The City Manager, working through the Director of Finance and Finance Department shall be responsible for all areas of operation related to operating and capital budgeting, financial management, accounting and internal controls, investing and treasury services, and debt management for the City.
- Brief Description of Budget Process
The City's fiscal year runs from October 1 through September 30. The City Charter requires that a balanced operating budget shall be presented annually to the Council within 30 to 60 days prior to the beginning of each fiscal year.
The budget process for the City begins in March of each year with preparation in the Finance Department and concludes in September, with the adoption of the operating and capital budget by ordinance. In April, the department heads shall provide input regarding the anticipated financial needs of each department. In May, the City Manager reviews each department's request with the Department Heads. In early June, the City staff meets with the Council to determine the Council's program initiatives for the upcoming year. This information allows the staff to prepare a proposed budget that is discussed in greater detail at the annual budget workshop in July each year.
In accordance with the Charter, a draft budget is presented in early August of each year at an open council meeting, and contains the direction received from the council at the budget workshop. If no changes are suggested at the draft presentation, a budget ordinance containing the next year's operating and capital budgets is introduced. Two weeks after the introduction of the budget ordinance, a public hearing is held in an open Council meeting to allow public input and the Council adopts the budget no later than 15 days prior to be beginning of the fiscal year.
- Budget Policies
Budgets are prepared on a modified accrual basis for all funds. The modified accrual basis recognizes revenues when they are measurable and available for current use. Expenditures are recognized in the period in which payments are paid from current available resources.
The budgets are prepared generally on the same basis with the basis of accounting for each fund. However, the following exceptions are made: 1) that for proprietary funds the City does not budget for depreciation of assets, 2) the City recognizes both the principal and interest portion of debt service payments as expenses for budgeting purposes, and 3) the water and wastewater revenues are budgeted on a cash basis to provide a more adequate matching of cash inflows and outflows.
The City prepared budgets using the underlying accounting principle of conservation. This principle dictates that in preparation of revenue projections, estimates used shall be on the low end of the range as possible outcomes. Conversely, in projecting expenditures, estimates used shall be at the high end of the range of possible outcomes.
Responsibility for maintaining spending within authorized budgets rests with the Department Heads. Budgetary control is set at account level, meaning that each individual line item must be managed such that expenditures do not exceed the appropriations for that line item. Savings realized from salary or capital-related items should not be spent without prior approval from the City Manager or Assistant City Manager. The Director of Finance will provide support to departments on the management of their budget by providing accounting system access to budget and expenditure information, by notifying them of unusual variances as they come to the attention of the Finance Department, and by providing assistance in intra-department transfers as needed.
Reserve funds should not be used to finance on-going, current operations. If reserve funds are used for this purpose, a preliminary plan to return that fund to a balanced operating budget within two years should be presented to Council prior to budget adoption. Additionally, non-recurring type revenues should not be used to balance the operating budgets unless doing so is part of a plan to implement rate or tax increases over several years. Non-recurring or one-time revenue sources are appropriate for purchase of capital expenditures or non-recurring expenditures.
The City Manager, and Assistant City Manager in the absence of the City Manager, has the authority to authorize transfers within each fund. However, changes in total appropriations of any one fund must be approved by Council in an open meeting by resolution. Original budget appropriations are increased each year by amounts encumbered at the end of the previous fiscal year, as evidenced by outstanding purchase orders or other verifiable purchase commitments by the City. Otherwise, budget appropriations lapse at the end of each fiscal year.
A five-year Capital Improvement Program (CIP) should be adopted each year at approximately the same time schedule as is the operating and capital budget, and must be adopted by Council no later than the 25th day of the last month of the current fiscal year. The CIP represent Management's and the Council's intentions for future capital expenditures, and includes both general improvement projects, such as parks, street, and water and wastewater utility projects. This program is a plan of action for capital and infrastructure improvement and development, but does not bind current or future Management or Councils to fund those programs. Appropriations for all spending is authorized in a fiscal year basis only, and includes both operating and capital improvement budgets for that year.
- Financial Management
Rates in each of the major operating funds should be established in such sufficiency so as to provide for 25% to 35% of the resources necessary to fund related long-term capital projects, in addition to funding current operating expenditures. Management recognizes that the debt markets look for this measure of financial stability when pricing long-term debt issuance. Therefore, Management places this goal as a priority, to the extent reasonably possible, when developing ad valorem tax rates and water and wastewater utility rates.
Revenue in each of the major operating funds should provide funding sufficient for maintenance and repair of existing infrastructure and facilities. Additionally, current revenues should be used to fund purchase of recurring replacement of rolling stock whose useful life is five years or less. This would necessarily exclude such purchases as fire engines, backhoes, loaders and other large equipment, dump trucks and over-the-road tractors. In no instance, however, should assets whose lives are less than three years be financed through borrowing.
Included in the annual practice of balancing ongoing revenues with expenditures is a policy that allows for inter-fund transfers from the water and wastewater utility fund, solid waste fund, and electric fund to the general fund. These transfers recognize that those utility services utilize the general fund infrastructure, as do other external utility companies, and therefore should bear a portion of the cost in maintaining that infrastructure of streets, bridges, right-of-way, etc. The transfer is calculated, then, by assessing a franchise tax on each of those funds in a percent equal to that charged to private sector enterprises. Additionally, the utility fund is charged for an allocation of general fund administration expenses based on an estimated pro-ration of those expenditures.
A fund balance equal to at least 60 days of average annual expenditures should be maintained in each of the major operating funds: general fund, water & wastewater fund, electric fund, and solid waste fund. For other operating funds, the reserves should equal at least 45 days. By Charter, the City must maintain reserves for the general fund of at least 5% of the average annual expenditure, and for the other funds they should maintain at least 10%.
The City should endeavor to maintain reserves for other funds that are externally restricted by law, debt covenant, or otherwise by those sources at levels prescribed by those funds. Fund balances is defined as the sum of cash, pooled and temporary investments, and net receivables including those due form other governments, less current payable, advances from other funds, amounts due to other funds or governments, and current portion of long-term debt. For the insurance fund; the calculation also reduces current liquid assets by the amount of estimated claims liability,
The Liberty County Tax Assessor/Collector shall act as the Tax Assessor/Collector for the City. Management recognizes that conbining this function with other taxing entities results in economics of scale that reduce the costs for all entities, and provides a higher level of customer service by providing a centralized collection outlet. The City should work with the County to attain at least a 98% collection rate for all current taxes, and a collection rate equal to 100% of current taxes combined collection of delinquent and current taxes.
Annually, all Department Heads should perform a review of the fees and charges associated with their areas of responsibility to ensure that the costs of services they are providing, other than those general services supported by taxes in the general fund that are being offset by user fees. As needed, the director of Finance will work with staff and external consultants to review the sufficiency of water and wastewater rates to ensure the long-term financial stability of those operations.
The Finance Department will strive to take advantage of early payment discounts and will avoid late payment penalties on purchases made by the City by paying vendors invoices on the 1st and the 15th of each month.
Revenue collections will be maximized by preparing monthly, or in few cases quarterly, invoices to customers of the City for services provided to the customers. Delinquent notices will be sent 30 days after the initial invoice to help limit the unnecessary aging of the accounts receivable. Write-off of accounts should be done only after all other reasonable efforts to collect have failed. The write-offs will be performed on a quarterly basis. The Finance department will work with cash collection points around the City to provide alternate payment forms, such as bank drafts and credit card payments, when practicable. This will help minimize the amount of uncollectible accounts citywide.
The Director of Finance and management staff should be proactive in identifying financial risks, trends, and conditions that affect the current and long-term financial health of the City. Additionally, this monitoring process should include quarterly reports to the Council on timely and relevant financial topics designed to increase their awareness of the current financial environment of the City and regional economics.
- Accounting and Internal Controls
The Director of Finance shall be responsible for developing and maintaining a system of internal controls sufficient to safeguard the City's assets. Elements of a system of internal controls include such things as: segregation of duties, restricting access to the City's assets, management expenditures reviews, proper transactions authorizations-including dual authorization for disbursement, and controlled disbursement techniques at the City's depository. Department Heads are responsible for ensuring that those procedures are followed. Safeguarding of assets is greatly enhanced by each department maintaining written procedures related to the protection of assets in their area of responsibility. Also, cooperation with Finance Department staff in performance of periodic audits of cash and cash handling procedures will aid in completion of this objective.
Accounting for the financial activities of the City shall be maintained and presented in accordance with generally accepted governmental accounting principles, and with reporting standards set forth in Governmental Accounting Standards Board Statement No. 34. The Finance Department should strive to obtain a clean (unqualified) audit opinion form the external auditors each fiscal year and strive to minimize the management letter comments relating to deficiencies in matters of internal control.
Appointment of the City's external auditors by the Council should be made within 90 days of the end of the fiscal year.
Selection of external auditors should be made on a rotating basis, with contracts approved annually for three to five consecutive fiscal periods. The auditors should present the financial statements to the Audit Committee within 120 days of the end of the fiscal year being audited.
- Investments, Cash Management and Treasury
Investment of City funds shall be made in accordance with the Public Funds Investment Act and with the City's investment Policy and shall emphasize (in this order): appropriateness of investment instruments for city purposes, safety of principal, liquidity of the portfolio, individual investment portfolio, and investment yield. The City shall use a third-party custodian for the safekeeping of all direct investments owned by the City.
The Assistant City Manager and Director of Finance shall serve as Investment Officers for the City. Furthermore, the Director of Finance shall oversee the day-to-day operations relating to investment transactions. Investment and Cash Management decisions should be made with at least the same level of prudence that one would make in the management of his or her own personal affairs. The City's investment policy, which is reviewed and approved annually by the council, provides more detail about the responsibilities of the Investment Officers and the guidelines under which investment decisions are to be made.
Annually, the Director of Finance is responsible for evaluating the depository and treasury need of the City and ensuring the services provided by the current depository are adequate for the City's needs. The City's depository shall have a branch within the City, and should be approved annually by the Council. The selection of the depository should be made utilizing a competitive bid process every three to five years.
- Debt Management
Debt management refers to the City's ability to provide funding for purchase of long-term assets. One of the underlying principles in this policy area is that the Director of Finance will consider alternate means of financing capital assets prior to issuing bonded indebtedness. This alternate financing mechanisms may include the use of unallocated reserves, interfund loans, grants, lease-financing arrangements, and other means as deemed prudent.
The City's debt management policy dictates that debt should not be issued for a term longer than the useful life of the underlying capital asset financed through the debt. Adherence to this policy promotes the long-term ability of the City to borrow as needed by keeping the debt coverage ratio as high as possible. To this end, the outstanding balance of all Certificates of Obligation shall not exceed 1% of the current years ad valorem tax valuations. Additionally, the total value of outstanding bonds issued by the City or on behalf of the City shall not exceed ten percent of the ad valorem tax valuation.
The sufficiency of the maintenance and operation (M&O) ad valorem tax rate should be evaluated independently of the required interest and Sinking (I&S) tax rate. That is, the City should not attempt to lower the M&O rate as the I&S rate increases, simply in an effort to maintain balanced General Fund budget, irrespective of the I&S rate.
It is the policy of the City not to finance recurring repairs and maintenance through debt. Debt, whether bonded or not should be used for capital improvement, expansion, and development only. Funding for repair and maintenance of capital assets should come through revenue generated by rates charged to City customers. That is, the City should use its rate structure to provide ongoing funding of general and water and wastewater utility improvements. Likewise, the ability to make general debt service payments should be managed through the ad valorem tax rates, as they represent a measurable and relatively stable revenue source.
The Director of Finance should endeavor to work with the City's Financial Advisor to ensure compliance with applicable legal and arbitrage requirement of all bond issues. Furthermore, the Director of Finance is responsible for ensuring that all reporting requirements and other bond covenants are followed.