Revenue Certification and Budget Amendments or. Show me the Money

Transcription

1 Revenue Certification and Budget Amendments or. Show me the Money Wally Hardgrove County of El Paso Office of Budget and Fiscal Policy INTRODUCTION Revenue forecasting is a fundamental part of the yearly County budget process. Primary goal is to estimate future revenue sources. Departments, projects, and programs need to funded. Aids policy makers in assessing current and future tax rates and plan Budget and amendments to Budget accordingly. Local Government Code, Chapter 111, provides guidance on County budgets and indicates who is responsible for forecasting and certifying revenue. Recommended budget practices. Review process for annual revenue forecasting. 1

2 Local Government Code, Chapter 111. County Budget Subchapter A Budget Preparation in Counties with populations of 225,000 or less. Subchapter B Budget Preparation in Counties with population of more than 225,000. Subchapter C Alternate method of budget preparation in Counties with populations of more than 125,000. Subchapter A. Budget Preparation in Counties with Populations of 225,000 or less In preparing the budget, the county judge shall estimate the revenue to be derived from taxes to be levied and collected in the succeeding fiscal year and shall include that revenue in the estimate of funds available to cover the proposed budget (Sec (c)). County Auditor only certifies revenue from the following: All public or private grant or aid money (Sec ). Revenue from intergovernmental contracts (Sec ). Revenue from a new source if not anticipated in the budget for the fiscal year (Sec ). If these sources of revenue were not included in the budget for the fiscal year. These can also be certified by the county judge if the county has no county auditor. 2

3 Subchapter B. Budget Preparation in Counties with Populations of More Than 225,000. The county auditor serves as a budget officer for the commissioners court of the county (Sec ). County auditor estimates revenue from the preceding and ensuing fiscal years (Sec (b)(4)(5)). County Auditor certifies revenue from the following: All public or private grant or aid money (Sec ). Revenue from intergovernmental contracts (Sec ). Revenue from a new source if not anticipated in the budget for the fiscal year (Sec ). If these sources of revenue were not included in the budget for the fiscal year. Subchapter C. Alternate Method of Budget Preparation in Counties with Population of more than 125,000. Budget officer is appointed to prepare the county budget County auditor provides budget officer, any information necessary to prepare a complete financial statement for inclusion in the budget County auditor provides revenue estimates for preceding and ensuing fiscal year (Sec b.4.5). 3

4 GFOA has published a series entitled, Revenue Analysis and Forecasting. This publication discusses the (National Advisory Council on State and Local Budgeting) NACSLB s list that outlines recommended budget practices that should be utilized during the revenue forecasting process. RECOMMENDED REVENUE PRACTICES 1.Develop policy on fees and charges and on use of one-time revenues. 2.Evaluate the use of unpredictable revenue. 3.Develop policy on revenue diversification. 4.Prepare revenue projections and analyze major revenues. 5.Evaluate the effect of changes to revenue source rates and bases. 6.Analyze tax and fee exemptions. (381 agreements) 7.Achieve consensus on a revenue forecast. 8.Develop a comprehensive revenue manual. 4

5 PROCESS FOR ANNUAL REVENUE FORECASTING Establish a base year. Assess revenue growth trends. Specify forecasting assumptions. Select a forecasting model. Qualitative methods Quantitative methods Validate the forecast. Monitor actual revenue against forecast and explain variances. Update the forecast based on changes. QUALITATIVE FORECASTING METHODS Qualitative forecasting methods Do not rely on complex mathematical models or statistical data. Intuitive and subjective in nature. Rely on human judgment, expert knowledge, and consensus. Qualitative forecasting methods: Naïve Consensus Expert Delphi 5

6 NAÏVE FORECASTING Example of naïve formula Naïve Forecasting Fiscal Year Total Revenue Change in Revenue Formula Forecast 2010 $ 1,125, $ - TR + CR $ 1,125, $ 1,125, $ - TR + CR $ 1,125, $ 1,125, $ - TR + CR $ 1,125, $ 1,125, $ 135, TR + CR $ 1,260, Advantages No complex mathematical or statistical calculations. No extensive historical data required. Disadvantages Base year used may be outlier. Unable to identify trends. CONSENSUS FORECASTING Advantages No complex mathematical or statistical calculations. No large amounts of historical data needed. Can be used on any type of revenue source. Utilization of the entire group s knowledge and expertise. Disadvantages Limited to the group s knowledge and subjectivity. Group think may occur. 6

7 QUANTITATIVE FORECASTING METHODS Rely heavily on mathematical models and extensive historical data These models are objective in nature. Quantitative forecasting methods: Simple mean (average) Weighted moving average Exponential smoothing Trend analysis SIMPLE MEAN (AVERAGE) Uses an average of all past data as a forecast WEIGHTED MOVING AVERAGE Uses an average of a specified number of the most recent observations, with each observation receiving a different emphasis (weight). EXPONENTIAL SMOOTHING This type of formula helps smooth fluctuations in the trends. EXCEL FORMULA - FORECASTING Forecasting formula that calculates a future value along a linear trend by using existing values. 7

8 ANNUALIZED CURRENT YEAR REVENUE Simple annualized formula Divide the revenue collected up until the period you are using to formulate the forecast, by that period. Then multiply that divisor by 12 periods. ANNUALIZED CURRENT YEAR REVENUE Revenue collected quarterly. Divide the revenue collected up until that quarter, by the number of quarters collected. Then multiply that divisor by 4 quarters. ANNUALIZED CURRENT YEAR REVENUE Average of collection rate from past fiscal years. To calculate the annualized amount for the current fiscal year, calculate the average collection percentage for the past 4 fiscal years and divide it by the total collected for that period in the current fiscal. 8

9 Revenue forecasting is a fundamental part of the yearly county budget process. It is nearly impossible to precisely predict revenues, but it is critical for counties to make a high-quality forecast. There are many sources available to counties: Local Government Code Texas Legislature Online Texas Association of Counties Publications by the GFOA Internet sources The Importance and Value of Revenue and Reserve Estimations Understanding the recipe TXCountyBudgetingHandbook.pdf 9

10 Bonds, Grants and Intergovernmental Contracts If a county bond issue is submitted at an election or other authorized obligations are to be issued against future revenues and a tax is to be levied for those obligations. Local Government Code requires the commissioners court to adopt a budget of proposed expenditures. On receipt of the proceeds of the sale of the bonds or other obligations, the county may make expenditures from the proceeds in the same manner as for expenditures for general purposes. Local Government Code and , require the county auditor, or the county judge in a county that does not have a county auditor, to certify to the commissioners court the receipt of all public or private grant or aid money and all revenue from intergovernmental contracts that is available for disbursement in a fiscal year but not included in the budget for that fiscal year. After certification, the court shall adopt a special budget for the limited purpose of spending the grant or aid money for its intended purpose. Federal and state grants present several problems to county officials. Complex administrative, reporting, and audit requirements may make the benefits of such revenue sources appear to be more trouble than they are worth. Certification of County Revenue The county auditor, or the county judge in a county that does not have a county auditor, must certify to the commissioners court the receipt of revenue from a new source the county had not anticipated before adopting the budget and had not included in the budget for that fiscal year. After certification, the court may adopt a special budget to spend the revenue for general or for any intended purposes. This applies only to funds maintained and controlled by a county tax assessorcollector that are not included in the county budget. At least 60 days before the first day of a county s fiscal year, the county tax assessor-collector must prepare a budget for the expenditure of those funds during that fiscal year and file a copy of that budget with the county budget officer. The county budget officer must make a copy of the budget filed with the budget officer available to the public whenever possible. The budget is not subject to approval by the commissioners court of the county, but any member of the public is entitled to speak for or against the budget during the county s budget process. The funds may be spent only in compliance with the budget filed with the county budget officer and may not be used to supplement the salary or cover the personal expenses of the county tax assessorcollector. 10

11 When to Amend Local Government Code (b) allows counties to spend money only in strict compliance with their adopted budgets, except in an emergency. This provision means that: 1. Funds may be spent only for items or categories of items that are included in the adopted budget. 2. A commissioners court, by order, may transfer an amount budgeted for one item to another budgeted item without authorizing an emergency expenditure. Local Government Code allows the budget to be amended, for county purposes and/or as a result of emergencies, grave public necessities, and unusual and unforeseen conditions that could not reasonably have been foreseen when the budget was prepared and adopted. These emergencies and unforeseen conditions are generally considered issues of fact to be determined by the county commissioners. When to Amend It is not advisable to amend the budget frequently. Amendments defeat the purpose of the budget as a tool for planning and control. If budgets are prepared with a reasonable amount of care, with a sincere desire to follow them, few amendments should be necessary. Among acceptable reasons for amendments are: 1. Inflation runs much higher than anticipated; a recession more severe than anticipated; or any substantial, unanticipated change in economic conditions. 2. Natural disasters. 3. Invalid assumptions underlying budget estimates of receipts and disbursements. 4. Beginning-of-year fund balances significantly different from balances anticipated 11

12 How to Amend the Budget Officials desiring an amendment should state their case in writing to the commissioners court, and include: 1. What expenditures are to be increased or decreased. 2. How the increase, if any, is to be funded: by a reduction in estimated year-end fund balance, by a reduction in other expenditures, or by an increase in receipts above budgeted amounts. 3. Justification for the amendment. 4. Course of action if the amendment is not approved. The commissioners court should consider the amendment carefully, especially in terms of how it conforms to its stated spending policies. If the commissioners vote favorably, the budget may be amended in one of two ways: 1. If funds are to be transferred from an existing line item to another existing line item, a simple order to amend by transferring funds is sufficient. The order must state exactly how the funds are to be reallocated. 2. If a new line item is created, then it is necessary for the commissioners court to enter an order setting forth how the budget is to be amended; declare an emergency; and find that a grave public necessity exists to meet unusual and unforeseen conditions that could not, by reasonably diligent thought and attention, have been included in the original budget. 3. If revenue is short, strike or reduce line items. How to Amend the Budget Whether an emergency exists justifying a budget amendment is a question of fact and is generally left to the discretion of the commissioners court. Their decision is subject to judicial review for abuse of discretion. Because courts have rendered budget amendments invalid in cases where commissioners courts failed to state the facts justifying an emergency amendment, the commissioners court would be wise to formally adopt reasons for the emergency.(see Texas Attorney General L ) 12

13 Governmental Accounting Standards Board (GASB) 34 Standards Under GASB 34 standards, governments are required to continue to provide budgetary comparison information in their annual reports. An important change, however, is the requirement to add the government s original budget to that comparison. Many governments revise their original budgets over the course of the year for a variety of reasons. Requiring governments to report their original budget in addition to their revised budget adds a new analytical dimension and increases the usefulness of the budgetary comparison. Budgetary changes are not, by their nature, undesirable. However, the information will be important in the interest of accountability to those who are aware of, and perhaps made decisions based on, the original budget. This information will also allow users to assess the government s ability to estimate and manage its resources. 13