Analysis of the Budgeting Procedures: City of Oviedo - Essay Example

Analysis of the Budgeting procedures: of Oviedo- Florida Introduction Oviedo is a developing community that is aiming at maintaining a theme ofsmall town charm while seeking its identity in the metropolitan of Orlando area. The city is gradually moving into its next phase of development as it plans for a new town centre and redevelopment of the original downtown. In support of this mission, the city council of Oviedo adopted Annual Budget for the 2007-08 fiscal year, (October 1, 2007 through September 17, 2007). The Annual Budget provides the City Council and interested citizens with a one source document that addresses all City operating and capital appropriations and sources of revenue for each fund and program. The FY 07-08 Budget also reflects the culmination of a substantial effort by City staff to include performance measures for all City programs (Adopted Annual Budget, 2007-08). While this effort is still in its developmental stage, the performance measures will provide a better connection between budget resources and desired outcomes. Usually, annual budgets are adopted on a basis consistent with U.S. generally accepted accounting principles and the City uses a cash basis for budgeting governmental funds (Adopted Annual Budget, 2007-08).Yearly appropriated budgets are accepted for the General, Special Revenue, Debt Service and Enterprise Funds. All operating and capital expenditures and revenues are recognized in the budgeting process because of the want for appropriation authority. This paper will therefore focus on analyzing and evaluating the budget. Body According to the Adopted Annual Budget (2007-08), the process for preparing and adopting the city's annual budget and levying a property tax rate is conducted in accordance with the provisions of Chapter 200 of the Florida statutes and the city's code of ordinance. Chapter 200, Florida statues outlines the budget process beginning with the certification of taxable value on or before July 1 by the country property appraiser. The setting of the millage rate and budget involves a formal process also known as Truth in Millage Act. TRIM serves to formalize the tax levying and budget adoption process by requiring a specific method of calculating the tax rate and any increase, the form of notice to property owners, and public hearing and advertisement requirements prior to the adoption of the annual budget and tax rate. Development of the Annual Budget is comprised of three major initiatives: strategic planning and financial trends outlook, 5 year capital improvements programs development and operating budget preparation. The budget is entirely prepared to accept the accounting system at the start of the fiscal year. A number of GAAP (generally accepted accounting principles) adjustments are made to reflect balance sheet requirements and their effect on the budget. These include changes in designations and recognition of accrued liabilities. Amounts needed for such long term liabilities as future payoff of accumulated employee vacation and sick leave (i.e. compensated absences) are generally not budgeted but are adjusted or reported for the actual amounts incurred as a result of an employee resignation or retirement. Usually, a four step process is followed to come up with the budget. This involves preliminary planning and preparation, review, adoption and monitoring. During the preliminary planning stage, the city council meets in January/ February to review the city's strategic priorities. Later on (March/April), the council is provided with a financial trends outlook for the city's three operating funds. In a workshop setting, the city council reviews and discusses major budget trends and then provides policy direction for preparation of the upcoming fiscal year budget. The budget preparation stage follows up in January whereby a 5 year CIP process is initiated with various departments. The CIP for the upcoming fiscal year is the only year in which actual funding is appropriated. The five year CIP serves as the basis for prioritizing and recommending capital improvements and related funding in the upcoming fiscal year budget. The 5 year CIP document is completed in May and normally distributed to the city council one week before the CIP workshop date. After the distribution the city council holds a work session to review and discuss the recommended 5 year CIP and provide policy direction regarding funding priorities. Development of the annual operating budget begins with a kickoff meeting in March to review instructions and distribute budget materials. City departments are normally tasked with three major budget development activities during an approximate 30 day period from mid-March to Mid-April which include: Preparing estimated expenses for the current fiscal year by program and line item and reporting on the status of program performance outcomes, Reviewing and revision of the current performance profile and revising of performance outcomes for the new budget year and development of the operating budget request utilizing the city's online budget preparation system. After review by the budget staff, each department director and division manager meets with the city manager and budget director from late April to mid May to discuss the budget request, related trends and performance outcomes. Preliminary decisions are made regarding the department requests and the budgets are altered accordingly. The proposed budget document is produced by the budget office from mid-May through mid-July and submitted to city council prior to July 31. The city council then adopts the tentative millage rates prior to August 4 at either a regular or special meeting which are later on submitted to the Seminole county property appraiser for placement on the truth in millage notification that is mailed to all property owners in August. Two public meetings are later held by the city council in September; for purposes of adopting the proposed millage rates and proposed budget. The last stage involves monitoring whereby all departments are required to monitor their respective budgets utilizing the city's online financial system. Budget status reports are also distributed on a quarterly basis to all department directors and division managers. This helps in ensuring that the adopted budget is being adhered to. Monthly and quarterly monitoring of the budget is performed so as to identify and explain significance variance. It is the entire responsibility of the city to develop and maintain a 3 to 5 year financial trend model that forecasts revenues and expenditures based on a set of accepted assumptions. The financial trends forecast are presented to the City Council to discuss long-term budget trends and implications of various budget scenarios. Therefore, allowing the city council to establish a budget policy and direction to the city manager for the development of the upcoming annual operating and capital budgets. The Comprehensive Financial and Budgetary Policies provide a one-source document for all city financial and budget policies. The policies are intended to guide elected officials, the city Manager and staff in their on-going role as the financial stewards of the city. The policies guide essential decisions affecting budget and financial matters to ensure that the city is financially prepared to meet its immediate and long-term service objectives. The individual policies contained herein serve as guidelines for financial planning, budget preparation, implementation, evaluation and internal financial management of the city, and may be amended from time to time. The Operating Policies state that: The city will balance recurring operating expenditures with current or recurring revenues, and to the extent possible, not appropriate fund balance to meet recurring operating needs and that the city will evaluate the fiscal impact of new proposals, operate as efficiently as possible, and constantly review city services for appropriateness and effectiveness. Revenue Policies state that the city should be sensitive to the balance between the need for services and the city's ability to raise fees, charges for services, and taxes to support those services. The budget office; the City of Oviedo is a part of the Orlando metropolitan area and is located in Seminole County. The City is bordered on the south by Orange County, to the north by Lake Jessup and to the northwest by Winter Springs. The City Council is the five (5) members elected legislative and governing body of the City responsible for establishing policies, managing growth and land use, adopting an annual budget and tax rate, setting water/wastewater and storm water utility rates, and other fees and charges for City services, adopting local laws and ordinances and hiring and overseeing the City Manager. The City Council has previously endorsed several policy guidelines resulting from discussions about the City's projected financial trends. The guidelines reflect the general consensus of the City Council and have provided a framework for developing the FY 07-08 and future years' budgets. Most importantly the guidelines were established to facilitate achievement of the budget's objectives by: providing tax relief to Oviedo taxpayers by reducing the millage rate from 5.335 to 4.650 mills, balance the general fund budget without appropriating fund balance and maintaining the city reserve for economic uncertainties at 15%, provide funding to ensure that organizational resources and physical infrastructure keep pace with the City's future growth, Increase funding of the city's dependent health insurance cost share and contain increases in health insurance premiums Budget guidelines are based on three principles which include revenues, expenditures and reserves. Based on revenues, the general fund operating budget millage rate was determined to be based on a 96% tax collection rate or a rate that is consistent with prior years' collection trends as computed against the Current Year Gross Taxable Value. Revenue projections for all major non-ad valorem revenue sources will be based on prudent trend analysis that considers current and projected economic conditions. Budget projections for State-shared revenues will consider State of Florida estimates that are contained in the Local Government Financial Information Handbook as one of several factors for determining final revenue estimates. The City was expected to exercise caution with regard to entering into agreements for onetime revenues that may adversely affect the city's long-term interests or result in future obligations. The use of revenues which had been pledged to bond holders would conform to bond covenants which commit those revenues. In balancing the City's annual budget, the City would balance the General Fund operating budget against current income. If fund balance must be appropriated to balance the budget, no more than three percent (3%) of all General Fund revenue will be comprised of appropriated fund balance and will be targeted to the extent possible against funding one time capital improvement projects. Budget guidelines based on expenditure states that the city council will adopt the annual budget at the fund level, whereas department managers will prepare their respective budgets at the department and program level and allocate appropriations to specific line items. Personal services will be estimated based on collective bargaining provisions governing salary adjustments, whereas salary adjustments for non-bargaining unit employees are based on parameters defined by the city manager and approved by the city council. Pension amounts are based on the defined level of funding as determined by the city's actuary and the parameters of the respective pension plans. Health insurance premiums and related benefit contributions to be paid on behalf of City employees will be estimated based on current market conditions that affect annual premium adjustments. Budget guidelines based on expenses are evidenced by the following: the General Fund inappropriate fund balance will be maintained at a minimum equal to fifteen percent (15%) of the annual General Fund budget. Should the undesignated fund balance fall below 15%, the City Council will take necessary steps to replenish the reserve to the 15% target level prior to the close of the following fiscal year. If the ending undesignated fund balance in the General Fund is above 15% of general Fund expenditures at fiscal year end, the City Council may transfer the excess amount above 15% to the any of the non-Water/Sewer Capital Project funds. The city manager will disclose the excess amount, if any, after completion of the financial audit and recommend transfer options for the subsequent fiscal year. In order to provide the resources necessary to ensure continued operations of the city's water/wastewater programs should a natural disaster occur or significant changes in the weather pattern, the City shall establish a Working Capital reserve equal to a minimum of ninety days of the Water/Wastewater operating budget less depreciation, annual debt service and capital expenditures. The City shall maintain a minimum capital reserve balance in the Water/Wastewater Renewal and Replacement Fund equal to 50% of the prior year depreciation expense for plant and equipment. According to the budget, various budget priorities have been integrated in the budgets decision. The funding of $22.4 million in FY 07-08 to maintain, repair and enhance the condition of the city's infrastructure for roads, general City facilities, drainage, water/wastewater and the New Town Center infrastructure, maintaining the city's strong financial position as measured by the 15% reserve level in the General fund and 25 (or 90 days of cash) in the water/wastewater Utility Fund, providing tax relief to Oviedo taxpayers by reducing the millage rate from 5.33 to 4.65 mill, providing the necessary staffing and financial resources to maintain current levels of service for a wide array of municipal services that city residents expect or desire to be provided by their city government, providing the necessary funding for wage increases that will allow the city to remain competitive when recruiting high-demand positions and to keep pace with wages in the central Florida employment market. The City Manager is the chief executive officer of the city who directs the organization and gives executive leadership essential to carry out the mission, goals, and policies introduced by the City Council. The City Manager's Office is responsible for the effective and efficient provision of all City services and enforcement of all laws pursuant to the City Charter, including human resource and financial management, preparation and recommendation of an annual operating budget and five- year capital improvements program. The City Manager is also responsible for keeping the City Council informed as to the financial condition and future needs of the City, signing contracts on behalf of the city, and implementing and administering the policy directives of the City Council within the parameters of the city charter. His major roles are characterized by provision of the necessary staff support and administrative leadership to implement the strategic goals endorsed by the City Council, establishment of management and performance based systems to ensure implementation and accomplishment of strategic goals and departmental performance outcomes, implement the strategies from the City's Economic Development Business Plan (and related policy directives of the City Council and the ED Task Force) to enhance business recruitment and retention, ensuring that approved capital improvement projects are completed on time and within acceptable budget limits and in accordance with the priorities set by the city council through the 5 Year capital Improvements Program (CIP), ensuring that the city remains competitive and keeps pace with wages in the Central Florida employment market and keep turnover below 12%. It is worth noting that the city's citizens were in involved in the development of the budget in that a national survey was carried out in order to obtain the views and suggestions which greatly contributed in the development of the budget. According to the Adopted Annual Budget (2007-08), the inputs of the citizens were effectively since strategic allocations of funds were made to the specific issues that were raised. Reference Adopted Annual Budget, 2007-08 Fiscal year: October 1, 2007 through September 30, 2008. City of Oviedo, Florida. Read More