Budgeting and Financing

Traditional Line Item Budget

a budgeting technique where all income and expenses are listed individually as separate entries, often in a column format.

Each line item represents a specific category, such as salaries, office supplies, utilities, transportation, or marketing costs, with an exact amount assigned to it

most widely used budgeting system

advantage: easy to prepare and implement

disadvantages: lack of priority assignment; fixed and rigid system

Program Budget

a budget prepared specifically for a project or program. This type of budget includes expenses and revenues related to one specific project. No revenues or expenses of any other projects are mixed with this particular project.

advantage: helps determine program priority; helps identify where funds needed

disadvantage: if program budget incorrect or based on inaccurate info, can be costly

Performance Budget

tying program budgeting to specific performance objectives for each program. classifies expenditures by administrative units, functions, and items

advantage: improves program performance; tool for reviewing program efficiency

disadvantages: focuses on quantitative, not qualitative evaluation; accuracy difficult

Zero Base Budgeting (ZBB)

existing programs and activities should not automatically be funded, but rather should have to justify their continuation as part of the annual budget cycle

advantages: increased prioritization; reduction in redundant/inefficient programs

disadvantage: time consuming; labor intensive; training to produce accurate budget needed

Planning-Programming Budgeting System (PPBS)

serves as a long-term planning tool that seeks to link goals to objectives or specific outcomes. useful in capital projects

advantage: helps in choice of programs/projects, allocation of resources on them and performance evaluation; can incorporate future budgetary repercussions

disadvantages: difficult to acquire necessary info regarding performance evaluation and cost estimation in a uniform way or all governmental activities; emphasizes physical and financial performance, not qualitative performance

New Performance Budgeting (1990s)

a results-oriented budgeting system. effort is to link resource allocation with managerial performance and strategic plans, along with annual performance plans. includes budgeting for outcome and performance-based budgeting

Participatory Budgeting

a democratic process in which community members decide how to spend part of a public budget

high up on arnsteins ladder

8 Essential Steps in the Traditional Budgeting Process

1. fiscal analysis and policy choices

2. expenditure estimates

3. review of expenditure estimates

4. revenue estimates

5. budgetary forecasting

6. budget document

7. budget review and adoption

8. budget execution

Revenue Sources

taxes: income, property, sale/use, gasoline

user fees and charges: admissions, registration

licenses and permits: drivers, contractors, marriage

grants: federal/state, “categorical” versus “block”

Regressive Taxes

falls as income rises

Proportionate Taxes

is equal for all incomes

Progressive Taxes

rises as income rises

Impact Fees

used as a condition for approving development by requiring that developers pay fees to offset project impacts on capital infrastructure/improvements needed

rational nexus: nolen v. dolen

General Obligation Bonds

pledge the “full faith and credit” of the jurisdiction, and commit property taxes by voter referendum

vote of people is usually required

secured by pledge of unlimited taxing power

interest rate is lower than revenue bonds, certificates of participation, or special limited obligation bonds

typically up to 20 years

Revenue Bonds

pledge specific non-ad valoreum tax revenues of self-supporting enterprise (ex: toll road fees)

voter approval not necessary

issuer must agree to covenants concerning rate setting and operation of enterprise

interest rates higher than GO bonds

term is up to 30 years

What happens when local government defaults on a GO bond?

when a municipal bond defaults, the issuer is unable to pay the bond’s interest and principal as agreed. this can have consequences for the bondholder, issuer, and local community

Tax Increment Financing (TIF)

issued to provide public facilities needed to support new, private development

secured by increased tax revenue produced by the new, private development

a TIF program must be established under the guidelines of state authorizing legislation, and typically works as follows:

• a TIF district is established around a blighted area

• TIF bonds are issued to redevelop this area

• after area is redeveloped, the additional property tax revenues earned by the reassessed district (tax increment) are used to retire the TIF bonds. thus, additional revenues cannot be used by the involved municipalities, school districts, and special taxing authorities until the TIF bonds are retired

Special Assessment District

imposes a levy on a property, individual lots, or all property in a designated neighborhood or district to pay for improvements

• charge to property for public improvement that benefits that property

• improvements are on site or nearby

• not paid until project is done and improvement cost is known

Business Improvement District

property owners pay an additional tax to fund activities that benefit their district, such as increased security, public events, urban design improvements

Community Redevelopment Agencies (CRAs)

special taxing district created based on finding of slum and blight. must adopt redevelopment plan and establish redevelopment trust fund for deposit of TIF revenues

examples of CRA activities:

• infrastructure improvements

• grants/loans

• land assembly

• marketing/promotions

• cultural/sports destination

Downtown Development Authorities (DDAs)

special taxing districts-funds used for improvements'; established by vote of residents

activities include business dev/attraction, improving physical environment/residential quality of life, leveraging private investment

Community Development Corporations (CDCs)

nonprofits established for specific purpose (business incubator, affordable housing)

Non-governmental Organization (NGO)

an entity that is not part of the government. This can include non-profit and for-profit entities. An NGO may get a significant percentage or even all of its funding from government sources. An NGO typically is thought to be a nonprofit organization that operates partially independent of government control.

Non-profit NGOs often focus on humanitarian or social issues but can also include clubs and associations offering services to members

Enterprise Zone

an economically depressed are that has been targeted for revitalization by a city or state thru tax abatement and other incentives given to companies that locate or expand their operations within the zone

Tax Abatement

the reduction of, or exemption from, taxes which is granted by a gov for a specific period, usually to encourage certain activities such as investment in capital facilities

Empowerment Zone

an economically distressed rural and urban zone designated by USDA and HUD. businesses in zone can avail themselves of federal grants and federal tax incentives. businesses can get credits for hiring people within the zone

Capital Improvements Program (CIP)

organizes and summarizes major capital projects and plans for the full forecast period

multi-year period 5-6 years

budgets for upcoming year as well (capital budget)

recurs and is updated annually or bi-annually

Steps in the Capital Improvements Program (CIP) Process

1. identify needs (assessment)

2. identify funding

3. develop 5-year CIP plan

4. implement projects and programs

What are Capital Projects?

• any acquisition of land for a public purpose

• any construction of a new facility or major addition to a facility

• non recurring rehabilitation or major repair to all or part of a facility and its grounds

• purchase of major equipment

• any expense relating to any planning, feasibility, engineering, or design study related to a capital improvement