Illinois Municipal League 95th Annual Conference

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Illinois Municipal League 95th Annual Conference

• Workshop for Local Officials
• Budgeting for Tough Financial Times

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Budgeting for Tough Financial Times

• Department of Commerce and Economic Opportunity

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Sequence of Topics

• Spending Authority the Budget
• Funds Policies
• Monthly Reports
• Utility Taxes User Charges
• Property Taxes

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Two Procedures to Spend Money

• Appropriation
• Ordinance
• 65 ILCS 5/8-2-9
• Default procedure
• Budget not required
• Appropriation sets limit to be spent
• Provides legal authority to spend

• Budget Officer
• Procedure
• 65 ILCS 5/8-2-9.1 to 5/8-2-9.10
• Takes specific action of board to adopt
• Budget sets limit to be spent
• Easier to make significant changes

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Appropriation Ordinance Weak Financial Tool

• Cash from prior year not shown
• Revenues not identified
• Cannot be easily changed
• Spending amounts normally inflated
• Adoption not required for 3 months
• Requires a real budget to overcome its problems

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Budget Officer Option(65 ILCS 5/8-2-9.1)

• Establish by 2/3 vote of board
• Mayor or manager appoints budget officer
• Budget takes place of appropriation ordinance
• Budget adopted before fiscal year

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What is a Budget?

• Financial plan
• Where money comes from
• Where money goes
• Compares spending to revenues to prevent
  financial problems
• Allocates money to community priorities

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Why is the Budget So Important?

• All municipal operations require money
• Expanding services require additional revenue
• Informs public about revenue spending programs
• Budget determines Who gets what

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What is a Fund?

• a fiscal and accounting entity with a
  self-balancing set of accounts recording cash and
  other financial resources, together with all
  related liabilities and residual equities or
  balances, and changes therein, which are
  segregated for the purpose of carrying on
  specific activities or attaining certain
  objectives in accordance with special
  regulations, restrictions or limitations.

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What is a Fund? (continued)

• An accounting pocket to earmark money that is
  restricted for a particular purpose

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Have as Few Funds as Possible

• Too many
• Difficult to understand city finances
• Hides financial problems
• Too few
• Earmarked money could be spent for the wrong
  purpose

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Typical Funds of a Community

• General
• Administrative department
• Police department
• Street department
• Liability insurance
• Motor Fuel Tax
• Water (enterprise)

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Adopt Formal Written Policies

• Provides sound management direction
• Avoids inconsistencies
• Contributes to credibility and public confidence
• Directs attention to total financial condition
  rather than single issue areas

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Adopt Formal Written Policies(continued)

• Saves time no need to debate same old issues
• Avoids short-term solutions
• Continuity when board members change
• But - must be flexible enough to respond to
  unforeseen circumstances

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Sample Budget Policy Statements

• The City will adopt a balanced budget for each
  operating fund in which current expenditures will
  not exceed current revenues.
• The General Fund will maintain an Unreserved Fund
  Balance of at least 8 of current expenditures.

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Sample Budget Policy Statements

• The City will prepare monthly reports comparing
  actual revenues and expenditures to budgeted
  amounts.
• If current revenues are less than expected or
  expenditures are greater than expected due to an
  emergency, the Board will reduce other spending
  to maintain a balanced budget.

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Sample Budget Policy Statements

• The City will not borrow money to meet current
  spending.
• The budget will provide for adequate maintenance
  and replacement of infrastructure and equipment.
• The City will establish and follow a five-year
  Capital Improvement Plan and update it annually.

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Sample Budget Policy Statements

• The City will only purchase equipment or initiate
  projects that are identified in the Capital
  Improvements Plan.
• The City will annually review utility user
  charges to ensure that they are sufficient to
  meet all costs of the utilities.

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Sample Budget Policy Statements

• Unless supported by the Capital Improvements
  Plan, the City will not pursue State/Federal
  grants because of matching requirements and
  maintenance expenses.
• The City will only issue bonds with a maturity of
  15 years or less but never in excess of the
  expected life of the facility.

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Recommendations on Budget Format

• Revenue spending for three fiscal years
• Last completed year Actual
• Current year Estimate
• Upcoming budget year
• Beginning cash balance
• Ending cash balance

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Simplified Budget Format
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Budget Format Provides Important Information

• Provides revenue spending history
• Prevents unreasonable revenue spending
  projections
• Compares revenues to spending
• Compares Money Available at Start of Year to
  Money Available at End of Year

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Tips on Projecting Revenues

• Start with last years actual collections
• Throw out the one-time revenue
• Trend analysis determine the percentage rate
  increase over several years
• Adjust for changes in economy
• Error on the low side

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Tips on Projecting Expenditures

• Start with last years actual expenditures
• What new programs will start?
• Estimate reasonable wage increase
• What new hires will occur?
• Review IMLs municipal price index
• Error on the high side

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Budget Calendar is Helpful

• What must be done
• When it must be done
• Who must do it

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Best Tools to Compile Budget

• Personal computer
• Spreadsheet software
• DCEO has a budget format on computer disk

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Perpetual Budget Struggle

• Conflict is inevitable
• Department heads want best operation possible
• More employees higher wages
• Newer equipment expanding programs
• Spend it or lose it attitude
• Taxpayer pressure to hold down costs

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Boards Responsibility to Decide

• Who gets what?
• Does police department get more money for new
  patrol cars and overtime?
• Does street department get more money for new
  trucks?

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Budget Report(65 ILCS 5/3.1-35-60)

• Detail of revenue spending
• At least once a month
• Financial speedometer
• How fast revenue is collected
• How fast money is spent

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Monthly Budget Report (simplified)Financial
Speedometer
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Monthly Investment Report(65 ILCS 5/3.1-35-45)

• Balance of money in treasury
• At least once a month
• Financial fuel gauge
• How much money is left
• Is it necessary to reduce spending

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Monthly Investment Report(Financial Fuel Gauge)
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Utility Taxes(65 ILCS 5/8-11-2)

• All adopted by governing board action
• Natural gas
• 5 of gross receipts
• Electricity
• Tax on kilowatt hour

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Utility Taxes

• Water (if not your system)
• 5 of gross receipts
• Telecommunications
• 35 ILCS 636/5-5
• 6 of gross charge

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User Charges - Utilities

• Utility User Charges
• To be used only for utility operations

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Average Property Tax Rates-2006Source Illinois
Department of Revenue
Excludes the City of Chicago 2006 Property Tax
Statistics - Table 8 9
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Property Taxes

• Corporate .25
• Fire Protection - .15
• Police Protection - .15
• Lease Purchase No Rate Limit
• Tort Judgments/Liability Insurance, Workers
  Compensation, Unemployment Insurance No rate
  limit

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Conclusions

• Revenues and spending must be monitored to ensure
  they are in accordance with budget
• If spending and revenues are not watched, the
  financial stability of the municipality is at
  risk
• Only the board members are responsible for the
  governments financial condition

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Contact Information

• Troy Markert
• Local Government Management Services
• 620 East Adams Street
• Springfield, Illinois 62701
• Phone [phone]
• Fax [phone]
• E-mail troy.markert_at_illinois.gov

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Contact Information

• Richard Turner
• Local Government Management Services
• 620 East Adams Street
• Springfield, Illinois 62701
• Phone [phone]
• Fax [phone]
• E-mail richard.turner_at_illinois.gov

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Questions???

• www.ildceo.net
• www.illinoisbiz.biz
• www.commerce.state.il.us
• Thank you and good luck!