BUDGET POLICY. Manager Approved: 11/28/18

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1 BUDGET POLICY Manager Approved: 11/28/18 I. PURPOSE The following policy outlines the Sewer Authority Mid-Coastside s (SAM) guidelines for budgetary decision-making and sets standards for sound budgetary practices and fiscal performance. A budget policy will assist SAM in achieving its current and future goals in a fiscally responsible and sustainable manner. II. POLICY It is SAM s policy to achieve a long-term, structurally balanced budget through efficiencies and sound financial decisions. SAM will adopt annual budgets each year for the following fiscal year, July 1 through June 30. A. General Budget It is the policy of the Sewer Authority Mid-Coastside that annual operating and maintenance expenditures shall not exceed annual revenues. This policy serves to guide the creation of SAM s budget and outline standards for the execution of operating and capital budget expenditures as recommended by the Government Finance Officers Association (GFOA). Staff will review this Policy on a regular basis to reflect the highest standards of fiscal management and SAM s budgetary goals. According to the GFOA, a budget policy should address and establish the guidelines for the following elements: Operating and Capital Budget Policies Budgetary Controls Revenue/Expenditure Policies This policy addresses each of these elements, and provides SAM with a comprehensive foundation upon which the prudent establishment, execution, and monitoring of annual budgets can occur. The General Budget shall contain the expected revenue and expenditure authority, staffing levels, and service plans for each department. The CIP portion of the General Budget shall be based on a rolling 5-year Plan for SAM and will be part of the General Budget process to ensure effective

2 Page 2 use of SAM's overall resources to operate and maintain facilities. This portion of the General Budget will include all projects that result in capitalized assets that span multiple fiscal years. It will also reflect total estimated project costs by including all prior- and current-year expenditures and appropriations, and future-year project costs, including any future funding needs through project completion. Staff will review projects no less than quarterly to identify projects that are not progressing and funds that could be reallocated for another purpose with the Board s approval. B. Contract Services Budget Annual contract services expenditures shall not exceed annual fees for the services provided. The Contract Services Budget shall contain the expected revenue and expenditure authority, staffing levels, and service plans for each contract. C. Member Agency Involvement The member agency managers are encouraged to be involved in the budget development process through Board of Directors workshops and meetings with SAM s General Manager. Member agency manager participation will allow SAM to improve performance by identifying needs and service delivery expectations. SAM submits the proposed budget to the member agencies for the council or board to approve. D. Public Involvement Public involvement is encouraged in the budget development process through Board of Directors workshops and meetings as well as information posted on SAM s website. E. Board of Directors SAM s Board of Directors shall communicate its budget priorities to the General Manager in advance of the development of the annual budget. The Board of Directors has budgetary control and delegates it to the General Manager as authorized by the various policies in order to carry out the business of the SAM. No fund or project, regardless of funding source, shall expend an amount in excess of its appropriations without the prior authorization of the Board of Directors.

3 Page 3 III. PROCEDURES SAM s budget is prepared annually for the subsequent fiscal year, The SAM General Manager develops the budget, with input from the member agency managers, authorized by the SAM Board of Directors, approved by the member agency council and boards, and finally adopted by the SAM Board of Directors. SAM uses strategic planning to map its goals and manage the tools and resources necessary for achieving them. The SAM Strategic Plan defines the direction for SAM and provides a framework for its strategies and activities in compliance with its NPDES permit. A. Basis of Budgeting While it is an enterprise agency, SAM s accounts are organized and operated using multiple funds. SAM s budget is prepared using the cash basis of budgeting and excludes non-cash depreciation and amortization expenses. These calculations are performed solely for financial statement reporting purposes and compliance with Generally Accepted Accounting Principles (GAAP). B. Budget Process The Joint Exercise of Powers Agreement (Agreement) describes the annual budget process, which is composed of the following phases: budget development, budget review and authorization, budget approval, and budget adoption. Budget Development The SAM Strategic Plan is the framework for the annual budget. The Board establishes policies and strategies based on the information contained in the Strategic Plan. The Operating Fund revenues and expenditures are then established and balanced through the budgeting process. The General Budget is in a document that includes all operating and maintenance activities and programs. The budget document shall include the all funds to allow the Board and the public the ability to view SAM s operations comprehensively for decision-making. The General Manager will create a draft General Budget and present it to the Board of Directors at a budget workshop no later than February 28 of each year. The draft budget will be available in hard copy at the SAM office and posted on SAM s website.

4 Page 4 Budget Review The General Manager s presentation of the draft budget in will include a review and discussion of the General Budget as well as the Board of Directors recommending changes. After the budget workshop, the General Manager, or his/her designee, will create a Proposed General Budget. This document will contain the recommended changes to the draft Budget. Budget Approval The Board of Directors reviews the Proposed Budget and authorizes the General Manager to submit it to the member agencies no later than March 31. Each member agency council or board reviews and approves the Proposed General Budget by adopting a resolution no later than June 15 each year. After the member agency council and boards approve the Proposed General Budget, the SAM Board of Directors reviews the final General Budget and adopts a resolution approving it no later than June 30 each year. The Adopted General Budget document will be available in hard copy at the SAM office and posted on SAM s website. Budget Monitoring The General Manager, or her/his designee, monitors the Budget throughout the fiscal year. Monthly reports shall be presented to Board of Directors to reflect actual revenues and expenditures. No later than February 28 of each year, the General Manager shall present a mid-year budget report to Board of Directors to forecast year-end results and aid in amending the budget for the remainder of the fiscal year. C. Encumbrances and Carryovers The General Manager, or her/his designee, shall review and close all encumbrances no later than July 31 each fiscal year. CIP encumbrances for projects still open at year-end will be carried forward into subsequent fiscal years automatically. D. Five-Year Fund Analysis The SAM shall prepare a multi-year financial analysis for the SAM s funds that projects revenues and expenditures over a five-year period to include all committed expenditures. Revenue and expenditure assumptions shall include baseline growth projections. The analysis shall be presented to the Board of

5 Page 5 Directors annually as part of the budget process and updated as needed. E. Revenues Operating Revenue The Operating Fund revenues shall not be earmarked for any particular purpose, unless required by law or generally accepted accounting principles (GAAP). Revenues shall be deposited in the Operating Fund and appropriated during the budget process or separate Board of Directors action. One-Time Revenues The SAM shall limit, whenever possible, the use of one-time revenues such as grants, dividends, or fund balances to fund one-time expenditures. Ongoing expenditures shall be funded by ongoing revenues. When new and ongoing program expenditures are added to the budget, an ongoing revenue source such as an increase in existing revenues or a new revenue source shall be identified to fully support the cost of the program. User Fees Revenues derived from user fees shall be updated annually as part of the budget process. The fee increases are to be based on established inflators. The full cost of services shall be determined in order to adequately establish fees to recover such costs. F. Expenditures Operating Expenditures The annual budget process shall weigh all competing requests for SAM resources within expected fiscal constraints. Capital Expenditures Capital expenditures shall be limited to those identified in the 5-Year CIP and appropriated in the budget process. Pension Obligations The budget shall include funds for the Annual Required Contribution (ARC) as determined by the actuarial valuation report as required by the Governmental Accounting Standards Board (GASB). Retiree Healthcare Obligations The budget shall include funds for the Annual Required Contribution (ARC) as determined by the actuarial valuation report as required by the

6 Page 6 Governmental Accounting Standards Board (GASB). Budgeted Positions SAM will fill only budgeted positions. Positions that are authorized on the Position Control List that are not budgeted will remain vacant until budgeted. Labor Agreements The budget shall include wage and benefit increases in accordance with the Memorandums of Understanding (MOUs) between the SAM and its respective employee units. IV. DEFINITIONS As used in this policy, the following words and phrases shall have the following definitions. Balanced Budget: a budget where revenues are equal to, or exceed, expenditures. Modified Accrual Basis of Accounting: revenues are recognized in the accounting period in which they become available and measurable, and expenditures are recognized in the accounting period in which the liability is incurred. Structurally Balanced Budget: a budget that does not rely on reserves or the use of one- time revenues for ongoing expenditures.