Budget Process

Budget Amendments

Only the City Commission shall make new or additional appropriations. Budgets may be amended after adoption with approval of the City Commission if changes result in an increase in appropriation. Budget amendment requests must be made in writing and approval is required from the appropriate department director, the Management Services Director/CFO, and the City Manager. The City Manager ultimately requests approval from the City Commission.

Salaries, Wages, and New Positions

The salaries of appointees and creation of positions, shall be made only by resolution or motion of the City Commission. The Chief Financial Officer is authorized to revise any payroll, fringe benefits, and other expenses paid by the City to conform to the terms of any labor contracts or other commitments, which have been approved by the City Commission.

Grants and Donations

The City Manager is authorized to accept grants and donations under $25,000. The acceptance of grants shall be considered as authority to expend funds for those purposes. A summary of grants and donations accepted by the City Manager will be presented to the City Commission twice a year as an informational item.

Limitations of Expenditures

It shall be the duty of the City Manager to oversee that each department director, excluding the City Attorney, City Clerk, and Internal Auditor, does not exceed the amount appropriated for their department except by prior authority of the City Commission. Only the City Commission shall make new or additional appropriations. It shall be the duty of the City Attorney, City Clerk, and Internal Auditor to see that they do not exceed the amount appropriated for their department except by prior specific authority of the City Commission.

Legislative action by the City Commission to issue bonds, accept grants and donations, and authorize special assessment projects shall be considered as authority to expend funds for those purposes, and no further appropriation authority will be necessary.

Commission Initiatives Expenditure Policy

The City Commission has an annual allocation for City Commission initiatives. Allocations from this budget must be approved by a majority vote of the City Commission. The Mayor will add the item to the formal agenda ahead of the meeting.

General Fund Undesignated Reserve

A balance equal to a minimum of 15% of current projected operating revenues shall be budgeted and maintained.

Contingency Reserve

Funds will be designated in a contingency reserve account within the General Fund with a target balance of $500,000. The funds will be available for priority initiatives. The use of reserve funds will be approved based on the established levels in the city purchasing policy. The City Manager is able to appropriate funds from this reserve for emergency use. Any use of reserves that causes the balance to fall below the recommended level will be replenished within one year.

Excess Reserves

Unrestricted reserves held in the General Fund beyond 20% of current projected operating revenues plus the $500,000 contingency reserve shall be budgeted on one-time expenditures in the year after the overage is calculated based on audited financial statements.

Reserve for Self Insurance

A reserve will be established to provide funding of a risk management program whereby the City is self- insured for workers' compensation, auto comprehensive and collision coverage, and is a member of the Michigan Municipal Risk Management Authority and Michigan Transit Pool with various deductibles and coverage limitations. This reserve is to be held in the Insurance Fund.

Budgeted Funds

The annual appropriation resolution shall apply to all funds except internal service funds, debt service funds, permanent funds and trust and agency funds. The City Commission is also required to approve the administrative budget for the pension trust fund.

Operating Budget

The operating budget will be based on the principle of financing current expenditures with current revenues or accumulated reserves. Expenditures shall include adequate funding of the retirement system and adequate maintenance and replacement of capital and operating assets.

Budgeted expenditures will reflect the City's perceived needs and desires of the community based on alignment with the strategic vision (IK 2025) and the priorities established by the City Commission. The budget is adopted on a basis consistent with generally accepted accounting principles (GAAP) except for certain items that are adjusted on the City's accounting system at fiscal year-end. These items are discussed in the Accounting section further down on this page.

Five-year projections are included for the General Fund, the Major and Local Street Funds, and the Capital Projects Fund. The five-year projections for the Capital Improvement Program for the Water and Wastewater funds are also included.

The Operating Budget provides for general services including personnel costs, supplies, services, and capital equipment and improvements. These capital purchases are on-going and include vehicles such as cars and trucks, miscellaneous machinery and equipment, and building improvements with an initial individual cost of $5,000 or more and a useful life of more than two years. Revenues for the Operating Budget include property taxes, user fees and intergovernmental sources and local contributions.

The budget is adopted on a basis generally consistent with City Charter, State of Michigan rules and guidelines, and generally accepted accounting principles (GAAP). The budget is prepared by line item listing dollar amounts budgeted for each expenditure category separately. The expenditure categories are Personnel, Operating, Services, Debt Service, and Transfers.

Revenues are presented within the resource sections by fund type (General Fund, Special Revenue, Capital Project, and Enterprise) by revenue category. Summary schedules of estimated revenues are presented in the Budget Summary section of the Annual Budget.

The financial activities of the City are recorded in separate funds and account groups, categorized and described as follows:

The City of Kalamazoo is organized on a departmental basis. The City's operations are accounted for under various cost centers known as activities or organizations within the departments. These activities or organizational units are consistent with the State of Michigan Chart of Accounts. The departmental unit is responsible for compliance with the approved budget. Each budgeting unit is within a particular fund of the City. Each of the revenue and expense items are assigned to a line item account number, and expenditures are presented at a line item detail within the following categories:

Personnel

Includes all salary and fringe benefit related costs, including base pay, overtime pay, vacation pay, holiday pay, sick leave pay, and special pays such as food allowance, tool reimbursement, pension contribution, health insurance, dental insurance, life insurance, workers' compensation, and employer social security expense.

Operating

The operating expense of the City which includes but is not limited to the purchase of supplies and services, travel and training, professional services, fees paid to outside sources for contractual services, utilities, liability insurance, lease payments, advertising, memberships and dues, and vehicle maintenance.

Capital Outlay

This includes expenditures for items added to the City's general fixed assets. These expenditures include the purchase of land, land improvements, building additions and improvements, machinery and equipment, office equipment and furniture, and vehicular equipment.

Debt Service

This includes the cost for interest and principal payments on the City’s long-term and short-term debt.

Transfers

Includes expenditures in the form of transfers to other funds, required grant match, and payment to another fund for the purpose of having an expense or cost recorded in the legally correct fund.

In addition to budgets for City Operations, the City of Kalamazoo Budget includes the Capital Improvement Program. The Capital Improvements Program (CIP) is a five-year forecast of capital expenses together with available funding resources. The first year of the forecast is adopted as the current year CIP budget.

The Capital Improvements Program (CIP) will reflect a consensus of the perceived needs and desires of the community based on current surveys and long-range planning. Projects included in the Capital Improvements Program shall be consistent with the City of Kalamazoo Strategic Vision. The CIP provides funding for those operations exclusive of enterprise funds. Eligible uses include capital projects, major equipment, debt service, and non-utility environmental expenses. The City will develop and maintain a CIP to plan and fund capital projects over a minimum five-year period coordinated with the Operating Budget. The Capital Improvements Program will, to the extent possible, be designed to protect the City's investments in capital and operating assets through timely and adequate maintenance and replacement of those assets.

Capital outlay for the purpose of the Capital Improvements Program is defined as expenditures that result in the acquisition or addition to fixed assets that have an estimated life of at least five years and monetary value of at least $20,000. Examples include construction of buildings or other structures, roads, sewers, parks, and the purchase of heavy equipment, fire trucks and buses. Funding for CIP include bond proceeds, donations, grants, and intergovernmental sources.

The debt service for bonds associated with the CIP for the Enterprise funds are recorded directly in the Enterprise Funds. In Governmental funds, the debt service is paid from a separate Debt Service fund, not included in the City Budget. In this case, the transfer to the debt service fund is made from the CIP fund.

The capital program receives contributions in aid to fund infrastructure in the Enterprise funds. Contributions in excess of the anticipated budget shall increase the appropriation by an amount equal to the contribution. Such increases will be brought forward to the City Commission twice a year as an informational item.

Budget Policies

The City of Kalamazoo budget policies are governed by the City Charter, the Uniform Budgeting and Accounting Act for Local Units of Government in Michigan, and generally accepted accounting principles. These laws provide for budget control, establish tax levy and assessment valuation limits, and provide for bonded debt limits. The City's resources and appropriations policies are extensions of these laws and follow generally accepted accounting and budgeting principles.

The City of Kalamazoo Charter (Section 67) states that by December 1 of each year, the City Manager shall submit to the City Commission an estimate of the expenditures and revenues for the upcoming fiscal year. Section 68 of the Charter requires that on or before February 1 of each year, the City Commission pass an annual appropriation resolution to cover expenditures. At the same time, the City Commission establishes certain policies covering the administration of the budget. A public hearing must be held prior to final adoption. Public notice must be posted at least six days prior to the hearing.

If the upcoming budget appropriation resolution is not ready for adoption prior to December 31, the Chief Finance Officer is authorized and directed to continue processing and issuing checks for normal payroll and expense operations of the City in accordance with prevailing practices. The Chief Finance Officer is authorized to revise any payroll, fringe benefits and other expenses paid by the City to conform to the terms of any labor contracts or commitments which have been approved by this City Commission, as needed for the above purpose.

By May 31st of each year the Board of Review will have completed its review and correction of the assessment roll. The assessment roll is presented to the City Commission along with the proposed amended annual appropriation resolution. They may revise the appropriation provided that the property tax revenue required shall not increase more than 5% over the amount in said resolution.

Act 5 of the Public Acts of 1982, as amended, requires a public hearing be held prior to the levying of an additional millage rate (The Truth-In-Taxation Act). The Charter, under Section 85, requires the City Commission will fully and finally confirm the annual assessment roll upon completion of the review, and correction of the roll by the Board of Review. This must be at least seven days after the public hearing and is confirmed by resolution along with confirming the general appropriation resolution, as amended.

The City is also required by the State of Michigan to present a balanced budget. An appropriation resolution cannot be adopted that would cause total expenditures, including an accrued deficit, to exceed total revenues, including an available surplus, according to Section 16 of Public Act 621 of 1978.

The City shall comply with Act 279 that generally provides the debt limit for a "home rule” city is 10% of its State Equalized Value (SEV). City Charter provides that the fiscal year of the City shall begin January 1.

The City Charter prescribes that the City Manager will submit to the City Commission a brief executive summary of the City’s financial activity on a monthly basis.

Subject to the applicable provisions of statutory and constitutional debt provisions and the City Charter, the City Commission, by proper ordinance or resolution, may authorize the borrowing of money for any purpose within the scope of the powers vested in the City. The City Commission may pledge the full faith credit and resources of the City for the payment of debt obligations. Section 21 of Article VII of the Michigan Constitution establishes the authority, subject to statutory and constitutional limitations, for municipalities to incur debt for public purposes. State law limits the rate of ad valorem property taxation for municipal purposes and restricts the powers of cities and villages to borrow money and contract debts. Each city and each village is granted power to levy other taxes for public purposes, subject to limitations and prohibitions provided by this constitution or by law.

In accordance with the foregoing authority granted to the State Legislature, the Home Rule Cities Act limits the amount of debt a city may have outstanding at any time. The Act provides that the net indebtedness incurred for all public purpose shall not exceed ten percent of the assessed value of all real and personal property in the city plus the combined constitutional and statutory state revenue sharing amount divided by the City’s millage rate.

Exceptions to the debt limitation have been permitted by the Home rule Cities Act for certain types of indebtedness. All special assessment bonds, Michigan Transportation Fund bonds, revenue bonds payable from revenues only, whether secured by a mortgage or not, and bonds issued, or contract obligations assessments incurred to comply with an order of the Water Resources Commission of the State of Michigan or a court of competent jurisdiction. Any obligations incurred for water supply, sewage, drainage or refuse disposal or resource recovery projects necessary to protect the public health by abating pollution, and bonds issued, or assessments or contract obligations incurred for the construction, improvement or replacement of a combined sewer overflow abatement facility.

Although the City has a sufficient legal debt margin, all decisions to enter in debt obligations are contingent upon the City’s ability to make debt service payments and maintain adequate reserves.

Debt will be used to finance long term capital and operating assets within the constraints of maintaining or improving bond ratings and debt service capacity. Debt management will provide for the protection of bond ratings, the maintenance of adequate debt service reserves, compliance with debt instrument provisions and appropriate disclosures to investors, underwriters, and rating agencies.

Investment management will strive to maximize investment return on the City's funds through pooling of funds where permitted, frequent market analysis, cash forecasting procedures, and competitive bidding. Interest income is applied on a percentage basis to each fund based on the fund's balance compared to total fund balances.

The Community Development Act Advisory Committee (CDAAC)

CDAAC is an advisory committee appointed by and to serve in an advisory capacity to the City Commission. The membership shall be comprised of thirteen (13) members who shall be City residents. There shall be one representative from each of the CDBG eligible neighborhoods, as determined by HUD, which have an active association with a 501C(3) status. The remaining members shall be at-large seats.

CDAAC manages the annual competitive process established by the City to allocate federal Community Development Block Grant and HOME Investment Partnership funds. CDAAC reviews and scores applications and recommends grant funding levels to the City Commission. After City Commission approval, organizations are notified of funding decisions.

Acceptable uses of City funds for food, awards, and appropriations to outside organizations are as follows:

• The City may host events in appreciation of the City’s workforce and provide tokens of appreciation to employees to recognize new hires, years of service and retirements.
• The City may provide beverages to employees, volunteer workers, elected officials and business guests during regular working hours and events that require public participation.
• The City may provide meals to employees, volunteer workers and elected officials for work conducted during normal meal times.
• Awards or prizes may be given to employees or outside parties in association with fundraising efforts or events to raise awareness.
• The City may host wellness luncheons to provide education to employees, in an effort to reduce the City’s health care costs.
• The City may make financial payments to outside organizations where a written agreement between the City and such organization has been executed.

Basis of Accounting

All governmental and agency funds utilize the modified accrual basis of accounting. Under this method, revenues are recognized when received, or accrued as a receivable when they become measurable and available to finance current operations. Significant revenues accrued by the City include property taxes, expenditure reimbursement type grants, certain inter-governmental revenues and special assessments.

Expenditures are recognized under the modified accrual basis of accounting when the related fund liability is incurred, except for interest on long-term debt and compensated absences, which are recorded when paid. The financial statements of proprietary, pension trust, OPEB trust, and non-expendable trust funds are reflected on the accrual basis of accounting, the revenues are recorded when earned and expenses are recorded as incurred.

Budgetary Basis vs. “Generally Accepted Accounting Policies” (GAAP)

The budget is adopted on a basis consistent with generally accepted accounting principles (GAAP) except for certain items that are adjusted on the City's accounting system at fiscal year-end. During the year, the City's accounting system is maintained on the same basis as the adopted budget. This enables budget units to monitor their budgets on a monthly basis through reports generated by the accounting system.

The differences between the budgetary basis and GAAP include the following:

• Compensated absences in the Enterprise funds are not expensed for budgetary purposes. GAAP requires compensated absences to be accrued when earned by the employees.
• Principal payments on outstanding debt in the Enterprise funds are expensed for budgetary purposes instead of being recorded as an adjustment to the balance sheet long-term liability.
• Capital outlay in Enterprise Funds is expensed for budgetary purposes instead of being recorded as an adjustment to the balance sheet capital asset.
• Pension and Other Post-Employment Benefits (OPEB) in Enterprise Funds are expensed for budgetary purposes when paid. GAAP requires pension and OPEB to be accrued when earned by the employees.