City Budgeting Manual for FY 2019

193 Pages·2017·3.09 MB·English

City Budgeting Manual for FY 2019

Association of Idaho Cities
3100 S. Vista Ave. Ste. 201
Boise, ID 83705
Tel. [phone] or [phone]
Fax [phone]
www.idahocities.org
Preface

The City Budgeting Manual for FY 2019 is a comprehensive resource manual providing
information and analysis to assist city officials in planning and adopting the Fiscal Year 2019
budget.

For new city officials the chapter on “The Basics of City Budgeting” is a useful primer on the
various aspects of the budget cycle.

The following chapter, “The City Budgeting Process: Understanding the Law,” identifies and
explains the provisions of Idaho law that govern city budgeting. The relevant Idaho Code
sections (or excerpts) are provided in gray textboxes.

City revenue sources are discussed in detail in the chapter “Understanding Revenue
Sources,” which also provides the relevant Idaho Code sections in gray textboxes.

The manual concludes with an extensive glossary of budgeting and finance terms, and the
appendices include revenue reports with projections.

For assistance with any budgeting or municipal finance questions, do not hesitate to contact
the AIC office (contact information is on the cover page).
Table of Contents

Introduction ........................................................................................................................1

The Basics of City Budgeting ............................................................................................3

Roles and Responsibilities .............................................................................................................. 4
The Executive/Administrative Role .................................................................................... 4
The Legislative/Policymaking Role .................................................................................... 4
Budget Classification Structure ..................................................................................................... 5
Funds................................................................................................................................... 5
Organizational Units ........................................................................................................... 7
Objects of Expenditure ....................................................................................................... 7
Source of Revenue .............................................................................................................. 8
Activity ............................................................................................................................... 9
Project ................................................................................................................................. 9
Coding the Budget Classification Structure ........................................................................ 9
Beginning the Budget Preparation Cycle .................................................................................... 10
Preparing the Budget Calendar ......................................................................................... 10
Policy Guidelines for the Budget ...................................................................................... 10
Developing Budget Requests ........................................................................................................ 11
Prioritizing and Planning City Services ............................................................................ 11
Department Budget Requests ............................................................................................ 13
Department Revenue Worksheet ...................................................................................... 13
Preparing and Adopting the Budget ............................................................................................ 14
Review of Requests by the Budget Officer ....................................................................... 14
Developing the Base Budget ............................................................................................. 14
Preparing Revenue Estimates............................................................................................ 15
Initial Review by Mayor and Council ............................................................................... 17
Development of the Budget Document ............................................................................. 17
Budget Hearing and Adoption .......................................................................................... 18
Budgeting Best Practices .............................................................................................................. 19
Build Reserve Funds to Cope with Unforeseen Situations ............................................... 19
Prudent Use of Nonrecurring Revenue ............................................................................. 20
Err on the Low Side with Revenues & the High Side with Expenses ............................... 21
Maintain a Long-Term Financial Perspective ................................................................... 21

The City Budgeting Process: Understanding the Law .................................................22

Fiscal Year ....................................................................................................................... 22
Notice to County Clerk of Budget Hearing ....................................................................... 22
Annual Budget, Public Notice and Budget Hearing ......................................................... 23
Certification of Property Tax Levy ................................................................................... 24
Annual Appropriations Bill ............................................................................................... 27
Accumulation of Fund Balances ....................................................................................... 29
Expenditures Not to Exceed Appropriations ..................................................................... 30
Miscellaneous Statutory Provisions Relating to Municipal Finance ................................. 31
Understanding Revenue Sources ....................................................................................32

Introduction ................................................................................................................................... 32
New Laws on City Revenue Sources for FY 2019 ....................................................................... 32
Property Taxes .............................................................................................................................. 34
Brief History of Property Taxes in Idaho .......................................................................... 34
Authority to Levy Property Taxes .................................................................................... 38
Increased Levies for Low Property Tax Cities.................................................................. 39
Temporary Override Levies .............................................................................................. 40
Permanent Override Levies ............................................................................................... 40
Forgone Property Tax Levies ............................................................................................ 41
Exempt Levies .................................................................................................................. 41
Levy Limits ....................................................................................................................... 42
Tax Money Due Monthly from County ............................................................................ 42
Certification of Valuation Dates ....................................................................................... 43
Fees ................................................................................................................................................. 48
User Fees as a Source of City Revenue ............................................................................ 48
Public Notice and Hearing on New/Increased Fees .......................................................... 48
Franchise Fees ............................................................................................................................... 50
Understanding Franchises & Franchise Fees .................................................................... 50
State Sales Tax Revenue Sharing ................................................................................................. 57
History of Revenue Sharing .............................................................................................. 57
Highway Distribution Account .................................................................................................... 64
History of the Highway Distribution Account .................................................................. 64
Annual Street Finance Report ........................................................................................... 71
State Liquor Account .................................................................................................................... 73
Distribution of the State Liquor Account .......................................................................... 73

Glossary of Budgeting and Finance Terms ...................................................................81

Appendices.

Appendix A: Model Chart of Accounts ..................................................................................... 98
Appendix B: City Budget Calendar for FY 2019 ................................................................... 103
Appendix C: Example Budget Calendar City of Twin Falls ................................................. 104
Appendix D: Sample Notices of Budget Hearing ................................................................... 105
Appendix E: Model and Sample Appropriation Ordinances ............................................... 107
Appendix F: Certification of Property Tax Levy Form L-2 ................................................. 111
Appendix G: Model and Sample Appropriations Ordinance Amendments and
Notices of Public Hearing .................................................................................. 114
Appendix H: Property Tax Budget Increases Under 3% Cap,
New Construction & Annexation ...................................................................... 117
Appendix I: 2017 Urban Renewal Increment Value by City ............................................... 118
Appendix J: Property Tax Levy Rates .................................................................................. 119
Appendix K: Property Tax Levy Limits ................................................................................. 132
Appendix L: Sample Notices of Public Hearing on New & Increased Fees ......................... 133
Appendix M: Idaho Transportation Fund Sources & Distribution ...................................... 136
Appendix N: Annual Road & Street Financial Report .......................................................... 137
Appendix O: Personnel Related Costs..................................................................................... 140
Appendix P: Sales Tax Revenue Sharing – County Distribution ......................................... 143
Appendix Q: Sales Tax Revenue Sharing – State Distribution ............................................. 151
Appendix R: Revenue Sharing Projections for Fiscal Year 2019 ......................................... 157
Appendix S: Highway Distribution Account Allocations...................................................... 161
Appendix T: State Liquor Account Distributions .................................................................. 173

Introduction

Budgeting is a process where scarce financial resources are allocated among the city's
various programs and departments. In the abstract budgeting seems like a rational,
straightforward process. In reality, however, it is much more complicated.

 Scarce revenue means worthy programs compete for funding.

 Estimating costs for fuel, health insurance, and other expenses more than a year in the
future is difficult.

 Unforeseen events such as a severe winter, floods, or a water main break may require
the city to adjust the budget during the fiscal year to increase spending.

 Revenues depend on the pace of economic growth, development activity, population
growth or decline, and changes to state laws.

 The budget must have both a short and long term perspective. The operating budget
tends to focus on short term issues, such as cost-of-living increases for employees,
inflationary adjustments, etc. The capital budget, which outlines the city's
investments in utility infrastructure, streets, parks and libraries, represents the long
term perspective.

All these factors combine to make budgeting a sporting challenge.

It is important to learn the history of budget reform in order to understand why the budgeting
process works the way it does. The unified process of governmental budgeting used today
has its roots in the agenda of early 20th Century Progressive reformers, including President
Woodrow Wilson and Historian Charles Beard.

Prior to the adoption of federal budget reforms in 1921, the budgeting process was
fragmented, public accountability over government expenditures was practically nonexistent,
and corruption fostered by machine politics was commonplace. Budgeting at the federal
level was completely uncoordinated: departments had separate appropriations bills that were
passed at different times and little effort was made to coordinate expenditures to available
revenues. Budgeting at the state and local levels suffered from similar problems.

The Progressives viewed this situation with considerable alarm and made budget reform one
of their top priorities, along with the secret ballot, professionalization of the bureaucracy,
competitive bidding for government contracts, and uniform practices for accounting and
auditing. Cities were in the vanguard of the Progressive movement: the National Municipal
League advocated the adoption of budget reform in 1899.

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The key elements of budget reform included:

 Preparation of the budget by the chief executive;

 A comprehensive listing of estimated expenditures coordinated with anticipated
revenues for the upcoming fiscal year; and

 A budget document setting forth estimated revenues and expenditures with clearly
stated objectives to enhance public accountability.

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The Basics of City Budgeting

Governmental budgeting originated as a means to increase control and accountability over
expenditures of taxpayer dollars. Now the budget serves to educate citizens about city
services and responsibilities, coordinate effective management by establishing levels of
performance for city services, and bring long term community planning to fruition.

Your challenge is to develop a budget that will chart the course of your city and carry it
successfully into the future. Several important considerations must be weighed when
evaluating your city’s budget.

 The budget must balance a number of competing concerns: the challenge of
budgeting is to allocate resources among a number of contending interests and
constituency demands. Some activities are mandated by federal or state law and there
is relatively little flexibility to make cuts in these areas.

 The budget is an important policy statement to citizens: line-items are important,
but they must be explained in commentary that relates current expenditures to the
levels of city services, explains the need for capital investment, reviews the historical
and projected growth in revenues and expenditures, summarizes the legal constraints
on city revenues and debt, etc.

 The budget must provide for continuous delivery of city services: it is essential
that the city have sufficient reserves for contingencies so that reductions in revenue
do not jeopardize the delivery of important services.

 The budget should relate to the comprehensive plan: the operating and capital
budgets must relate to the city’s comprehensive plan and other community planning
documents. The community’s priorities for future growth and expansion need to be
reflected in expenditures.

 The budget is a management tool: keep in mind that the budget is an effective
management tool if performance is measured through specific quantitative goals and
objectives. Some cities tie budgeting to performance measures (“performance
budgeting”) and budget based upon desired levels of service, such as miles of street
paved, acres of parks mowed, number of building inspections performed, etc.

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Roles and Responsibilities

There are two broad categories of responsibilities in the budgeting process: executive/
administrative and legislative/policymaking. Each has an important role to play in the
formulation, adoption and implementation of the budget.

The Executive/Administrative Role

Idaho Code 50-1002 provides that the city council is responsible for preparing the budget—
however, the mayor and budget officer (the city clerk-treasurer, city administrator, city
manager, finance officer or budget director) typically take the lead in drafting the budget.

The most important tasks performed by the budget officer are the collection of departmental
budget requests and the formulation of a draft budget for council consideration. The budget
officer also carries out a number of other responsibilities, including: developing the budget
calendar, designing budget worksheets and forms, providing instructions to department heads
concerning completion of budget documents, reviewing department requests for accuracy
and completeness, preparing revenue estimates, assisting the mayor and council in reviewing
the budget, and coordinating budgeting activities and meetings.

The Legislative/Policymaking Role

The council should be most concerned with translating policy into reality through the budget
process. It is easy for councilors to become engrossed in evaluating the minutiae of
budgetary line-items. Budgeting micromanagement wastes valuable time and distracts
attention from the most important questions that must be answered in the budgeting process,
specifically:

 What new services should the city provide and how should these services be funded?

 Should any services currently provided be cut, eliminated or privatized?

 What levels of service should the city provide?

 What expenditures are necessary to support future growth and development?

 What are the policy priorities that the council wishes to fulfill with the budget?

The council also has a valuable role to play in the strategic planning process. Before the
budget is formulated, councilors can engage citizens in strategic planning to determine their
priorities for city programs and services. The results of strategic planning should guide the
policy decisions that are implemented through the budget.

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Budget Classification Structure

The budget classification structure constitutes the framework for organizing and developing
the budget, and also serves as the structure for classifying actual expenditures and revenues.
A model classification structure is shown below:

Budget Classification Structure

Fund
Organizational Unit
Object of Expenditure
Source of Revenue
Activity
Project

Funds

Funds are an accounting concept used to separate the financial activity of a city for legal
and/or managerial purposes. Fund accounting reflects the fact that cities provide many
different services, such as police, fire, water, sewer, streets, planning, and recreation.
Different types of resources are used to pay for these services, including involuntary
resources (e.g. property taxes) and voluntary resources (e.g. user fees).

Cities must comply with a number of restrictions on the use of revenues.

 Some restrictions are imposed as a condition of receiving grant funds from the state
or federal government.

 Other conditions are associated with particular revenue sources, such as state
Highway Distribution Account revenues, which are legally required to be spent on
maintenance of roads and bridges.

 The city council may choose to dedicate revenues to a specific purpose, such as a
fund for park land acquisition.

Different accounting and reporting mechanisms are needed for different funds. The three
main categories of funds are governmental, proprietary and fiduciary—each category
includes several different types of funds.

1. Governmental Funds:

 General Fund: General, unrestricted revenues of the city or revenues that are not
restricted to any specific purpose, including property taxes, state sales tax revenue
sharing and state liquor account revenues. The general fund typically includes city
administration, police, fire, planning and building departments, etc.

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