Best Practices in Budgeting

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GFOAs Recommended Practices on Budgeting
Presented to Alaska GFOA April 20, 2006
John Fishbein (jfishbein_at_gfoa.org) 312-578-2268 Se
nior Manager Technical Services Center Government
Finance Officers Association
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Overview

• Background on GFOAs recommended practices
  initiative
• Review of recommended practices approved to date
  regarding financial reporting and internal
  controls

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Recommended Practices Initiative

• Background

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History and Purpose

• Initiative begun in 1993
• Purpose identification of best practices
• Goal comprehensive framework for each
  functional area of public finance
• Almost 100 recommended practices issued to date
• 16 budgeting

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1. Economic Development Incentives (1990)

• Define economic benefit (both parties)
• Define conditions for granting incentives
• Define actions to be taken if disparity between
  actual benefits and planned benefits
• Measure benefits and costs and compare with goals
  and criteria
• http//www.gfoa.org/services/rp/budget/budget-econ
  omic-development.pdf

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Integration with Other Long Term Planning
Processes City of Bowie,
Maryland Economic Development -The City
commissioned a study of potential redevelopment
options for the historic Huntington area. The
consultant worked with the Old Town Bowie
Revitalization Task Force. Council adopted the
resulting Old Town Bowie Redevelopment Master
Plan on October 5, 1999. The plan forms a basis
for the staging of capital improvements in the
area, which are included in this CIP, as well as
for other Economic Development expenditures in
the operating budget. Quality Community
Initiative -In August 2000, a consultant was
engaged to facilitate a community workshop and
develop a multi-year initiative plan to enhance
the Levitt-Bowie neighborhoods. The consultant
worked with a focus group that included Levitt
residents. In October 2000, a community workshop
was conducted to identify those elements that
residents in the Levitt communities felt needed
improvements. The workshop incorporated the
results of a survey that was sent out to
approximately 1,000 Levitt residences. The focus
group developed recommendations and projected
costs of improvements based on the outcome of the
survey and the workshop. The improvements will be
phased in over a multi-year period. The costs of
the improvements have been included as
expenditures in the operating budget of the
Streets Division within the General Fund.
Recreation Master Plan -The Community
Recreation Committee completed a ten-year
revision to the Recreation Master Plan for the
City. The plan was approved by City Council on
February 2, 1998, and forms the underlying needs
documentation for capital investment in future
recreation facilities. The plan identifies all
existing facilities, specifies both immediate
short term and long term needs, and features a
needs analysis for use in evaluating future
development activities. Several projects for
playing field development result from the
identification of immediate needs in the 1998
Recreation Master Plan. Transportation and
Environmental Impacts -In addition to providing
recreational opportunities and open space,
Bowie's system of hiker-biker trails provides an
environmentally beneficial alternative to the use
of automobiles for short trip transportation
needs. The Planning Department and the City's
Community Relations Specialist have prepared an
inventory of trails throughout the City. The
inventory includes distances of trail segments
and trail surfaces and conditions. Prioritization
of the need for routine maintenance and
identification of missing links have led to the
inclusion of a CIP project titled Hiker-Biker
Trails to provide a regular annual amount toward
maintenance, upgrades and expansion of the
system.
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2. Concise Budget Summary (1996)

• Include concise summary in budget documentation
  (both operating and capital components)
• Publicly available (for both proposed and adopted
  budget)
• Many potential formats (transmittal letter,
  budget message, executive summary,
  budget-in-brief)
• http//www.gfoa.org/services/rp/budget/budget-prov
  iding-budget.pdf

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Concise Budget Summary (cont.)

• Minimum Requirements
• Major changes in priorities or service levels
  (and factors leading to change)
• Priorities and key issues for new budget
• Major financial factors and trends
• Financial summary data for three-year period
  (revenues/expenditures/other)
• Balanced budget

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City of Richland, Washington
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City of Santa Barbara, California
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City of Chattanooga, Tennessee
Different phases in reducing deficit
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3. Setting Fees and Charges (1996)

• Adopt formal policy (public)
• Factors to be taken into account in pricing
• Intent to recover full cost?
• Circumstances where more or less than 100
  recovery permitted
• Rationale for not recovering full cost
• Full cost should be calculated to provide a basis
  for setting fees or charges
• Review and update regularly
• http//www.gfoa.org/services/rp/documents/Settingo
  fGovernmentChargesandFees.pdf

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City of Beloit, Wisconsin
Fee Changes As required by the Councils fee
policy, departments did extensive rate review
this year. As a result, the Adopted Budget
includes over 151,403 worth of new or increased
fees. Some of the fee increases include an
increase in Ambulance fees of 9.5, increasing
revenues by 50,300 reinstating the
inter-facility hospital transfer service adds
50,000 Golf Course fee increases bringing an
additional 29,116 and Cemetery rate changes
generating 1,803 more income. The balance of
fee changes comes from a variety of park shelter,
recreation program, building inspection, and boat
launch charges. Even with higher fees,
departmental earnings are still about 1 of total
General Fund revenue. The following chart
provides a summary
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4. NACSLB Framework (1998)

• NACSLB (1995-1997)
• GFOA and 7 other SLG associations
• Goal set of recommended budget practices
• Recommendation
• Adopt NACSLB Framework and practice statements
• Blueprint rather than mandatory prescriptions
• Incremental implementation foreseen
• http//www.gfoa.org/services/rp/budget/budget-reco
  mmended-nacslb.pdf

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5. Financial Forecasting (1999)

• Project major revenues and expenditures for at
  least 3 to 5 years beyond budget
• Combine into single forecast
• Regularly monitor and periodically update
• Make forecast available
• Include underlying assumptions
• Include methodology
• Reference in final budget document
• Analyze variances
• http//www.gfoa.org/services/rp/budget/budget-fina
  ncial-forecasting.pdf

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City of Eugene, Oregon
Key issues
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6. Budget versus GAAP (1999)

• Clearly define the basis of budgeting
• State if the basis of budgeting and the basis of
  accounting are the same
• If not, note major differences and similarities
• Avoid technical terminology
• If use of technical terminology unavoidable,
  define and explain terms
• http//www.gfoa.org/services/rp/budget/budget-rela
  tionship.pdf

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7. Use of Financial Status (1999)

• Brief analysis of the overall financial status of
  the government and of its key funds should be
  part of the budget process
• Components of analysis
• Current financial status
• Immediate future status
• Long-term trends
• Provide updated version in final budgetary
  materials
• http//www.gfoa.org/services/rp/budget/budget-use-
  financial-status.pdf

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Review of the Solid Waste Fund In 1997, Lehi
City moved from collecting solid waste to a
contracted hauler. The current contract for solid
waste collection is with Waste Management of
Utah. The City moved solid waste collection to a
contract, because the cost to add capital
equipment and personnel to a fast growing
residential base was beyond the City's ability to
maintain adequate service levels. The solid waste
fees have not been increased since the City
awarded the solid waste contract, which has
resulted in losses the last three years. In
fiscal year 2000, the Solid Waste Fund ran in the
red by 8,709 bringing the fund deficit to
(44,297). This trend continued in 2001 with a
net loss of 44,641, which more than doubled the
accumulated deficit bringing the total to
(88,938). With increases in property tax rates,
power rates, sewer rates and a new drainage fee
the City Council has been unwilling to increase
the collection fee. The Solid Waste Fund will
collect approximately 704,000 in user fees for
fiscal year 2003. In the next five years the City
will have a recycling program. A recycling
program was proposed in 2001 and the City Council
opted to wait, because the City would have had to
require all citizens to participate. Waste
Management is currently trying to reduce the cost
of pickup for recycling products and the City is
hopeful the recycling program will be success.
Review of the Drainage Fund The Drainage Fund
was created in 1999 to take care of and add to an
inadequate drainage infrastructure. Before the
creation of the Drainage Fund, drainage issues
were handled by the Streets Department in the
General Fund. A drainage fee is assessed to
residential and commercial properties located in
the City limits. The City expects to collect
289,000 in user fees for fiscal year 2003. In
fiscal years 2000 and 2002 a large amount of
drainage projects were undertaken with a revenue
bond. With the completion of so many projects
there are no large- scale capital projects
scheduled for fiscal year 2003. The retained
earnings will be allowed to compile and more
drainage projects will be taken on in 2004. This
pattern will be followed for at least six years.
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8. Adoption of Financial Policies (2001)

• Useful as framework for addressing policy issues
• Recommendation
• Staff develop
• Governing board formally adopts
• Summarized in budget document
• Reviewed for continued relevance/gaps
• http//www.gfoa.org/services/rp/documents/Adoption
  ofFinancialPolicies.doc

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Adoption of Financial Policies (cont.)

• Three basic types of policies
• Financial planning
• Balanced budget
• Long-range planning
• Asset inventory
• Revenue policies
• Revenue diversification
• Fees and charges
• One-time and unpredictable revenues

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Adoption of Financial Policies (cont.)

• Three basic types of policies (cont.)
• Expenditure policies
• Debt policy
• Reserve or stabilization funds
• Accountability (monitoring)

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9. Appropriate Level of Fund Balance in General
Fund (2002)

• Focus on unreserved fund balance
• Essential policy elements
• Specific plans to redress imbalance
• Time framework
• Minimum level of unreserved fund balance
• 5 - 15 regular revenues or
• 8 17 regular expenditures
• http//www.gfoa.org/services/rp/budget/budget-appr
  opriate.pdf

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Fund balance (cont.)

• Typically lower percentage needed for larger
  governments
• Consider from long-term perspective
• Environmental factors to be considered
• Predictability of revenues
• Volatility of expenditures
• Availability of other resources
• Liquidity
• Designations

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City of Bettendorf, Iowa
Reserve Policies Operating unrestricted fund
balances and cash reserves at fiscal year-end
will be maintained at a level to ensure
sufficient cash flow throughout the upcoming
fiscal year for all fund types within the City.
Minimum year end balances for selected
governmental and proprietary funds are as
follows

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10. Measuring the Cost of Government Service
(2002)

• Calculate the full cost of all services
• Useful when considering alternative
  service-delivery options
• Distinguish avoidable costs from unavoidable
  costs
• Consider cost of transition
• Consider offsetting revenues
• Consider effect of depreciation on comparisons
  between governments
• Limitations of accrual data
• http//www.gfoa.org/services/rp/documents/Measurin
  gtheCostofGovernmentService.pdf

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11. Using Performance Measurements (1994)

• Important component of long-term strategic
  planning and decision making
• Linked to the budget
• Based on program goals and objectives tied to
  program mission or purpose
• Focus on outcomes
• Comparisons over time
• http//www.gfoa.org/services/rp/budget/budget-perf
  ormance-management.pdf

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Performance measures should (cont.)

• Verifiable, understandable, and timely
• Consistent throughout the strategic plan, budget,
  accounting and reporting systems and to the
  extent practical, be consistent over time
• Reported internally and externally
• Monitored and used in managerial decision-making
  processes
• Recommendations for three phases of implementation

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St. Johns County, Florida
Emergency Medical Services
Input
Output
Efficiency
Effectiveness
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City of McAllen, Texas
DRAINAGE PERFORMANCE MEASURES
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Cobb County, Georgia
Biennium
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12. Sustainability (2002)

• Current economic and consumption patterns should
  not reduce opportunities for future generations
  by depleting or impairing resources.
• Balance needed (triple bottom line)
• Economy
• Environment
• Community
• http//www.gfoa.org/services/rp/budget/budget-sust
  ainability.pdf

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Sustainability (cont.)

• Categories of specific representations
• Public policy actions
• Budget and management actions
• Sustainable business practices

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City of Fernley, Nevada
Efficient Safeguarding of Assets Management of
the City of Fernley is responsible for
establishing and maintaining an internal control
structure designed to ensure that assets are
protected from loss, theft, or misuse, and to
ensure that adequate accounting data are compiled
to allow for the preparation of financial
statements in conformity with generally accepted
accounting principals. Proper authorization is
required for encumbrance or expenditure of funds.
The proper department must have adequate
appropriation available prior to approval of the
purchase. The City does not currently use a
centralized purchasing function and has not
adopted purchasing policies more stringent than
state law. The City intends to examine the
purchasing function and possibly centralize the
function during FY2003/2004 as part of the
accounting system changes. Per state law, at
least two documented quotes must be attached to
purchases between 5,000 and 10,000 and the City
Manager is authorized to sign contracts under
10,000. Either formal bids or advertising of
intent to award a bid are required for purchases
between 10,000 and 25,000 per NRS 332.036 and
the City Council must formally award the bid.
Purchases exceeding 25,000 must be advertised
and competitively bid. Splitting of orders,
allowance for non-monetary items, or any other
practices that might be construed as
circumventing the purchasing process are
unacceptable. Management is also responsible for
adequately addressing risk and insurance issues
to efficiently safeguard City assets.
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13. Websites for CAFRs and Budgets (2003)

• Every government should publish budget and CAFR
  on website
• Specific guidelines
• Identical to printed versions
• Notice that information has not been updated
• Preliminary vs. approved budget
• Prior year documents noted and segregate
• Security from manipulation by external or
  unauthorized persons
• http//www.gfoa.org/services/rp/caafr/caafr-budget
  s-to-websites.pdf
• http//www.gfoa.org/documents/budgetWinners_2004.d
  oc

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Jefferson County, Colorado
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City of Kansas City, Missouri
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Highlands County, Florida
Welcome to the Highlands County, Florida
FY2003-2004 Adopted Budget. This disk contains
several different documents relating to the
Adopted Budget. We have provided all of them in
the hope that it will meet the needs of a variety
of users. These files require the use of Adobe
Acrobat Reader to view. If you do not have this
program, you will need to download the program
from the internet and install the program. The
documents are as follows 1-Executive
Summary 2-Adopted Budget Document 3-Detail
Budget 4-Capital Improvement Plan 5-Fee
Schedule The Executive Summary is designed for
those users who require only general information
about the Adopted Budget. This is provided to
the Board of County Commissioners for use in the
Public Hearings and as a tool for public
speaking. This file is located in the Executive
Summary directory. The Detail Budget provides
line item detail for those who are so inclined.
It even provides the detail information within
each line item that comprise the total request
for that line item. The Capital Improvement Plan
is provided in summary spreadsheet form. There
are discussions of current projects in the
Adopted Budget Document. The plan is a 10-year
plan with sources and uses information. The Fee
Schedule is provided for informational purposes
to give a preview of the cost of service recovery
funding contained in the budget. A link is
provided to our website if you desire to visit.
The Office of Management and Budget has a link
under the Board of County Commissioners. I hope
that you enjoy perusing the information contained
on this disk. ------------------------------------
------------------------------------------ If the
CD does not start automenu upon insertion, you
may start the automenu by selecting
\AutoMenu\AutoMenu.exe from Explorer
(double-click).
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Hillsborough County, Florida
Beginning Part of County Administrators Budget
Message (English Version) It is my pleasure as
your County Administrator to present to you the
biennial or two-year budget of 3.0 billion for
FY04 and 3.0 billion for FY05. This budget
includes property tax millage rate reductions for
the ninth and tenth years in a row. The budget
reflects the results of a budget process that
began in January with a series of budget
workshops that culminated in two public hearings
in September. On September 18th you adopted a
budget for the fiscal year beginning October 1,
2003 and ending September 30, 2004 FY04. At
that time, the biennial process included approval
of a planned budget for the period October 1,
2004 through September 30, 2005 FY05. This
reflects the fifth time the Board of County
Commissioners (BOCC) adopted a biennial budget
covering two separate fiscal years. The biennial
budget process is an innovative means of
providing important and consistent policy
direction, minimizing the annual replication of a
labor intensive budget preparation process, while
allowing critical issues to be readdressed as
necessary in the off year of the process.

Beginning Part of County Administrators Budget
Message (French Version)
C'est mon plaisir en tant que votre
Administrateur de compté au présent à vous
bisannuel ou de deux ans budget de 3.0 milliards
pour FY04 et 3.0 billion for FY05. Ceci budget
inclut des dégrèvements des tarifs de taux
exprimé enmillièmes d'impôt foncier pendant les
neuvième et dixièmes années dans une rangée.
Budget se reflète les résultats de a budget
traitez qui a commencé en janvier par une série
de budget ateliers cela a abouti à deux publique
auditions en septembre. Le 18 septembre vous avez
adopté a budget pour le fiscal année commençant
octobre 1, 2003 et final Septembre 30, 2004 -
FY04. À ce moment-là, le processus bisannuel a
inclus l'approbation del'prévu budget pour la
période octobre 1, 2004 par Septembre 30, 2005 -
FY05. Ceci reflète la cinquième fois Conseil des
commissaires du compté (BOCC) a adopté un
bisannuel budget couvrir deux exercices
budgétaires séparés. Le bisannuel budget le
processus est des moyens innovateurs de fournir
importantset conformés direction de politique,
réduisant au minimum la répliqueannuelle d'un de
main-d'oeuvre budget le procédé de préparation,
tout en permettant aux issuescritiques d'être
readdressed selon les besoins dans "outre de
l'année" du processus.

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14. Establishment of Strategic Plans (2005)

• Every government should use some form of
  strategic planning
• Essential steps of a sound process
• Initiate the process
• Prepare a mission statement
• Assess environmental factors
• Identify critical issues
• Agree on a small number of broad goals
• http//www.gfoa.org/services/rp/documents/Strategi
  cPlanningRPOrlando.pdf

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Recommended Practice on Strategic Planning (cont.)

• Develop strategies to achieve broad goals
• Create an action plan
• Develop measurable objectives
• Incorporate performance measures
• Review or adopt the plan
• Implement the plan
• Monitor progress
• Reassess the plan

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15. Business preparedness and continuity
guidelines (2005)

• Develop, test, and maintain a plan to continue
  basic business operations
• http//www.gfoa.org/services/rp/documents/Business
  _ContinuityRP.pdf

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Plan development

• Assess own unique risks
• Strategy to mitigate risks and control costs
• External planning resources
• Disaster and emergency recovery plan assessment
• Disaster and emergency recovery plan testing
• FEMA guidelines

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Plan development (cont.)

• Strategy to mitigate risks and control costs
  (cont.)
• Other planning considerations
• Emergency response plan compliance (OSHA, EPA)
• Risk management (insurance coverage)
• Administrative support functions (contact
  information for all members of the finance team)
• Outsourced/recovery services (ability to overcome
  disruption themselves)

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Plan implementation

• Record keeping
• Contemporaneous record-keeping per FEMA
• Personnel assignments and communication in wake
  of a disaster or emergency
• Formally assignment in each department
• Outsourced/recovery services
• Contingent contracts/emergency procurement
• Disaster and emergency plan safeguard
• Documentation/assembly areas off site

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16. Statistical/supplemental section of budget
document (2005)

• Ensure relevance of data
• Relate to rest of document
• Fit to the specific type of government
• Avoid excessive detail
• Organize information by major category
• Form of government
• Geography
• Community profile
• Demographics and economics
• Provide explanations
• http//www.gfoa.org/services/rp/documents/budget_s
  tatistical_supplementalRP.pdf

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Town of Gilbert, Arizona
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City of North Charleston, South Carolina
Land Use
Age Composition
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Monroe County, New York