Municipal Budgeting in Arizona: What Budget Leaders Need to Know

1. Municipal Budgeting in Arizona:What Budget Leaders Need to Know 2007 GFOAz Summer TrainingAugust 8, 2007 Tom Belshe, League of Arizona Cities and Towns Pilar Aguilar, City of Avondale

2. Revenue Sources • State Shared Revenues • State Transaction Privilege Tax (Sales Tax) • State Income Tax • Highway User Revenues Funds (HURF) • Local Transportation Assistance Fund (LTAF) • Vehicle License Tax (VLT) • Population Requirement for State Shared Revenues

3. Revenue Sources • Federal Revenues • Block Grant Programs • In theory, a block grant program is designed to fund various Federal programs within a broadly defined area. • The Federal government has curtailed a number of programs. The amount of Federal assistance, type of programs and the projects for which the money can be expended from other sources are constantly changing.

4. Revenue Sources • Local Revenues • Property Tax • Local Sales Tax (TPT) • Business License Tax • Franchise Tax • Fines & Fees • Development Impact Fees

5. The Model City Tax Code • All of the cities and towns in the state that impose a local sales tax have adopted the model city tax code with various options. • Twin goals of the MCTC • Provide a greater degree of uniformity among cities and towns • Individual cities and towns retain the right to determine the items taxed as well as the exemptions to be granted

6. State Imposed Expenditure Limitation • Base Limit • Actual payments of local revenues for FY 1979-80 • The Economic Estimates Commission determines limit for every city and town • Consists of expenditures “controlled” by the State limitation • Does not include those revenues specifically exempted from the limitation

7. State Imposed Expenditure Limitation • Alternative Limitation Options • Local Home Rule (Alternative Expenditure) Limitation • Permanent Base Adjustment • Capital Projects Accumulation Fund • One-time Override All Options Require Voter Approval

8. State Budget Law Requirements • Developing the Budget • Budget Adoption • Final Budget Adoption • Adoption of Levy • Truth in Taxation • Encumbrances

9. Primary Property Tax Limitation Limited to an increase of 2% over the previous year's maximum allowable primary levy plus an increased dollar amount due to a net gain in property not taxed the previous year. Subject to Truth in Taxation

10. Truth in Taxation If the proposed primary tax levy, excluding amounts attributable to new construction, is greater than the amount levied by the city or town in the previous year the council must publish a notice.

11. Truth in Taxation • Truth in Taxation Notice Requirements: • The notice has to be published twice in a newspaper of general circulation in the city or town. • The first publication shall be at least fourteen but not more than twenty days before the date on which the proposed levy is to be discussed. The second publication must be at least seven but not more than ten days before the hearing • The notice has to be published in a location other than the classified or legal advertising section of the newspaper

12. Truth in Taxation • Truth in Taxation Notice Requirements (cont’d): • The notice must be at least one-fourth page in size and shall be surrounded by a solid black border at least one-eighth inch in width • The headline of the notice must read “Truth in Taxation Hearing - Notification of Tax Increase” in at least eighteen point type and the text must be in substantially the same form as the statute • In addition to publishing the notice according to the above requirements, it is required that the city or town to issue a press release with the same information included in the notice required above

13. Budget Cycle Strategic Planning/Forecast Agency Preparation Citizen Input Evaluation Management Review Implementation Legislative Action

14. Public Participation • Annual resident appreciation night • Semi-Annual resident satisfaction survey • Citizens’ CIP Committee • Open house meetings • Rate/fee changes • Council workshops/goal setting

15. The Budget Process Rate & Fee Review July - December Capital Plan Development August - October Revenue Estimates September - November Council Retreat November

16. The Budget Process • Manager’s Budget Kickoff • January • Expenditure Estimates • January - March • Council Review • April • Budget Adoption • May & June

17. Financial Forecast • Historical data • Tax rates • Economic indicators • New legislation • Fee/cost recovery analysis • Operating impact of CIP

18. Capital Budget • Council goals • Operating impact • Debt capacity • Development fees

19. Operating Budget Development • Council goals • Demographic growth • Inflationary pressures • New programs • Carryover • Performance measures

20. Budget Balancing • Plan debt service payments first • Match ongoing expenditures with ongoing stable revenues • Identify best uses of one-time funding • Reduce costs where possible • Identify new revenue sources

21. Contingency Budget • Allows for unforeseen emergencies • Natural Disasters • Legislative Action • Citizen Initiatives • Can cover revenue shortfalls • Economic Recession • Only available to City Council

22. Grant Management • Cost/Benefit Analysis • Review grant requirements • Maintain necessary documents/records • Monitor grant expenditures

23. Uniform Expenditure Reporting System(UERS) • Annual expenditure limitation report • Financial statements prepared according to GAAP • Reconciliation of the financial statements to the expenditure limitation report for cities and towns

24. Alternative Expenditure Limitation Report • Adjustments/Exclusions • Grants and Aid • Bond Proceeds • Amounts received as trustee/custodian • HURF in excess of 1979-80 distribution • Debt service requirements • Contracts with other political subdivisions • Due to Auditor General within four months of fiscal year end along with audited financial statements

25. Questions