ELEMENTS OF A FINANCIAL SYSTEM

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ELEMENTS OF A FINANCIAL SYSTEM
Teresa Rotschafer Finance Director City of
Johnston 515-727-7783 trotschafer_at_cityofjohnston.
com July 14, 2014
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Chemistry????
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Elements

• Economic Issues
• State Law
• Outside Agencies
• Federal Law
• Budget
• Valuations
• Funds
• Debt
• Capital Projects

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Economic Influences

• Global
• United States
• State
• Local

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Economic Influences

• Global Economy
• Business in your community
• Foreign Markets
• Cost of doing your business
• Cost of Oil, Metals, Building Materials

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Economic Influences (cont)

• US Economy
• Federal Laws and Mandates
• How many of you know someone that is or has been
  in Iraq or Afghanistan?
• Affordable Care Act
• IRS Rulings
• Fed Bank
• S.E.C.
• Grants and Endowments

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Economic Influences (cont..)

• State Economy
• State Laws and Mandates
• 2013 Legislative Impact
• Revenue Sharing
• Grants and Endowments

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Economic Influences (cont..)

• Local Economy
• Employment
• Affluence
• Crime
• Education
• Other Local Governments

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Other Economic Influences

• National Security
• Boston Marathon
• School Shootings

Mother Nature FEMA FLOODING TORNADOES WIND
EVENTS BLIZZARDS
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Other Government Influences

• Those taxing agencies within any given
  community-city, school, county, assessors,
  community college, extension, state which service
  the citizens of that community.
• City
• School
• County
• Community College
• City/County Assessor
• Extension

• State
• DNR
• DOT
• DOM
• State Auditors Office

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Other Agencies that influence us

• GASB-Government Accounting Standards Board
• CFC-City Finance Committee
• 411/IPERS
• Workers Compensation
• Homeland Security/National Guard
• EOC and Township Trustees
• Non Profit and Not for Profits
• United Way or Community Chest
• Churches and Charitable Organizations

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Inputs and Outcomes

• Council/Legislature
• Citizens
• Other staff
• Employees

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LETS GET DOWN TO BRASS TACKS

• Tell us something we REALLY need to know

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MUNICIPAL FUNDING

• BACK TO CHEMISTRY.
• General Fund
• Special Revenue Fund
• Fund Transfers
• Permanent Funds
• Debt Service Funds
• Capital Projects Funds
• Enterprise Funds

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General Ledger

• Cash Basis Vs GAAP
• Chart of Accounts
• Standardization Is Very Critical
• Financial Reporting
• To Council, Citizens, other governments and Bond
  Buyers
• GASB 34, 44 and 45
• Budget and Reports

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Valuations-Assessed vs Taxable vs Market

• ASSESSED VALUE-Value given to property by the
  City/County Assessor
• TAXABLE VALUE-Value available for taxation by
  various taxing agencies.
• How is the taxable value determined?
• Assessed value minus any rollback applied to that
  class of property.
• Residential, Commercial, Industrial, AgLand
• Other influences Multi family, condominium
• What about those tax exempt properties? What
  role do they play in this?

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http//www.dom.state.ia.us/
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Budget

• Planning-A Business Plan
• Control
• Monitoring/Reporting
• Amending

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Important Budget Terms

• Budget Certification
• The formal filing of an approved budget to the
  Department of Revenue and Finance and the County
  Auditors office.
• Public Hearing Notice
• A prescribed form which must be completed and
  published (or posted) no less than 10 and no more
  than 20 days before the budget public hearing.
  Each city must conduct a public hearing before
  the budget or amendment can be approved.

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Snap Quiz

• Using the information on Slide 18, how would you
  fill in the form as required by the State of
  Iowa?
• www.dom.state.ia.us/

http//www.dom.state.ia.us/
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More Important Budget Terms

• Taxes
• Any general or special tax levied against
  persons, property or business for public purposes
  as provided by law, but shall not include any
  special assessments.
• 8.10 levy limit
• The limit imposed by state statue for the general
  fund levy. 8.10/1,000 of TAXABLE value.

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More Important Budget Terms

• Other taxes
• Employee Benefits Emergency
• Insurance Hotel/Motel tax
• Local Option Tax
• http//www.iowa.gov/tax

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Still More Important Budget Terms

• Per Capita
• A calculation based upon population. Example,
  Road Use Tax allocation.
• WARNING
• All allocations are not equal

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More Important Budget Terms

• User Fees or service charges
• Water and sewer rental charges which generate
  enough revenue to run the activity.
• How does the Council determine what the user fees
  should be?
• Rents and Royalties
• Rents paid only by those using the service.
  Example, renting City hall or park rental fees.
• Revenue Bonds
• Bonds supported by user fees, usually from a
  proprietary activity such as water user fees or
  sewer rent.

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More Important Budget Terms

• General Fund
• Chief operating fund of the city used to
  account for report all financial resources not
  accounted for or reported in another fund.
• Capital Project Funds -
• Used to account for report financial resources
  restricted, committed or assigned for capital
  outlays, construction of capital facilities and
  other capital assets.

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More Important Budget Terms

• Special Revenue Funds
• Funds that have special restrictions. For
  example, Road Use Tax (RUT) or grants.
• Proprietary Funds
• Enterprise fund accounts for a citys
  acquisition, operation and maintenance of
  facilities and services which are all or mostly
  self supporting by user fees.
• Debt Service
• Fund or funds used to account for funding and
  payment of interest and principal of general
  obligation and special assessment debt of the
  City. (Sec 384.4)

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More Important Budget Terms

• Permanent Fund
• Used to account for resources that are legally
  restricted so that only the earnings, and not the
  principal, may be used to support a governmental
  operation.
• Fund Transfers
• Cities often make transfers between funds in
  order to accurately portray their expenditures.

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Treasurer and Budget Reports

• Treasurer Report
• Cash on Hand/In Bank and Investments
• Receivables (how much has been billed out but not
  receivedgood idea even on cash basis
• Unappropriated Surplus

• Budget Report
• By function Police, Fire, Library
• By Program Public Safety, Public Works
• Balance Remaining

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FINANCE/TREASURER AND CASH MANAGEMENT
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Cash Management

• Cash Flow
• Timing of Revenues
• Timing for Expenditures
• Checks-ACHs-Wires
• Banking services
• Investments
• Safety
• Liquidity
• Rate of Return
• Fraud

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Cash Flow--Who Cares?

• What are idle Funds?
• Cash on hand (in checking or savings account) not
  currently needed for expenses.
• What is Cash Float?
• The balance in an account which has been pledged
  (a check written) but not yet needed (the check
  has not been presented to a bank for payment.
• What is Cash Flow?
• Cash flow is the activity of revenues and
  expenditures though out any given period.

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Cash Flow Methods

• By Fund
• By Date
• By Type
• Revenue
• Taxes vs fees vs state shared
• Expenditures
• By Program
• By Department
• By Cycle

• By Bank Account
• Electronic Banking
• ACH-Automated Clearing House used for debits and
  credits against another account.
• Wires-same day debits or credits on another bank
• Sweep Accounts-account which is cleaned out at
  230 and returned the next day in order to earn
  one days interest
• All of the Above

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Cash vs. Investments

• Liquidity
• The availability of funds from an account or
  conversion of an investment to secure cash.
• What kind of money are you investing?
• Co-mingled Funds A mixture of fund balances
  used to create a larger balance without loosing
  identity of ownership.
• Pro Rated Interest The allocation interest
  earned on an investment or interest bearing
  account which is made up of various funds. This
  allocation is usually based upon ownership of
  balance.

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Helpful Methods for InvestmentsIA Code 12C

• Interest on Checking
• Negotiate banking services
• Timing the length of your investment
• Banking Calendars
• Cash flow charts
• Discussions with Departments/Contractors
• Gantt Chart A chart to show a schedule for a
  project.
• Other information-electronic banking and
  Treasurer of State Website
• http//www.treasurer.state.ia.us
• Flexible CDs

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Charts and Graphs
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One Magic Formula

• How to determine liquidity
• Look at the lowest balance over the last two
  years
• Add the smallest amount of monthly revenue
• Subtract the highest monthly expense
• Presto 6,000-1,200 300 5,100.

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Slide 38 to be used in snap quiz.
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Snap Quiz

• Using slides 36 and 38 determine the liquidity of
  this community.
• Answer
• Lowest balance
• Smallest amount of monthly revenue
• Highest monthly expense
• 159,04118,808-168,754 9,095

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Charts and Graphs (cont)
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Investment Charts
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Investment Charts
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Investment Charts
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Where does one start???

• Historical information-Get the big picture before
  you look at the pieces
• Discussions with Departments/Contractors
• Discussions with Banker/Treasurer
• Engineers, Architects, Financial Advisors

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Other Software Options

• Other forms of spreadsheets
• Software as simple as MS Money or Quicken
• Complex packages
• Trace your cash and investments
• Help you forecast cash needs
• Patterns
• Know when you get what and when youll spend

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DANGER!!! BEWARE!!!

• Safety of Principal
• Safety of Assets
• Fraud Prevention

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Fraud and Theft

• What kinds of fraud or theft are we looking for?
• The obvious?
• Someone walking out the door with cash?
• Someone disconnecting the water meter to water
  the lawn?
• Investing in a sure thing?
• Investing in our own Community Buyer beware.
  Do your homework.

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• Are you loosing too many tools?
• What happened to all that copy paper, city gas?
• Is someone using city equipment for personal
  purposes?
• Are purchases done thru competitive bidding? Or
  are you paying the price no matter what? How do
  you know if it is too high?

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Safety of Assets

• People are assets (Intellectual Assets)
• Employees are people too
• Do you have safety training?
• DrivergtgtgtConfined spacesgtgtgtErgonomics
• Fire/Property Losses---Insurance?
• Flood Plan
• What will you do if a Pandemic hits your
  community?

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WHAT ABOUT ETHICS?

• A salesman calls to confirm an order for soap.
  You didnt order it. He says Bob ordered it but
  since he is on vacation, you have to accept it.
  Youre not sure. He agrees to give you a free CD
  player for accepting this before the end of the
  month-- he really needs to complete his sales for
  the month. Since Bob ordered the soap, anyway,
  what does it hurt?

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Other Aspects of the Financial System
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City Spending

• Purchasing Policies
• When to purchase
• How much to purchase
• How to purchase
• Capitalization Policies
• Projects
• Equipment/Buildings

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Capital Improvements

• POLICY-POLICY-POLICY
• Equipment
• Projects
• Buildings
• Infrastructure

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Debt Management

• POLICY-POLICY-POLICY
• General Obligation
• Revenue Bonds
• Leases-Operating vs Capital
• Tax Increment Financing (TIF)
• Registrars

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Risk Management

• Insurance Policies
• 28E Agreements
• Contracts-Performance Bonds
• Workers Compensation Policies
• Safety Programs

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Annual Reports - to name a few

• Annual Debt Report State Treasurers Office (on
  line)
• Road Use Tax Report - Department of
  Transportation(on line)
• Annual Financial Report State Auditors Office
  (can get e-report from DOM)
• T.I.F. Reports DOM

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AUDIT

• Its not a dirty word (there are 5 letters)
• Municipal Oversight Law
• Helps your understanding
• Helps your credibility
• Good references

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Iowa League of Cities

• Iowa League of Cities Web Site
• Calendar of Events
• 2013 New Laws of Interest to Cities
• FAQ Municipal Oversight Law
• www.iowaleague.org

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Summary

• Lots of pieces
• Lots of questions
• Lots of responsibility
• Lots of help

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At the end of your rope?
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Who can help?

• City Attorney
• Bond Counsel
• Other city staff
• Local Bankers
• ISU
• Iowa League of Cities
• Mentor Program
• Department of Management

• State Auditors Office
• State Treasurers Office
• Department of Natural Resources
• City Finance Committee
• IMFOA and GFOA
• Each other-call, network, share
• Me

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TERESA ROTSCHAFER FINANCE DIRECTOR CITY
OF JOHNSTON [phone]
trotschafer_at_cityofjohnston.com