Budget Terms and Concepts

Transcription

1 Budget Terms and Concepts The following terms and concepts are used throughout this document. A reference list is presented below to assist in understanding key concepts: Adopted Budget The term adopted budget refers to the legally enacted spending authority that the City Council appropriates through a budget resolution. Once an amendment to the budget is passed, it becomes part of the adopted budget. Amendments Amendments are changes to an adopted budget that either increase total spending authority or transfer encumbrances between periods. Some amendments have offsetting revenues that are added as funding sources. Annual Budget An annual budget is a one year budget that is adopted prior to the beginning of the fiscal year. Funding is reviewed for the current cycle and supplemental funding requests must be proposed for changes. Annual budgets run from July 1 year one (1) to June 30 year two (2). Appropriations Money set aside for a specific use by a formal action of the City Council. Assets Assets are resources that an organization controls and represent future economic benefits. There are many different types of assets; like cash, investments, and infrastructure, to name only a few. In budgeting, only cash and non restricted investments are considered available resources that can be used to balance the budget. Infrastructure and other capital items (e.g. fleet, equipment) become available resources when sold; including these amounts as available resources is only appropriate at the time of sale, in the case of an equipment trade in for example, or upon liquidation of an organization. Audit An examination of the City s accounting records by an independent accounting firm in order to determine the accuracy and validity of records and reports, as well as conformity with established policies. The General Accounting Standards Board (GASB) sets standards for financial reporting for units of government. These standards are referred to as Generally Accepted Accounting Principles (GAAP). 47 P age

2 Balanced Budget Wyoming statute requires adoption of a balanced budget, which means that available revenues and cash reserves equal expenditures for the fiscal period. Biennial Budget A biennial budget is a two year budget that is adopted prior to year one (1) of the budget cycle. Funding is reviewed for the two year period, and changes are approved as supplemental funding requests during the budget cycle. Year two (2) is preceded by recommended amendments to the original budget. The City of Laramie s biennium fiscal year budget matches the state funding cycle and runs from July 1 year one (1) to June 30 year three (3). The use of a biennial budget encourages longterm financial planning. Budgetary Control The City implements budgetary controls to ensure that legal spending authority is not exceeded. Budgetary control is enacted for each specific purpose budget item and for operating and payroll budgets in total by division. Capital projects, equipment, fleet and full time personnel authorizations are treated as specifically allocated budget items, and any changes must be approved by the City Council. Budget Message The City Manager s general discussion of the budget, presented as part of the budget document. Generally, the budget message explains broad budget issues that concern the Council and citizens. Capital Expenditures In budget terms, expenditures for assets or studies that will provide long term benefits for City operations and are used or consumed over multiple fiscal periods. Examples include infrastructure or land investment, equipment, engineering or planning studies, and fleet vehicle and equipment purchases. From an accounting perspective, assets are capitalized when acquisition expenditures exceed $5,000 and the useful life of the asset is at least five years. 48 P age

3 Capital Plan The City s long term capital plan reports the planned capital projects, major studies, equipment, and fleet expenditures for governmental funds for six years and for enterprise funds for ten years. Capital Project The acquisition, expansion, or rehabilitation of the City s physical structures or infrastructure. Rehabilitation projects extend the useful life or service capacity of the structure, while expansion or acquisition projects create new components to existing capital assets. Capital projects have a minimum useful life expectancy of five years. Cash Reserves Cash reserves represent the amount of cash that exceeds the commitments of the adopted budget, outstanding liabilities, and emergency fund requirements. It is the City s policy to have three to six months of the adopted budget in cash reserves for each non capital fund. Contingency Funds A category of expenses placed in reserve in the current budget year only to be used with the approval of the City Council, and only if adequate revenue is available. Contractual Services A category of expenditures that includes amounts paid to third party service providers for items such as association dues, professional services provided by consultants or private companies, and maintenance agreements. Debt Service The payment of principal and interest on a financial obligation incurred by the issuance of bonds, notes, or capital leases. These payments are made according to a predetermined payment schedule. Depreciation Depreciation is a non cash expense that reduces the value of an asset and recognizes the expense for an asset over its useful life (rather than all at once when the asset is purchased). Most assets are depreciable because they lose their value over time and must be replaced. Land and related items are not depreciable. The City is also statutorily required to recognize depreciation in its utility rate structure ( ) so that income generated by rates is sufficient to fund future replacements. However, all financial planning is performed on the cash basis, ensuring that depreciation is not double counted as an expense. 49 P age

4 Departments The major administrative units of City of Laramie government. The City of Laramie has nine departments: General Government, which includes the City s Manager s Office, the City Attorney s Office, Administrative Services, Police, Fire, Parks and Recreation, Community Development, Human Resources and Public Works. Division or Cost Center An administrative unit within a department that performs a particular function. Examples of divisions in the City of Laramie include the Street Division of the Department of Public Works, as well as the Finance Division of the Administrative Services Department. Divisions are also referred to as cost centers and the terms are used interchangeably in this document. Enterprise Funds Enterprise funds are used to account for goods and services for which user fees and charges are paid in exchange transactions, similar to a private business. The City of Laramie provides water, wastewater, and solid waste services that are accounted for in enterprise funds. The focus for these funds is the determination of operating income, changes in net position, financial position, and cash flows. Expenditures In budget terms, expenditures represent outflows of resources during a fiscal period. The City of Laramie manages expenditures in three major categories: personnel, operating, and capital. Fiscal Year The twelve month period that establishes the beginning and ending of the period for recording financial transactions. For the City of Laramie, the fiscal year takes place from July 1 st to June 30 th. Fiscal years can be referred to in one of two ways, as shown in the following example for fiscal year 2015: FY 2015 or FY (for the period July 1, 2014 to June 30, 2015). Fleet Fleet vehicles and equipment are centrally managed according to a long term replacement and maintenance plan. Fleet outlays can be for new or existing vehicles and equipment. Funding Sources Funding sources refer to the incoming resources (revenue) and currently available resources (cash and non restricted investments) that are used to balance expenditures. 50 P age

5 Funds A fund is a distinct fiscal and accounting entity that is established to account for certain activities or to achieve compliance objectives. Activity for each fund is recorded in its own set of books; fund activity is not comingled, and transactions between funds are recognized. Budgets are adopted for each City fund. Fund Balance In budget terms, the residual amount remaining after forecasted revenues and available cash reserves are reduced by planned expenditures and other relevant liabilities or contingencies. Fund Balance Classifications: Non spendable Fund Balance This classification reflects the proportion of net resources that is inherently non spendable because of its form, or because it must be maintained intact. Restricted Fund Balance The portion of a fund balance that is not available for appropriation or expenditure due to legal requirements. Committed Fund Balance The portion of net resources for which there are self imposed limitations enacted by the City Council that require formal action at the Council level to remove, and are set in place prior to the end for the period. Assigned Fund Balance This classification reflects the portion of fund balance for which there are limitations that result from intended use established by the City Council or the City Manager. Unassigned Fund Balance The portion of net resources that is residual after non spendable, restricted, committed, and assigned amounts have been determined. 51 P age

6 Franchise Tax A tax charged for the use of public rights of way and property within the City of Laramie for public or private purposes. The City charges franchise taxes for natural gas, telephone, cable, and electrical services. Inflationary Adjustment Adjustments to accounts because of expected inflationary increases. Interfund Transactions Transfers occurring between the City s funds to support capital or operating expenditures, to reflect the use of services between City departments, or to recognize asset capitalization. Interfund transactions always include revenue to one fund and an expenditure to another. Intergovernmental Revenue Revenues received by the City of Laramie from other governments in the form of grants, entitlements, loans, and/or shared revenue. Lease Purchase A lease purchase is a contractual agreement to lease a capital item from an organization providing financing until the lease agreement is fulfilled. The financing organization owns the capital item and distributes the vendor s payment, and the City then pays for the item over the term of the lease. When all payments have been made, the City takes ownership of the capital item. Budgeting for lease purchases has two elements. The first is approval of the equipment purchase, which signifies that the Council approves acquiring the capital item. The second budgetary item is approval of the down payment and subsequent lease payments. From a funding perspective, the City plans for lease purchases according to the actual payment schedule. Liabilities Claims or other restrictions on an organization s resources, like a debt obligation or a bond covenant. Mill levy A percentage that is applied to the assessed value of real property to calculate property tax. One (1) mill is equal to one dollar of tax per one thousand dollars of valuation. For the biennium FY , the City is levying eight (8) mills, the maximum amount allowed by state statute. 52 P age

7 Materials and Supplies A category of consumable expenditures that includes such items as office supplies, books, periodicals, gasoline, operating supplies, and safety equipment. Personnel A category of expenditures that includes salary, benefits, and payroll taxes for City employees. Ordinance A municipal regulation approved by the City Council. Ordinances have the force of law. Rebudgets The City uses the term rebudgets to refer to budgetary encumbrances that are transferred between periods. Encumbrances are used for capital and certain equipment items. Rebudgets do not increase total spending authority; they transfer spending authority between periods. Cash is assigned and moved into the next period for funding of rebudget items. Revenue In budget terms, revenue represents inflows of resources during a fiscal period. It has not yet been received, i.e. is not cash or other reserves, and can be derived from many sources like user fees, grants, loan proceeds (in cash basis terms), interest, and intergovernmental revenue. Resolution A formal expression of opinion, will, or intent, passed by a majority of the City Council. Sales and Use Tax A tax imposed on the sale or use of all tangible personal property. User Fees/Charges A payment made to the City of Laramie for receipt of services by the user who benefits from the services. The City of Laramie s primary sources of user fees are the utility services. Other examples include recreational programs, building permits, and inspection fees. 53 P age