Basics

Basics of
of Local
Local Government
Government
Finance
Finance && Budgeting
Budgeting

2010
2010 In-Service
In-Service Training
Training
Alan Probst
Local Government Specialist
UW-Extension Local Government Center
(608) 262-5103
 Fund
Fund Accounting
Accounting
 Local government accounting is Fund
Accounting

 All revenues and expenditures must be

assigned to a specific fund

 GASB guidelines
 Funds
Funds
 Revenues
 General Fund
 Special Revenue Funds
 Debt Service Fund
 Capital Fund
 Proprietary/Enterprise Funds
 Fiduciary Funds
 Revenues
Revenues
All incoming funds from any source are
included in revenues
In Wisconsin, revenues primarily come
from four sources:
 Property taxes
 State shared revenues
 Fines and fees for services
 Sales taxes
 Expenditures
Expenditures

All funds expended by a local

government must appear in one of
the fund other than Revenue
 Restricted
Restricted funds
funds
Some funds are considered “Restricted”

Restricted funds include:

Proprietary Funds
Fiduciary Funds
Enterprise Funds
Special Revenue Funds
 Restricted
Restricted Funds
Funds
 Can only be used for the restricted
purpose for which they exist
 Cannot be used to cover deficiencies in
the General Fund
 Can be borrowed from to assist
General Fund ONLY by resolution with
payback plan
 Deficit
Deficit Spending
Spending

 Wisconsin local government cannot

operate in a deficit mode

 If insufficient funds exist to cover

expenses, local governments must
borrow to cover those deficiencies
 Cash
Cash Flows
Flows
 Cash flows must always be considered when
local governments expend funds

 Budgeted for does not mean the money is

available

 Property taxes come in two payments

 State shared revenues come in two

payments
 Cash
Cash Flows
Flows

Major purchases or expenditures must

be scheduled to coincide with points
when cash is available unless
borrowing is planned or a sufficient
reserve exists to cover the expenditure
 Reserve
Reserve
 Maintaining a General Fund reserve or
Contingency Fund is essential to cover
unplanned expenditures or when an
expenditure cannot wait for a revenue
payment

 A common rule for General Fund reserve or

Contingency is six (6) month’s normal
operating expenditures
 Undesignated
Undesignated or
or “Slush”
“Slush”
Funds
Funds
 In local governments, all incoming revenue
must be shown in budget documents and
assigned to a fund

 All expenditures must be accounted for

under the budget

 “Slush Funds” are not allowable

 Debt
Debt
 Borrowing money for major purchases
and projects is as essential for most
local governments as it is for the
average citizen
 Borrowing should be according to a
plan (capital improvement, strategic,
etc.) and managed
 Local
Local Government
Government Budgets
Budgets

 Section 65.90 of Wisconsin Statutes

REQUIRES local governments to produce a
budget

 Some other states allow the passage of an

appropriation ordinance in lieu of a budget
but this is not allowed in Wisconsin
 Budgets
Budgets

The preparation and approval of a budget

is probably the single most important
duty of local government officials
because it determines what services
will be provided, to what extent they
will be provided, and how they will be
funded. This affects every citizen in
their community.
 Official’s
Official’s Responsibility
Responsibility
 Local government officials have a
fiduciary responsibility to manage
public funds in the most responsible
manner their abilities and the local
situation allow

 Misuse of public funds is the most

frequent cause for public official
indictments
Local
Local Government
Government Budgets
Budgets

Local Government Budgets are

normally organized according to
Governmental Accounting
Standards Board (GASB)
recommendations.
www.gasb.org
 Local
Local Government
Government Budgets
Budgets

Budgets, like all aspects of the

government finance and accounting
system, should also comply with
Generally Accepted Accounting
Principles (GAAP)
 What
What is
is the
the Purpose
Purpose of
of aa
Budget?
Budget?
 An accounting document (record & control
expenditures)
 A management document (determines who
can spend how much)
 Decision-making document (basis for sound
decision-making by council & staff)
 Communications document (informing public
of how their money is being spent)
 Budget
Budget Approaches
Approaches
 Line-Item Budgets

 Program Budgets

 Performance Budgets

 Zero-Based Budgets
 Line-Item
Line-Item Budgets
Budgets
 Most common format

 Connects & reports information on inputs

used to produce government services

 Emphasizes control & oversight

 Downplays trust, communication & flexibility

Line Item
Operating
Budget
 Line-Item
Line-Item
GENERAL FUND FY 09/10

100
Administration Dept 100

Description FY04 Budget FY04 Actual FY05 Budget FY05 Project FY06 Budget Comments

101 Wages & Salaries $1,463,450 $1,461,320 $1,513,880 $152,420 $1,609,210

Board directed
101-1 City Manager $82,000 $82,000 $84,525 $84,525 $95,000 increase

Increase per labor

101-2 Office Staff $46,000 $46,293 $47,000 $47,442 $49,816 contract

Secretary $12.75 per hour $26,520

Insurance clerk $11.20 per hour $23,296

Total $49,816

Total $108,000 $108,293 $111,525 $111,967 $114,816

102 Benefits
 Program
Program Budgets
Budgets
 A Program Budget allocates money to major
program areas or activities rather than to
specific line items

 More centralized than other approaches

 Focuses on program goals

 Examines all alternatives that may achieve

program goals
 Program
Program Budgets
Budgets

Program budgets include both revenue and expenses

for the major activities of an organization. Helps
managers focus on sources of profits and losses of
programs that could be expanded or discontinued.
($000’s) Oncology Rhinoplasty Cardiac Total
Revenues $40,000 $ 8,150 $50,000 $ 98,150
Expenses 37,000 17,000 46,000 100,000
Profit/(Loss) $ 3,000 $(8,850) $ 4,000 $(1,850)
 Program
Program Budgets
Budgets
 Program budgets allocate money to major
program areas or activities rather than
specific line items
 A Police Department might be broken down
as such:
1. Administration
2. Patrol
3. Investigation
4. Community support
Instead of by line items
 Program
Program Budget
Budget Challenges
Challenges
 Goals can be difficult to formulate and
define
 Goals are subject to change; program
structure must be changed in response
 Sometimes difficult to obtain objective
measures of benefits
 Can be difficult to determine inter-
program efficiency
 Performance
Performance Budgeting
Budgeting

 Under a performance budget approach,

a program budget format is adopted to
the existing organizational structure

 A performance budget is essentially a

program budget with performance
measurement methodology used to
make budget decisions.
 Performance Budgeting
 Initiative in budget preparation lies with
performance unit
 Government activities are divided into major
functions
 Each activity must yield an identifiable
output
 Management, administration, and overhead
costs are distributed among the various
activities of the performance unit
 Purposes
Purposes of
of Performance
Performance
Budgeting
Budgeting
 Better evaluates results of program
operations
 Provides decision-makers and public
with better information on quality of
public services
 More popular as citizens lose
confidence in government
 Zero-Based
Zero-Based Budgeting
Budgeting

Zero-Based Budgeting (ZBB) organizes

information into decision packages, i.e.
incremental spending levels that reflect
varying levels of effort and costs
 Zero-Based Budgeting
In theory, each department prepares at
lest three (3) packages:

 A base-level, meeting the program’s minimum

requirements

 Current-level funding

 Enhanced package – to address unmet needs

 Zero-Based Budgeting
 Packages from all departments are then
ranked according to perceived need for
the package

 Unlike PBB, which uses more objective

criteria, ZBB relies on subjective
judgment of decision-makers in ranking
packages
 Incremental
Incremental vs.
vs. Zero-Based
Zero-Based
Budgeting
Budgeting

Incremental budgeting starts with current

revenues and projects next year by
adjusting for inflation, volume,
efficiency, technology, etc.
 Incremental
Incremental vs.
vs. Zero-Based
Zero-Based
Budgeting
Budgeting
Zero-Based Budgeting:
 calls for a total re-evaluation of all
programs and activities
 requires that decision packages be prepared
for each separable activity or level of activity
 Ranks the packages

 Selects packages for adoption or rejection

 Why
Why the
the “zero”
“zero” in
in ZBB?
ZBB?
 In theory, decision-makers conduct an
annual evaluation on each program’s
purpose and priority, weighing it against all
other spending possibilities
 As a result, decision-makers may decide not
to renew funding for existing program and
shift those funds to another, possibly entirely
new, program
 In reality, this reallocation rarely occurs
 Local
Local Government
Government Budgets
Budgets
 Generally comprised of several separate sections:
1. Overview
2. Summary
3. Revenues
4. General Fund
5. Special Revenue Funds
6. Debt Service Fund
7. Capital Fund
8. Proprietary/Enterprise Funds
9. Fiduciary Funds
 OVERVIEW
OVERVIEW
Narrative
Narrative used
used to
to give
give the
the reader
reader anan
idea
idea of
of what
what the
the budget
budget hopes
hopes toto
accomplish,
accomplish, what
what is
is different
different from
from
last
last year’s
year’s budget,
budget, and
and any
any pertinent
pertinent
information
information not
not obvious
obvious inin the
the
budget.
budget.
 SUMMARY
SUMMARY
 Wisconsin Statutes REQUIRE the
summary to show the percentage
difference between the current budget
and proposed budget for:
1. General Property Taxes
2. Total Revenues
3. Total Expenditures
 REVENUES
REVENUES

Where the budget shows your projected

income for the coming fiscal year

Includes all anticipated incoming money

Don’t receive them all at beginning of the

year, funds come in incrementally
 REVENUES
REVENUES

Includes:
 Property tax revenue
 State Shared Revenues
 Fees for Services
 Sales tax revenue (where applicable)
 Anticipated grants, loans, etc.
REVENUES FY 07/08

Code 010
FY06 FY07 FY008
Description Budget FY06 Actual FY07 Budget Projected Budget Comments

011 New subdivision complete

Property Taxes $1,463,450 $1,461,320 $1,513,880 $152,420 $1,609,210 in 2006

012
State Shared
Revenues

General aids $1,187,204 $1,185,647 $1,199,250 $1,197,521 $2,014,415 Down 3% from FY 04/05

Transportation
aids $162,500 $165,770 $171,400 $169,340 $202,500

Total $1,349,704 $1,351,417 $1,370,650 $1,366,861 $2,216,915

013
Sales Taxes $750,000 $694,230 $750,000 $751,892 $1,250,000 New big box in 2006
014
Fines/Fees/Misc.

Police Fines $147,000 $189,655 $160,000 $231,400 $200,000

New Deer Haven
subdivision construction
Building Permits $245,000 $244,124 $250,000 $251,250 $260,000 starts

Parking Permits $55,000 $53,200 $55,000 $54,150 $55,000

Inspection Fees $85,000 $83,400 $85,000 $87,240 $90,000

TOTAL $532,000 $570,379 $550,000 $624,040 $605,000

015
Grants

For industrial Park

EDA Grant $0 $0 $0 $0 $250,000 infrastructure

From Homeland Security;

Meth Abatement $0 $0 $0 $0 $100,000 Drug Task Force

TOTAL $0 $0 $0 $0 $350,000

Grand Total $4,095,154 $4,077,346 $4,184,530 $2,895,213 $6,031,125

COMPUTING
COMPUTING THE
THE PROPOSED
PROPOSED TAX
TAX LEVY
LEVY
 Total Proposed Operating Expenditures and Reserves
 (Minus) Total Proposed Non-Property Tax Revenues =

 Proposed 2006 Operating Tax Levy

EXAMPLE: County X proposed expenditures -- $50 Mill.

- Non-Tax Revenues (State /Local) --38 Mill.

Proposed Tax Levy = $12 million

 Funds
Funds

 General Fund  Proprietary Funds

 Special Revenue  Fiduciary Funds
 Capital Project
 Debt Service
 General
General Fund
Fund

This is where your day to day operations

are budgeted
Payroll Small IT
purchases
Benefits Electricity
Office Supplies Vehicle repairs
Fuel
GENERAL FUND FY 05708

100
Administration Dept 100
FY05
Description FY04 Budget FY04 Actual FY05 Budget Projected FY06 Budget Comments

101
Wages & Salaries $1,463,450 $1,461,320 $1,513,880 $1,512,420 $1,609,210

101-1 Board directed

County Administrator $62,000 $62,000 $64,525 $64,525 $65,000 increase

101-2 Increase per

Office Staff $46,000 $46,293 $47,000 $47,442 $49,816 labor contract

$12.75 per
Secretary hour $26,520

Insurance $11.20 per

clerk hour $23,296

Total $49,816

Total $108,000 $108,293 $111,525 $111,967 $114,816

102
Benefits

102-1
Medical Insurance $26,500 $28,941 $30,000 $30,190 $32,880

2x$1,100 per
Family month $26,400

1x$540 per
Single month $6,480

Total $32,880

102-3 FICA $7,750

6.75% of total wages

102-4
Retirement $4,019

3.5% of total wages

TOTAL $26,500 $28,941 $95,760 $30,190 $44,649

TOTAL PERSONNEL
COSTS $134,500 $137,234 $207,285 $142,157 $159,465

FY05
Description FY04 Budget FY04 Actual FY05 Budget Projected FY06 Budget Comments

104-1
Office Supplies $2,000 $2,198 $2,000 $2,318 $2,000

105-1
Copier Maint.
Contract $3,800 $3,800 $4,000 $4,000 $4,200

Thermostat
107-1
will be
Fuel Oil reduced to 66
(Courthouse) $21,000 $21,420 $22,000 $23,120 $22,000 degrees

TOTAL $26,800 $27,418 $28,000 $29,438 $28,200

Grand Total $161,300 $164,652 $235,285 $171,595 $187,665

 Special
Special Revenue
Revenue Funds
Funds
“Insulated Departments”

 Library Systems -- Special Tax & Charges

 Public Health Dept. -- Special Tax & State

grants

 Highway Commission -- State Road Aids

 Capital
Capital Budget/Fund
Budget/Fund
The Capital Budget is where major
purchases and projects are planned
and budgeted for.
A common guideline is that any program
or purchase of a non-expendable piece
of equipment valued at over $10,000
should be listed as a capital budget
item
 Debt
Debt Service
Service
The Debt Service portion of a government
budget includes the payments of principal,
interest, and fees on loans, bonds, and any
other government debt.

Proper accountability of debt service is

essential for future borrowing.
DEBT SERVICE FY 07/08

Code 500
FY05 FY05 FY06 FY06 FY07
Description Budget Actual Budget Projected Budget Comments
501 2004
General Revenue For County
Bond $203,750 $203,748 $201,800 $201,801 $200,050 Courthouse addition

501-1
Principal $180,000 $180,000 $180,000 $180,000 $180,000

501-2
Interest $23,450 $23,448 $21,500 $21,501 $19,750

501-3 Fees $300 $300 $300 $300 $300

502 1998
Alternative Revenue Sewer Plant I & I
Bond $95,250 $95,247 $94,650 $94,562 $93,000 Progect

502-1 Note: Paid off in

Principal $87,500 $87,500 $87,500 $87,500 $87,500 2006

502-2
Interest $7,400 $7,397 $6,800 $6,712 $5,000

Higher fee for bond

502-3 Fees $350 $350 $350 $350 $500 closure
 Proprietary
Proprietary Funds
Funds

 Enterprise Funds

 Internal Service Funds

 Enterprise
Enterprise Funds
Funds

The portion of a budget supporting an

enterprise, such as a water & sewer
utility, a government owned electric
utility, or other specialized, restricted
use funds such pension funds
 Internal
Internal Service
Service Funds
Funds

 Motor Pool Equipment

 Health Insurance
 Fiduciary
Fiduciary Funds
Funds
 Public Pension Trusts
 Investment Trusts
 Private Purpose Trusts
 Agency Funds
 Managing
Managing the
the Budget
Budget

 Monthly budget reports

 Monthly expenditures should relate directly
to what proportion of the year has passed
 Major purchases made when planned and
cash flow allows
 Monitor cash flow closely
 Mid-Year review
 Managing
Managing the
the Budget
Budget

 Manage debt, plan for borrowing

 Investment plan
 Following the Capital Plan essential
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