MRSC has joined with Toni Nelson, Small Cities Specialist, State Auditor's Office, Gayla Gjertsen, Finance Director, City of Tumwater, and Mike Bailey, Administrator of Finance and Information Services, City of Renton, to bring you the "Finance Advisor" column. The "Finance Advisor" will feature a new article each month with timely local government finance information and advice you can use.*

Budgeting

September 2006

By Toni Nelson, Small Cities Specialist, State Auditors Office

Two good indications that the budget season is upon us are the fact that the Municipal Research and Services Center (MRSC) has released its annual publication, Budget Suggestions and the Association of Washington Cities has just provided its annual “Introduction to Municipal Budgeting” workshops. Both of these are invaluable tools whether you are a multi-term council member or you are new to municipal government.

In Washington, the budget process is set by state law (Ch.35.33 RCW) for first- (under 300,000) and second-class municipalities and towns, and Ch. 35A.33 RCW for cities under the optional municipal code. (Ch. 35.32A RCW applies to cities with populations over 300,000). For most of you, budgeting is done annually.

Budgeting Basics

The budget process is typically thought of as a financial activity done to satisfy state law, however it is also the process of planning for the future. A city cannot implement any project, program or plan without a formally adopted budget ordinance that authorizes the appropriation. The budget planning process determines the types and levels of services that can and will be provided by the city given the resources available. Consideration should be given to all of the departments, programs and services provided by your city to determine whether or not there are sufficient resources to continue, maintain, expand or reduce those services.

Essential Elements Of The Budget Process

There are five elements of the budget process that are considered essential:

1. Establishing priorities (goal/vision statement) – to provide a sense of direction.
2. Determining capital needs to provide short and long term budgeting strategies.
3. Realistic revenue forecasting – based upon both qualitative and quantitative forecasting methods that use common sense tests, local resources and documentation as a basis for forecasting.
4. Budget proposals with level of service objectives – budget proposals that clearly reflect the priorities, goals and visions of the city.
5. Timely presentation of plans and financial data – adherence to the budget calendar and transmittal of financial data to the public, council and staff.

The budget process should allow decision makers to see how resources are being used to meet the goals and objectives of the community and that those objectives are balanced with the resources available to provide the required level of service.

Budget Calendar

As outlined above, there are some essential elements of the budget process that actually take place prior to the formal budget calendar beginning. Items 1 and 2 above are examples of those elements that are not included within the budget RCW citations (35.33/35A.33) but are critical to a successfully adopted budget. The budget calendar set by state law begins on the second Monday in September and ends with adoption of the budget ordinance by the last day of the fiscal year (December 31st). Between the beginning and the end is a plethora of activities that include data collection, revenue projection, budget estimates, public hearings and ordinance adoption. You can find this calendar in the Budget Suggestions publication released by MRSC in August of each year.

Budget Review, Presentation and Adoption

The preliminary budget must reflect the complete financial program of the city, showing the budget request by program/department and the sources of revenue proposed to fund them. The review phase of budgeting provides the opportunity to evaluate whether or not the budget proposals meet the goals and objectives of the city. It is also the time to assess whether available resources are sufficient to meet budget requests. The law states appropriations must be limited to total estimated resources. Upon completion of this phase of review, the budget document is ready to be presented to the public.

Cities must hold at least two hearings on the preliminary budget in addition to the final budget hearing that must be held on or before the first Monday of December. Upon completion of the public hearing phase, the city must adopt the budget document by ordinance prior to the beginning of the New Year (no later than December 31st).

Budget Season is Now

As you can see there is not much room for procrastination during the budget season. Within a twelve (12) week period the city will need to hold a minimum of three (3) public hearings on the budget document, plus an additional public hearing that is required for the setting of property tax levies. Attention to detail and keeping the city’s goals and objectives in mind will help you develop a budget that will meet the needs of the city and assure legal compliance.

Toni Nelson is the "Small Cities Specialist" for the Washington State Auditor's Office, providing both on and off site financial training and assistance to smaller cities and towns throughout the state. Ms. Nelson has been working with the Auditors office for 6 years and prior to that was the Clerk/Treasurer for a small town for 9 years. She has co-authored the "Small Cities Manual" a detailed reference guide for new clerk/treasurers on governmental accounting procedures and presents numerous training workshops throughout the state for AWC, WFOA, WMTA, WMCA and local/regional organizations such as EWFOA and SCWMCA. Ms. Nelson is also a member of and conference track coordinator for the WFOA Education Committee.

*The Articles appearing in the "Finance Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.