Financial policies

1. Operating Budget Policies

The objective of the operating budget policies is to ensure that sufficient information is available to decision makers to provide for adequate levels of funding for essential City services at reasonable costs.

1.1 Balanced budget

The operating budget for the City shall be balanced. For each fund, ongoing costs are not to exceed ongoing revenues plus available fund balances used in accordance with reserve policies.

1.2 Basis of budgeting

The basis of budgeting and accounting are the same, except as noted below. The budgets of all governmental funds are created using the modified accrual basis. Revenues are budgeted if they are measurable and available as net current assets. Major revenues determined to meet these standards for accrual and budgeting include the following: property taxes, special assessments, grants-in-aid, intergovernmental revenues, rentals, franchise fees, and intra-city charges.

Interest on investments, short-term notes, and loans receivable are budgeted, but interest on special assessments receivable is not budgeted. Major revenues that are not accrued because they are not available soon enough to pay liabilities of the current period or are not objectively measurable include the following: delinquent property taxes and assessments, licenses, permits, fines and forfeitures. Delinquent property taxes are not budgeted, while the other categories are budgeted on a cash basis.

In the governmental funds, expenditures are generally budgeted when the related fund liability is incurred. Only the current portion of principal and interest expense on general long-term debt is budgeted. Compensated Absences and Other Post-Employment Benefits (OPEB) are not budgeted and are considered expenditures at the time they are paid. Salary expenditures are budgeted based on full time equivalents (FTEs), regardless of the type of pay.

Proprietary (internal service and enterprise) funds use the accrual basis, and revenues are budgeted as they are anticipated to be earned. Unbilled utility service receivables are recorded at year end. Utility service revenue estimates are based on the number of users and volume of service consumed, without a factor for delinquencies. Long-term liabilities are recorded at full cost, including Compensated Absences and the actuarial accrued liability for Other Post - Employment Benefits.

1.3 Budgetary controls

The legal level of budgetary control is at the department level within a fund. The City Coordinator's Departments, the Public Works Department and the City Council/City Clerk/Elections areas are examples of legal levels of budgetary control within a fund, even though budgetary data may be presented at lower levels within the department. Budget amendments at the department/fund level must be approved by the City Council. Budget amendments below the department/fund level are not required.

Generally, all appropriations for operating activities lapse at year end. Encumbrances and other requests may be approved during the roll-over process after year end [see re-appropriation authority in the Authority of Finance Officer Section].

Purchase orders, certain contracts, and other commitments are recorded as encumbrances, which may reserve appropriation authority. Encumbrances outstanding at year-end are reported as restrictions of fund balance. The appropriations for these encumbrances do not automatically transfer to the following year, but rather are included as part of the annual roll-over process.

1.4 Proprietary funds vs. discretionary budget

Proprietary funds include only those internal service and enterprise funds that are considered separate and subject to the intended purposes of those internal services and enterprises. Discretionary budget is the appropriation that is included as part of a department’s base budget, but which is not associated with the need to fund the costs of a given position within that department. Whenever discretionary budget is assigned to support a given position on an ongoing basis, it will remain in the base budget but will no longer be considered discretionary.

1.5 Service levels

The City uses a Current Service Level methodology of budgeting, meaning any ongoing service level commitments from a prior year constitute the starting point for the next year’s budget. Finance and Property Services, in conjunction with other internal service providing departments, works annually to determine the costs for the continuation of current services into each successive year.

Departments, programs, and activities supported by the General Fund shall receive a target allocation each year to cover expenses for operating costs including: increases for personnel (including salary and fringe), inflationary increases for internal services (including IT, Fleet, Rent, etc.), and inflationary increases for self-insurance. Departments, programs, and activities supported by non-General Funds shall cover current service level operational expense, including General Fund Overhead expense, with fund revenues. A benchmark for inflationary increases will be determined each year by Finance leaders using economic indicators. Any increase in budget needed above and beyond inflationary increases will be proposed as a change item in the budget process.

Changes in service levels shall be governed by the following:

1.6 Budget process

The annual budget process is intended to weigh all competing requests, also known as Change Items, for City resources within expected fiscal constraints. Requests for new programs or activities, or expansion of existing programs or activities, shall be submitted as a part of the annual budget process. These submissions shall conform to a format as prescribed by the Budget Director, and shall at a minimum separate operating expenses from programmatic expenses, and articulate what outcomes are expected as a result of the new level of service as well as an analysis of the impacts on racial equity.

1.7 Personnel expenses

The Budget Office, in conjunction with the Human Resources department, will establish the current service level budget appropriation for each department. Departments are to account for the salaries and benefits of permanent employees within these budget appropriations.

Factors considered in this current service level budget appropriation for personnel include:

• Salaries. Each position, active as of March 1st, will be budgeted at the incumbent's step. In addition, all newly created job classes will be budgeted at the middle of their assigned salary range. Exceptions may be granted on a case by case basis at the discretion of the Budget Director. Departments may request an exception only if they can provide replicable data showing that employees in a particular job class are paid higher on average in their department than the enterprise.
• Overtime. Unless specifically directed by the City Council, overtime costs are not included in salary budgets.
• Premium Pay. Different types of premium pay, such as shift differentials, on call pay, etc., will be included in salary budgets to the extent that it is predictable that such costs will be incurred. The Budget Office will work with Human Resources to identify where and to what extent that predictability exists.
• Health Insurance and HRA/VEBA. All positions will be budgeted at the incumbent’s selection of Health Insurance coverage, and vacant positions will be budgeted assuming family coverage. Exceptions may be granted on a case by case basis at the discretion of the Budget Director.

Departments may use projections of bell-curve staffing to adjust the level of employees throughout the year as long as the department does not exceed its appropriated budget. If the department cannot meet its obligations within its adopted budget, as identified in ongoing cooperation with Finance and Property Services, the department may seek budget amendments through requests to the City Council via the Ways & Means Committee.

1.8 Adding FTE administratively

Departments may increase their approved FTE complement administratively through the budget process if they have sufficient discretionary ongoing budget to do so. In cases where departments decide to take such action, the full cost of adding the FTE will be reduced from the department’s discretionary non-personnel budget amount in order to pay for the increase. Departments that wish to add an FTE Administratively should submit a change item request during the annual budget process.

1.9 Position reclassification and promotions

During the year departments may, in consultation with Human Resources, decide to reclassify positions and/or promote staff between job classifications - so long as funding exists to support any additional expenses incurred as a result of this action. In cases where departments incur additional salary expense associated with reallocation or promotion, the marginal increase will be reduced from the following year’s discretionary base budget amount. Vacancy savings may not be used to cover the costs of reclassification and promotions.

1.10 Overtime limitation

If Departments are requesting budgets for Overtime, departments shall bring those requests through the budget process via a change item so they can provide rationale and a new analysis each year for their overtime needs.

1.11 Internal Service Fund charges

Internal service funds’ charges shall be fully allocated to the extent possible using approved allocation methodology. Charges allocated to General Fund departments shall be funded per the approved allocation model which will be consistent with the targets approved by finance. Non-General Fund departments, including special revenue funds and enterprise funds, shall fully fund their allocated costs with fund revenues. Additional costs incurred by departments throughout the year shall be funded by the department with the understanding that the expenditures were either planned through the annual budget-setting process or as part of the department’s discretionary budget. Appropriation authority used in one year to enhance internal service fund-related costs will be reviewed on an annual basis for continued appropriation in the subsequent budget year, including both operating and non-CIP capital requests. Subject to review by Finance and Property Services and the internal service fund staff, the additional cost and/or service may be funded through the cost recovery model in the subsequent budget year using the approved allocation methodology.

1.12 Elected official budgets

A year-end deficit in an amount not to exceed 25% of the original annual allocation maybe allowed for each ward and the Mayor's office budget. If a deficit is carried over, the next fiscal year’s allocation will be reduced by a corresponding amount. A year-end deficit may not be carried over for more than two consecutive fiscal years absent formal action by City Council. A year-end deficit is not allowed between the final year of a term and the first year of a new term. A year-end savings in a ward or Mayor's budget may be re-appropriated from one year to the next year through the annual budget reconciliation action in accordance with the City’s financial policies. Year-end savings are not allowed to be carried forward between the final year of a term and the first year of a new term. The City Council, in its discretion, may refuse to allow any deficit or savings to be carried over into a successive fiscal year. The full City Council Ward Budget Guidelines are available upon request from the City Clerk’s Office.

1.13 Five-Year Financial Direction

City departments prepare business plans with a rolling five-year planning horizon which reflect the anticipated allocation of general City revenues, including property tax and state aid revenue, as well as special revenues other than grant funds. This financial direction is based upon the City’s shared revenue distribution policy which aligns the revenue growth of City departments and independent boards. The financial direction is updated annually with each budget release. City departments update their major financial projections prior to their final submission to the Mayor and Council.

1.14 Self-supporting enterprises [including Internal Service Funds]

All enterprise activities of the City shall be self-supporting, including those activities contained within the Internal Service Funds. To the extent that an activity is not self-supporting, long-term financial plans shall be created to secure a self-supporting state in the future.

1.15 Grant funded programs

General governmental programs financed with grant awards may be budgeted in special revenue funds, and the service program shall be adjusted to reflect the level of available grant funding. Grant funding for permanent improvement funds and internal service and enterprise fund activities shall be accounted for in those funds. Individual grant budgets are controlled in the financial system at the cost category level. In the event of reduced grant funding, City funding sources may be substituted only after all competing program priorities are considered during the annual budget process. Grant programs that require an ongoing City funding commitment shall be specified at the time of grant acceptance and may be rejected on the basis that the City is unwilling or unable to provide continued funding.

1.16 Grant funding in the Five-Year Financial Direction

All appropriations of grant funding require Council approval. Any department applying for grant funding should be aware of the effect on its budget.

Budget effects include, but are not limited to, such items as:

• local match requirements;
• additional costs for maintenance, operation, and replacement of equipment and other capital assets purchased with grant funding; or,
• requirements for maintenance of a minimum staffing level and/or maintenance of effort contribution after the grant ends.

The department requesting the approval and acceptance of grant funding shall determine the amount of additional City resources that will be required to fund any local match requirement as well as the ongoing services, maintenance and operation costs, and positions once the grant funding expires. Those estimates shall be reported to the Finance and Property Services Department, as well as included as information when seeking Council approval for the application, acceptance and/or entering into the grant agreement.

As a condition of accepting the funds, the Council shall identify the amount and source of permanent resources - by adding to, or repurposing within, existing budgets - necessary to fulfil any ongoing commitments associated with the acceptance. If necessary, the Council shall amend the Five-Year Financial Direction to reflect any such changes. In the event the Council fails to provide budgetary resource necessary to fulfill ongoing commitments associated with the acceptance of a grant, the receiving department shall be responsible for absorbing the costs of those ongoing commitments into their existing budget.

For additional grants management policies, see the Administrative Policies section.