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Presented by:Marcy Twyman, CPA

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Firm:

Crawford & Associates, P.C.

10308 Greenbriar Place

Oklahoma City, OK 73159

Office:405-691-5550

Marcy:

Cell: 405-246-5243

marcy@crawfordcpas.com

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www.crawfordcpas.com

Useful Tools Tab◦ Budget tools◦ Accounting tools◦ Example policies and ordinances◦ Example reports

State Laws Tab◦ Summary and reference to state laws applicable

to municipal budgeting, accounting, and finance

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Overview of Oklahoma Government Overview of the Budget Process Budget Policies Legal Budget Requirements Budget Funding Sources Budget Balancing Debt and Spending Laws Budget Implementation Budget Closing

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A Snapshot of State and Local Government Entities in Oklahoma

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State of Oklahoma◦ Population 3.6 million◦ Approximately 175 departments, agencies,

commissions, authorities, or other related entities Oklahoma Local Governments◦ Approximately 1,880 local governmental entities◦ Counties – 77◦ Cities and towns – 585◦ School districts – 567◦ Other special districts and trust authorities - 651

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Of the 585 Oklahoma municipalities: 320 have population under 1,000 200 have population between 1,000 & 5,000 57 have population between 5,000 & 50,000 5 have population between 50,000 & 100,000 Lawton, Broken Arrow, Edmond, Midwest City, Moore

3 have population over 100,000 OKC, Tulsa, Norman

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Town◦ 424 municipalities◦ Largest: ?? Used to be Fort Gibson (4,154) ◦ CEO = Mayor

Council-Manager◦ 109 municipalities◦ Largest: Oklahoma City (579,999)◦ CEO = Manager

Aldermanic◦ 43 municipalities◦ Largest: Altus (19,813)◦ CEO = Mayor

Strong Mayor◦ 9 municipalities◦ Largest: Tulsa (391,906)◦ CEO = Mayor

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Note: Of the 161 cities, 85 are home rule charter cities.

Budget Objectives, Steps and Responsibilities

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Required Reason◦ Comply With State Constitution/Law

Desired Reasons◦ Establish Spending Priorities and Financial Plan◦ Establish Legal Spending Limits by Purpose◦ Determine Needed Taxes, Rates and Fees◦ Manage the Municipality’s Financial Condition and

Fiscal Sustainability

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1. Develop Budget Policy and Budget Calendar2. Estimate Revenues and Obtain Initial Requests3. Balance the Budget and Determine Need for Any

Revenue Enhancements4. Prepare Budget Draft and Conduct Public

Hearings5. Adopt Budget by Resolution and File6. Execute Budget and Record Revenues and

Expenditures7. Monitor Budget Status and Prepare Budget

Status Reports8. Amend Budget as Needed During the Fiscal Year

Parties to the Process Roles and Responsibilities

Municipal Staff and Consultants Provide input on revenue estimates, expenditure requests, and assist with budgetpreparation, execution and monitoring

Chief Executive Officer (CEO) Overall responsibility for development of proposed budget, budget execution and monitoring, and budget amendments

Governing Body (Council/Board) Establish budget policies, review budget proposals, conduct public hearing, adopt final budget, approve certain amendments, monitor overall budget compliance

Public Participate in public hearing, provide input to and oversight of governing body in regards to budget priorities and results

County Excise Board Approval of budget and any property tax levies (only for estimate of needs budgets)

State Auditor & Inspector Maintain file of budgets and related budget amendments, provide taxpayer access, and manage any protests within 15 days after filing

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Guiding Policies and Practices for the Budget Process

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Identify applicable legal requirements and establish budget calendar

Identify funds and how they are to be budgeted Define budgetary basis of accounting (when to recognize

revenues and expenditures) Define appropriation approach and legal level of

appropriation Specify desired levels of reserves Define budget amendment authority Define the appropriation lapsing policy and treatment of

year-end encumbrances

Example budget policy available on our firm’s web site.

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Budget proposal preparation◦ 4 months prior to start of fiscal year

Submission to governing body◦ 2 months prior to start of fiscal year

Governing body and public consideration◦ 30 – 60 days prior to start of fiscal year

Budget adoption◦ 2 weeks prior to start of fiscal year

Filing of budget document◦ Within 30 days of the start of the fiscal year

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Funds are separate self-balancing sets of accounts used to segregate and report specific assets, liabilities, revenue, and expenditures

Each fund is essentially a separate accounting entity with its own separate budget and financial statements

General Fund Other Statutory Funds, if applicable◦ Sinking Fund◦ Restricted Sales Tax Fund◦ Cemetery Care Fund◦ Cemetery Perpetual Care Fund◦ Airport Operations and Grant Fund◦ Federal Grant/Loan Fund◦ Retirement Plan Fund◦ Special Assessment Funds◦ Park and Recreation Donation Fund

Other Funds Required By Ordinance, Trust Indenture, or Bond Indenture

General Rule – minimize the number of funds used and use separate accounts within the General Fund if possible for separate accountability

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ALL Funds of the Municipality with Revenues and Expenditures◦ For municipalities, all expenditures, regardless of

funding source, must have available appropriations prior to encumbrance

◦ Not required for fiduciary funds where the government is holding monies of third parties in a trust or agent capacity (pension funds, court bond funds, customer deposit funds)

◦ Public trust fund budgets are not considered legally adopted, appropriated budgets (merely financial plans)

Capital Project and Grant Funds – may be budgeted with multi-year appropriations on a project or program basis, rather than on a fiscal year basis

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Revenues◦ Budget laws imply that revenues are to be estimated

and recorded on a cash basis as received◦ References:11 O.S. § 17-204; 68 O.S. § 3001-3033

Expenditures◦ Charges (budgetary-basis expenditures) should be

made against the appropriations when the encumbrance is incurred (commitment to pay is made and can be estimated)

◦ References: Article 10, Section 26 of State Constitution and related court cases; 62 O.S. § 310.2

Applicable Budget Laws for Municipalities and Their Public Trusts

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Municipal Budget Act (enacted in 1979)◦ Title 11, Section 17-201 – 218◦ Must be opted for by resolution (see Exhibit A for example)

Estimate of Needs◦ Title 68, Section 3001-3033◦ Default law if Municipal Budget Act not adopted by

resolution Public Trust (Authority) Provisions◦ Title 60, Section 176(g)

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Budget proposal preparation by CEO◦ No deadline

Submission to governing body◦ 30 days prior to start of fiscal year

Public hearing◦ 15 days prior to start of fiscal year◦ Budget summary and notice of hearing published 5 days prior

to hearing Budget adoption◦ 7 days prior to start of fiscal year

Filing of budget document◦ Within 30 days after the start of the fiscal year

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Prepare financial statements◦ In August of budget year◦ Only for cities/towns without audited financial

statements File financial statements and budget with

County Excise Board◦ August 22 for towns◦ August 27 for cities

Publish condensed summary◦ Within 5 days of filing with County

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Budget Act and Estimate of Needs are not applicable to trusts under State law

Could be made applicable by city charter, trust indenture, or resolution

Title 60 budget requirement is essentially a filing requirement

Budget is a “financial plan” only – sets no appropriations or legal spending limits

No required budget format or legal deadlines Budget to be filed with trust beneficiary

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Municipal Budget Act Estimate of Needs

Budget message Budget summary Fund budgets◦ Tabular format by

department and object category

◦ Three years of data on revenues and expenditures Prior year Current year Budget year

Specific forms (electronic format available) provided by State Auditor’s Office

Basic form serves as both financial statement for past year and budget for new year

Budgets only General Fund and Sinking Fund on the form

Separate forms for other fund’s (cash funds) appropriations

Specific forms for budget amendments

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CITY OF GUYMON, OKLAHOMABUDGET MESSAGE

FY 2009-2010

To: Honorable Mayor and Members of the City Council

The upcoming FY 2009-2010 annual budget of the City of Guymon has been prepared for your consideration and reflects the City’s continuing effort to provide quality services to our citizens. The following are highlights of the proposed budget:

Revenues:

Sales and use taxes are estimated to remain steady.No increase or decrease in the number of units sold for water. Gas usage has been budgeted based on average usages for the past six years.2% rate increases for water, sewer, and sanitation utilities.Increase of $2 per mcf above cost of gas has been added to the gas rate.

Expenditures:

Personal services:Health insurance costs were kept at approximately the same level by increasing the deductible and copay amounts.Worker’s compensation insurance shows a 5% increase with no expected refund.Salaries and wages are budgeted at approximately the same levels with E911 dispatchers now funded with General Fund revenues instead of E911 revenues

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"It's clearly a budget. It's got a lot of numbers in it."— George W. Bush

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Ending EndingFund Fund

Total Total Estimated Revenues Estimated Balance BalanceEstimated Budgeted Over (under) Beginning Before Transfers Transfers After

Fund Revenues Expenditures Budgeted Expenditures Fund Bal. Tramsfers In Out Transfers

Operating Funds:General Fund $ 5,238,600 (7,002,368) $ (1,763,768) 2,420,632 656,864 3,250,000 (1,491,346) 2,415,518 46%Guymon Utilities Authority 10,139,299 (8,062,583) 2,076,716 2,717,118 4,793,834 1,450,000 (3,546,000) 2,697,834 27%Golf Course 393,600 (523,358) (129,758) 599 (129,159) 140,000 - 10,841Swimming Pool 11,200 (84,391) (73,191) 27,163 (46,028) 50,000 - 3,972 Airport Fund 414,300 (541,674) (127,374) 22,389 (104,985) 106,000 - 1,015

Sub-total Operating Funds 16,196,999 (16,214,374) (17,375) 5,187,901 5,170,526 4,996,000 (5,037,346) 5,129,180 32%

Other Funds:Sales Tax General C.I.F. 10,713,000 (11,889,163) (1,176,163) 1,324,516 148,353 200,000 (225,000) 123,353 Sales Tax GUA C.I.F. 13,150,000 (15,130,000) (1,980,000) 1,775,407 (204,593) 225,000 - 20,407 Cemetery Care 4,300 (1,000) 3,300 9,517 12,817 - - 12,817 Dale Trust 700 (1,000) (300) 9,206 8,906 - - 8,906 E-911 185,500 (328,482) (142,982) 288,940 145,958 - - 145,958 Guymon Development 80,500 (49,027) 31,473 134,590 166,063 41,346 (200,000) 7,409 Guymon Library 23,865 (23,865) - 27,923 27,923 - - 27,923 Grants Funds 743,951 (743,951) - 44,000 44,000 - - 44,000 Hotel/Motel Tax 165,000 (316,000) (151,000) 401,417 250,417 - - 250,417 Police Special Revenue 100,000 (100,000) - 8,153 8,153 - - 8,153 Guymon Industrial Authority 470,000 (470,800) (800) 3,385 2,585 - - 2,585

Sub-total Other Funds 25,636,816 (29,053,288) (3,416,472) 4,027,054 610,582 466,346 (425,000) 651,928

Totals $ 41,833,815 (45,267,662) $ (3,433,847) 9,214,955 5,781,108 5,462,346 (5,462,346) 5,781,108

CITY OF GUYMON FUND SUMMARY

FY 09-10 ORIGINAL BUDGET

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FUND BUDGET SUMMARY

FUND: GENERAL FISCAL YEAR 09-10

PRIOR YEAR CURRENT YEAR CURRENT YEAR DEPARTMENTACTUAL BUDGET ACTUAL (EST) HEAD REQUESTS BUDGET YEARFY 07-08 FY 08-09 FY 08-09 FY 09-10 FY 09-10

ESTIMATED REVENUES: TAXES 3,885,095 4,020,750 4,078,067 3,990,000 3,990,000 INTERGOVERNMENTAL 554,806 397,000 569,428 526,000 543,000 CHARGES FOR SERVICES 423,154 383,250 367,194 355,100 355,100 LICENSES AND PERMITS 47,172 31,000 23,270 21,000 21,000 FINES AND FORFEITURES 133,024 154,500 263,801 204,500 254,500 MISCELLANEOUS 114,527 58,000 166,437 56,000 56,000 INTEREST 21,567 19,000 18,287 19,000 19,000

TOTAL REVENUE 5,179,345 5,063,500 5,486,484 5,171,600 5,238,600

TRANSFERS IN: GUYMON DEV FUND - - - - - 1 CENT SALES TAX 815,443 1,522,500 1,522,500 1,450,000 1,450,000 GUA 1,763,859 1,000,000 1,000,000 1,000,000 1,800,000

TOTAL RESOURCES 7,758,647 7,586,000 8,008,984 7,621,600 8,488,600

PROPOSED EXPENDITURES: CITY ATTORNEY 82,371 60,200 65,134 60,200 60,200 CITY CLERK 60,598 66,518 61,814 68,499 66,671 CITY TREASURER 63,713 58,294 55,091 63,649 59,954 COMMUNITY DEVELOPMENT 268,117 209,667 156,695 232,206 247,526 ARTS COUNCIL CR GRANT 5,184 - - - - GENERAL GOVERNMENT 392,285 423,901 296,176 402,085 377,205 HUMAN RESOURCES 116,327 145,705 120,517 142,575 135,961 BUSINESS INCUBATOR 73,610 103,789 121,844 84,298 102,310 LIBRARY 280,631 309,312 290,967 334,412 318,526 AMBULANCE 405,705 435,787 425,364 506,133 466,891 POLICE 1,445,902 2,028,657 1,618,593 2,334,311 2,030,884 MUNICIPAL COURT 126,421 137,368 135,934 144,305 136,403 FIRE 1,058,302 1,187,738 1,060,617 1,221,514 1,181,500 CIVIL DEFENSE 32,194 21,000 19,561 23,500 23,500 CEMETERY 132,105 154,677 131,278 128,908 129,514 PARKS 335,784 393,123 337,356 372,981 365,413 STREET 625,963 663,192 669,636 712,428 705,374 TRANSPORT ADMIN 41,315 51,041 47,969 55,526 49,869 TRANSPORT OPS 482,311 514,790 525,063 561,816 544,667

TOTAL DEPARTMENTAL 6,028,838 6,964,759 6,139,610 7,449,345 7,002,368

TRANSFERS OUT: GRANTS FUND - - - 400 - 1 CENT SALES TAX 1,429,302 1,522,500 1,522,500 1,450,000 1,450,000 GENERAL CIF - - - - GOLF COURSE FUND - - - - - AIRPORT FUND - - - - - GUYMON DEVELOP FUND - - - 41,346 41,346

TOTAL TRANSFERS OUT 1,429,302 1,522,500 1,522,500 1,491,746 1,491,346

TOTAL 7,458,140 8,487,259 7,662,110 8,941,091 8,493,714

CHANGE IN FUND BALANCE (901,259) 346,874 (1,319,491) (5,114)

BEGINNING BUDGETARY FUND BALANCE 2,073,758 2,073,758 2,420,632

ENDING BUDGETARY FUND BALANCE 2,420,632 754,267 2,415,518

Reserve as a % of annual revenues 46.11%

Required

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DEPARTMENT BUDGET SUMMARY FISCAL YEAR 09-10

DEPARTMENT: PARKS FUND: GENERAL FY 09-10

PRIOR YEAR CURRENT YEAR CURRENT YEAR DEPARTMENTACCOUNT ACTUAL BUDGET ACTUAL (EST) HEAD REQUESTS BUDGET YEARNUMBER EXPENDITURE CLASSIFICATION FY 07-08 FY 08-09 FY 08-09 FY 09-10 FY 09-10

PERSONAL SERVICES:460-5105 CONTRACT LABOR 9,814 16,100 18,462 15,500 15,500 460-5110 SALARIES & WAGES 125,574 145,674 131,122 128,970 123,210 460-5115 OVERTIME 8,720 12,500 5,344 8,500 8,500 460-5120 SOCIAL SECURITY/MEDICARE 10,207 12,100 10,370 10,516 10,076 460-5130 HEALTH/LIFE INS 58,606 67,494 49,717 63,723 65,205 460-5140 RETIREMENT 17,431 20,563 16,921 17,871 17,122 460-5150 UNEMPLOYMENT CLAIMS - - - 460-5170 WORKERS COMP 8,144 9,892 10,062 9,000 9,000

TOTAL PERSONAL SERVICES 238,496 284,323 241,998 254,081 248,613

MATERIALS AND SUPPLIES:460-5210 TOOLS AND EQUIPMENT 2,021 3,000 2,694 4,000 4,000 460-5220 UNIFORMS 2,868 3,500 2,171 3,500 2,400 460-5240 OPERATING SUPPLIES 3,780 5,000 3,675 5,000 5,000 460-5250 CHEMICALS 900 3,500 111 3,500 3,500 460-5260 FUEL AND OIL 7,379 7,000 8,669 8,000 8,000 460-5280 FISHING STOCK 10,000 16,000 11,760 16,000 16,000 460-5290 GAME RESERVE - - - - -

TOTAL MATERIALS AND SUPPLIES 26,948 38,000 29,080 40,000 38,900

OTHER SERVICES AND CHARGES:460-5310 ADMINISTRATION 1,086 800 826 800 800 460-5330 TRAVEL AND TRAINING 155 2,000 2,715 2,500 2,500 460-5410 TELEPHONE 1,718 2,200 2,238 2,300 2,300 460-5420 UTILITIES 42,101 45,000 40,695 45,000 45,000 460-5610 RADIO MAINTENANCE 800 - 800 800 460-5630 EQUIPMENT MAINTENANCE 1,288 3,500 324 6,000 6,000 460-5640 VEHICLE MAINTENANCE 5,675 5,000 7,905 5,000 5,000 460-5650 BUILDING MAINTENANCE 2,722 4,000 1,646 4,000 3,000 460-5660 PROJECTS 533 2,000 772 2,000 2,000 460-5670 TENNIS COURTS MAINTENANCE 1,089 500 233 500 500 460-5680 GROUNDS MAINTENANCE 1,947 2,000 5,876 5,000 5,000 460-5690 WATER SYSTEM MAINTENANCE 8,001 3,000 1,714 5,000 5,000

TOTAL OTHER SERVICES AND CHARGES 66,315 70,800 64,944 78,900 77,900

CAPITAL OUTLAY460-5810 CAPITAL OUTLAY 4,025 - 1,334 - -

TOTAL CAPITAL OUTLAY 4,025 - 1,334 - -

TOTAL 335,784 393,123 337,356 372,981 365,413

Minimum Required

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Municipal Budget Act◦ Personal services◦ Materials & supplies◦ Other services & charges◦ Capital outlay◦ Debt service◦ Transfers

Estimate of Needs◦ Personal services◦ Maintenance &

operations◦ Capital outlay

Accounting system should have at least this minimum level of expenditure breakdown within a department.

Appropriations is the technical term used to indicate the “legal” spending limit

Level at which incurring and encumbering an obligation in excess of amount provided would represent an illegal act

Can be different from the level of detail presented within a budget document (for example – budget document could have line item detail, while legal appropriations is established at object account or department level)

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Fund Level (not allowable under current state law)

Department (optional level)

Object Account (optional level)

Line-Item (optional level)

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DEPARTMENT BUDGET SUMMARY FISCAL YEAR 09-10

DEPARTMENT: PARKS FUND: GENERAL FY 09-10

PRIOR YEAR CURRENT YEAR CURRENT YEAR DEPARTMENTACCOUNT ACTUAL BUDGET ACTUAL (EST) HEAD REQUESTS BUDGET YEARNUMBER EXPENDITURE CLASSIFICATION FY 07-08 FY 08-09 FY 08-09 FY 09-10 FY 09-10

PERSONAL SERVICES:460-5105 CONTRACT LABOR 9,814 16,100 18,462 15,500 15,500 460-5110 SALARIES & WAGES 125,574 145,674 131,122 128,970 123,210 460-5115 OVERTIME 8,720 12,500 5,344 8,500 8,500 460-5120 SOCIAL SECURITY/MEDICARE 10,207 12,100 10,370 10,516 10,076 460-5130 HEALTH/LIFE INS 58,606 67,494 49,717 63,723 65,205 460-5140 RETIREMENT 17,431 20,563 16,921 17,871 17,122 460-5150 UNEMPLOYMENT CLAIMS - - - 460-5170 WORKERS COMP 8,144 9,892 10,062 9,000 9,000

TOTAL PERSONAL SERVICES 238,496 284,323 241,998 254,081 248,613

MATERIALS AND SUPPLIES:460-5210 TOOLS AND EQUIPMENT 2,021 3,000 2,694 4,000 4,000 460-5220 UNIFORMS 2,868 3,500 2,171 3,500 2,400 460-5240 OPERATING SUPPLIES 3,780 5,000 3,675 5,000 5,000 460-5250 CHEMICALS 900 3,500 111 3,500 3,500 460-5260 FUEL AND OIL 7,379 7,000 8,669 8,000 8,000 460-5280 FISHING STOCK 10,000 16,000 11,760 16,000 16,000 460-5290 GAME RESERVE - - - - -

TOTAL MATERIALS AND SUPPLIES 26,948 38,000 29,080 40,000 38,900

OTHER SERVICES AND CHARGES:460-5310 ADMINISTRATION 1,086 800 826 800 800 460-5330 TRAVEL AND TRAINING 155 2,000 2,715 2,500 2,500 460-5410 TELEPHONE 1,718 2,200 2,238 2,300 2,300 460-5420 UTILITIES 42,101 45,000 40,695 45,000 45,000 460-5610 RADIO MAINTENANCE 800 - 800 800 460-5630 EQUIPMENT MAINTENANCE 1,288 3,500 324 6,000 6,000 460-5640 VEHICLE MAINTENANCE 5,675 5,000 7,905 5,000 5,000 460-5650 BUILDING MAINTENANCE 2,722 4,000 1,646 4,000 3,000 460-5660 PROJECTS 533 2,000 772 2,000 2,000 460-5670 TENNIS COURTS MAINTENANCE 1,089 500 233 500 500 460-5680 GROUNDS MAINTENANCE 1,947 2,000 5,876 5,000 5,000 460-5690 WATER SYSTEM MAINTENANCE 8,001 3,000 1,714 5,000 5,000

TOTAL OTHER SERVICES AND CHARGES 66,315 70,800 64,944 78,900 77,900

CAPITAL OUTLAY460-5810 CAPITAL OUTLAY 4,025 - 1,334 - -

TOTAL CAPITAL OUTLAY 4,025 - 1,334 - -

TOTAL 335,784 393,123 337,356 372,981 365,413

Object category levelLine item level

Department level

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Purpose Level◦ Police Union Contract ◦ Main Street Renovation Project◦ Termination Vested Leave Benefits◦ Rainy Day Reserves

$2,000,000$ 700,000$ 550,000$ 400,000

Note: Cross-fund budget where appropriations are established for a purpose regardless of which accounting funds are used to pay for the purpose’s expenditures.

Budget under the Municipal Budget Act must be adopted by resolution

Resolution should include dollar amounts of appropriations at the legal level of control for each fund

Resolution could also define budget amendment policy and authority

See Exhibit B for example budget adoption resolution

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Form Number Description

SA&I Form 2641 Long-form Estimate of Needs

SA&I Form 2651 Short-form Estimate of Needs (less than 1,000 pop)

SA&I – C&T Form 500 Sinking Fund Estimate of Needs

SA&I Form 308 Cash Fund Appropriations Form

SE&I Form 150 Supplemental Appropriations Form

SE&I Form 237 Transfer of Appropriations Form

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11 O.S. § 17-210; 68 O.S. § 3023 Taxpayers have the right to examine municipal budget and any

related tax levies within 15 days of budget filing with State Auditor’s Office (SA&I may grant an additional 15 day extension)

Protests may only be based on alleged illegal ad valorem tax levies of sinking funds

Protests cannot be filed merely because taxpayers disagree with budgeted priorities or amounts

Excise board may reconvene with 60 days after budget filings and amend budgets and levies deemed illegal

State Court of Tax Review prescribes procedures for hearing protests and may reconvene until all determinations are made as to protested levies

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A Fundamentally Flawed Resource Model for Oklahoma Municipalities

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Who pays for the current year’s budgetary costs of operating the government?1. Current year resource providers

Current year taxes, charges for services, and other resources generated in current year

2. Future year resource providers Loan or debt proceeds and lease purchase

agreements3. Past years’ resource providers

Appropriated fund balance

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Definition: Proceeds of revenues earned from or assessed to the current fiscal year taxpayers and ratepayers.

Revenues:◦ Sales and use tax (restricted or unrestricted – voter approval)◦ Property tax (limited to G.O. bonds and judgment debt service)◦ Franchise fees (from utility and cable companies)◦ State shared revenues (street and alley taxes, alcoholic bev tax)◦ Federal and state grants (come with restrictions and limitations)◦ Fees and permits (designed to cover cost of licensing activity)◦ Charges for services (may include profit component)◦ Municipal court fines and forfeitures (limited by state law)◦ Interest on investments and other miscellaneous revenues◦ Transfers from other funds or entities (watch for self-imposed

limitations)

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Definition: Proceeds of borrowings used to fund current year costs that will require resources from future year taxpayers and ratepayers to pay off.

Borrowings:◦ Lease purchase obligations Non-appropriation clause needed for municipalities

◦ Proceeds from general obligation bonds Requires voter approval Funding for capital projects and improvements

◦ Proceeds from revenue bonds and notes Normally issued by public trusts Normally does not require voter approval

◦ Judgment funding bonds Requires court approval

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Definition: Use of uncommitted fund balances carried forward from prior years that resulted from the accumulation of prior periods’ unexpended and unencumbered resources.

Restricted carryover fund balances◦ Restricted sales tax funds◦ Cemetery care funds◦ Street and alley funds◦ Bond proceeds funds◦ Sinking funds◦ Permanent funds

Unrestricted carryover fund balances◦ General Fund ◦ Enterprise funds

6 states provide 3 sources of tax revenue (ad valorem, income tax and sales tax)27 states provide 2 sources of tax revenue 17 states (including Oklahoma) provide only 1 source of tax revenue

How Do Other States Fund Municipal Operations?

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Other Taxes, 11%

Fees/Charges

7%

Sales Tax, 11%Income Tax, 14%

State Funds, 15%

Federal Funds, 6%

Property Tax, 28%

All Other Revenues, 8%

US Municipal Revenue Sources

Okla. Municipal Revenue Sources

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Unlike counties and school districts, property tax levies for operating purposes by Oklahoma municipalities are not constitutionally provided

Oklahoma municipalities may only levy a property tax for a Sinking Fund and then only under two circumstances:

1. With voter-approval, to pay debt service (principal and interest) on general obligation bonds for capital improvements

2. To pay principal and interest on judgments rendered against the municipality by a court

The vast majority of Oklahoma municipal governments have no outstanding general obligation bonds nor fund judgments through a sinking fund; therefore they levy no property tax

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Annual Sales Tax Revenue Per Person Per Penny (PPPP) - Makes comparisons possible regardless of size of city or rate of tax

The average PPPP in a Walmart City is $139

The average in a non-Walmart City is $72Example: For a 3,000 population municipality with a

3 cent sales tax rate, this means the difference in annual sales tax revenue of $603,000 ($1,251,000 in Walmart City and $648,000 in non-Walmart City)

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Source: 2006 Tax Report by Wayne Trotter, Pottowatomie County News Editor

Sales taxes must be approved by voters Sales tax is a volatile source of revenue, and lacks the relative

stability of property tax Consumer switch to Internet sales is resulting in significant

loss of sales tax until compliance by internet vendors is better established and enforced

State legislative sales tax exemptions continue to rise (6 exemptions in 1980, 143 exemptions in 2010)

State and counties ability to levy sales tax crowds out the ability for cities to increase sales tax

Sales tax is often approved by voters with restrictions on use or dedications – making them unavailable for general operations

Even unrestricted sales taxes are often pledged for retirement of long-term debt of business-type activities and may not be available for general operations

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Municipal Roads Vital to Economic Development◦ Federal highway statistics indicate that 54% of

miles driven in Oklahoma are driven on municipal streets

State Tax Apportionments to Local Governments for Transportation Purposes◦ Counties $325 million statewide◦ Municipalities only $24 million statewide

In one typical municipality, annual allocation of street and alley revenue from State is $16,000, while cost to just light the streets is $45,000

Average cost to repave 1 city block is $13,500

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Allow municipalities to receive ad valorem taxes for operations (would require constitutional amendment)

Require state legislature to determine fiscal impact on municipalities of potential new or changed legislation - Municipal Fiscal Impact Act passed

Amending state laws to allow counties and municipalities to pool resources and enter into joint purchasing agreements

Review and propose eliminating or sun-setting of some of the current sales tax exemptions

Eliminate or restructure binding interest arbitration Provide for the surrender of municipal employee pension benefits

for felony conviction involving loss of municipal funds Report available at:

http://www.okhouse.gov/Documents/MunicipalFinanceTaskForceReport.pdf

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Presented by:Marcy Twyman, CPA

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What Happens When Appropriations Exceed Current Year Estimated Revenue

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How are Oklahoma municipal budgets being balanced?

82%

13%

2% 3%Current Revenues

Utility Fund Transfers

Loan Proceeds

Use of Fund Balances

Average of six example Oklahoma municipalities for their General Fund in FY 2009.

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Transferring net utility revenues means:◦ Potentially higher utility rates for customers because utility customers are also

funding general government activities

◦ Deferring needed maintenance on utility infrastructure

Borrowing by using loan proceeds means:◦ Shifting funding burden to future taxpayers

◦ Reducing revenues available for operating purposes in future years’ budgets

Depleting fund balances means:

◦ Reducing resources or reserves available for other emergencies

◦ Relying on a one-time non-recurring resource for potentially recurring costs

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Reserves represent the carry forward of unexpended and unobligated remaining resources from prior years

Prudent fiscal management requires that a certain amount of fund balance be retained and possibly even formally set aside or appropriated as a rainy day reserve◦ Cash flow needs◦ Emergencies◦ Revenue shortfalls

How much should be set aside?◦ Suggested minimum is 10% of annual revenues or

appropriations (implied in state budget laws)◦ More appropriate level is 30% - 50%

Caution: These are one-time resources that should not be used consistently to balance the budget.

Liabilities of the Public Official and Employee

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“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.”– William Feather (U.S. publisher and author)

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Constitution of Oklahoma, Art. 10, Sec. 26

No city shall be allowed to become indebted, in any manner, or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without three-fifths voter approval …

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Constitution of Oklahoma, Art. 10, Sec. 26

No city shall be allowed to authorize or incur a valid contractual obligation, claim, or encumbrance, in any manner, in an amount in excess of the appropriation provided for that specific budget item or purpose as established by the governing body, for such year, and that does not require future fiscal year revenue to pay part or all of the obligation, without voter approval …

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Valid constitutional obligations – to be valid, such obligations must have been appropriated against income and revenue available for that purpose in the current year◦ Employment contracts and commitments◦ Labor union agreements◦ Lease agreements (non-appropriation provision)◦ Contracts for purchases of goods and services◦ Construction contracts

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Exceptions to Art. 10, Sec. 26 indebtedness – court cases indicate these are valid obligations even if the governing body does not make formal appropriations for such purpose◦ Debt service on voter approved long-term bonds

and notes◦ Statutory funding requirements – such as state

required Police/Fire pension contributions◦ Judgments

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62 O.S., § 310.2 Each county or municipal officer in charge of a

department or appropriation account shall be allowed to incur indebtedness against all appropriations within his department under the regulations as provided for herein, except when otherwise provided by law; and provided further, that only those municipal officers and employees designated by the governing board shall have authority to obligate the municipality.

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62 O.S. § 310 Applicable to all purchases and contracts, except payroll

(payroll “may” be approved by PO but not required – see 62 O.S. § 304.1)

Ability to customize purchasing process by ordinanceand bypass requirements of the Act◦ Without ordinance, municipality is required to follow Purchase

Order Act provisions and other applicable state laws Pre-commitment approval◦ Prior to ordering or contracting, approval required by Purchasing officer Encumbering clerk

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Post-commitment approval◦ After goods or services received◦ Itemized invoice is required along with signed

documentation of satisfactory delivery or completion◦ Purchase Order Act requires governing body to examine all

invoices, purchase order and other supporting documentation for legality and approve all invoice for payment

◦ As an alternative, governing body may authorize CEO or designee to approve invoice payment (See 11 O.S. § 17-102)

◦ Checks to be signed by officers designated in ordinance or in absence of ordinance by the municipal treasurer (may be by facsimile if signature if filed with Secretary of State)

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Special treatment or exceptions◦ Certain payments may be made without separate governing

body approval (payroll taxes, pre-approved insurance, pre-approved retirement contributions and certain utilities)

◦ Petty cash disbursements from petty cash accounts may be established by the governing body and reimbursed by submission of receipts

◦ Blanket purchase orders authorized for use by 62 O.S. §310.8 for recurring purchases of goods or services if a maximum amount is specified in the PO and approved by the governing body

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APPROPRIATION - The legal authorization granted by the governing body to make expenditures for specific purposes; usually limited in amount and time it may be expended (budget period).

ENCUMBRANCE - Commitment to acquire goods or services and is used primarily for budgetary control.

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The encumbering officer of the municipality shall keep a record of the exact account of each appropriation as made by the county excise board or by the municipal governing body as authorized by law.

The amount and purpose of each purchase order or contract shall be charged against the appropriation at the time purchase is made or contract let and the balance in the appropriation account after such charges are deducted shall constitute the unencumbered balance available.

No purchase shall be paid until approved by the officer, board or commission having charge of payment approval

No indebtedness for any purpose shall be incurred in excess of the appropriation for that purpose and provided that the municipal officers are made responsible on their official bond for any and all indebtedness incurred by them.

Encumbrance should be recorded at time of commitment (not merely when invoice is received). Take encumbering clerk responsibilities and duties seriously!

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62 O.S. § 310.3 Any municipal officer or through a

purchasing officer that causes any indebtedness, purchase order, or obligation for any purpose or for any account in excess of available appropriation shall forfeit and be removed from office for willful maladministration

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Applicable to City or Town and Public Trusts◦ 61 O.S. Sec. 103 – Public Competitive Bidding Act◦ Only required by statute for “public construction contracts” –

making public improvements, constructing public buildings or making repairs to the same

◦ Public construction contracts exceeding $50,000 – follow the Act◦ Public construction contracts of $50,000 or less – written bids or

competitive quotes required, but other Act provisions not applicable – award to the lowest responsible bidder or contractor

◦ Public construction contracts less than $5,000 – may be negotiated with a qualified contractor

◦ If no bids received, may negotiate a contract under $50,000◦ For declared emergencies, bidding may be waived by 2/3rds vote

for contracts up to $35,000 (emergencies limited to conditions resulting from sudden, unexpected event where public health or safety is endangered)

◦ May have more restrictive requirements in local charter or code (follow most restrictive)

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Also Applicable to Title 60 Public Trusts◦ 60 O.S. Sec. 176H◦ Contracts for construction, labor, equipment, materials or

repairs in excess of $50,000 – award to lowest and best bidder pursuant to public invitation to bid, published in advertisements within the county

◦ Trustees may waive bidding for declared immediate emergencies documented in the minutes (emergencies are to avoid loss of life, substantial damage to property, or damage to public peace or safety)

◦ May instead purchase equipment and materials from state contract under Oklahoma Central Purchasing Act or from contract made by beneficiary of the trust

◦ May have more restrictive requirements in trust indenture (follow most restrictive)

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11 O.S. § 8.113 No municipal officer or employee or any

business in which the officer, employee, or spouse thereof has a proprietary interest (25% or more ownership or controlling interest) shall engage in◦ Selling, buying, or leasing real or personal property

to or from the municipality◦ Contracting with the municipality◦ Buying or bartering for or otherwise acquiring

bonds, warrants, or other indebtedness of the municipality

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Employee defined◦ For the purposes of this law, employee is a person

employed more than 10 hours in a week for more than 13 consecutive weeks and who enters into, recommends or participates in the decision to enter into any such transaction

Surplus property◦ Any person who receives wages, reimbursements or any

payments from a municipality, any spouse of such person, or any business in which the person or spouse has a proprietary interest shall not buy or otherwise become interested in the transfer of any “surplus” property of the municipality or beneficiary public trust unless the surplus property is offered for sale to the public after published notice of sale

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Some exceptions do exist Provisions do not apply to municipalities with less than

5,000 population and where the proprietary interest is in a business that is the only such business within 5 miles of corporate limits◦ Limited to no more than $2,500 for any single purchase and

$15,000 for all purchases in any calendar year◦ May exceed $15,000 per year if municipality purchases items

regularly sold to the general public in normal course of business and at the same prices charged to the general public

Any officer, director or employee of a bank or financial institution for which the municipality does business may serve on the board of the municipality, provided the member shall abstain from voting on any matter relating to a transaction between or involving the financial institution and the municipality or public body

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Provisions do not apply (regardless of population) where competitive bids were obtained consistent with applicable bidding requirements, through public notice open to all potential bidders, provided◦ Two or more bids were submitted◦ All bids and contracts are open to the public and

placed on file and maintained for a period of at least 5 years from bid opening or 3 years from contract completion, which ever is longer

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Penalties and liabilities for conflict of interest violations◦ Any person convicted is guilty of a misdemeanor

criminal offense◦ Any transaction entered into in violation of these

provisions is considered void◦ Any member of governing body who approves a

transaction in violation of these provisions shall be held personally liable for the amount of the transaction

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60 O.S § 178.8 A conflict of interest shall be deemed to exist in any

contractual relationship in which a trustee of a public trust, or any for-profit firm or corporation in which such trustee or any member of his or her immediate family is an officer, partner, principal stockholder, shall directly or indirectly buy or sell goods or services to, or otherwise contract with such trust.

Upon a showing thereof, such trustee shall be subject to removal and such contract shall be deemed unenforceable as against such trust unless the records of such trust shall reflect that such trustee fully and publicly disclosed all such interest or interests, and unless such contractual relationship shall have been secured by competitive bidding following a public invitation to bid.

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The following types of public trust transactions are exempt from the provisions of 60 O.S. § 178.8:◦ 1. The making of any loan or advance of any funds to, or the purchase of

any obligations issued by such public trust, in connection with the performance of any of its authorized purposes;

◦ 2. Any legal advertising required by law or indenture or determined necessary by the trustees of such public trust;

◦ 3. The performance by any bank, trust company or similar entity or any services as a depository; or

◦ 4. The sale of any public utility services to such public trust, in which the price of said services is regulated by law.

It shall be the duty of each public trust to compile a list of all conflicts of interest for which its trustees have made disclosure. It shall also be the duty of each trust to compile, semiannually for periods ending June 30 and December 31 of each year, a list of all dealings between its trustees and the trust which involve the exempted transactions listed above. Copies of such lists shall be filed with the Secretary of State by September 1 and March 1 of each year.

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61 O.S. § 114 The chief administrative officer and members of the

governing body of the awarding public agency authorizing or awarding or supervising the execution of a public construction contract, and their relatives within the third degree of consanguinity or affinity, are forbidden to be interested directly or indirectly through stock ownership, partnership interest or otherwise in any such contract.

Contracts entered into in violation of this law shall be void.

Persons willfully violating this section shall be guilty of a felony and shall be subject to removal from office.

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62 O.S. § 373-374 Petition signed by 100 or 2% of the registered

voters living within the jurisdiction (whichever is less) upon refusal, failure, or neglect of the municipal officials to institute or diligently pursue legal actions to recover municipal money or property allegedly paid out illegally or improperly transferred

Resident taxpayer(s) affected, after serving above notice and giving security for cost, may, in the name of the State as plaintiff, bring legal action with the municipality as defendant to void contract and recover money or property at issue

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If court determines demand claim to be meritorious, contracts will be deemed void and money or property returned to the municipality, and municipality will be liable for resident taxpayers reasonable attorney fees and court costs

If court determines that all claims are to be frivolous, the resident taxpayers who signed the demand petition and are parties to the lawsuit shall be liable for reasonable attorney fees and court costs incurred my municipality or its officers

Any such civil action brought under these provisions can only be brought if the written demand petition is made within 2 years of alleged illegal payment or transfer, and civil suit is filed within 6 months of municipal officials’ refusal, failure, or neglect to act upon the written demand

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62 O.S. § 372 Every municipal officer knowingly making an unlawful or fraudulent contract

or directing payment of a fraudulent or void claim (known to the officer to be fraudulent or void) and every person having notice of the facts with whom such unlawful contract has been made or to whom municipal money or property has been improperly paid or transferred shall be jointly and severally liable to the municipality for TRIPLE the amount damages to be recovered by suit of the municipality or resident taxpayer pursuant to 62 O.S. § 373.

However, no action for personal liability shall lie against any such officer for a transaction approved in good-faith reliance on advice of legal counsel for the public entity authorizing the transaction or which has been submitted to a court of competent jurisdiction for determination of legality.

Previous law (prior to 2011) provided for any awarded triple damages to be split ◦ ½ paid to the resident taxpayer as reward◦ Other ½ returned to the municipal treasury

Implementing, Monitoring, and Amending the Budget

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Releasing appropriation at start of fiscal year Requesting use of appropriation (optional requisitions) Bidding when required prior to contracting Obtaining pre-approval to commit or obligate Checking for available appropriations (required) Committing to expend by ordering goods or services

(PO/contract approval and required encumbering) Receiving goods and services (signed delivery advice) Receiving request for payment (invoice) Examining and approving invoices for payment (governing

body or designee) Paying invoices for goods and services (check, wire, etc.) Monitoring revenues and expenditures and amending the

budget on a timely basis

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Don’t focus only on expenditure monitoring; it is equally important to monitor year-to-date actual revenue collected compared to estimates on a timely basis

For compliance purposes, monitor expenditures “and encumbrances” compared to appropriations

Encumbrance should be recorded at time of commitment (not merely when invoice is received)

Take encumbering clerk responsibilities and duties seriously Use budget status reports – good for monitoring overall budget

status, but may be too late for controlling specific appropriation violations

Perform statutorily-required 90% test of revenues compared to expenditures during year to guard against potential fund deficits

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CITY OF PROGRESS, OKLAHOMAMONTHLY BUDGET STATUS REPORT - GENERAL FUNDSIX MONTHS ENDED DECEMBER 31, 2011

% OF

BUDGET ACTUAL BUDGET

BEGINNING FUND BALANCE 722,676$ 722,676$

REVENUES 2,556,650$ 1,135,287$ 44%

EXPENDITURES (2,264,529)$ (1,217,756)$ 54%

REVENUES OVER (UNDER) EXPENDITURES BEFORE TRANSFERS 292,121$ (82,469)$

TRANSFERS IN 1,176,817$ 588,408$ 50%TRANSFERS OUT (1,640,750)$ (817,235)$ 50%NET TRANSFERS (463,933)$ (228,827)$

INCREASE (DECREASE) TO BEGINNING FUND BALANCE (171,812)$ (311,296)$

ENDING FUND BALANCE 550,864$ 411,380$

ENCUMBRANCES OUTSTANDING -$ (85,900)$

ENDING FUND BALANCE - UNENCUMBERED 550,864$ 325,480$

ENDING BALANCE AS A PERCENTAGE OF ANNUAL REVENUES 14.75% 8.72%

This amount is considered the Fund's unappropriated cash

reserves. Fiscally prudent goal is to keep this amount at no less than 10% of annual revenues.

Indicates the current budget, as amended, plans on spending more

than it takes in; thereby decreasing the fund balance by the end of the fiscal

year by this amount.

GENERAL FUND The end of December represents 50% of the fiscal year. This % is a

basic measure of where the Fund should be year to

date compared to budget.

This amount reflects the uncommitted fund balance at the end of the month. This amount should never go below $0 per

State law.

This indicates the Fund has expended and transferred out this amount more than it has

received in revenues and transfers in to date, thereby decreasing fund balance by

this amount to date.

This represents the amount by which fund revenues exceed

expenditures prior to net transfers (subsidies) from/to

other funds.

Amount of unrestricted and unobligated cash and

investments carried over from the end of the prior year.

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Identify the need for budget amendments◦ Change in priorities◦ Change in estimates◦ Unanticipated resources◦ Unanticipated expenditures◦ Revenue and resource shortfalls or excesses◦ Planned expenditures no longer needed

Determine type of amendment needed◦ Transfer of appropriation◦ Supplemental appropriation◦ Decrease in appropriation

Obtain necessary approvals and file as required

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Fund: General Fund

Amendment #: GF12-3

Fiscal Year: 2011-2012

Account # Account Name Increase Decrease Increase Decrease

001-35-4000 Police - Capital Outlay 100,000$

001-10-3000 Admin - Other Services & Charges 25,000$

001-00-5350 Grant revenue - law enforcement 50,000$

001-00-5900 Appropriated Fund Balance 25,000$

TOTALS 75,000$ -$ 100,000$ 25,000$

EXPLANATION:

To budget for the purchase of new police cars, funded by (1) a $50,000 state grant, (2) a $25,000 transferof appropriation from the Administration department budget, and (3) the use of $25,000 of fund balance.The fund balance appropriation leaves $350,500 of unappropriated fund balance or 12% of annual revenues.

Date Approved by City Manager: 12/10/2011

Date Approved by City Council: 12/17/2011

Estimated Revenue Appropriations

BUDGET AMENDMENT FORMEXHIBIT C

Appropriation Lapsing Policy and Treatment of Outstanding Encumbrances

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1. Lapsing Unencumbered Appropriations 90 Days After Year End (default policy in state law)

2. Lapsing All Appropriations at Year End (would require a resolution)

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62 O.S., § 310.4 All unencumbered balances, if any, as shown by the

officer charged with keeping the appropriation and expenditure records of the county, city, or town on hand at the close of day June 30, may remain as a credit for said fiscal year up to the close of day September 30, next.

Provided this act shall not be so construed to allow the incurring of a new indebtedness after June 30 chargeable to the appropriation account of the immediately preceding fiscal year.

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Provides for a claimant to file a claim or debt to be encumbered from available appropriation of the prior year until 90 days after fiscal year end

Provides for the government to correct encumbering errors or revise encumbered amounts up to 90 days after year end

In other words, a contractual obligation incurred prior to year end, but not encumbered or encumbered accurately at that time, may be encumbered or corrected until 90 days after year end

However, this does not allow a new contractual obligation to be incurred during that 90 days to be encumbered against prior year available appropriations

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Open POs and contract commitments at year end remain open and applied to the year that just ended

Encumbrances outstanding at year end are treated as expenditures or charges against the just-ended fiscal year appropriations and may be amended within the 90 day period

Such encumbrances remain open until paid or cancelled Requires publication of notice to vendors within 30 days

of year end No further encumbrances or encumbrance changes may

be recorded against the prior year after the 90 day period After the 90 days, lapsed balances are carried over as

unappropriated fund balances into the new budget year

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Said officer charged with keeping the appropriation and expenditure records of the county, city, or town shall at any time during the month of July advertise in a newspaper of general circulation in the county and shall cause to be published for two (2) consecutive times if in a daily newspaper and once if in a weekly newspaper, notice in the following form:

PUBLIC NOTICEAll persons having an indebtedness or claim against ___________ City, or

Town are hereby notified that all invoices and documentation pertaining to said purchase order or contract must be recorded in the office of _____________ Clerk on or before September 30, 20___, covering all debts now unpaid and incurred during the period beginning on July 1, 20___, and ending on June 30, 20___, or said account shall be void and forever barred.

_____________________________________Clerk or Encumbering Officer

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Alternative to the statutory 90 day approach Would generally need a resolution to adopt (see

Exhibit E for example) Requires renewal of contracts and re-issuance

of POs for year end open commitments to be honored in subsequent year

Requires supplemental appropriation in subsequent year budget

Encumbrances outstanding at year end are not treated as expenditures or charges against the just-ended fiscal year appropriations

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ANY FINAL QUESTIONS?

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