Basic Course in Public BudgetingInstitute of Government

S.C. Association of Counties MeetingHilton Head – July 30, 2016

Jim Kirk, Executive DirectorGeorgia Tech Budget and Planning

jim.kirk@gatech.edu

S.C Association of Counties

Course Outline

I. Budgeting Basics

II. Budget and Finance Policies in Local Government

III. Operating Budget Process

IV.Capital Budget Basics

I. Budgeting Basics

S.C Association of Counties

Definition of Budget Process

The budget process consists of activities that encompass the development, implementation, and evaluation of a plan for the provision of services and capital assets.

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S.C Association of Counties

Mission of Budget Process

The mission of the budget process is to help decision makers make informed choices for the provision of services and capital assets and to promote stakeholder* participation in the decision process.

* stakeholders - citizens, businesses, customers & others affected by budget

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S.C Association of Counties

Basis and Guidance for County Budgeting

1. South Carolina Budget/Finance Requirements

– S.C. Constitution (link)

– S.C. Code of Laws (link)

2. Generally Accepted Accounting Principles/ Budgeting Guidelines for Governments

– Governmental Accounting Standards Board (GASB) –authoritative standards

– Government Finance Officers Association (GFOA) –guidance on best practices in governmental finance

– Government Finance Officers Association of South Carolina (GFOASC) – training/networking

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S.C Association of Counties

S.C. Constitution Budget Requirements

• "Each political subdivision... shall prepare and maintain annual budgets which provide for sufficient income to meet its estimated expenses for each year.

• Whenever it shall happen that the ordinary expenses of a political subdivision for any year shall exceed the income of such political subdivision, the governing body of such political subdivision shall provide for levying a tax in the ensuing year sufficient, with other sources of income, to pay the deficiency of the preceding year together with the estimated expenses for such ensuing year."

(SC Constitution Article X, Sec.7(a))

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S.C Association of Counties

S.C. Code Requirements for Counties

• §4-9-130 Public hearing requirement prior to adopting annual operational and capital budgets

• §4-9-140 Basic budget requirements:

– Fiscal Year July 1 through June 30

– Council adoption by beginning of year

– Budget to include all revenue sources

– Council must provide for levy of taxes

– Supplemental appropriations adopted in same manner as initial budget

– Council may require reports/estimates/statistics from any county agency

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S.C Association of Counties

S.C. Code Requirements for Counties

§4-9-630 Council-Administrator form

§4-9-420 Council-Supervisor form

§4-9-310 Council form

§4-9-830 Council-Manager form

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S.C Association of Counties

Requirements for Council-Administrator Form

S.C. Code SECTION 4-9-630. Powers and duties of administrator.

The powers and duties of the administrator shall include, but not be limited to, the following: [excerpts]

(4) to prepare annual operating and capital improvement budgets for submission to the council and in the exercise of these responsibilities he shall be empowered to require such reports, estimates and statistics on an annual or periodic basis as he deems necessary from all county departments and agencies;

(5) to supervise the expenditure of appropriated funds;

(6) to prepare annual, monthly and other reports for council on finances and administrative activities of the county;

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S.C Association of Counties

GASB* Budget Principles

1. An annual budget should be adopted by every governmental unit.

2. Accounting system should provide basis for appropriate budgetary control.

3. Common terminology and classification used consistently throughout budget, accounts, and financial reports of each fund.

* Governmental Accounting Standards Board

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S.C Association of Counties

Governmental Budgeting by Fund

• Fund = self-balancing set of accounts that are segregated – as required by law or GAAP

• Fund accounting and budgeting required for public organizations

• Fund types:– Governmental – General, Special Revenue, Capital

Projects, Debt Service– Proprietary – Internal Service, Enterprise– Fiduciary – “Trust and Agency”

• Funds held on behalf of individuals or other organizations

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S.C Association of Counties

Budgeting and Accounting by Fund

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Governmental Funds

S.C Association of Counties

Steps in Budget Process

1. Preparation and Planning

2. Legislative Review & Approval

3. Budget Execution

4. Financial & Performance Audit

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S.C Association of Counties

Basic Terminology

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• Operating Budget

• Capital Budget

• Executive Budget

• Appropriation/“Budget Ordinance”

• Supplemental Appropriation

• Allocation

• Line Item Budget

• Program Budget

S.C Association of Counties

Government Finance Officers Association (GFOA)

• Mission:

– “The GFOA mission is to enhance and promote the professional management of governmental financial resources by identifying, developing, and advancing fiscal strategies, policies, and practices for the public benefit.”

• Training and conferences

• Award programs

– Financial Reporting Certificate – http://www.gfoa.org/coa

– Budget Presentation Award – http://www.gfoa.org/budgetaward

• Low cost publications on all financial management topics -http://www.gfoa.org/publications (link)

• Elected officials guide series -http://www.gfoa.org/series/elected-officials-guides

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S.C Association of Counties

Recommended Best Practices: Financial Management and Budgets

• GFOA Recommended Practiceshttp://www.gfoa.org/best-practices

• National Advisory Council on State and Local Budgeting (NACSLB)GFOA Docs\NACSLB-GFOA-RecommendedBudgetPractices.pdf

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III. Budget and Finance Policies in Local Government

S.C Association of Counties

Vehicles for Establishing Policies

• Ordinances/Laws

– Permanent Ordinances/Laws

– Appropriation Act/ Budget Ordinance(expires at end of fiscal year)

• Resolutions

• Finance/Budget Manuals

– Policies

– Procedures

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S.C Association of Counties

Ordinances Versus Resolutions

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Ordinance: (a) local law or statute adopted by governing body to establish a permanent rule of action and conduct; (b) ordinance continues in force until it is repealed (except budget ordinance); (c) appropriations and borrowing approved by ordinance

Resolution: a formal statement of opinion or determination made by governing body. Actions of governing body that are not ordinances are resolutions - generally dealing with matters of special or temporary nature.

S.C Association of Counties

Example Fiscal Policies

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• Fiscal/Tax Years

• Budget Submission: Who/When

• Department Head Duties

• Specifies Funds

• Balanced Budget

• Budget Message

• Budget Adoption Process

• Public Availability of Budget

• Public Hearings

• Certification & Distribution of Budget

S.C Association of Counties

Example Fiscal Policies

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• FY-End Lapse of Appro-priations & Surplus

• Contingent (reserve) funds

• Policy on deficits• Supplemental

Appropriations• Capital Budgets

• Proprietary Fund Budgets

• Fees for Service• One-time Revenue• Allocations/Transfers

– between funds– between

departments– within departments

S.C Association of Counties

Fiscal Policies – Examples

• Permanent Ordinance

–Greenville County

• Budget Ordinance

–Horry County

• Financial Policies and Procedures

– Sumter County Georgia

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III. Operating Budget Process

S.C Association of Counties

Recommended Approach to Budgeting

• Budget Preparation and Management Style:

– Participative management: department staff, citizens, other stakeholders

• Rationale:

– Better match of budget to community needs

– Improvement in quality of budget estimates

– Political support for budget and revenue measures needed to balance budget

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The Framework: Parallel Development of Work/Service Plans and Budgets

Legislative review and approval

Service/work plans Approval of annual budget

Executive review and proposal to legislative bodyPresentation of work/service

plan for entire entityPresentation of executive

budget linked to service plan

Preparation and PlanningStaff/department work/service

plans developmentStaff/department budget

proposal

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NOTE: This “bottom up” planning/budgeting process should be conducted within the framework of the strategic goals and vision established by council.

Audit and review

Performance review by staff reporting to chief executive

Financial audit

Execution by chief executive and staff

Implementation & monitoring progress of service plans

Execution and monitoring of approved budget

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The Framework: Parallel Development of Work/Service Plans and Budgets

S.C Association of Counties

Basic Budgeting Approaches

• Line Item – focus on objects of expenditures– Personal services – Supplies/materials– Equipment – Contractual services– Travel – Utilities

• Program/Activity Budget – focus on services delivered and benefits to citizens

• Incremental Budgeting• Zero-Based Budgeting• Reallocation of Resources – resources shifted

from lower to higher priority programs• Results (Performance)-Based Budgeting

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Typical County Budget Cycle (Richland County example)

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S.C Association of Counties

Council Review of Budget

What’s Helpful to Council and Citizens for Budget Review?• Clear budget message:*

– #P3. Mandatory: The document shall include a budget message that articulates priorities and issues for the upcoming year. The message should describe significant changes in priorities from the current year and explain the factors that led to those changes.

– #C2. Mandatory: The document should provide an overview of significant budgetary items and trends.

• Agenda for budget review; key revenue and spending choices for council

• Overview of long-range financial and economic situation*

– #F7: The document should explain long-range financial plans and its effect upon the budget and the budget process.

• Work sessions - early in process

• Use of council committees for budget review

– Possible involvement of citizen representatives in committees

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*NOTE: Excerpts from GFOA distinguished budget award criteria

S.C Association of Counties

• Comprehensive - all funds

• Focus on means ($) and ends (services)

• Non-technical overview - budget message and summaries

• Financial projections for future years

• Multi-year historical comparisons

• Controllable vs. non-controllable expenditures identified

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An Effective Budget Document

S.C Association of Counties

An Effective Budget Document

• Highlights options and policy issues• Links to accounting, personnel, and

performance monitoring systems• Prior year actual - from financial stmnts.• Various formats for different audiences

including web-based presentation• Good use of graphics• Linkage to capital improvement program

and capital budget

Example – Richland County

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S.C Association of Counties

An Effective Budget Document - Examples

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S.C Association of Counties

An Effective Budget Document - Examples

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S.C Association of Counties

Council Review of Budgets – Some Critical Questions

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• Does budget meet community needs and Council priorities?• What will the budget “buy?”• Expenditure and revenue trends?• Economic outlook? • Reserve funds available and adequate for unexpected

circumstances in revenue and expenditures?• Budget economical?• User fees employed to their fullest? • Grants or other alternate revenue sources to be considered?• New proposed positions justified? Alternatives?• Redistribution of funds among programs from lower to higher

priority programs? Impact of shifts on citizens/staff?

A Challenge: What’s policy vs. Administration?

S.C Association of Counties

Use of Decision Packages for Budget Review

• Tool applied in zero-base budgeting to:– Examine incremental changes to base budget: cuts

& increases– Identify impacts on services to citizens/ customers

of various funding levels – e.g. 105%, 95%– Identify alternate ways of “doing business”

• Packages by program – “decision unit”• Packages ranked by chief executive for presentation

to legislators• Performance impacts of changes identified using

efficiency and effectiveness measures – Business case made for (or against) change

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Example Decision Package – GT

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Division

Total Division Reduction Fiscal 2017 $134,800 Reduction

Target*$134,800

Projected Budget Impact

Priority* Program Reduction Actions (add rows if necessary) Fiscal 2017 Fiscal 2018 Fiscal 2019

1 Adobe Digital Publishing Suite $50,000 $50,000 $50,000

2Dir-Research & Analysis re-evaluation to Dir-

Communications Digital Strategy (position currently vacant)$8,664 $8,664 $8,664

3Dir-Research Communications re-evaluation to adjust job

duties to lower paygrade (position currently vacant)$17,050 $17,050 $17,050

4Moving from print to digital for The Whistle and the

President's Annual Report$59,086 $59,086 $59,086

Total Reductions $134,800 $134,800 $134,800

* Assign priorities to actions according to the most likely to the least likely to be employed to meet reduction targets.

FY17 Program Reduction Proposal @ 3%

Institute Communications (740)

Formula - FY17 total

reductions* 3% of FY16

RI/Gen Oprns budget(cell H5)

Example Decision Package – GT

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1

2

3

4

With the resignation of the Dir-Research Communications staffer this year, Institute Communications

believes the job duties of the position can be reclassified to better reflect the needs of the office of the

Executive Vice President of Research. Previously, the position dealt almost exclusively with the IRIs. This

did not leave as much time to assist the EVPR with the support needed for writing and presentations.

EVPR and IC are asking Strategic Consulting to do an assessment of what support is needed in

communications and marketing and the right skillsets going forward.

The Whistle and the President's Annual Report are two publications that Institute Communications

believes could move from a print to a digital format. While there are certain departments with staff who do

not have daily access to a desktop computer, those staffers almost always have the technology needed to

view a digital copy of The Whistle. Another option would be to reduce the printing of The Whistle from a bi-

weekly to a monthly or quarterly publication. Suggested issue topics for quarterly issues could be open

enrollment, strategic plan update, President's update, and year-in-review.

Impact Statement: Describe the impact of each of the actions listed above. Include a projection of the impact of

actions on performance measures on the next page, if these help define the impact of the measures (refer to reduction

measure priority numbers). Add rows to match reduction actions if necessary.

In 2014 Georgia Tech entered into a three-year contract with Adobe Systems for the use of its Digital

Publishing Suite (DPS) application. The total yearly cost was $100K, which was split between Institute

Communications and Professional Education. The DPS application did not ultimately meet the needs of

Professional Education or Institute Communications and both offices have determined to not renew the

contract. Institute Communications will focus its efforts on alternative means of publishing its content to

tablet and other digital devices.

With the retirement of the Dir-Research & Analysis staffer this year, Institute Communications believes the

position can be reclassified to a Dir-Communications Digital Strategy. This position would work in

conjunction with Institutional Research & Planning to handle any high level market research & analysis.

Additionally, the new position would be better suited to produce the analytics needed for our Web and

media relations efforts.

S.C Association of Counties

Suggested Criteria for Ranking Budget Requests

1. Health and safety hazards addressed2. Federal/state mandate (e.g. FLSA changes)3. Consistency w/ governing body’s policy

directions and strategic plan4. Benefit to community - # of people served5. Offsetting revenue/ cost avoidance6. Long-range cost avoidance – primary and

secondary prevention7. Benefit to internal customers - # of agencies

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IV. Capital Budgeting Basics

S.C Association of Counties

Definitions – Capital Planning and Budgeting

• Capital or Fixed Asset• Capital Improvement Plan• Capital Projects• Capital Budget• Capital Projects Fund• Proprietary Fund

– Enterprise Fund – Internal Service Fund

Question: What’s a “major” capital expenditure that belongs in the capital budget?

S.C Association of Counties

Categories of Capital Expenditures

• Land

• Buildings

• Building renovations or expansions

• Other improvements to land

• Equipment, machinery, and furnishings

NOTE: expenditures in these categories that meet the minimum cost criteria

S.C Association of Counties

Capital Budget Versus Operating Budget

• One-time versus recurring

• Operating budget - predominantly personal services; capital budget - mainly contractual services and equipment purchases

• Operating budget - appropriations lapse at end of fiscal year; capital budget -appropriations lapse at end of projects

S.C Association of Counties

Why Long Range Capital Planning?

1. Comprehensive consideration of projects

2. Competition among projects enabled

3. Available funding sources and timing considered

4. Consideration of:

– long range ability to pay for capital costs

– ability to pay for operating costs following completion of projects

S.C Association of Counties

Why Long Range Capital Planning?

5. Input from citizens and other “stakeholders”

o Development of citizen and business support for capital plans

6. Essential to credit/bond rating

7. Project coordination

8. Timing of bond issues

S.C Association of Counties

Greenville County Capital Planning Process

Sample CIP

S.C Association of CountiesCapital Planning Course

October 2015

Borrowing Terminology

• Bonds

• General obligation (GO) bonds

• Tax anticipation notes (TANs)

• Bond anticipation notes (BANs)

• Revenue bonds

• Term

• Bond referendum

• Tax increment financing

• Defeasance (redemption or refunding)

S.C Association of Counties

SC Constitution – Bonded Indebtedness Political Subdivisions (Article X, Sec 14)

• Local GO and revenue bonds authorized

• 40 year term limit

• 8% cap or bond referendum

• TANs and BANs permitted

• Tax increment financing permitted

S.C Association of Counties

SC Code of Laws – Local Governments

• Tax exemption

• Capital budget and ordinance required

• 40 year term limit

• Public sale with exceptions

• GO bond cap of 8%

• Revenue bonds authorized

• BANs

• Municipal and county improvement districts

• County Public Works Improvement Act

• Tax increment bonds

Reference: Counties – Title 4

S.C Association of CountiesCapital Planning Course

October 2015

GFOA Best Practices

• Selected debt management best practices

– Debt management policy

– Selecting and managing method of sale of state and local government bonds

– Selecting and Managing the Municipal Advisors

– Selecting Bond Counsel

– Selecting Underwriters for Negotiated Bond Sales

– Pricing Bonds in a Negotiated Sale

S.C Association of CountiesCapital Planning Course

October 2015

GFOA Best Practices

• Selected capital planning best practices

– Multi-year capital planning

– Incorporating a Capital Project Budget in the Budget Process

– Asset Management and Replacement

– Presenting the Capital Budget in the Operating Budget Document

S.C Association of CountiesCapital Planning Course

October 2015

Methods to Improve Bond Rating

• Rainy day fund

• Analysis of economic & revenue trends

• Reserve/contingency for shortfalls

• Formal CIP process

• Use of debt affordability model

Source: S&P

S.C Association of CountiesCapital Planning Course

October 2015

Methods to Improve Bond Rating

• Pay as you go

• Multi-year financial forecasts

• Management systems

• Fiscal impact reviews

• Economic development strategy

• Long-term liabilities planning