received

the Certificate of Achievement.

Reviewers are never selected from the same state as the CAFR being reviewed or from

the same firm that performed the independent audit.

The Certificate is awarded only if a consensus among reviewers is established and that a CAFR

substantially complies with both GAAP and program policy. A failure to comply with any

checklist item marked by an asterisk (*) is considered, of itself, sufficient evidence to justify a

determination that a CAFR has failed to substantially comply with both GAAP and program

policy.

GFOA Budget Analysis – City of Weslaco 15

Eligibility Requirements - The following criteria must be met in order to be eligible for the award.

Type of Report. The report submitted to the program must be the published (either in electronic

or hard copy format) comprehensive annual financial report (CAFR) of a state or local

governmental entity, which includes special-purpose entities such as public employee retirement

systems, public colleges and universities, government investment pools, stand-alone business-

type activities, and school districts. Component units and departments are eligible to submit their

CAFR, provided that they meet certain requirements described below.

Scope. To qualify as comprehensive, the CAFR must include all funds and component units of

the entity, in accordance with generally accepted accounting principles.

Separate component unit reports. A component unit that publishes a CAFR is eligible to

submit its report to the program for review, provided that it includes all of the component unit’s

own funds and (sub) component units.

Separate departmental reports. A department of a government that publishes a CAFR is

eligible to submit its report to the program for review, provided that the department is composed

of one or more separate funds type(s) used in the government’s report.

Audit requirements. The financial section of the CAFR must include an independent auditor’s

report on the fair presentation of the financial statements.

Responses to prior year comments. If the government participated in the program in the

preceding year, its submission package must include written responses to all of the prior year’s

comments and suggestions for improvement.

Demonstration of legal compliance. If the CAFR references a separately issued budgetary

report to demonstrate budgetary compliance at the legal level of control, it must submit one copy

of that report as part of its submission package.

GFOA Budget Analysis – City of Weslaco 16

Submission Deadline. All appropriate items must be postmarked or e-mailed to the Government

Finance Officers Association (GFOA) no later than six months after the government's fiscal year

end.

In-house Reviews of Ineligible Reports. Occasionally, a government that submits a CAFR that

is deemed ineligible will desire to have staff perform an in-house only review of their report.

For more details and information on the awards offered by GFOA and the eligibility requirements,

refer to:

Award Program Participant Information: http://www.gfoa.org/coa

Award Program Requirements Information: http://gfoa.org/certificate-achievement-excellence-

financial-reporting-cafr-program

GFOA Budget Analysis – City of Weslaco 17

V. References

Christensen, M. (2012, July 12). An Overview, The Executive Budget Process. Retrieved

September 28, 2015, from https://www.fas.org/sgp/crs/misc/R42633.pdf

Drucker, P. (n.d.). MANAGEMENT by OBJECTIVES (MBO), An Executive Summary.

Retrieved September 28, 2015, from

http://www.1000ventures.com/business_guide/mgmt_mbo_main.html

Incode Empowers Local Government, Tyler Technologies, Inc. (n.d.). Retrieved

September 28, 2015, from http://www.tylertech.com/solutions-products/incode-product-

suite

Government Finance Officers Association (GFOA). (n.d.). Retrieved September 28, 2015, from

http://www.gfoa.org/

Lee, R., Johnson, R., & Joyce, P. (2012). Introduction - What is a budget? In Public

Budgeting Systems (9th ed.). Jones & Bartlett Learning

Modified Accrual Accounting Definition | Investopedia. (2009, April 5). Retrieved September 28,

2015, from http://www.investopedia.com/terms/m/modified-accrual-accounting.asp

Performance Budget Definition | Investopedia. (2010, February 28). Retrieved September 28,

2015, from http://www.investopedia.com/terms/p/performance-budget.asp

The City of Weslaco Municipal Budget 2014-2015. (2014, September 12). Retrieved September

28, 2015, from http://www.weslacotx.gov/fin/ADOPTED BUDGET As of 9-12-14.pdf