PROVISIONAL INSTITUTIONS OF SELF-GOVERNMENT INSTITUCIONET E PE:RKOHSHMETE VETE:QEVERISJES PRIVREMENE INSTITUCIJE SAMOUPRAVLJANJA

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1 PROVISIONAL INSTITUTIONS OF SELF-GOVERNMENT INSTITUCIONET E PE:RKOHSHMETE VETE:QEVERISJES PRIVREMENE INSTITUCIJE SAMOUPRAVLJANJA MINISTRY OF ECONOMY AND FINANCE MINISTRIA PE:REKONOMI DHE FINANCA MINISTARSTVO ZA PRIVREDU I FINANSIJE To: MUNICIPALITY President Chief Executive Officer Chief Financial Officer Directors From: Haki Shatri ~ Minister of Finance and Economy Date: June Subject: BUDGET CIRCULAR 2008/02-MUNICIPALITIES INITIAL INTERGOVERNMENTAL FINANCING AND MUNICIPAL BUDGET PRIORITY REVIEW INSTRUCTIONS 1. Purpose Budget Circular (BC) 2008/01-Municipalities set out initial instructions, procedures, and timetable for the development of the 2008 Municipal Budget. The purpose of this Budget Circular 2008/02 is to provide information on the initial amount of intergovernmental transfers for 2008 and to advise Municipalities on the preliminary projections for You will wish to consult Budget Circular 2008/01 - Municipalities, which is on the MFE website ( is essential for understanding Budget Circular 2008/02. With some exceptions, the second budget circular will not repeat the instructions or deadlines included in Budget Circular 2008/01. The 2008 municipal budget proposal and preliminary projections for should be presented in the package of documents submitted to the Municipal Budget DepartmentlMFE. Post-status changes that may result in new responsibilities and additional cost, for example establishment of new municipalities, will be addressed through a separate process and instructions issued as part of a subsequent circular. This Budget Circular accounts for the Government priorities embodied in the draft Medium Term Expenditure Framework (MTEF) and is in accord with the recommendations of the International Monetary Fund (IMF) included in a draft Letter of Intent, which is expected to be signed soon. 1

2 2. Background - Aggregate Intergovernmental Financing This year, the decision was made to introduce adjustments to the principle of providing constant share of 22.5 per cent of projected annual central budget revenue to Municipalities in a form of Grants 1. The new approach has been adopted for the purposes of the 2008 budget preparation, for both levels of government, which is based on the principle of sharing overall budget expenditure. This is consistent with Kosovo priority needs and macroeconomic parameters recommended by the IMF, which are embodied in the MTEF. Based on macroeconomic parameters for the level of expenditures, the Grants Commission, at its meeting on June 11, 2007, approved the aggregate level of intergovernmental financing for 2008 and tentative amounts the period Table 1 reflects the decision of the Grants Commission, which is subject to changes in accordance with potential revisions in macro-fiscal projections, developments related to the status process, and decentralization. Table 1. Intergovernmental Financing Budget Regulation Preliminary Projection Total Budget Expenditures Municipal Grants plus MOSR Municipal OSR Municipal Grant Municipal Grants as % of total expenditures (excluding MOSR) 20% 20% 20% 20% Total Municipal Grants Education Health General Grant (of which) Fix amount Property tax incentive grant Total Municipal Funding Note: Total budget expenditures exclude funding earmarked for specific purposes (social benefits, development priorities) and post-status costs. For the 2008 budget it is envisaged that the nominal level of total grants directly depends on projections of expenditure level and not on revenue projection. It is assumed that the share of municipal grants in total budget expenditure (i.e., 20%) will remain constant as compared with the 2007 budget. In general, the structure of intergovernmental financing in 2008 is currently assumed to be similar to the structure of Grants in the previous years. Total specific purpose grants will amount to: 78.5 million euro for the Education Grant and 18 million euro for the Health Grant. The residual amount represents financing under the General Grant, including the portion of property tax incentive grant totaling 9 million euro. Intergovernmental financing together with own-source revenues generated at the Municipal level will constitute total resources available to Municipality to finance its budget expenditures. Efforts to improve municipal own source revenue mobilization should be considered by Municipality in accordance with the Administrative Instruction 2007/02 on own source 1 As described in the Mid Term Municipal Budget Framework approved by the Government in

3 revenues, tariffs, charges, and fines. Particular emphasis should be put on improvements in the collection rate for property tax revenues. 3. Initial Ceilings of Intergovernmental Financing for Municipality The initial ceilings for intergovernmental financing in 2008, 2009, and 2010 for your Municipality, including each category of Grants and projected own source revenues, are provided in Attachment A. It is imperative that the Municipality adheres to the overall ceilings for each Grant and to the level planned for own source revenues. While the projections will be preliminary, it is essential that all three years be shown in Municipality budget plan. These preliminary amounts of Grants are consistent with: (a) the overall Grants levels as indicated above; and (b) distribution principles as endorsed by the Grants Commission. See Attachment B for the criteria and methodology for the distribution of intergovernmental transfers. The purpose and expenditure strategy for each category of Grants remains unchanged as compared with the previous years. Attachment C provides background information with this regard. If there are any changes in the initial levels of Grants indicated in this Budget Circular, Municipality will be advised in accordance with the Grants Commission decision. 4. Instructions for Completing Municipal Strategy Statement Preparation of the Strategy Statement is intended to assist your Municipality in developing a budget submission that supports Municipal priorities and is consistent with those priorities. If your Municipality does not yet have a strategy that shows how it uses its budget resources and programs to achieve specific objectives related to its mission and goals, then the information requested in the Strategy Statement will assist you in developing a strategy for 2008 and beyond. Attachment D provides format for completing Municipal Strategy Statements as part of your organization s 2008 budget submission. The numbers and other information in the Strategy Statement must be consistent with other elements of the budget submission. In particular: Part I. This is a statement of your Municipality s goals and strategy. It allows you to describe the problems faced, including obstacles to achieving your municipality s goals, the policies critical to achieving those goals, and to show how the resources you are now using contribute to each goal. Goals focus on the long term and indicate the direction of intended progress, but are not usually quantified and do not have a target year for successful achievement. Your Municipality will have one or a small number of strategic goals, which are to be listed in the first column. Part II. This part is a statement of the more specific Objectives that your Municipality intends to achieve in the next year or several years with the resources it proposes in the budget submission. An Objective focuses on the medium term and must be related to one of the goals listed in Part I. It must include a baseline that quantifies the current (or most recently measured) level of achievement, a target that quantifies the future level your organization expects to achieve with the resources requested, and a target year when the targeted level will be reached. In Part II (last column) you should estimate the amount of your 2007 budget that was used in support of this objective (unless it is a new objective in 2008). This Part shows how your organization uses its budget resources to perform activities that contribute to its goals and objectives. For each objective, the 2008 budget proposal should be split between the amount of resources that supports the current level of services and activity and the additional amount to support new activity or a higher level of service or activity in 2008, 2009, and

4 If you have questions regarding the completion of the Strategy Statement or its use in the budget process, please contact the budget analyst in the MFE who is responsible for reviewing your Municipality s budget. 5. The 2008 Targets for Current Spending Current spending includes the following economic categories: wages and salaries ; goods and services ; utilities ; and subsidies and transfers. Although the MFE does not intend to establish municipal spending ceilings for economic categories in order to allow for a considerable degree of flexibility in Municipal budget planning it is recommended that Municipality gives clear preference to capital outlays while its recurrent budget plan does not exceed the 2007 level. 5.1 Strategy for the reduction of employment and wage bill in 2008 The process of cuts in municipal staffing levels initiated in 2006, as per the Letter of Intent signed between the Government of Kosova and the donor community (November 2005), will continue in Respectively, preliminary employment and wage bill ceilings for the 2008 Budget for your Municipality are provided in Attachment A. Preliminary ceilings are subject to changes as the Ministry of Public Services continues works on civil service reform. It is imperative that your Municipality fully adheres to these ceilings. At the same time, consideration should be given to protected categories (teachers and doctors) and personnel in Pilot Municipal Units. Municipal authorities will be competent and responsible to determine the necessary reductions to be made with respect to the administrative personnel in order to achieve prescribed ceilings. You should assume the following: Municipality must plan to reach the end of 2008 staffing ceilings included in Attachment A. For 2008, municipalities should assume that they will be unable to backfill positions of the retired persons during the year, except for the protected categories (teachers and doctors), and for Pilot Municipal Units. Managing implementation of required aggregate reduction in accordance with Municipality own circumstances, specifics and needs of each directorate, and municipal priorities. Respect rules governing civil service employment (i.e., positions, grades, compensation, etc) as well as ensure standards of service delivery prescribed by the respective Ministries (i.e., in education and health sectors, firefighters, etc). 6. Capital Expenditures As indicated in Budget Circular 2008/01, Municipality should ensure that the 2008 capital spending plan is developed in accordance with: Municipal Development Strategy in order to address local development and investment needs. Consistency with Government policy priorities and (when possible) the Medium Term Expenditure Framework. Municipal budget organizations should aim at developing capital proposals that will contribute to the achievement of the Government s priority goals for The first claim on capital outlays should be well-justified, on-going projects approved in prior years ( forward estimates ). Depending on the forward estimates for your Municipality that leaves a higher or lower amount for possible new capital projects to be funded in

5 Selection of new capital projects for the KCB funding should be dependent on several factors: Projects that have been subject to PIP analysis will be considered for funding in the 2008 Budget. Municipal Assembly should approve the list of priority projects prior to its submission to the MFE. PIP should include projects proposed for funding in 2008, 2009 and 2010, consistent with the three-year capital plan envisaged by the Municipality. Standard request forms must be signed by CEOs and other authorized officials, in accordance with established procedures, instructions and other communication. If higher future year current costs result from 2008 or prior years capital funding (e.g., maintenance), it should be assumed that those costs will be absorbed within municipalities current spending totals. Submissions should indicate committed or anticipated international donor funding for a proposed capital project. Meritorious projects that have undergone PIP analysis, but are not selected for municipal funding, may be considered by international donors for potential funding. 7. Public Investment Program (PIP) Your capital spending proposals should follow the procedures introduced during 2006 under the Public Investment Program in conjunction with the program budgeting and accountability reforms introduced into municipalities during the same year. These are spelt out in the Public Investment Progam Manual for Municipalities ( The PIP training is currently in the form of rendering assistance to budget/financial officials in improving the quality of their submissions with the main focus on the specification of the all benefits that are expected to be derived, for the projected cost of the project, from its implementation in the coming year. Therefore, if there are questions regarding the procedures, your staff should contact the staff of the Municipal Budget Department in the MFE but at the same time feel free to seek the guidance of the new PIP team which commenced its activities last month under phase 2 of the program. If a Municipality is unable to submit all investment proposals in the PIP format within the timeframes specified, it should focus on justifying its highest priority proposals for which funding is sought in the context of the 2008 budget. Further formal PIP training is planned for the period following the completion of the current budget cycle at the end of September. However, in the mean time, it is important that each Municipality conducts the selection of PIP project proposals in accordance with the PIP procedures, Municipal development priorities, and approval by the Municipal Assembly. 8. Budget Data Management System (BDMS) As stated in Budget Circular 2008/01, the BDMS system will be used exclusively for the numerical preparation of the 2008 Budget. All Municipalities are required to use the system. To facilitate the use of BDMS, please submit the following information: 1) full name of all persons using system; 2) username; 3) their organizational numerical code; and 4) all or some of the following roles (end-user, view-only, and edit-mode). The information should be sent by to Ms. Arijeta Rukovici at arukovci@mfe-ks.org. This information should be sent as soon as possible, but no later than June 30, For all issues pertaining to BDMS, the help desk can be reached by bdms@mfe-ks.org or by phone 038/ New sub-codes for the Education and Health in 2008 Attachment E (Table C) outlines economic categories by directorates/programs. For the first time, sub-codes for programs in the Education and Health Directorates will be introduced starting from 2008 in order to advance program budgeting. Respectively, Municipal Education 5

6 Directorate will include the following programs: Municipal Education Administration, Kindergartens, Pre-primary education, Primary Education, and Secondary Education. Municipal Health Directorate will include the following programs: Municipal Health Administration, Ambulances, Family Health Centers (FHC), and Family Main Medicine Centers (FMMC). This requires preparation of PCF-2 forms for new sub-codes in the Education and Health Directorates. This format of budget planning and presentation is mandatory for all Municipalities. 10. Sources of Funding Municipal financing includes several sources, such as: municipal grants, municipal own source revenues, citizen participation, and donor support. Please refer to Administrative Instruction 2007/02 for definitions of own source revenues. To ensure proper consideration of budget submission, Municipality must provide estimates of expenditures from all known or anticipated sources of revenue, for current as well as capital spending. Specifically, you must report estimates of expenditures for international donor funding (IDF) for For purposes of improved budget transparency, expenditures resulting from international donor funding will be displayed in the 2008 Budget Regulation as a separate schedule. This will add somewhat to total consolidated budget expenditure, compared with the way budgets were prepared and presented in the past. However, the 2008 consolidated budget ceilings will be adjusted to accommodate this extra expenditure. (Attachment A does not include additional sums that result from this change in policy.) The following forms should be used for reporting own source revenues and donor funding respectively: Attachment F: OSR Plan for 2008 outlines categories of revenues, including citizen participation. In addition, Municipality may submit explanatory notes, copies of agreements Municipality Community, reports, etc. Attachment G: Donor financing - lists projects funded or co-funded by donors 11. Establishing Municipal Medium Term Budget Framework (Municipal MTBF) Pursuing instructions of the Budget Circular 2008/01-Municipalities, immediately after receiving information on the initial level of intergovernmental transfer, Municipal authorities (i.e., Chief Financial Officer) shall develop and submit through the Board of Directors and the CEO, to the Policy and Finance Committee (PFC), a complete draft Municipal MTBF. The Municipal MTBF document shall be prepared in accordance with the template set out in the MFE document entitled Municipal Medium Term Budget Framework Template provided to Municipality last year. Action required: 1. The CFO develops and submits through the Board of Directors to the Policy and Finance Committee the draft Municipal MTBF by June 20, Consultations shall take place with the community and key stakeholders, including public meetings to discuss Municipal priorities and strategies. The CFO consultations shall take place until June 15, the PFC consultations between June 20 and July The PFC approval, publication of the Municipal MTBF, and submission to the MFE/Municipal Budget Department (in hard copy and electronic copy signed by the President and CEO) by July 15,

7 4. Please note that due dates for above actions as originally included in the Budget Circular 2008/01-Municipalities have been adjusted to reflect the delay in the Grants Commission decisions. 12. Municipal Directorates Priority Review Pursuing instructions of the Budget Circular 2008/01-Municipalities, Municipality shall conduct a review of policy issues and priorities in the area of responsibility for each Directorate. Existing programs in each Directorate should be assessed in the context of the Municipality overall policy objectives and strategies that have been developed. In accordance with Municipality priorities, each Directorate should also provide a summary listing and indicative costing of high priority new policy proposals to be proposed for the Municipal Budget process (i.e., expected to commence in each year), together with potential savings options of low priority and poor performing programs. If a proposal or option is approved (in principle) by the Policy and Finance Committee of the Municipal Assembly during this initial process of priority review, the Directorate will provide a more detailed request as part of its budget submission later in the budget process. Municipal Directorates Priority Review process shall be led by the CFO, including provision of instructions on the completion of review in a form of Internal Municipal Budget Circular #1. Recommended format of Internal Municipal Budget Circular 2008/1 is provided in Attachment H. Action required: 1. The CFO shall issue Internal Municipal Budget Circular 2008/1 providing instructions on the completion of the Directorates priority review by June 15, Directorates shall be required to prepare their Priority Review submissions by no later than June 30, The Policy and Finance Committee of the Municipal Assembly shall approve the Priority Reviews by July 5, The Policy and Finance Committee shall hold consultation meetings with each Directorate of its Municipality. The purpose of these meetings will be to reach agreement on the rationale for new program/policy initiatives and indicative costing. (As noted, at this stage program proposals should be simply identified as one-line proposals to enable decision makers to quickly review emerging needs and priorities and to determine which projects should be further developed during the next steps.) 13. Municipal organizational chart Structure of Directorates Municipality is required to submit to the MFE/Municipal Budget Division completed Municipal Directorates organizational chart for The organizational structure should be approved and signed by the President and Chief Executive Officer. Information on Municipal Directorates organizational chart will be used for the purposes of Program Budgeting implementation and Treasury coding, which will support the 2008 Municipal budget planning and execution. 14. Training The Ministry of Finance and Economy will be providing training to Municipalities that relates to instructions provided in this Budget Circular. The timetable and agenda for respective training will be provided to Municipalities by a separate communication. Haki Shatri Minister of Finance and Economy 7

8 ATTACHMENTS: Attachment A Initial ceilings of intergovernmental financing for municipalities Attachment B Methodology for grants distribution Attachment C Purpose and spending strategy for municipal grants Attachment D Municipal Development Strategy Statement Attachment E - Budget submission package Attachment F Own Source Revenues Form 2008 Attachment G - Donor financing Form Attachment H Template of Internal Municipal Budget Circular 2008/01 8

9 Annex A Annex A Initial ceilings of intergovernmental financing for municipalities 9

10 Annex B Methodology and criteria for municipal grants distribution 1. The General Grant is distributed to municipalities based on the 2001 official population estimates with adjustment for a fix amount available to all Municipalities: Each Municipality receives a 100,000 euro fixed amount from those funds available for the total General Grant The remainder of the General Grant is divided between Municipalities based on their percentage share in the 2001 official population estimates, as shown in Table B.1 below. Tabble B.1 Official population data Municipality Population (2001) # (%) Gllogovc 60, Fushë Kosovë 35, Lipjan 75, Obiliq 26, Podujevë 117, Prishtinë 400, Shtime 28, Dragash 35, Prizren 220, Rahovec 63, Suharekë 80, Malishevë 52, Deçan 50, Gjakovë 115, Istog 44, Klinë 44, Pejë 115, Leposaviq 19, Mitrovicë 110, Skenderaj 56, Vushtrri 75, Zubin Potok 15, Zveçan 16, Gjilan 110, Kaçanik 43, Kamenicë 55, Novobërdë 5, Shtërpcë 11, Ferizaj 111, Viti 51, Total 2,236, The Health Grant is distributed on the percentage of population in the Municipality based on the official 2001 population estimates (see Table B.1). 3. The Education Grant uses formula developed by the World Bank that differentiates majority and minority populations to award a percentage of the funds available through the Grant to each Municipality. The formula is utilized as follows: 10

11 o Wages and Salaries: Number of minority and majority pupils in a municipality from official MEST report submitted to the MFE are separately divided by the pupil/teacher ratio for that population type. The resulting number of teachers is then multiplied by the Kosovo-wide average salary per teacher. Pupil/teacher ratios are set by the World Bank formula at 1 to 21.3 for majority pupils and 1 to 14.2 for minority pupils. Formulae are: No. Majority Teachers (NMAT) = No. Majority Pupils (NMAP) / 21.3 (Rounded Up) No. Minority Teachers (NMIT) = No. Minority Pupils (NMIP) / 14.2 (Rounded Up) Teacher Cost Need (TCN) = (NMAT+NMIT) x Kosovo-wide Average Salary/Teacher o Number of administrative and support staff as reported in payroll times the average salary per administrative and support employee. Formulae are: Support Staff Cost Need (SSCN) = No. Admin & Support Staff x Kosovo-wide Average Salary/Staff Total Wage Bill (WB) = TCN + SSCN = WB o Good and Services: a fixed amount per school (500 Euro for each preprimary and primary school, 1,000 per secondary school) is added to a fixed amount per student differentiated by majority and minority students. Fixed per student goods and services amounts are set by the World Bank formula at 18 per Albanian student and 22.5 per other ethnicity student. Formula is: Goods & Services (GS) = (NMAP x 18) + (NMIP x 22.5) = GS o Capital Outlays: 5 per student is allocated to the municipality. Formula is: Capital Outlays (CO) = (NMAP + NMIP) x 5 = CO o Master Formula Calculations: Estimated Education Need (EEN) = WB + GS + CO = EEN EEN / Combined Total of All Municipalities EEN = Percentage of Available Education Grant Funding to that Municipality. The funding based on pupil/teacher ratios represents approximately 75% of the total education budget of a Municipality. 11

12 Attachment C Purpose and Strategy for Municipal Grants C.1. General Grant The General Grant will be available to fund all aspects of municipal operations. Municipality will be requested, following its internal budget process, to identify where the General Grant will be spent, including determination to which municipal units the General Grant will be distributed and the amount to each unit. Part of the General Grant will be earmarked as the Property Tax Incentive program in accordance with the principles of reformed property tax incentive program endorsed by the Grants Commission. The total Property Tax Incentive program for year 2008 is set at 9 million euro. The Property Tax Incentive program funds will be available to Municipality only when Municipality achieves property tax collection target set for year 2007 and will be appropriated at the beginning of 2008 when actual 2007 collection is verified. Municipality, following its internal budget process, shall identify capital or investment projects which will be financed from the Property Tax Incentive funds. Following the decision of the Grants Commission, funds of Property Tax Incentive program shall be used on capital investment in accordance with specific projects approved by the Municipal Assembly. Capital projects shall be prepared and approved according to PIP procedures. C.2. Education and Health Grants Only Education and Health expenses can be budgeted from these two Grants, respectively, and not other activities. The Education and Health Grants will be structured such that the Municipality shall determine to which Education or Health units (such as school or health house respectively) the Grant will be distributed to and the amount to be available in the budget for each unit. The Education and Health Grants are foreseen to provide only normative funding for respective services. To the extent that the Health and Education grants are not sufficient to meet needs in these areas, the General Grant and/or Municipal Own Source Revenues should also be directed towards meeting these important social needs. Increases in expenditures planned for these two functions should be reflected as decisions by the Municipal Assembly. 12

13 Attachment D STRATEGY STATEMENT: Part I Strategic planning The Goals of Your Municipality Current Situation and Key Issues Key Policies Approximate Budget Appropriated in 2007 for Each Goal of the Organization List one or more strategic goals that your organization has established consistent with its legal mission and functions. Examples: Goal 1: To improve health services for all Municipal citizens Goal 2: To improve education in primary and secondary schools Briefly summarize current situation regarding each strategic goal. [For example, what are the primary means necessary to achieve progress toward each goal? What are the primary obstacles to achieving each goal? Identify the key policies, including any new policies needed in 2008 and beyond, necessary to achieve continued progress toward each strategic goal. For each strategic goal, identify approximate budget of your organization appropriated in 2007 for the achievement of that goal. 13

14 Part II Objectives, Implementation, and Cost Strategic Goals (Repeat from Column I of Part I) Objectives Implementa tion measures Responsibl e sub-units within main budget organizatio n Approximat e 2007 budget appropriate d for the achieveme nt of objectives Approximat e 2008 budget proposed for the achieveme nt of objectives Approximat e budgets proposed the achieveme nt of objectives Repeat goals as outlined in Part I, column 1. For each goal in Part I, list one or more objectives that can be achieved during and following the budget year. Objectives must be related to the goal and must indicate the amount of progress expected and by what year. Examples Objective: To increase the percentage of children born who survive to age one year from [x] to [Y] percent by 20zz. Implementati on measures are used for the evaluation of budget organization progress toward the achievement of its Goals and Objectives. Program implementati on can be measured in the context of data, processes, outcomes and results. Generally speaking, there are two types of implementati on measures: quantitative and qualitative. For each objective, identify the name of subunit Municipality, which is responsible for its implementati on and achievement. For each objective, identify approximate 2007 budget amount that your Municipality dedicated for achievement of that objective. A) Include cost estimates for 2008 to maintain the existing service levels in each program. B) Include cost estimates for new programs, or priority actions proposed for A) Include cost estimates for to maintain the existing service levels in each program. B) Include cost estimates for new programs, or priority actions proposed for

15 Attachment E budget proposal submission package 1. Supporting paper submitted by municipality (signed by the CEO and CFO) 2. Municipal Assembly decision on the approval of 2008 municipal budget 3. Table C with economic categories for Table D, grants and OSR planning for Table E, Budget distribution List of 2008 capital projects, approved by priorities 7. PIP Forms for each project 8. OSR Forms for 2008 (OSR-8) 9. Annual capital expenditure plan for minorities in 2008 (FSF) 10. Municipal MTBF 11. PCF-2 (sub-codes in Education and Health), PCF-3 (Directorates/Programs) and PCF- 4 (total municipality) Organization chart Structure of municipal directorates 15

16 Attachment G DONOR FINANCING MUNICIPALITY: DATE: Donor Co-funding Project name Purpose Amount (indicate 2008, 2009, 2010 separately) Initial project date Completion date 16

17 ATTACHMENT H TEMPLATE OF INTERNAL MUNICIPAL BUDGET CIRCULAR 2008/1 [insert Municipal logo] To: Heads of Directorates Program Managers From: Chief Financial Officer Municipality [ please indicate] Date: [ please indicate] Subject: MUNICIPAL INTERNAL BUDGET CIRCULAR 2008/01: PREPARATION OF PRIORITY REVIEWS FOR DIRECTORATE/PROGRAMS BUDGET 1. Purpose The purpose of this Budget Circular is to advise Directorates of the information requirements and timeframe for the completion of the Directorates Priority Review process. 2. Background The new budget process requires Municipal budget to be developed using a Medium Term Budget Framework (or MTBF). An MTBF approach requires the Municipality to more closely examine and prioritize budget allocations to ensure consistency with its economic, fiscal and social objectives. The Directorates Priority Review will provide Directorates with an opportunity to identify high priority spending proposals along with potential savings of low priority or poor performing programs for submission before initial budget ceilings are set for each Directorate. During May-June 2007 Municipality prepared Medium Term Budget Framework, which outlined a set of priorities for the Budget. These priorities are: Priority 1: Priority 2: Priority 3: [ please indicate] [ please indicate] [ please indicate] The Directorates shall use these overarching priorities as a guide in preparing their Priority Review. 3. Directorates Priority Review All Directorates are required to conduct a review of their programs and emerging priorities in the context of the Municipal budget priorities (see above). 17

18 This Priority Review will give decision makers (Policy and Finance Committee) an opportunity to review brief proposals from Directorates at an early stage and to identify those proposals for which more detailed assessment in the full budget submissions will be required. As such, only brief information and justification is being sought in the Priority Review. Format for the completion of the reviews is provided in Attachment 1 as follows: Table 1: requests a statement of the Directorate strategy, focusing on the outcomes that are to be sought over the medium term. Table 2: lists the savings options. A savings option can be (a) a proposed reduction in expenditure in a program because of proposed efficiencies or reductions in the level of service or (b) the proposed abolition of a program that is no longer needed, under performing, or of low priority. Table 3: lists a summary of POSSIBLE high priority new policy proposals for consideration for budget funding. New policy includes the expansion of existing programs or continuation of lapsing programs as well as completely new programs or projects. Importantly, it also includes any requirement for reappropriating resources due to slippage of capital projects. Initial indicative (only) estimates of costs should be included. Completion of capital projects already commenced and/or committed and rescheduled from the previous year should be given the highest priority for new policy funding. It is not necessary for new programs or projects or savings to commence in As this is a plan for the period , the proposed saving or new project can commenced at a later time. The purpose of the list is to assist and encourage prioritization (and re-prioritization) of budget resources to programs targeted at meeting the Municipal most important fiscal and social policy objectives. 4. Action Required All Directorates should do the following in order to complete the Priority Review: 1. Review Forward Estimates of existing programs that were developed and included in the Municipal MTBF document. 2. Complete Table 1 specifying priorities for the period Convene an internal working group to review all existing and potential new programs and projects in relation to the Municipal priorities. Identify saving and new policy proposals for the Directorate being proposed changes to the forward estimates, including: a. Programs or projects that should be abolished or scaled down during the period of (Table 2). b. New projects or programs that are consistent with municipal priorities (Table 3). c. Continuing a project or program which was funded in the 2007 budget but for which there is no funding in the forward estimates (Table 3). d. Funding required due to slippage of capital projects originally planned to be completed in 2007 reflecting that all 2006 appropriations expire on 31 December 2007 and there will be no carry-forward of unspent funds other than municipal own source revenue (Table 3). e. Expansion or further development of an existing program or project (Table 3). 18

19 f. Future KCB financing of a program or project that is currently donor funded, including the requirement for KCB funding of recurrent costs associated with donor funded capital projects (Table 3). 4. Complete Tables 2 to 3 based on the finding of the working group. 5. Gain internal approval for all proposals and tables. 6. Complete and return all Tables to the CFO by [please indicate]. 19

20 ATTACHMENT 1 FORMS FOR DIRECTORATE PRIORITY REVIEW (Tables 1, 2, and 3) Table 1. Directorate Strategy Directorate of [ please indicate] Summary of Outcomes Sought (mission/goals): Strategy for achieving desired outcomes (current activities): Assessment of Opportunities and Threats over the Budget Period: Proposed plan to address opportunities and threats (proposed future activities): 20

21 Table 2. Directorate Savings Proposals (Indicative Savings) Program Name Explanation of Savings: Potential Saving (Euro) Wages and Salaries Goods and Services Subsidies and Transfers Capital Outlays Sub-Total Budget Forward Forward Estimate Estimate Estimate Program Name Explanation of Savings: Potential Saving (Euro) Wages and Salaries Goods and Services Subsidies and Transfers Capital Outlays Sub-Total Budget Forward Forward Estimate Estimate Estimate Program Name Explanation of Savings: Potential Saving (Euro) Wages and Salaries Goods and Services Subsidies and Transfers Capital Outlays Sub-Total Budget Forward Forward Estimate Estimate Estimate 21

22 Table 3. Directorate New Spending Proposals (Indicative Costs) Program Name Proposal Rank (In order of priority) Justification (Outcomes sought from new policy): Additional Expenditure (Euro) Wages and Salaries Goods and Services Subsidies and Transfers Capital Outlays Sub-Total Budget Forward Forward Estimate Estimate Estimate Program Name Proposal Rank (In order of priority) Justification (Outcomes sought from new policy): Additional Expenditure (Euro) Wages and Salaries Goods and Services Subsidies and Transfers Capital Outlays Sub-Total Budget Forward Forward Estimate Estimate Estimate Program Name Proposal Rank (In order of priority) Justification (Outcomes sought from new policy): Additional Expenditure (Euro) Wages and Salaries Goods and Services Subsidies and Transfers Capital Outlays Sub-Total Budget Forward Forward Estimate Estimate Estimate 22