1 municipal budgeting basics presented by: the department of municipal affairs

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Municipal Budgeting Basics

Presented by:

The Department of Municipal Affairs

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Introduction to Budgeting

The budgeting process is the first phase of a municipality’s financial management cycle

It will produce a valuable planning tool to use as a guide to the management and operation of the municipality

The budget is a written plan, expressed in dollars It is only as accurate as the information collected

and the thoroughness of the process

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The Importance of Budgeting

Sets standards for controlling costs Allows regular comparisons between

estimated and actual costs Allows timely adjustments to programs

and services Must be done to establish tax rates Ensures realistic planning and estimates Communicates council’s plans to others Provides an opportunity for evaluation of

programs and services

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Budget Categories

Categories:

1.Current/Operating – expenditures for goods and services which will be used within one year.

2.Capital – expenditures on equipment and infrastructure expected to last for a number of years.

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Developing a Realistic Budget

Preparation of a realistic budget emphasizes: Council giving clear direction to the staff

regarding financial priorities, goals and objectives

The need for accurate, up-to-date information

Completing expenditures estimates BEFORE revenues

Scaling expenditures to “FIT” the available revenues is NOT a very good practice.

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Who Does the Budget?

The clerk or manager is responsible for the actual preparation of the budget, but it is the Council which must adopt the budget.

Council may appoint a Finance Committee to guide and coordinate the budget process

A typical Finance Committee would include: The mayor One or two councillors The clerk or manager

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Deadlines and Time Frames

Municipal Fiscal Year - January 1 to December 31

The Budget Cycle - October 1 through one full year

Budget Time Frames: September 1 - start gathering information By December 1 - prepare and adopt

budget… By December 31 - submit budget to

Minister…

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Deadlines and Time Frames

EXCEPTION Time frames may be

different in the case of an election year or revised budget.

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Six Steps to Successful Budgeting

1. Establish a Budget Calendar Actions to be completed Who is responsible Dates when these actions are to be

completed

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Six Steps to Successful Budgeting....Sample Budget Calendar

What

(Actions)Who?

(Person/Group)When?

(Date)Collect all necessary information for budget preparation

Clerk/Manager Sept. 1

Send out notices to request input from committee, group that is supported by Council funds or accountable to Council

Clerk/Manager Sept. 1

Submit input to Council; include requests for next year’s programs and activities and an evaluation of last year’s programs

All departments, committees, groups requesting budgeted funds for the next fiscal year

Oct. 1

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Six Steps to Successful Budgeting....Sample Budget Calendar

What

(Actions)Who?

(Person/Group)When?

(Date)Review all material and prepare draft budget for presentation to Council

Clerk/Manager; Finance Committee

Nov. 1

Make adjustments and prepare final budget

Clerk/Manager; Finance Committee

Nov. 1

Present final budget to Council for approval

Clerk/Manager; Finance Committee

Dec. 1

Submit budget to the Minister of Municipal Affairs for review

Council Dec. 31

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Six Steps to Successful Budgeting

2. Collect all necessary information Assessment Roll Loan payment schedules Past budgets Goals & objectives of Council Tax collection statistics Audited financial statements, internal financial

reports and bookkeeping records

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Six Steps to Successful Budgeting

2. Collect all necessary information Financial policies and procedures The current year’s “year-to-date” operating

costs as well as forecasted amounts for the balance of the year

Annual evaluations of Council programs, services, and activities

Program statistics

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Six Steps to Successful Budgeting

3. Request information from others Review financial statements of

funded groups Request budget estimates from

groups seeking funding Review reports and program

evaluations on previous year’s activities

Meet with groups seeking funds

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Six Steps to Successful Budgeting

4. Review information and prepare draft What to Review:

Goals and objectives of council Differences between past budgets and actual

expenditures (Financial Statements) Effectiveness, cost implications and benefits of

all council activities – on-going or proposed Financial policies and procedures . . . Are they

still relevant?

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Six Steps to Successful Budgeting

4. Review information and prepare draft, cont’d

Preparing the draft Complete the Debt Charges Summary

Reminder: ensure that the totals for Council Annual Payment & Provincial Annual Payment are recorded in the proper place under Expenditures (7.1 – Debt Charges From all Sources)

Reminder: ensure that the total for Provincial Annual Payment is recorded in the proper place under Revenues (4.1.2 – Provincial Portion of Debt Charges)

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Six Steps to Successful Budgeting

4. Review information and prepare draft, cont’d

Preparing the draft, cont’d Estimate and record expenditures

Estimate and record expected revenues

Prepare draft for presentation to Council

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Six Steps to Successful Budgeting

5. Review the draft and make adjustments If there is a Finance Committee - draft is reviewed

and adjustments made to balance the budget If there is no committee, council thoroughly

reviews draft and approves any adjustments Several meetings may be needed to finalize the

budget

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Remember…

The draft budget review process is an excellent opportunity to: Help Councillors to better understand the

budget process and the overall financial picture of the municipality

Take the time to ask questions about the relevance and viability of municipal programs, services and activities

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Remember…

Approved budgets MUST be balanced.

Revenues = Expenditures

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Six Steps to Successful Budgeting

6. Adoption & submission of budget Adoption by December 1 at a regular council

meeting Budget notes/highlights to be made available

Adopted budget is transcribed onto official form and sent to Municipal Affairs for ministerial review

Municipal Affairs staff will review and Council will be advised if revisions are required

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Did You Know That…?

All tax rates for the coming year should be set and approved by resolution of council …Section 101(1)

Even though no changes are made. . . Tax rates should be re-adopted each year for the record

This practice is essential when taking court action against taxpayers in arrears

You have an official record of the tax rates in effect for previous years

March 31 is an important date . . . Why? Tax rates cannot be changed after March 31…Section

101(4)

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Did You Know That…?

A council shall publish annually a copy of its tax structure in a newspaper circulated in a municipality and by public notice in a municipality…Section 109(1)

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The Municipal Budget Submission Form

There are five main sections: Front Page Debt Charges Summary Expenditures Revenues – Includes tax rates

information Summary of the Municipal Budget

Submission Form

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The Front Page

Here is where you identify: Your municipality The budget period The date of approval The individuals, by their signature (mayor,

clerk/manager) who verify the adoption of the budget

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Debt Charges Summary

If council owes money for loans received, the Debt Charges Summary must be completed

The lending sources are typically the Banks, the Newfoundland and Labrador Municipal Financing Corporation (NMFC), and the Canada Mortgage and Housing Corporation (CMHC)

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Debt Charges Summary

Using the loan information obtained from the lender(s), complete the table in the summary

Your previous audited statement should contain a summary of all loans for the previous year

ALL loans must be reported You should complete the Debt Charges

Summary BEFORE you prepare your draft budget. WHY?

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Debt Charges Summary

Loan Number Name of Creditor Purpose (Water/Sewer; Roads; etc.) Original Principal Maturity Date Council Annual Payment Provincial Annual Payment

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Debt Charges Summary

TOTAL Council Annual Payment TOTAL Provincial Annual

Payment

7.1 – Debt Charges from all Sources (Under Expenditures, Fiscal services, p. 4)

TOTAL Provincial Annual Payment

4.1.2 – Provincial Portion of Debt Charges (Under Revenues, Government Transfers, Provincial Government Grants and Subsidies, p. 9)

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Expenditures/Revenues and Summary

Expenditures: Estimated expenditures are entered here

Revenues: Estimated revenues are entered here The budget form requires that the various tax rates

set by a municipality be recorded in the appropriate boxes in this section

Summary of the Municipal Budget Submission Form: This is an “at-a-glance” summary of the reported

expenditures and revenues

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The Municipal Budget Submission Form - Expenditures

1.0 General Government 2.0 Protective Services 3.0 Transportation Services 4.0 Environmental Health 5.0 Planning and Development 6.0 Recreation and Cultural Services 7.0 Fiscal Services

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The Municipal Budget Submission Form - Expenditures

1.0 GENERAL GOVERNMENT 1.1 Council

1.1.1 Remuneration for Councillors 1.1.2 Travel

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The Municipal Budget Submission Form - Expenditures

1.0 GENERAL GOVERNMENT1.2 General Administration

1.2.1 Salaries 1.2.2 Employee Benefits 1.2.3 Payroll Burden 1.2.4 Travel 1.2.5 Supplies 1.2.6 Purchased Services (other than Insurance) 1.2.7 Professional Services 1.2.8 Insurance

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The Municipal Budget Submission Form - Expenditures

1.0 GENERAL GOVERNMENT 1.3 Municipal Elections & By-Elections 1.4 Property Assessment Services 1.5 Common Services

1.5.1 Engineering Services 1.5.2 General Maintenance 1.5.3 Professional Development and Training 1.5.4 Public Relations

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The Municipal Budget Submission Form - Expenditures

2.0 PROTECTIVE SERVICES 2.1 Fire Protection 2.2 Emergency Preparedness and Response 2.3 Animal and Pest Control 2.4 Municipal Enforcement 2.5 Other Protective Services and Inspections

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The Municipal Budget Submission Form - Expenditures

3.0 TRANSPORTATION SERVICES 3.1 Vehicle and Fleet Maintenance 3.2 Road Transport

3.2.1 Streets, Roads, Sidewalks, etc. 3.2.2 Snow Removal 3.2.3 Street Lighting 3.2.4 Traffic Services

3.3 Public Transport 3.4 Other Transportation Services

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The Municipal Budget Submission Form - Expenditures

4.0 ENVIRONMENTAL HEALTH 4.1 Water Supply 4.2 Sewage Collection and Disposal 4.3 Garbage and Waste Collection and Disposal 4.4 Other Environmental Health Services

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The Municipal Budget Submission Form - Expenditures

5.0 PLANNING AND DEVELOPMENT 5.1 Planning and Zoning 5.2 Community Improvement and Development 5.3 Regional Development 5.4 Tourism and Marketing 5.5 Other Planning and Development

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The Municipal Budget Submission Form - Expenditures

6.0 RECREATION AND CULTURAL SERVICES 6.1 Recreation Administration 6.2 Recreation Facilities

6.2.1 Recreation and Community Centres 6.2.2 Parks, Playgrounds, etc. 6.2.3 Stadium 6.2.4 Swimming Pool

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The Municipal Budget Submission Form - Expenditures

6.0 RECREATION AND CULTURAL SERVICES, cont’d 6.3 Cultural Facilities 6.4 Recreation and Cultural Programs, Activities,

etc. 6.5 Other Recreation and Cultural Services

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The Municipal Budget Submission Form - Expenditures

7.0 FISCAL SERVICES 7.1 Debt Charges From All Sources

7.1.1 Council Annual Payment 7.1.2 Provincial Annual Payment

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The Municipal Budget Submission Form - Expenditures

7.0 FISCAL SERVICES 7.2 Transfers to Authorized Reserves and

other Funds7.2.1 Provision for Uncollectible Taxes, Fees, & Charges7.2.2 Operating Deficit of Prior Year7.2.3 Accumulated Deficit Reduction Plan7.2.4 Discounts, Losses, Allowances7.2.5 Capital Expenditures Out of Revenue

7.2.5.1 Gas Tax 7.2.5.2 All other (please provide list)

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The Municipal Budget Submission Form - Expenditures

7.0 FISCAL SERVICES 7.2 Transfers to Authorized Reserves and

other Funds 7.2.6 Authorized Transfers to Reserves & Other Funds

7.2.6.1 Gas Tax 7.2.6.2 All Other (please provide list)

7.3 Bank Charges & Other Fiscal Services

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Dealing with HST

REMINDER:HST paid out or rebated is not

recorded in the budgetThe EFFECT of HST is reflected

in the budget for expenditures that are taxable

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Dealing with HST

Budget Item: Office supplies for council officeValue: $200Clerk will budget for $216 . . . Here is the calculation:

Cost of Supplies ……$200Plus HST . . . . . . . ….+$26 (5% GST is $10 ; 8% PST is $16) Total………....$226Less GST rebate …. - $10 (100% of GST, which is $10) ($200 + $26) - $10 = $216

Budget for supplies: $216

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Dealing with HST

Budgeting without including the applicable taxes will result in an under estimation of costs

Including the full 13% HST and not factoring in the rebate will result in an over estimation of costs

In some cases, the dollar amounts involved can be significant !!

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The Municipal Budget Submission Form - Revenues

1.0 Taxes and Related Revenues 2.0 Sales of Goods and Services 3.0 Other Revenue From Own Sources 4.0 Government Transfers 5.0 Other Transfers

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The Municipal Budget Submission Form - Revenues

1.0 TAXES AND RELATED REVENUES 1.1 Property Tax Information

1.1.1 Residential Property Info. 1.1.1.1 Mill Rate Method 1.1.1.2 Minimum Tax Method 1.1.1.3 Residential Grants in Lieu 1.1.1.4 Residential Exempt Properties

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The Municipal Budget Submission Form - Revenues

1.0 TAXES AND RELATED REVENUES 1.1 Property Tax Information

1.1.2 Commercial / Non-Residential 1.1.2.1 Mill Rate Method 1.1.2.2 Minimum Tax Method 1.1.2.3 Non-Residential Grants in Lieu 1.1.2.4 Tax Agreements 1.1.2.5 Non-Residential Exempt Property

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The Municipal Budget Submission Form - Revenues

1.0 TAXES AND RELATED REVENUES 1.2 Water and Sewage Tax Information

1.2.1 Residential Water and Sewage 1.2.1.1 Number of households NOT connected 1.2.1.2 Water and Sewage Tax 1.2.1.3 Water Tax Only (if separate tax) 1.2.1.4 Sewage Tax Only (if separate tax) 1.2.1.5 Other Residential Water and Sewage Tax

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The Municipal Budget Submission Form - Revenues

1.0 TAXES AND RELATED REVENUES 1.2 Water and Sewage Tax Information

1.2.2 Commercial / Non-Residential Water and Sewage 1.2.2.1 Number of Commercial / Non-Residential Units

NOT connected 1.2.2.2 Water and Sewage Tax 1.2.2.3 Water Tax Only (if separate tax) 1.2.2.4 Sewage Tax Only (if separate tax) 1.2.2.5 Other Commercial / Non-Residential Water

and Sewage Tax 1.2.2.6 Industrial & Institutional Water and Sewage

(e.g. fish plants, hospitals)

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The Municipal Budget Submission Form - Revenues

1.0 TAXES AND RELATED REVENUES 1.3 Other Taxes

1.3.1 Poll Tax 1.3.2 Business Tax 1.3.3 Utility Tax 1.3.4 Municipal Utility (Sales) Tax 1.3.5 Direct Seller Tax 1.3.6 Other Authorized Taxes

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The Municipal Budget Submission Form - Revenues

2.0 SALES OF GOODS AND SERVICES● 2.1 Garbage Collection Fees● 2.2 Recreation and Cultural Services● 2.3 Transportation Services● 2.4 Fire Protection Service Fees● 2.5 Animal and Pest Control Fees● 2.6 Tipping Fees● 2.7 Water Supply● 2.8 Other Sales of Goods and Services

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The Municipal Budget Submission Form - Revenues

3.0 OTHER REVENUE FROM OWN SOURCES● 3.1 Assessments, Levies, Fees and Charges● 3.2 Rental Income● 3.3 Interest From Investments● 3.4 Interest Collected on Overdue Accounts● 3.5 Other Revenue From Own Sources

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The Municipal Budget Submission Form - Revenues

4.0 GOVERNMENT TRANSFERS 4.1 Provincial Government Grants and Subsidies

4.1.1 Municipal Operating Grant 4.1.2 Provincial Portion of Debt Charges 4.1.3 Other Provincial Grants and Subsidies

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The Municipal Budget Submission Form - Revenues

4.0 GOVERNMENT TRANSFERS 4.2 Federal Government Grants and Subsidies

4.2.1 Gas Tax 4.2.2 Other Federal Grants and Subsidies

● 5.0 OTHER TRANSFERS● 5.1 Operating Surplus of Prior Year● 5.2 Transfers from Authorized Reserves

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The Municipal Budget Submission Form – Debt Servicing Ratio (DSR)

Municipal Annual Debt Payment

Local Revenue + MOG

= DSR (%)

Follow the instructions on Page 10 of the Budget Submission Form to calculate your municipality’s DSR

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Summary of the Municipal Budget Submission Form

From the Municipal Budget Submission Form, transcribe the following onto the Summary Form : Totals of the seven expenditure functions Total expenditures Totals of the five main revenue sources Total revenues

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Monitoring the Budget

Ensure that your budget is monitored on a monthly basis: To insure that your goals and objectives

will be met To allow council to take corrective action

on a timely basis if operational circumstance cause you to stray from your financial plan

Use a Budget Variance Report Compares actual expenditures to-date

with budgeted figures

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Last updated on October 21, 2010, by Melanie Sheppard