Home rule charters generally stipulate a date by which the city or county manager must submit a proposed budget. For example, the charter for the City of Fort Worth, Texas, requires that “on or before August 15 each year, the City Manager must submit to the City Council a proposed budget that provides a complete financial plan for all city funds and activities for the ensuing year.”2 General law local governments and those that operate without a home rule charter follow the time line spelled out in state law. Some states specify detailed timetables; others have relatively few requirements other than that the local government annually adopt and publicize a comprehensive spending plan before the fiscal year begins.
In state governments and in larger local governments, the budget document sub-mitted to the legislature provides a summary compiled from the budget database. This document typically includes
• An organizational chart for the city, county, or state
• A message from the city or county manager or governor summarizing the major policy issues
• Background information, such as budget procedures, a summary of citizen surveys or other public perceptions, financial management policies, strategic goals, a summary of the long-range financial forecast, and a statement of the economic outlook for the city, county, or state
• A section summarizing the key issues considered in the current budget proposal and the chief executive’s recommendations
• A series of tables summarizing revenues by source, expenditures by fund and department, FTE positions by fund and department, and proposed changes in FTE positions
• More detailed information by department on spending requests (sometimes aggre-gated into broad categories, such as personal services, supplies, contractual services, and capital items to be funded through the operating budget); departmental goals, objectives, and performance measures; and FTE positions by rank
• A separate section on debt service obligations for the budget year
• Additional sections on enterprise activities, such as water and wastewater manage-ment, the municipal golf course, the airport, and other fee-for-service ventures Figure 8–1 Total budget overview, Dallas, Texas
Source: City of Dallas, Texas, Annual Budget for Fiscal Year 2012–2013 (September 19, 2012), 22, dallascityhall.com/
Budget/adopted_1213/FY13-AdoptedBudgetBook.pdf.
• Detailed spending proposals for internal service activities, such as data processing, the motor vehicles pool, and office supplies
• A separate section on expenditures for trust funds, such as employee pensions, insur-ance, workers’ compensation, and pending litigation
• A separate section or volume containing detailed information on the proposed cap-ital spending plan for the year (if the capcap-ital budget is prepared concurrent with the operating budget).
Council members often have particular areas of interest and will devote more time to those areas, scrutinizing the information and making certain that they understand the implications of proposed changes. Rarely will a council “rubber stamp” the manager’s proposed budget. The manager and budget office will be called on during the legisla-tive approval phase to explain requests, clarify justifications, and prepare at the council’s request documentation on alternative spending scenarios.
Legislative deliberations
Up to this point, deliberations on the budget have been largely outside the purview of public scrutiny. Council involvement in the early stages of budget preparation also varies, depending on the manager’s leadership philosophy and on precedent in that city or county. For example, before the budget kickoff meeting, some managers poll their councils to determine their spending priorities for the coming budget year. Others hold a leadership retreat for the council and city staff before departmental budgets are pre-pared so that they can review economic conditions, strategic priorities, and the results of the most recent citizen survey. Council and staff might use this retreat to update the government’s strategic plan, developing new priorities that will guide departments as they prepare their budget requests and the executive budget team as it chooses the new initiatives to include in the proposed executive budget.
The process has now come full circle as the council reenters the dialogue to assess how well the executive branch has responded to its priorities. If there has been little legislative involvement up to this point, the proposed executive budget may contain surprises for members of the council—never a good idea. Thus, the astute manager will have prepared the council for new initiatives or other spending and revenue issues well before the budget is released, thereby avoiding the need to educate council members on the details in the spending plan in order to “sell” the budget. Although council mem-bers should be prepared in advance for requests for new revenue sources or proposed increases in taxes or fees, open and frank discussions of the proposed changes and increases should be expected and encouraged.
Some councils prefer to work through committees. The executive budget may go to a budget and finance committee that first reviews the spending plan and the accom-panying proposed revenue requirements. Other councils work as a committee of the whole, and all members of the legislative body participate in all aspects of the adoption process.
Local governments have experimented with citizen budget advisory committees with varying degrees of success. Such committees, composed of council- or board- appointed representatives, provide legislators with a citizen’s perspective on the pro-posed spending plan. However, if the citizen committee is no more representative of the community than the council itself or the department heads who submitted the original requests, it may unnecessarily complicate budget deliberations and ultimately add little value to the final product. Citizen committees tend to work best and add
the most value when there is continuity of membership from year to year so that they gain some understanding of the economic issues, budget processes and procedures, and performance measures. Ensuring that the committee composition is diverse and rep-resents a true cross section of the community also can make the process more valuable to councils.
Shortly after delivery of the executive budget, the council begins holding a series of budget work sessions in which members of the budget office and the manager’s office walk the council through the proposed budget page by page. These sessions are open to the public, and state or local law may require public notification, including posting or publishing a summary of the proposed budget. Public notice of tax or fee changes may also be required, which the city secretary or county clerk posts in the appropriate venue (local newspaper, city website, city hall bulletin board) and for the appropriate time period (e.g., at least fourteen days in advance of the council’s expected action).
A continuing challenge for local governments at this stage is to generate broad citizen interest and participation in the budget process.
As the legislative body works through the budget, the requirement for a balanced budget means that most of the discussion will usually center around activities and ser-vices funded from taxes. For local governments, adjusting the property tax rate provides the means to bring revenues into balance with planned expenditures. For the vast majority of local governments in the United States that levy a property tax, adoption of the budget is accompanied by adoption of a property tax ordinance that sets the tax rate at a level sufficient to fund operations (not necessarily capital) for the coming year or biennium. Sometimes growth in the tax base (assessed value) is more than sufficient to cover increases in expenditures. As it works through the spending options, the council keeps an eye on the impact of proposals on the property tax rate and often consults with the budget office on the effect of proposed initiatives on that rate.
Councils usually devote much less attention to the budgets for utilities and other government-sponsored enterprises and for internal services (the proprietary group of activities) unless those budgets include a significant fee increase. Unlike the tax-supported operations in the general fund, proprietary fund activities, including internal services, are usually self-supporting; their level of activity is determined by market forces, not the political process. Proprietary activities fund their expenditures with user charges, so outlays fluctuate with consumption. The ordinance approving their budgets typi-cally limits expenditures to the purpose of the enterprise activity and sets a maximum appropriation for the fiscal year. Figure 8–2 shows a sample budget ordinance from Durham, North Carolina, that combines adoption of the budget with approval of the tax rate.
Councils must also approve the budget for debt service—the annual payment of principal and interest on borrowed funds. Sometimes debt service is funded through a transfer from the general fund to the debt service fund. In other cases, a separate dedi-cated tax levy—usually a portion of the property tax—is collected and deposited directly into the appropriate debt service fund. Again, there is little discussion by council on this appropriation since it represents a legally binding commitment that no govern-ment that wants to retain its credit rating will renege on.
The debt service funds account for only the general obligation (GO) debt, which is used to finance capital improvements that support the general operations of govern-ment. Most of this debt service is funded through general revenues, such as property and sales taxes. Estimating the amount of annual debt service is a fairly straightforward task for the budget office in that few policy issues are involved.
Figure 8–2 Budget ordinance, Durham, North Carolina
Source: Durham, North Carolina, “Annual Budget Process,” XIII-2, durhamnc.gov/ich/as/bms/Documents/
2012-2013_final_budget/Section%20XIII%20combined%20final%207%203%2012.pdf.
The appropriation bill
Since adoption of the budget and accompanying taxes or fees constitutes a legal action, specific procedures apply. In the case of the appropriation—the act adopting a budget and granting authority to the executive branch to enter into agreements that will result in the future disbursement of funds—a council may be required to have a first and second reading of the proposed ordinance. The first reading puts the proposed bill on the table for council action; the second, and final, reading enacts the budget. If there is opposition to the spending (or taxing) plan, it most likely will be voiced at the second reading. Prior to one or both readings, the council sets aside time for a public hearing. Sometimes separate hearings are held for the budget and tax proposals; at other times the two are considered at one hearing. Again, state law usually defines the parameters for what local governments can do.
As an aid to council deliberations, the manager’s message introducing the proposed bud-get typically discusses the major initiatives and the cost and changes in personnel for each, organized by strategic area. If economic development is one of the strategic priorities, the manager’s message will discuss each of the new initiatives in the proposed budget designed to help promote that priority. The budget office may prepare a similar document summa-rizing the council’s changes to the executive’s budget proposal, and the reasons for those changes, to give department heads and other budget preparers insight into the council’s thinking so that proposals not funded this time around can be reworked over the next year.
Most local governments adopt one appropriation bill that covers all operating expenditures for the year. If a biennial budget is used, the appropriation bill contains separate amounts for each year in the biennium, or, less commonly, two separate appro-priation bills may be approved. If a separate capital budget is prepared, usually a separate appropriation ordinance is drafted and approved for capital expenditures. (The U.S. Con-gress, which uses a unified budget, adopts thirteen separate appropriation bills, one for each subcommittee of the House and Senate Appropriations Committees.)
As the council deliberates on the budget ordinance, members may offer amendments to the proposal modifying the level of funding for a particular area. Each amendment is voted on, and those that receive a majority vote become part of the amended budget ordinance. After all the amendments have been acted upon, the final amended budget is approved and becomes the legally binding spending plan for the fiscal year.
Councils that use a work session prior to council approval may rely on a more informal process to make changes to the manager’s proposed budget. These changes are discussed during the work session and, if supported by the majority of the council, are used to modify the final budget. The council then approves the revised budget when it is taken up at the regular council meeting.
If a long-term financial forecast is prepared—a three- to five-year projection of trends in the major revenue sources and expenditures and of their effect on the city’s or county’s budget balance—the council may give the manager and budget office direction on spending and revenue options when the forecast comes up for discussion, which is usually at the outset of budget preparation. (The council will review the forecast but take no formal action since the forecast serves as an internal planning tool.) In this case, most of the controversial issues will have been resolved well before the budget is pre-sented to the council for action.
Final budget approval
In the system of checks and balances that characterizes American government, the exec-utive usually possesses some veto power over legislative actions. This is also the case with
appropriation bills. State governors wield varying degrees of veto power, from line-item veto power to no veto power (North Carolina).3 There are no known cases where an appointed city or county administrator can exercise veto power over a council action.
However, mayors in some council-manager and in most mayor-council governments typically possess veto power, including line-item veto of appropriation bills. Councils in these governments can override any vetoes, typically with an extraordinary majority.
Should a local government fail to adopt a budget before the beginning of the fiscal year, state and local laws may provide recourse. In some cases, local charters lay out the way to proceed; in some Texas cities, the city charters dictate that the manager’s budget de facto becomes the legally authorized appropriation. In some states, such as New Jersey, a state agency must approve certain local budgets before they become effective. In cases of extreme fiscal distress, states have taken over the financial operations of a local government, including budget preparation and adoption.
As the fiscal year progresses, major events, such as a sudden drop in revenues or a natural disaster, may require the executive to request amendments to the budget to authorize new expenditures. Most amendments, however, address smaller issues: an unexpected need or a misestimate of the cost of a piece of equipment. In some cases, the council may intentionally underfund an activity or acquisition and ask that the agency return later in the fiscal year for a supplemental appropriation. Governmental accounting rules require that the annual financial report disclose both the original bud-get as approved and the final budbud-get as amended.