When developing the city’s budget, municipal elected and appointed officials work to allocate limited resources to provide services efficiently and effectively. The key factors that influence city budget development include strategic planning goals and objectives, departmental revenue and staffing limitations, mandated programs and services, and changes to service levels.
Examples of goals a city may have in budget development include:
- maintaining service levels without raising taxes
- cutting spending by a certain percentage across all departments or for specific programs
- increasing employee compensation to attract and retain qualified employees
- increasing parks and recreation service levels and enhancing green spaces.
Whatever the goals of the governing authority may be, departments and the budget officer must understand them so they can be taken into consideration during the budget process.
Capital Projects Budgeting
Local governments are required to adopt and operate under a project-length balanced budget for each capital project fund in use by the government. In addition to the statutorily required project-length budget, many cities prepare a five-year Capital Improvement Plan (CIP). Although the CIP is not required by law and not every city needs a CIP, it can be a useful tool, particularly if the city has multiple, multi-year capital projects that will require funding from a variety of sources (e.g., SPLOST, TSPLOST, bonds). The CIP is a helpful planning document that demonstrates future needs and can be used to guide decisions on how the city will pay for capital improvements over several years. To learn more about CIP and obtain guidelines for capital planning policies, visit the Government Finance Officers Association (GFOA) website
Proprietary funds are used to account for governmental activities that are similar to the private sector (e.g., a water utility). These “business-type” activities should bring in sufficient revenues to pay for themselves, and they should generate additional revenues or “make a profit”. These additional revenues are necessary and important because they pay for required maintenance and improvements that are essential to providing the service associated with the enterprise activity. Inadequate revenues will have to be subsidized by the general fund, thereby causing a drain on general tax revenues.
Fund balance is the difference of available funds after accounting for a government’s assets minus its liabilities and deferred outflows. Restricted fund balance is the portion of total fund balance that is either non-spendable or restricted for a particular use. Unrestricted fund balance is the portion of that total fund balance that is not restricted and commonly used in governmental budgets as a measure of the financial resources available. It is important to establish a policy governing the level of unrestricted fund balance in the general fund to plan for and alleviate current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates. More information and best practice resources can be found on the GFOA website