Budgeting Fundamentals: The Tool of Revenues, Expenses and Choices

Transcription

1 Budgeting Fundamentals: The Tool of Revenues, Expenses and Choices Gregory T. Kuhn, Ph.D. Director of Government Management Consulting Sikich LLP Certified Public Accountants & Business Advisors

2 Budgeting The never ending squeeze, but especially painful since Oct. 2008

3 Outline Introduce leaders to the political and policy foundations of public budgeting Introduce the concepts of budget building Summarize the 4 basic budget types and discuss the advantages v. disadvantages of each Summarize the budget cycle and the importance of each budget building process within the cycle Q and A

4 Discussion What is a budget? Describe? Define?

5 What is a Budget Anyway? A Policy Document? A Financial Plan? An Operational Plan? A Communications Device? A Control Tool? An Expression of Priorities? pre-session draft - subject to revision

6 First and foremost, a BUDGET is a POLICY DOCUMENT... The most comprehensive expression of a Governing Body s policies and priorities A budget, describes, in dollars what the unit of government is doing, what is a priority or seen as necessary, what will be done where & when, how programs and operations will be financed and, describe over what period of time the funds will be spent THESE ARE POLICY DECISIONS!

7 A Budget is also a COMMUNICATIONS Vehicle... Expresses priorities and goals Provides varying levels of detail for policy, financial, personnel and, project planning and tracking Provides justifications and supporting detail that makes the document a good source for understanding and tracking at the macro and micro level A budget is a public information tool to help inform as well as advance priorities, agendas or policy initiatives

8 Village of Skokie pre-session draft - subject to revision

9 Village of Libertyville pre-session draft - subject to revision

10 City of Elmhurst pre-session draft - subject to revision

11 Village of Skokie pre-session draft - subject to revision

12 A Budget is also a Control tool... Limits the ability to spend more than is available or authorized Source: Peoria, AZ budget pre-session draft - subject to revision

13 A Financial Plan... The budget is a plan for assigning resources and affecting specific/intended outcomes e.g. goals Represents a projection of revenues and intended expenditure/use of those revenues The budget provides the legal documentation and authority necessary to conduct government business for the fiscal year pre-session draft - subject to revision

14 Simplifying The Budget Process: The Base + Other Source: Peoria, AZ budget pre-session draft - subject to revision

15 Politics of Public Budgets Dr. Irene Rubin- Budgets describe what governments do by enumerating how they will spend the public s money Links tasks to resources Ensures that $ available to wage war, clean parks, educate children, collect art and maintain streets Most of work in drawing up a budget is technical work But budgets aren t merely technical managerial guides

16 The Politics of Budgets Cont d. -Rubin Budget reflect citizens preferences for differing forms of taxation and avenues for one group of taxpayers to shift burdens to others Budgets reflect the power and influence of individuals, organizations, interest groups and branches of government Budgets influence national and local economies

17 The Nature of Public Goods -Mikesell Once they have been provided, denial to those who haven t paid is impossible (non-exclusion). Many people can consume simultaneously without diminishing availability to others, i.e., air traffic control, mosquito abatement (non-exhaustion). Everyone sees or has the opportunity to benefit and everyone is forced to pay as a matter of law. pre-session draft - subject to revision

18 The Politics of Budgets Budgets are P O L I T I C A L I. Rubin Reflect choices Reflect priorities Reflect relative proportion of decisions from local needs, to efficiency, to effectiveness to broad public goals Reflect degrees of importance Provide a powerful tool of accountability

19 Budgets and Politics In the end, budgets are an expression of societal VALUES. Government is the forum we have designed to debate and adjudicate those VALUES Values (priorities & preferences) endorsed by government = policy Policies require $ to have any impact at all

20 Formula of Public Budgeting -G.K. BUDG=(VAL+DES+INT+INFL+PRI)/OPM ( )=POLICY OPM = RESOURCES Politics = Negotiating Advocating Opinions Stating Priorities Changing Processes Policy Debates

21 Budget Politics Separation of Payer and Decider Irene Rubin Those who pay are not the ones who have final say on how the money is spent Budget decisions are constrained by resources and the calendar

22 Budget Guide-GFOA

23 Budget Types & Formats Overall, governmental budget processes have become more top-down Top-down facilitates financial control Helps to focus on policy-oriented/focused review processes

24 Power Sharing: Another Dimension of Budget Centralization (Rubin) When power is widely shared, the effect may be to immobilize decisions Public Access will impact budgets The more open the budget is to interest groups, and the more democratic the process, the more likely requests will exceed funds available

25 Budgets: The Politics of Process Budgeting most importantly represents constraints Sets limits on expenditures Sets limits on decision making opportunities Budget processes are not static or fixed: actors and circumstances can change the process Budget processes can be manipulated or designed to emphasize or frustrate a variety of goals

26 Budget Types & Formats Line item budget Performance budget PPBS MBO budget Program budget ZBB No budget

27 Focus and Features of Major Budget Types Line Item Budgets (Resources Purchased) Performance Budgets (Activities Performed) Program Budgets (Services Delivered) Others (PPBS, ZBB, MBO, etc.)

28 Typical Budget Cycle Executive Preparation Legislative Consideration Agency Execution Audit / Evaluation Re-start Example In budgeting you are usually working on three (3) budgets at the same time.

29 Typical Budget Cycle

30 The Last Step or 1 st Step in the Cycle? Audit and Evaluation Audit The ultimate control tool Checks to see that the budget was implemented or executed by officers and management in-tact i.e., was it done without significant deviation of expressed policies, rules, controls, goals etc. In brief----did the budget expenditures match the decisions/authorization in the approved budget?

31 The Last Step or 1 st Step in the Cycle? Audit and Evaluation Results are reported in a final report known as the CAFR : The Comprehensive Annual Financial Report Accounting basics Fund Accounting Cash basis or Accrual?

32 TAXES i.e. Revenues As one well respected City Manager put it to me early in my career in public administration Who s going to pay for all this!

33 Revenue Forecasting Successful Elements Understand Your Overall Tax System And revenue streams View Over Time Graph It! Trends help tell the story Openness / Transparency (Not Manipulated--- Don t Cook the Books!) pre-session draft - subject to revision

34 The Budget Document The Executive Budget Document The budget message Summary Schedules Revenues Historical Data Expenditures Projections/Estimates Detailed Schedules Supplemental Data Examples

35 Preparing The Budget Document From ICMA s Small Cities Training Guide Prepare A Budget Calendar 2. Gather All Dept. Heads/Review Goals 3. Tabulate/Review All Dept. Requests (parallel) 4. Prepare Revenue Estimates (parallel) 5. Review Entire Budget-Revenues and Expenditures

36 Preparing The Budget Document From : ICMA Small Cities Training Guide 6. Make Decisions & Recommendations 7. Prepare Summary Including Message and Transmittal 8. Conduct Public Hearings 9. Adopt 10.Execute 11.Audit

37 Capital Budgeting Capital Budgeting Properties Separate From Operating Budget (Long-Term Services vs. Nonrecurring Programs) Identifies Items that Have Significant Future Impacts $ Outlays Occur at Irregular Intervals; Most Of These Purchases Have A Long Life; Programs Have A High Price Tag; Projects Are Nonrecurring Facilitates Long-term Financial Planning

38 Capital Budgeting Capital Budgets Can Stabilize Tax Rates for Large Capital Projects Smooth Out Peaks and Valleys in Spending

39 Sources and Resources Mikesell, John. Fiscal Administration, Wadsworth Publishing, 6 th edition Rubin, Irene S. The Politics of Public Budgeting: Getting and Spending, Borrowing and Balancing, CQ Press 4 th edition ICMA Small Cities Training Guide, ICMA Press 1975 GFOA Recommended Budget Practices, Government Finance Officers Assoc.

40 Additional Terms Appropriation Legislative authority for an agency to spend revenues derived from a variety of resources. Fiscal Year Any 12-month period used to conduct business when funds are obligated or expended. Encumbrance Obligating the agency to pay money. (To set aside or commit funds for a future expenditure.)

41 Additional Terms Lapse Period A period after the end of the fiscal year when funds can still be expended Obligation Money which is committed, that is set aside for a specific expenditure, but not yet paid. Capital Expenditure Cost of construction, building acquisition or equipment purchases GAAP Generally Accepted Accounting Principles (Procedures) Accountability - Budgets are designed to ensure that money is spent according to the taxing authority s intent. Audits address accountability.

42 Questions? Greg Kuhn, Ph.D. Director Government Management Consulting Sikich LLP 998 Corporate Boulevard Aurora, IL pre-session draft subject to revision