Budget 101 2009Hello! A few years ago staff was asked to develop a presentation
outlining the way the city budget works so that newcomers could
more easily get up to speed. Each year since we have updated the
presentation, and we hope the information that follows will be useful
to you as you prepare to work through the details of the city’s
proposed FY 2010 budget.
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The purpose of this presentation is to provide basic
information about the structure of the city’s budget, how it is
prepared, how the city uses financial indicators to track budget
trends and how the public is given an opportunity to participate in the
process.
This presentation is not intended to discuss the specifics
of the current year budget or proposals for next year –it is intended
to serve as a “primer” as we move into the budget season so that
everyone involved in the process has an understanding of how it all
works.
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Although the budget is prepared and approved on an annual basis for a fiscal year
that begins October 1 of each year there are several multi-year components to it.
For example, the budget includes a multi-year capital improvement program and
staff performs a multi-year analysis to assist the City Council in its review of
planned programs and budget options.
Dollars are accounted for in a series of “funds.” These funds are accounting
entities with their own self-balancing set of accounts recording cash and/or other
sources of revenues against expenditures for specific activities. As we go through
the next series of slides we will walk you through an overview of each of the major
funds included in the city budget.
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We are all most familiar with the General Fund because our tax
revenues, and most of our operational expenditures flow through it. This slide
demonstrates the types of revenues that are accounted for within this fund.
The current property tax rate is .462 per $100 valuation. But note that
property tax collections are split, with .32 per $100 designated for the operational
uses and .14 going towards debt service. So 32¢ of the tax rate is used for
general fund operations, which include services like police and fire protection, the
library, code enforcement and others. The General Fund is also the most likely
place to find dollars budgeted for internal services such as finance, IT, and human
resources.
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When presenting budget information as a part of our budget document,
revenues and expenditures are shown in what we call “fund summaries.”
Each fund summary shows details about revenues and expenditures for
that particular fund, including a comparison of the current adopted budget
to the prior year adopted budget.
This slide shows a graphic depiction of the revenue part of the summary,
detailing each revenue line item. The white columns compare the FY 2008
budget with the FY 2009 adopted budget. As you can see with the red circles,
in this example Total revenues were up by 6.3%. The revenue summary also
shows the 2008 amended budget numbers, reflecting any changes made
to the adopted budget. Note that the budget is normally amended twice
each year –first, During the mid-year budget review and for the second time
when the Council Adopts the new budget and amends the current year
budget to reflect our final revenue estimates.
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This is the other half of the fund summary for the General Fund,
showing expenditures. Again the white columns reflect the adopted
budget for FY 2008 and FY 2009 respectively. The red circles show
the planned expenditures for each adopted budget.
This part of the fund summary shows the reader the planned
expenditure for each department, and how the proposed number for
the upcoming fiscal year relates to the current year number.
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This slide shows excerpts from the city’s fund balance policy adopted
in August 1993. This policy guides the staff and Council when
preparing and adopting the budget. Once revenues and
expenditures are planned, the resulting fund balance serves as the
city’s protection against unforeseen impacts to the budget, such as
economic downturns, disasters, etc. It is important for the city to
maintain reserves so that we are prepared for the unanticipated and
the policy guides our decisions regarding how much is too little and
how much is too much.
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What happens if the General Fund ends the year with more than
25% in the fund balance? The simple answer is that the portion exceeding
The 25% level is swept out of the GF and into the Strategic Initiative Fund
And put to work for the citizens of Southlake.
The next chart shows how the Strategic Initiative Funds have been used
Since the SIF was established in 2006. Note that it has primarily been used
For capital projects.
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It is not our purpose today to review the history of the Strategic
Initiative Fund in detail, but this slide shows how it has been used
since it was established. Whether transferred into the CIP, used to
purchase costly fire equipment, or a good source of revenue for
investing in the city’s technology, the Strategic Initiative Fund has
gone a long way to advancing city causes without embedding future
operational expenses into future budgets, and without increasing the
city’s debt service and related interest costs.
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This slide is just intended to give you a flavor for the use of the
Strategic Initiative Fund.
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But going back to the fund summary. This section of the fund
summary shows you the aggregate detail for the General Fund,
including the final fund balance.
The red circles show you the final fund balance for each fiscal year.
Per city policy, the fund balance should reflect a percentage of 15-
25%. A quick glance of the fund summary will demonstrate whether
we are compliant with our policy.
Note that excess fund balance is transferred to the SIF at the end of
the fiscal when all revenues and expenditures are fully accounted for.
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Moving on to the other funds that make up the city budget, we’ll now discuss the
Debt Service Fund.
As mentioned, a portion of the revenue generated by the property tax rate is
allocated to support long-term bond projects through the debt service fund. As
we have discussed, fourteen cents of the current tax rate is allocated to support
the city’s debt.
Much the way you allocate a portion of your budget for long-term expenses like
your mortgage or to pay off a car loan, the City of Southlake sets these funds
aside to pay for capital projects such as roads and sidewalks. By putting a
portion of tax revenues into the debt service fund, we are able to protect those
funds for the future payment of city debt.
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The utility fund is an enterprise or business fund. The intention is for the direct
beneficiaries of the service to pay for all costs of the fund through fees.
Water, sewer and even garbage revenues (utility service rates) and expenditures
(the cost of treated water, etc.) are accounted for through this fund, with the idea
that it will be self-supported, that is, not supported by the general fund. Note that
the Utility Fund is set up to pay for its ongoing operations, as well as its debt. So
it is very unlikely that you would see water and/or sewer infrastructure paid for
using General Fund monies.
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Here is a representation of the Utility Fund Summary. It works the
same as the General Fund Summary, showing all revenue and
expenditures for each fiscal year by line item and comparing the
relative growth from year to year.
You will note that this budget is structurally balanced; that is,
revenues are in excess of planned expenditures. This is something
we seek to achieve with all of our operating funds so that we can
sustain the budget into the future. Drawing down or borrowing from
the fund balance is acceptable only when the draw down is used for
one-time purchases. A draw down used to balance the operating
budget is a sign of fiscal distress or poor budget management and
should be avoided if possible.
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This slide depicts the portion of the Utility Fund Summary that shows
the ending funding balance, which is called “No. of days working
capital” for an enterprise fund. Our policy requires 60-90 days of
working capital at the end of the fiscal year, which is roughly
equivalent to 15-25% of planned expenses.
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The Southlake Park Development Corporation was formed when
Southlake voters approved the special levy of a half-cent sales tax in the mid-
1990s. The half-cent, which generates about $4.6 million per year, is
dedicated toward the acquisition and development of Southlake’s park land.
The specific projects are identified in the City’s CIP. The City may
spend the funds for operational or capital projects, but it is our preference to
focus on one-time, non-recurring costs.
Revenues are captured in the operating fund, but a large portion of
the collections are then transferred to the debt service fund. We try to fund very
little ongoing operational expenses out of SPDC money.
Collections for this fund are capped by state law, well in excess of
our abilities. No time deadline.
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As you all know, Southlake voters have approved another special levy,
for crime control and prevention.
A half-cent sales tax was approved by the voters in 1997 for an initial 5-
year period. Since then, voters have reauthorized the levy for an additional 15
years. The funds are used primarily for land acquisition and facility development,
although there have been limited operational expenses borne by the fund. About
$4.8 million was projected for FY 2009 total revenues.
The capital portion of this budget is included in the CIP as well –to be
used for the construction of DPS facilities.
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The TIF Fund accounts for ad valorem revenues “captured” within a
designated district. When a TIF district is created, the city then
accounts for any increase in the property values of the district in the
TIF Fund. Not only does the TIF get the CITY portion of these tax
dollars, but we are also the beneficiary of funding from other taxing
jurisdictions through interlocal agreements with Tarrant County, the
hospital district, the junior college district and even from CISD. For
FY 2009, we expected about $3.4 million in revenue, to be used for
projects within the district.
In our case, most of the projects we have undertaken with TIF
funding are associated with the development of Town Square.
Examples include public works infrastructure, parks and Town Hall.
We use these funds exclusively for capital projects.
The CISD part of a TIF gets a little complicated. We won’t address
that with this presentation, but are happy to answer your questions
about that aspect of the TIF if you have them.
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This slide is simply a map of the Tax Increment Reinvestment Zone
#1, showing you the areas where TIF funds can be used.
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Next we would like to talk briefly about the special revenue fund portion of our
budget.
Although you try to limit the number of special revenue funds you create –to
minimize the complexity of your budget and the administrative effort required to
support them –the city does have a number of special revenue funds, as shown
above. These budgets are very simple, and usually reflect the accounting for very
specific revenue streams, with specific expenditure parameters.
Special revenue funds not yet discussed are shown on this slide –
These funds are usually used for projects, not ongoing operating expenses and
often carry small balances of unused funds as “ending fund balance.”
This concludes our discussion of budget basics. We will now move forward with a
brief overview of how the budget is prepared.
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Each year when the staff begins the budget preparation for the coming fiscal
year, we used the Strategic Management System as our guide. After all, the
purpose of the system is to ensure that our resource allocation supports the
stated vision, mission and goals of the City Council. The staff takes the
Council’s stated focus areas and develops initiatives to support them.
We also use information included in the citizen survey. Each year the City
Council holds a strategy session in January to identify strategic priorities.
The staff uses these priorities to develop Departmental business plans and
annual work plans.
These plans then become the foundation for making resource requests through
the budget process. Once the budget is set, Department Directors are
held accountable for implementing the initiatives funded through the budget.
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You have seen the Strategy Map many times and you know
that it is the cornerstone of our activity. This map is the
definitive document driving our work and resource allocation.
As you know, we use a balanced scorecard system.
The balanced scorecard is a strategic planning and
management system that is usedextensively in business and
industry, government, and nonprofit organizations worldwideto
align business activities to the vision and strategy of the
organization, improve internal and external communications,
and monitor organization performance against strategic goals.
It transforms our strategic plan from an attractive but passive
document into the "marching orders" for the organization on a
daily basis.
This strategy map defines our work from a broad perspective.
The next step is to cascade the map down into the
departments where, based upon the focus areas and
objectives of this map –they chart their own course and define
their department’s strategy. Ultimately, budget requests are
based very clearly on meeting the articulated goals of the
Council as stated on the Strategy Map.
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To ensure that we don’t have incremental “creep” or unintended growth in
budget line items, the City of Southlake uses a target budget process. The
next slide shows how it works.
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This slide shows how the target budget process works.
The Finance Department calculates the target number
(or base budget number) and provides to staff at the budget kickoff
retreat in March.
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The City Manager’s Office then focuses review on the
supplemental requests. This process prevents the incremental
budget “creep”, requiring departments to justify their
supplemental requests each year, rather than embedding them
in line items where they are not easily identified. This process
allows us to scrub the budget more thoroughly before it is
submitted to Council.
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As you might imagine, the Finance Department plays a critical
role in the process. This slide shows the role of the Finance
Department in the preparation of the budget, which is primarily
to ensure the technical accuracy and completeness of the
budget.
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The City Manager’s office looks at the budget in a “big picture” context.
What are we trying to achieve strategically? Does the budget address the
Council’s strategic goals? Is the budget linked tightly to workplans and
service provision requirements? Does the budget meet the City’s overall
financial goals?
It is the C-M-O’s role to finalize a responsible budget that meets the needs
of the Council and our citizens, as well as the organization and to ensure
that we make prudent investments in the community, city service provision
and the workforce.
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NOTES:
This slide graphically depicts the budget preparation and
approval process. As you will note, we typically spend our
summer finalizing the details and working with boards and
commissions who are responsible for the programs and
projects funded through the city’s budget.
The City Manager is required by Charter to file the budget no
later than August 15 of each year. The Council reviews the
budget in a series of work sessions in the fall and the new fiscal
year begins on October 1.
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One final thought on the budget preparation process –it is important
to note that staff and Council not only review the proposals for the
upcoming budget year, but also review trend information with the
preparation of certain financial indicators.
We look at environmental, financial and organizational factors to
determine if our budget is sustainable over time, to identify any
warning trends and to manage financial policies that will ensure the
fiscal health and wellness of the city over time.
The model used for this purpose was developed by the International
City County Management Association in conjunction with bond rating
agencies and the Government Finance Officers Association.
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Since the budget is a plan for the use of taxpayer dollars, it is critical
that the process be transparent and provide plenty of opportunities for input
from the community and the boards you see listed.
As such, the budget calendar provides for presentation of the filed
budget in a series of public meetings, including the SPIN Standing Committee
and Advisory Board meeting.
Public input during work sessions is accepted but somewhat limited.
(This is Council’s time to roll up their sleeves and get questions answered)
Public hearings provide opportunity for formal public comment-The
budget requires two public hearings under City Charter provisions.
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Staff is available to answer any questions you may have about
the budget at any time throughout the process.
Thank you for taking the time to listen to this Budget 101
presentation. It is our hope that it has provided you with a solid
foundation for your upcoming review of the FY 2009-2010 proposed
budget.
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