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University Place, WA
Budget Policy Guidelines
2001-2002 Adopted Biennial Budget
Budget Guide
I. OPERATING BUDGET
A. OVERALL
1. The purpose of budget policies is:
a. to ensure the City maintains a financial base sufficient to sustain a consistent level of municipal services;
b. to ensure the City is able to withstand local and regional economic variations;
c. to adjust to changes in the service requirements of the community, and;
d. to maintain a good credit rating in the financial community which assures taxpayers that City government is well managed financially and maintained in sound fiscal condition.
2. The budget should be a performance, financing, and spending plan agreed to by the City Council, City Manager, and Department Directors. It should contain information and data regarding expected revenues, expected expenditures, and expected performance.
3. The City will prepare and annually refine written policies and goals to guide the preparation of performance, financing, and spending plans for the City budget. Adopted budgets will comply with the adopted budget policies and Council priorities.
4. As a comprehensive business plan, the budget should provide the following critical elements recommended by the Government Finance Officers Association: public policies, financial plan, operations guide, and communications device.
5. The City's budget presentation should display the City's service delivery/performance plan in a Council/constituent-friendly format. Therefore, the City will use a department budgeting format to convey the policies and purposes of City operations.
6. Decision making for capital improvements will be coordinated with the operating budget to make effective use of the City's limited resources for operating and maintaining facilities.
7. Under the City Manager's direction, Department Directors have primary responsibility for: a) formulating budget proposals in line with City Council and City Manager priority direction, and b) implementing those proposals once they are approved.
B. FISCAL INTEGRITY
1. The City will maintain the fiscal integrity of its operating, debt service, and capital improvement budgets which provide services and maintain certain public facilities, streets and utilities. It is the City's intent to maximize the level of public goods and services while minimizing the level of debt.
2. Ongoing operating program costs may not exceed the amount of ongoing revenue to finance those costs. The ongoing revenue will be identified along with new program costs. Any available carryover balance may be used to offset one-time or non-recurring costs.
3. Cash balances in excess of the amount required to maintain strategic reserves may be used to fund one-time or non-recurring costs.
C. CONTINGENT ACCOUNTS
1. The City shall annually establish an appropriated Contingency Reserve (RCW 35A.33.145) in order to accommodate unexpected operational changes, legislative impacts, or other economic events affecting the City's operations which could not have been reasonably anticipated at the time the budget was prepared. Funding shall be targeted at three (3) percent of the City's operating expenditures.
2. The City shall establish a Strategic Reserve Fund which shall neither be appropriated nor spent without Council authorization. The purpose of the fund is to provide some fiscal means for the City to respond to potential adversities such as public emergencies, natural disasters, or similarly major, unanticipated events. Funding shall be targeted at not less than five (5) percent of the City's operating expenditures, which may be adjusted annually by the City Council during the biennial budget process.
3. The City shall fund certain asset replacement reserves through depreciation charges paid to the Internal Service Funds.
4. Replacement reserves based on historical value will be established for any equipment, furnishings, and computer software should the need continue beyond the estimated initial useful life, regardless of whether the equipment is acquired via lease, gift, or purchase. An amount equal to the depreciation will be included in the service charges paid by City departments to the various Internal Service funds (Fleet and Equipment, Property Management, Information Technology and Services, and Risk Management). The furnishings reserve may be used for building rehabilitation and will be replenished until cost is fully recovered. This will permit the accumulation of cash to cost-effectively replace these assets and smooth out future budgetary impacts. The City will also maintain a fixed asset system that will identify all city assets and their condition.
5. The strategic reserve should be replenished as soon as possible and always within three subsequent years from the time the reserve is used or falls below the target. Sources to replenish these reserves shall be from undesignated fund balances, deferring non-life safety capital, and operating revenues in this order.
D. REVENUES
1. Revenue estimates shall not assume any growth rate in excess of inflation. Real growth that occurs will be recognized through budgetary adjustments only after it takes place. This practice imposes short-term constraint on the level of public goods or services. However, in the event that revenues are less than expected, it minimizes the likelihood of severe cutback actions which may be profoundly disruptive to the goal of providing a consistent level of quality services.
2. Investment income earned through the City's investment pool shall be budgeted based upon the allocation methodology, i.e. the projected average monthly balance of each participating fund.
3. The City will establish and maintain Special Revenue Funds to account for proceeds from specific sources to finance designated activities which are required by statute, ordinance, resolution, or executive order.
4. All fees for services shall be reviewed and adjusted (where necessary) at least every biennium to ensure that fees are equitable and the cover the total cost of service or that percentage of total service cost deemed appropriate by the City.
5. Revenues of a limited or indefinite term should be used for capital projects or one-time operating expenditures to ensure that no ongoing service program is lost when such revenues are reduced or discontinued.
6. Grant applications to fund new service programs with state or federal funds will be reviewed by the City, as they become available, with due consideration being given to whether locally generated revenues will be required to support these programs when outside funding is no longer available.
E. EXPENDITURES
1. Before the City undertakes any agreements that would create fixed ongoing expenditures, the cost implications of such agreements will be fully determined for current and future years with the aid of the City's strategic financial forecast model.
2. Organizations that are not part of the City, but which receive funding from the City, shall not have their appropriation carried forward from year to year unless expressly authorized and directed by the City Council. Annual review and reauthorization of funding is required.
F. MULTI-YEAR FORECAST
1. Each year, the City will update expenditure and revenue forecasts for the next six years. Projections will include estimated operating costs for future capital improvements that are included in the capital budget.
2. These estimates will be presented to elected officials in a form that will facilitate budget decisions and strategic planning, based on a multi-year strategic planning perspective.
G. QUARTERLY REPORT
1. The budget will be produced so that it can be directly compared to the actual results of the fiscal year and presented in a timely quarterly report.
2. All budget amendments - both revenues and expenditures - will be noted in the quarterly report.
H. MINIMIZATION OF ADMINISTRATIVE COSTS
1. An appropriate balance will be maintained between resources allocated for direct services to the public and resources allocated to assure sound management, internal controls and legal compliance.
I. CITIZEN INVOLVEMENT
1. Citizen involvement shall be encouraged in the budget decision-making process through public hearings and study sessions.
2. Involvement shall also be facilitated through City boards, task forces, and commissions, which shall serve in advisory capacities to the City Council and/or City Manager.
II. CAPITAL BUDGET
A. FISCAL POLICIES
1. Capital project proposals should include cost estimates that are as complete, reliable, and attainable as possible. Project cost estimates for the Capital Budget should be based upon a thorough analysis of the project and are expected to be as reliable as the level of detail known about the project. Project cost estimates for the Six-Year Capital Improvement Plan will vary in reliability depending on whether they are to be undertaken in the first, third, or sixth year of the Plan.
2. All proposals for the expenditure of capital funds shall be formulated and presented to Council within the framework of a general capital budget and, except in exceptional circumstances, no consideration will be given to the commitment of any capital funds, including reserve funds, in isolation from a general review of all capital budget requirements.
3. Project proposals should indicate the project's impact on the operating budget, including, but not limited to, long-term maintenance costs necessary to support the improvement.
4. The Annual Capital Budget shall include only those projects which can reasonably be accomplished in the time frame indicated. Each budgeted capital project should include a projected schedule.
5. Capital projects which are not encumbered or completed during the fiscal year will be rebudgeted or carried over to the next fiscal year except as reported to and subsequently approved by the City Council. All rebudgeted capital projects should be so noted in the Adopted Capital Budget. Similarly, multi-year projects with unencumbered or unexpended funds will be carried over to the subsequent year(s).
6. Capital projects will not be budgeted unless there are reasonable expectations that revenues will be available to pay for them.
7. Citizen participation in the Capital Improvement Program is a priority for the City. Among the activities which shall be conducted to address this need are the following:
a. The Capital Improvement Plan shall be provided to the City Council in a timely manner to allow time for the Council members to review the proposal with constituents before it is considered for adoption.
b. Council study sessions on the Capital Improvement Plan shall be open to the public and advertised sufficiently in advance of the meetings to allow for the attendance of interested citizens.
c. Prior to the adoption of the Capital Improvement Plan, the City Council shall hold noticed public hearings to provide opportunities for citizens to express their opinions on the proposed plan.
8. All projects included in the Capital Improvement Plan should be consistent with the City's Comprehensive Plan. The goals and policies for services, facilities, and transportation should be followed in the development of the Capital Improvement Plan. The Comprehensive Plan service level goals should be included in the Capital Improvement Plan.
9. Capital projects shall be financed to the greatest extent possible through user fees, grants, and benefit districts when direct benefit to users results from construction of the project.
10. Projects that involve intergovernmental cooperation in planning and funding should be established by an agreement that sets forth the basic responsibilities of the parties involved.
11. The Council will annually review and establish criteria against which capital proposals should be measured. Included among the factors which will be considered for priority-ranking are the following:
a. Projects which have a positive impact on the operating budget (reduced expenditures, increased revenues);
b. Projects which are programmed in the Six-Year Capital Improvement Plan;
c. Projects which can be completed or significantly advanced during the Six-Year Capital Improvement Plan;
d. Projects which can be realistically accomplished during the year they are scheduled; and
e. Projects which implement previous Council-adopted reports and strategies.
B. DEBT POLICIES
1. A debt policy can help the City Council and staff integrate the issuance of debt with other long-term planning, financial, and management objectives. It also evaluates the impact of each issue on the City's overall financial position. Finally, a debt policy provides guidance to the City Council and staff so as to not exceed acceptable levels of indebtedness.
2. Long-term Borrowing
a. General obligation bonds, or G.O. Bonds, are secured by the full faith and credit of the City. General obligation bonds issued by the City are secured by a pledge of the City's ad valorem taxing power. There are two basic types of general obligation bonds:
i. Limited tax general obligation bonds, also called LTGO bonds or councilmanic bonds, may be issued by a vote of the City Council. General fund revenues are pledged to pay the debt service on councilmanic bonds because the voters have not approved a tax increase to pay for the principal and interest.
ii. Unlimited tax general obligation bonds, also called UTGO bonds or voted debt, must be approved by 60 percent of the voters, with a voter turnout that is at least 40 percent of those voting in the most recent general election. Voters are not only voting for the approval to issue bonds, but they are also voting for an excess levy which raises their property taxes to fund debt service payments.
b. Certificates of Participation are used to acquire real or personal property with tax-exempt financing using a lease-purchase agreement. The City would make annual installment payments to a third party investor over time, acquiring the property at the end of the lease period for a nominal payment.
c. Revenue bonds are issued to finance facilities that have a definable user or revenue base, usually a City enterprise that is self-supporting. These debt instruments are secured by a specific source of funds, either from the operations of the project being financed or from a dedicated revenue stream, rather than the general taxing powers of the City. Generally, no election is required prior to the issuance or validation of revenue bonds.
d. Special assessment bonds or local improvement districts (LIDs) are obligations payable from special assessment revenue. These bonds are issued to finance improvements that benefit a specific area. Because the benefit is largely enjoyed by a limited segment of the community, a special assessment to pay debt service is levied only on properties or households benefiting from the project. Property owners may petition the City to form an LID, or the City Council may adopt a resolution of intent to form an LID. An LID initiated by Council Resolution may be blocked if the property owners who would be paying at least 60 percent of the costs protest. LIDs are commonly used for projects such a street improvements, street lights, sidewalks, and water and sewer systems.
e. Utility local improvement districts (ULIDs) may be formed in a manner similar to LIDs for the purpose of providing water systems, sewer and storm drainage systems, and parking garages. The primary difference between the two kinds of districts is that revenue bonds must be issued for ULIDs, assessments must be deposited in a fund to pay off the revenue bonds, and the bonds are backed both by assessments and by utility revenue.
3. Short-term Borrowing
a. Notes, such as bond anticipation notes (BANs) or tax anticipation notes (TANs), is a written short-term promise of the City to repay a specified principal amount on a certain date, together with interest at a stated rate, or according to a formula for determining that rate, payable from a defined source of anticipated revenue such as bonds, anticipated taxes, or some other anticipated revenue source expected to be received at a future date.
b. Lines of credit are another short-term borrowing option that provides an alternative to anticipation notes. A bank and the City agree on the maximum amount that will be available under the line of credit. The City provides a note to the bank that is backed by the full faith and credit of the City.
4. City Council approval is required prior to the issuance of debt. In addition, an analytical review shall be conducted prior to the issuance of debt to determine if there are reasonable alternatives and to reduce the cost of borrowing.
5. The City will use the services of a legally certified and credible bond counsel in the preparation of all bond representations.
6. A Financial Advisor may be used to assist in the issuance of the City's debt. The Financial Advisor provides the City with objective advice and analysis on debt issuance. This includes, but is not limited to, monitoring market opportunities, structuring and pricing debt, and preparing official statements of disclosure.
7. An Underwriter(s) will be used for all debt issued in a negotiated or private placement sale method. The Underwriter is responsible for purchasing negotiated or private placement debt and reselling the debt to investors.
8. A Fiscal Agent will be used to provide accurate and timely securities processing and timely payment to bondholders. In accordance with RCW 43.80, the City will use the Fiscal Agent that is appointed by the State.
9. Short-term lines of credit, tax or Revenue Anticipation Notes may be used only when the City's ability to implement approved programs and projects is seriously hampered by temporary cash flow shortages. In general, these Notes will be avoided. No other form of debt will be used to finance ongoing operational costs.
10. Whenever possible, the City shall identify alternative sources of funding and shall examine the availability of those sources in order to minimize the level of debt.
11. Whenever possible, the City shall use special assessment, revenue, or other self-supporting bonds instead of general obligation debt.
12. Long-term general obligation debt will be incurred when necessary to acquire land or fixed assets, based upon the ability of the City to pay. This debt shall be limited to those capital improvements that cannot be financed from existing revenues and when there is an existing or near-term need for the project. The project should also be integrated with the City's long-term financial plan and Capital Improvement Plan.
13. The maturity date for any debt will not exceed the reasonable expected useful life of the project so financed.
14. The City shall encourage and maintain good relations with financial and bond rating agencies, and will follow a policy of full and open disclosure on every financial report and bond prospectus.
15. The City shall establish affordability guidelines in order to preserve credit quality.
16. Long-term borrowing will only be used for capital improvements that cannot be financed from current revenues.
17. Short-term borrowing will only be used to meet the immediate financing needs of a project for which long-term financing has been secured, but not yet received.
18. DEBT MANAGEMENT POLICY
The City Council adopted Resolution No. 100, setting forth its debt management policy, on May 6, 1996. The resolution provides, in general, that:
- The maturity date for any debt will not exceed the reasonable expected useful life of the project so financed.
- Long term debt will not be used to finance ongoing current operations and maintenance.
- The City shall attempt to maintain a cash reserve of eight percent (8%) of its operating budget, the approximate equivalent of one month's operating requirement.
- The City shall attempt to maintain a balanced relationship between issuing debt and using pay-as-you-go financing.
- In determining which type of debt to issue, the following factors should be considered:
- A significantly larger portion of the citizens should benefit from projects financed by general obligation bonds.
- Whenever possible, the City shall identify alternative sources of funding and shall examine the availability of those sources in order to minimize the level of debt.
- The project should be integrated with the City's long-term financial plan and Capital Improvement Plan.
- The City shall encourage and maintain good relations with financial and bond rating agencies, and will follow a policy of full and open disclosure on every financial report and bond prospectus. The City shall also establish affordability guidelines in order to preserve credit quality.
BASIS OF ACCOUNTING AND BUDGETING
Accounting
Accounting records for the City are maintained in accordance with methods prescribed by the State Auditor under the authority of Washington State law, Chapter 43.09 R.C.W., and in compliance with generally accepted accounting principles as set forth by the Governmental Accounting Standards Board.
Basis of Presentation - Fund Accounting
The accounts of the City are organized on the basis of funds and account groups. Each fund is a separate accounting entity with a self-balancing set of accounts. The account groups are financial reporting devices used to provide accounting control for certain assets and liabilities not recorded in the funds because they do not directly affect net expendable available financial resources. Under the current governmental accounting model, there are three broad fund categories, seven generic fund types within those categories and two account groups. A purpose and description of the fund is provided on the fund pages in the Budget by Fund section of this budget document. A description of the three fund categories and the generic fund types included in each category is provided below.
Governmental Funds Types
Governmental funds are used to account for activities typically associated with state and local government operations. All governmental fund types are accounted for on a spending or "financial flows" measurement focus, which means that typically only current assets and current liabilities are included on related balance sheets. The operating statements of governmental funds measure changes in financial position, rather than net income. They present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. The four generic fund types in this category are described in the following paragraphs.
The General Fund is the general operating fund of the City and accounts for all activities not required to be accounted for in some other fund.
Special Revenue Funds account for the proceeds of specific revenue sources - other than expendable trusts or revenues designated for major capital projects - that are legally restricted to expenditures for specific purposes.
Debt Service Funds account for the accumulation of resources for and the payment of general long-term debt, principal, interest, and related costs.
Capital Projects Funds account for the acquisition or construction of major capital facilities except those financed by proprietary funds and trust funds.
Proprietary Funds are used to account for activities similar to those found in the private sector where the intent of the governing body is to finance the full cost of providing services, including depreciation, primarily through user charges. The measurement focus for these funds is based on the commercial model which uses a flow of economic resources approach. Under this approach, the operating statements for the proprietary funds focus on a measurement of net income (revenues and expenses) and both current and non-current assets and liabilities are reported on related balance sheets. Their reported fund equity (net total assets) is segregated into contributed capital and retained earnings components. As described below, there are two generic fund types in this category.
Enterprise Funds account for operations that are financed and operated in a manner similar to private business enterprises where the intent of the City is to finance or recover, primarily through user charges, the costs of providing goods or services to the general public on a continuing basis.
Internal Services Funds account for business-like activities where related goods or services are primarily provided to other departments or funds of the City on a cost-reimbursed basis.
Fiduciary Funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, or other funds. These funds share characteristics with both the governmental and proprietary funds and therefore, as described below, use the measurements focus and basis of accounting most appropriate to their specific operations. This fund category includes expendable trust, nonexpendable trust, pension trust, and agency funds. The City uses funds in two of these subclassifications to account for its current financial activities: 1) two expendable trust funds, where both the principal and revenues earned on that principal may be expended for purposes designated by the trust agreement; and 2) one agency fund which accounts for assets that the City holds for other funds, governments, or individuals.
Expendable Trust Funds are accounted for in essentially the same manner as governmental funds, having a flow of current financial resources measurement focus and using the modified accrual basis of accounting. Agency funds are custodial in nature (assets equal liabilities) and do not measure the results of operations.
Account Groups
To facilitate the measurement of the sources and uses of current financial resources in the governmental funds, separate account groups are used to account for related non-current or non-financial resources, such as general fixed assets and unmatured general long-term debt. On this basis, the City uses the following account groups to establish accounting control over related assets and liabilities not recorded in the governmental funds.
The General Fixed Assets Account Group accounts for all fixed assets of the City other than those assets accounted for in the proprietary funds.
The General Long-term Debt Account Group accounts for all long-term debt of the city other than debt accounted for in the proprietary funds.
Basis of Accounting
Basis of accounting refers to when revenues and expenditures or expenses are recognized and reported in the financial statement.
The accrual basis of accounting is used by proprietary fund types, pension trust funds, and nonexpendable trust funds. Under this method, revenues are recognized when earned, and expenses are recognized when incurred.
The modified accrual basis of accounting is used by governmental, expendable trust, and agency funds. Revenues and other financial resources are recognized when they become susceptible to accrual, i.e., when the related funds become both measurable and available to finance expenditures of the current period. To be considered "available", revenue must be collected during the current period or soon enough thereafter to pay current liabilities.
Budgets and Budgetary Accounting
Scope of Budget - Annual appropriated budgets are adopted for the general, special revenue, debt service, and proprietary funds on the modified accrual basis of accounting. Certain special revenue and capital project funds, however, are budgeted on a project-length basis. For governmental funds, there are no differences between the budgetary basis and generally accepted accounting principles. Budgets for project/grant related special revenue funds and capital project funds are adopted at the level of the individual project and for fiscal periods that correspond to the lives of projects.
Legal budgetary control is established at the fund level, i.e., expenditures for a fund may not exceed the total appropriation amount. Any unexpended appropriation balances for annually budgeted funds lapse at the end of the year. Appropriations for other special purpose funds that are non-operating in nature are adopted on a "project-length" basis. Therefore, these appropriations are carried forward from year to year without reappropriation until authorized amounts are fully expended or the designated purpose of the fund has been accomplished.
The individual funds within each fund type which are included in the City's annual operating budget are listed below:
Funds Budgeted on an Annual Basis
General Fund is used to account for all financial resources except those required to be accounted for in another Fund.
Special Revenue Funds are established to account for proceed of specific revenue sources that are legally restricted to expenditures for specified purpose.
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Place Fund |
Debt Service Fund is to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest.
Enterprise Fund accounts for operations that are normally financed and operated in a manner similar to a private business enterprise where the intent of the governing body is that the costs of providing goods and services to the general publicly on a continuing basis be financed or recovered primarily through user charges. The City currently doe not operate an Enterprise Fund.
Internal Service Funds are established to account for the financing of goods ad services provided by one department of the governmental unit on a cost reimbursement basis.
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Services Fund |
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Funds Budgeted on a Multi-Year Basis
Special Revenue Fund - This fund is established to account for proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes.
Capital Project Funds account for financial resources to be used for the acquisition or construction of major capital facilities.
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