Financial Management

June 14, 2019

One of the most important roles of the city clerk is to monitor and evaluate the city’s financial condition to insure the city is being fiscally responsible with taxpayer dollars.
The Governmental Accounting Standards Board (GASB) is an independent organization that establishes financial and accounting reporting standards for state and local governments that follow Generally Accepted Accounting Principles (GAAP). GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information and transparency of local government spending.  Local governments are required to prepare financial reports under GAAP.

Governments use fund accounting to account for and report the financial activities occurring within the government.  Each fund has a distinct purpose focused on accountability rather than profitability.  Governments may have multiple funds and each fund maintains its own set of financial records.

Funds are classified into three categories:
 
Governmental Fund Types
General Fund

Special Revenue
  • Hotel Motel Tax
  • Grants
Capital Project
  • SPLOST
  • TSPLOST
Debt Service

Permanent Funds
Proprietary Funds
Enterprise Funds
  • Water & Sewer
  • Electric
  • Telecom
  • Natural Gas
  • Airport
Internal Service Funds
Feduciary Funds
Agency Fund
  • Court Fund
Trust Funds
  • Pension Trust Funds
 
The funds within the governmental category are accounted for on the modified accrual basis of accounting.  Modified accrual accounting recognizes revenues when they become available and measurable and, with a few exceptions, recognizes expenditures when liabilities are incurred. 
The proprietary and fiduciary funds are reported on the accrual basis of accounting, which is a method of accounting that recognizes expenses when incurred and revenue when earned rather than when payment is made or received.
 
Uniform Chart of Accounts
By state law, municipalities must adhere to the Local Government Uniform Chart of Accounts and Reporting Act, O.C.G.A. §36-81-3(e).  The law requires all municipalities to account for and report on the use of financial resources in a consistent and uniform format. Doing so allows comparability of financial information among local governments.  A review to compare the city’s chart of accounts to the state-approved Local Government Uniform Chart of Accounts will determine the city’s compliance with the law.

For more information about the requirements of the Local Government Uniform Chart of Accounts and Reporting Act, visit the Georgia Department of Community Affairs website or go directly to the Third Edition of the UNIFORM CHART OF ACCOUNTS. 
 
Budgets and Georgia Law
A city’s budget is one of its most important documents.  A budget sets the path for the current fiscal year and with boundaries for spending based upon anticipated revenue.  Think of a budget as plan of action with limits and controls.

City Clerks often play a large part in the budget process and should become familiar with the city’s charter, ordinances, and policies related to budgeting as well as the state law found in O.C.G.A. §36-81-1 et seq.

GMA’s A Budget Guide for Georgia’s Municipalities gives a detailed account of the budget process and several methods of budgeting. For clarification about specific legal issues related to your city’s budget process, please consult with your city’s finance or budget officer or your city attorney.

State law requirements include:
  • Governing Authority shall establish the city’s fiscal year by ordinance or resolution; O.C.G.A. §36-81-3(a).
  • Budget Officer prepares proposed budget; O.C.G.A. §36-81-5(a) with anticipated revenue by source and amount budgeted for expenditures at the legal level of control (department level) as a minimum requirement.O.C.G.A. §36-81-5(b).
  • Upon submitting the proposed budget to the governing authority, it shall be made available to the public and to the press upon request.O.C.G.A. §36-81-5(d).
  • A statement shall be placed in the newspaper during the week the proposed budget is submitted to the governing authority on the availability of the proposed budget and advising the public of the hearing date, time and location.The notice shall be published (not in legal section) at least one week prior to the public hearing.O.C.G.A. §36-81-5(e).
  • The budget hearing shall be held at least one week prior to the public meeting date where the proposed budget will be considered for adoption.O.C.G.A. §36-81-5(f).
O.C.G.A. §36-81-3
  • Each unit of local government shall operate under an annual balanced budget (anticipated revenue and appropriated fund balance equals expenditures) for the general fund, each special revenue fund and debt service fund.
  • Each unit of local government shall adopt by ordinance or resolution and operate under a project length balanced budget for each capital project fund in use.
  • Budgets shall be adopted by ordinance or resolution. This does not preclude adopting an annual budget for each enterprise, fiduciary or other funds.
  • Any increase in appropriation at the legal level of control whether through a change in revenue or through a transfer of funds between departments must be approved by the governing authority through a budget amendment resolution or ordinance.
  • Transfers of appropriations within any fund below the legal level of control (department level) can be made by the budget officer.
  • The governing authority may establish a more detailed level of budgetary control at any time.
Read the full Georgia law.

Review your city’s charter and any financial management ordinances and policies to determine the city’s budget process.  If the city does not have a budget policy, it would be beneficial to have one adopted by the governing authority.  A sample budget policy can be found on the Government Finance Officers Association website at www.gfoa.org/best-practices.
 
Budget Process
Outside of any specific legal requirements and frameworks, it’s left to cities how they want to approach developing, preparing, implementing, and executing their budgets. It’s recommended that cities develop a budget action plan, stick to a budget calendar, and prepare a budget information manual that includes all key information as the budget is being developed.

Review the city’s strategic goals, comprehensive plan and service delivery plan as part of the budget preparation phase.  Citizen engagement results can be used to help prioritize the city’s short term and long-term projects of the city.  Some cities have created citizen advisory councils to assist in the formulation and development of a city budget.  Whatever process is used by the city, it should be included in the city’s adopted financial policy.

Involve department heads and develop expenditure request forms that ask for specific information needed for the budget. These forms make it easier for department heads to fill out information and keeps budget information consistent across all areas of the city.  More information can be found in GMA’s  Budget Preparation for Small Cities video.

Follow a budget calendar to keep the process moving and it can serve as a reminder for upcoming tasks in compiling the budget.
 
Sample Budget Calendar
 
FISCAL YEAR 2017 BUDGET CALENDAR
Phase 1
STRATEGY FORMULATION (FY 2017 BUDGET PREP DISTRIBUTION)
July 19
FY 2017 Budget request worksheets, instructions, and guidelines are distributed to department heads.
FY 2017 Budget templates made available in the accounting system for use by department heads.
Phase 2
NEEDS ASSESSMENT, REVIEW & DEVELOPMENT OF FY 2017 BUDGET
September 2
FY 2017 Budget request are completed in accounting system; Documentation submitted to Finance Officer.
Revenue Estimates are completed.
September 5 - September 16
The City Manager & the Finance Officer review Departmental FY 2017 budget requests and make any adjustments deemed necessary.
September 19 – September 23
The City Manager & the Finance Officer hold conferences with the department heads to finalize any changes with the individual budgets.
September 26 - October 7
Finance Officer assembles budget requests, compares with revenue estimates, and compiles the budget document.
Phase 3
CITY COUNCIL BUDGET DISCUSSIONS & FINAL BUDGETARY DECISIONS FOR FY 2017
October 17
FY 2017 Budget workshop held with council to review the budget and incorporate any changes into the budget document.
November 12
Final proposed budget submitted to council and made available to public by notice to media.
Advertise FY 2017 Budget information and availability along with date, time and location of public hearing and date, time and place where proposed budget will be adopted. (Send ad to the paper)
November 21
Prepare copies of proposed budget for public hearing.
Phase 4
ADOPTION & IMPLEMENTATION OF FY 2017 BUDGET
November 21
FY 2017 Mayor and Council perform final review.
Public Hearing on proposed budget held.
November 28
Make changes to proposed budget based on input at public hearing.
December 5
FY 2017 Budget – Adopt FY 2017 Resolution at council meeting.
December 6
Print final Budget Document and send copies to department heads and council members.
January 1, 2017
FY2017 Budget is in effect

Budget Formats
Think of a budget as a way not only to communicate financial health and responsibility, but also as a way to communicate a city’s goals and objectives. A city’s budget should reflect upcoming needs of each department as well as the goals, objectives, and priorities for the coming year. The city’s general fund budget must be a balanced budget which means total anticipated revenue should equal the proposed expenditures.

There are a variety of budget formats that can help your city communicate its needs and goals.
  • Line-item budget: The most common budget format that cities use, a line-item budget, features an annual anticipated revenue and expenditure amount for each general ledger account classification.
  • Program budgeting: This type of budget format ties revenue and expenditures to goals and objectives instead of specific line items.
  • Performance budgeting: This type of budget format works like program budgeting while also tying projected expenses to performance.
  • Zero-based budgeting: This budget format makes all department heads suggest different increased funding levels—including what it looks like if there is no increase in budget for the upcoming year. Zero-based budgeting information allows city administrators and elected officials to prioritize budget increases by viewing the projected impact of different funding levels.
  • Priority-based budgeting:  Evaluates the relative importance of individual programs and services rather than entire departments. It is distinguished by prioritizing the services a government provides, one versus another.
Monthly budget reports serve as useful tools in monitoring spending and tracking revenue due to the city. The budget is the approved document for spending and should be adhered to unless amended. It is a recommended practice to submit monthly budget reports which include budget amounts, monthly totals, year-to-date totals and variance percentage to the governing authority and each department director. 

Budget workshops and mid-year budget reviews will help educate elected and appointed officials on the city’s current financial condition related to budgetary needs.  Workshops and budget reviews also provides an opportunity to explain any shortcomings in revenue or anticipated increases in expenditures.
 
Budget Amendments
Any increase in appropriation at the legal level of control requires the approval of the governing authority by ordinance or resolution.  The increase can be made by changes in anticipated revenue or through a transfer of appropriations among departments. The minimum level of control shall be at the department expenditure level but can be set at a higher level by the governing authority at any time. 
Transfers of appropriations within any fund below the legal level of control (department expenditure total) shall only require the approval of the budget officer.
 
Setting the Millage Rate
  • O.C.G.A. §48-5-32: Requirements for setting millage rates, and the “Property Taxpayer’s Bill of Rights Law,” Revenue Rule 560-11-2-.58.
When preparing the city’s annual budget, it is important to remember that setting the millage rate plays an integral part in the budget compilation.  Depending on your city’s fiscal year end date, it may be necessary to estimate the ad valorem tax revenue in the budget process until the county prepares and submits the county digest to the Department of Revenue for approval (required by September 1). The county digest includes all property as of January 1 of the current year. A consolidated summary sheet will be given to the city with the total assessed values to use in determining the city’s millage rate.

A city must publish a 5 calendar year history in the local newspaper and on the city’s website, if the city has one, at least one week prior to the meeting date to set the millage rate.  The report must include the immediate preceding 5 calendar years and current calendar year with the proposed millage rate.

The “Taxpayer Bill of Rights” imposes no additional requirements if the levying authority rolled back the millage rate to offset any inflationary increases in the digests. However, if the millage rate is not rolled back, the levying authority must notify the public that taxes are being increased.  This includes holding three public hearings and issuing a press release on the proposed tax increase.

The first step in determining whether the three public hearings must be advertised and held, and a press release issued is to compute a rollback rate using the roll‐back form developed by the Department of Revenue, PT32.1.

Information on setting the millage rate and notice requirements are located on the Department of Revenue website in the Compliance Guide for Advertising Digest History and Public Hearings of Increase in Taxes publication.
 
A Note on Budget Policies
Become familiar with the city’s budget policies to insure the current practice is consistent with city policies.  If not, recommend the policies be amended and replaced with current practice.
 
Financial Audit
Each unit of local government having a population in excess of 1500 or annual expenditures of $550,000.00 or more shall submit an annual audit of all funds for each fiscal year to the Georgia Department of Audits.  All other units of local governments are required to have an audit biannually or produce an annual report of agreed upon procedures as prescribed by the state auditor.  O.C.G.A. § 36-81-7(a).

GASB (Governmental Accounting Standards Board) Statement 34 requires two levels of reporting:
  • Fund-level Financial Reporting: Cities report specifically about the important funds and in the aggregate about less important funds.
  • Government-wide Financial Reporting: Cities report about financial performance both in the fiscal year and projected over the long-term.
The annual audits are required to be completed and a copy of the report forwarded to the state auditor within 180 days after the close of the fiscal year.  In addition, a written plan for corrective action on the comments and the findings and recommendations in the audit report is due to the state auditor within 30 days after the audit report due date.  O.C.G.A. §36-81-7(d)(1).

State grant funds will not be distributed to any local government which has not provided the audits required by law within the preceding five years.  O.C.G.A. §36-81-7(d)(5).

Failure to report using generally accepted accounting principles (GAAP) will result in a qualified or adverse audit opinion and risk of losing QLG [Qualified Local Government] status.
Information and additional resources on audit requirements can be found on the Department of Audits and Account website.
 
Budget and Audit Reporting Requirements
State law requires the posting of budgets over $1 million in expenditures, the city’s police asset forfeiture report, and the financial audit on the Carl Vinson Institute of Government website within 30 days of the budget adoption and audit report due date.
 
Budget and Audit Resources
GMA’s A Budget Guide for Georgia’s Municipalities
GMA’s Navigating the Budget Process
Georgia Law on Local Government Budgets
Carl Vinson Institute complete list of city/county budgets
Savannah Budget Process and Budgets
Georgia Department of Audits – Local Government Resources
Sample forms, worksheets, budget calendar, notices, etc. can be found in GMA’s A Budget Guide for Georgia’s Municipalities
Check status for non-compliance with Department of Audits
Sample Financial Policies
Sample Budget Resolution
Setting the Millage Rate Webinar
Budgeting and Revenue Forecasting Video
Budget Preparation for Small Cities Video
Compliance Auditing in Georgia Counties and Municipalities
 

Recommended GFOA Resources

The Government Finance Officers' Association (GFOA) offers resources that can help in drafting a budget policy, including: REVENUE SOURCES   
Cities collect revenue from a variety of sources. These sources need to be clearly   identified in a city’s fund accounting system using the Uniform Chart of Accounts.    Revenue for the city may be found in the following areas:

GOVERNMENTAL FUNDS
Taxes
  • Property Tax: Municipalities tax both real property (such as real estate or a building) and personal property (moveable property such as motor vehicles, mobile homes, and heavy-duty equipment) through setting a millage rate which is applied to the property tax assessments for determining property tax or ad valorem tax revenue.
    • Public Utility Tax:  Distributed by Georgia Department of Revenue from taxes imposed on utilities, railroads and flight equipment.
    • Motor Vehicle Tax:  Ad valorem tax paid annually to the county tax commissioner for vehicles covered before TAVT.
    •   Title Ad Valorem Tax on vehicles purchased March 1, 2013 or later.
    • Mobile Home Tax: Ad Valorem Tax on mobile homes administered by the county tax commissioner.  O.C.G.A. §8-2-185.
    • Intangible Recording Tax:  Tax of $1.50 for each $500 or fraction thereof on long term notes secured by real estate.
    • Real Estate Transfer Tax:  Tax imposed at $1 on first $1,000 and 10 cents on each additional $10 on the conveyance of real property.  Distributed by the Clerk of Superior Court based on the millage rate and location of property.  
  • Sales and Use Tax
    • Local Option Sales Tax (LOST):
      • 1% sales and use tax used by counties and qualified cities to fund general government services.
      • City must provide at least 3 of the following services:water, sewer, garbage, fire, police or library for eligibility of receiving LOST.
      • LOST is renegotiated every 10 years and a new certificate of distribution submitted to the Department of Revenue by 12/31 of second year following the decennial census count.
      • Collected by the Department of Revenue and distributed monthly to counties and cities.
    • Special Purpose Local Option Sales Tax (SPLOST)
      • Additional 1% tax approved by voters for capital projects or for paying off debt.It may be for up to six years if there is an intergovernmental agreement.
      • Shared through Intergovernmental agreement between the county and cities representing 50% of the population.
      • Qualified city must provide 3 of 12 services.
      • Funds must be kept in separate bank account and spent on projects voted on in the referendum.
      • Annual progress report of projects must be published in the local newspaper.
    • Homestead Option Sales Tax (HOST)
      • Used to fund county services equal to revenues lost due to homestead exemptions.
      • Rockdale and Dekalb are the only counties that have a HOST.
    • Transportation Special Purpose Local Option Sales Tax (TSPLOST)
      • Voted on by region or single county for the purpose of transportation improvement projects.
      • May be a fractional or up to 1 cent sales tax.
    • Rapid Transit Sales Tax (MARTA)
      • 3 counties impose this tax to fund MARTA until voted to cease.
    • Education Special Purpose Local Option Sales Tax (ESPLOST)
      • Local 1% sales tax approved by the voters for the purpose of funding educational capital improvement projects.
  • Selective Sales and Use Tax: These taxes may include:
    • Hotel-motel taxes
      • Account for in a separate fund.
      • 3% – 8% tax on lodging which has specific uses based on percentage amount imposed.
      • Allowed on the first 30 days of continuous stay.
    • Alcoholic beverage excise and mixed drink taxes
      • Excise tax imposed by ordinance and paid by the distributor on deliveries.
      • Additional excise tax up to 3% may be imposed by ordinance on liquor by the drink and paid by the licensee to the city. O.C.G.A. §3-4-130
    • Excise taxes for renting/leasing a motor vehicle. O.C.G.A. §48-13-90
      • Up to 3% may be imposed by ordinance on rental/leased vehicles for up to 31 days.
      • Proceeds must be spent to promote industry, trade, commerce and tourism.
      • Tax scheduled to terminate no later than 12-31-38.
    • Excise taxes on energy
      • Local governments may by ordinance impose up to 2% excise tax on energy used in manufacturing. O.C.G.A. §48-13-112
  • Franchise Fees
    Fees paid by utility companies for the use of right-of-way.Most companies pass the fee along to the customer as a line item on their utility bill.
    • Electric – usually 4% of revenue from customers served within the city limits.
    • Natural Gas – formula used based on consumption and rates deriving around 3% of revenue from customers within city.
    • Telephone – 3% of revenue from customers in the city.
    • Cable TV – usually 5% of recurring revenue from customers in the city.
  • Business Taxes: These may include:
    • Occupation taxes – revenue generating tax which can be developed bythree methods or a combination of the three:.
      • Flat fee
      • Gross Receipts
      • Number of employees

      GMA’s Occupation Tax and Regulatory Fee publication provides information on occupation tax, regulatory fees, insurance license fees, financial institution tax and related license fees.
    • Insurance Premium Tax – Tax levy of 1% on life insurance companies based on gross direct premiums on policies of those residing within the city limits and levy of 2.5% on all other types of insurance companies.  Funds are distributed annually by the Insurance Commissioner based on a ratio of population to the state population and percentage of tax.   O.C.G.A. §33-8-8.1.
    • Financial Depository Institution Tax – Tax levy of up to 0.25% on financial institutions gross receipts.   O.C.G.A. §48-6-93.
Licenses and Permits
  • Alcoholic Beverage License
    • Beer
    • Wine
    • Distilled Spirits (liquor)
    • Caterers
    • Brew Pubs
    • Farm Wineries

    More information can be found in GMA’s “Distilling the Basics of Municipal Alcoholic Beverage Regulation”
    Manufacturer of distilled spirits and malt beverage regulations
  • Insurance Company License fees
    Insurance companies doing business in a city are required to pay a license fee which is based on population as outlined in state law. O.C.G.A.§33-8-
  • Regulatory Fees
    A fee imposed by local governments to offset the cost of regulating a business or profession.Regulatory fees cannot be used to raise revenue.O.C.G.A. §48-13-5.
  • Non-Business License Fees
    • Building Permits
    • Sign Permits
    • Zoning & Land Use
Culture and Recreation Fees
Event, activity or program fee charges for the recreation and cultural programs offered by the city.

Fines and Forfeitures
Municipal Court revenue from charges of the court for violations of municipal and state laws. 
  • Court-imposed fines
  • Bond forfeitures
  • Proceeds from the sale of confiscated property and/or money
Public Safety Service Charges
  • Special police services (such as accident reports or false alarms)
  • Special fire protection services (such as false alarms)
  • Detention and correction services
  • 9-1-1 charges
  • Ambulance fees
Intergovernmental Revenue
Intergovernmental revenue is revenue that comes to a municipality from another government entity such as the federal government, the state of Georgia, a county, or another source. This kind of revenue may include:
  • Federal government grants and payments in lieu of taxes
  • State government grants and payments in lieu of taxes
  • Local government unit grants, shared revenues, and payments in lieu of taxes
PROPRIETARY FUNDS
Proprietary funds may consist of:
  • Enterprise funds: Funds related to a service the city provides that operates like a business (such as utilities).
    • Sanitation
    • Water/Sewer
    • Electric
    • Natural Gas
    • Television/Cable
  • Other Enterprise Service Charges: These are charges for municipalities that own and run services that may include golf courses, airports, parking, transit, telecommunications, stormwater, etc.
  • Internal service funds: Similar to enterprise funds except that the city provides a service internally.
FIDUCIARY FUNDS
These funds are investments that can include things like agency, pension trust, private purpose trust, and investment trust funds.
For more information about funds and revenue sources, read Compliance Auditing in Georgia Counties and Municipalities from the Carl Vinson Institute of Government’s website and the Third Edition of the UNIFORM CHART OF ACCOUNTS.
 
Resources
GMA’s Handbook for Georgia Mayors and Councilmembers (Part Five: Financing and Revenues)
Carl Vinson Institute Online Training Courses
Carl Vinson Institute Local Finance Officer Certification Program Curriculum
GMA’s Municipal Revenue Administration Certificate Program
Georgia State University Center for State and Local Finance
City of Savannah Revenue Ordinance

Sample Financial Reports
Large city: City of Savannah
Medium city: City of Decatur
Small city: City of Toccoa

Financial Reporting and Audit Resources
Handbook for Georgia Mayors and Councilmembers
Local Government Audit Office Review Checklist
Local Government Audit Office Review Checklist - Addendum for Cost Sharing Pension Plans
Local Government Audit Report Transmittal Form
Local Government Audit Report Collection System Instructions
Audit and Accounting Resource Library
Georgia Government Finance Officers Association
Budgeting and Revenue Forecasting
Sales Tax Distribution
State Alcohol License

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