Arvada City Budget Analysis 2005 2006

1 MEMORANDUM TO:

Robert Reichardt, Ph.D.

FROM:

Inayet Hadi, Budget Analyst

DATE:

19 April 2007

RE:

GFOA Budget Rating for City of Arvada

Introductory Section I have evaluated the City of Arvada 2005-2006 Biennial Operating and Capital Budget against the Distinguished Budget Presentation Awards Program (DBPAP) criteria set forth by Government Finance Officers Association (GFOA). The budget is reviewed under four major categories. The four major categories are, policy document, financial plan, operations guide, and the budget as a communication device. This memo will end with a conclusion addressing how the budget serves as a tool to maintain and build public trust. My overall impression of the budget compared to the criteria set forth by GFOA was the City’s budget could have achieved a higher form of alignment with nonmandatory recommendations proposed by GFOA. For instance, the recommendation to have a policy on asset inventory was not present in the City’s budget, instead management of fixed assets was regulated to a program to fix and maintain capital assets. This memo discusses mandatory criteria only as set forth by GFOA in the DBPAP. Nonmandatory criteria’s discussion was eliminated from this memo due to an e-mail received on 10 April 2007 instructing us to touch on each of the mandatory criteria. Policy Document 1. GFOA’s Adoption of Financial Policies (2001) recommended three financial policies for states and local governments to be clarified in their budget. First, have a policy defining a balanced budget. The City’s budget uses internal and external accounting controls to ensure that the adopted budget approved by the Council remains balanced each quarter, or every three months (Budget, p. 14). Second, have a policy on long-range planning. The City’s budget recognizes this as sound, and describes the process on how long-range planning is facilitated (Budget, p. 12). Finally, adopt a policy on asset inventory. In the current budget there is no asset inventory policy present, but responsibility for fixed assets management is placed under the Finance Department authority (Budget, p. 109). The financial policies are listed under the section Financial Overview beginning on page 16 of the City’s budget. The lack of discussion of how longrange planning is conducted, what major policy changes occurred, or targets set as result of the long-range planning is missing from the budget. This serves as a potential weakness. Having met two recommended practices out of three is rated as proficient.

2 4. The City Manager highlighted policy changes, the economy, administrative challenges facing the City, and etc... in the transmittal letter (letter). The recommended action proposed by the City Manager are explained through out the budget, but summarized in the letter. For instance, to contain the increasing salary and benefits costs of City employees, the letter maintains that offering competitive compensation packages will retain employees thus keeping costs at a predictable rate. The letter also mentions programs or services to be eliminated or new programs or services to be added. Previous assumptions to the five-year model that were revised are mentioned in the letter. I think the strength of the letter is that at the end of the letter, the City Manager mentions three issues that remain unresolved and discussed in the budget. The three issues are discussed briefly, and then requests guidance from the Council for further actions. Because the letter address important issues facing the City Council, I rate this section as outstanding. Financial Plan 2. The document provides an overview of revenues and expenditure sources (Budget, p. 25). The expenditures and revenues are presented in two formats, in a matrix, and in a single schedule (Budget, p. 27-29). The revenues are presented by major types, such as taxes, charges for services, intergovernmental revenues, etc… Each major type of revenue is further sub-categorized, for example, taxes is sub-divided into property tax, auto use tax, building use tax, etc… (Budget, p. 30-1). Expenditures are represented by functional categories such as, professional services, debt services, capital improvement, etc… (Budget, p. 34). The strength of this section is that the description of major revenues and expenditures is easy to understand. This section also, receives an outstanding score. 3. The budget presents a matrix with prior, current, and the budget year on the same schedule (Budget, p. 27). The information presented in the matrix is for the entity as a whole with each non-major funds included in the aggregate. Since this budget is a biennial budget the finances sources and expenditures for the prior, current, and both budget years are presented in two separate schedules, one for each revenues and expenditures. Having met the requirements of DBPAP criteria, the score is outstanding. 4. Individual revenue sources are described in the budget subtitled by major category (Budget, p. 30-33). The trend analysis method is used to estimate revenues based on budgets from previous years, and expected economy forecast. The revenues that are described represent more then 75 percent of the total revenue of all appropriated funds. The underlying assumptions about future revenues are described in general terms with an emphasis towards stability in future revenue collections based on previous budgeted years (Budget, p. 271-2). The level of description of each revenue assumption does not promote much faith, unless one has previous knowledge that the numbers used are accurate, or the future revenues forecast will materialize. Because of the lack of trust in the projections based solely on the presentation of the budget, I rate this section as proficient. 5. The budget provides a definition of a “fund balance” (Budget, p. 303). The fund balance is presented for both the budget years, including the schedule showing beginning fund balance, increase and decreases in total fund balance (Budget, p. 36). The fund balance is presented for each major fund and non-major fund separately. The budget

3 describes the process to be used during each quarter to determine the consequences in increase or decrease of revenue by a significant amount. If a fund shows increase then there is no change to the budget, but if the anticipated funds do not materialize then cuts will take place (Budget, p. 12). The change in fund equity is presented separately for both years. I rate this section as proficient, because I could not find in the budget a statement if there a particular line item that would increase or decrease by more then 10%. 6. The Budget does not define capital expenditure. The budget does present in a pie chart the total dollar amount of capital expenditure for the two budget years (Budget, p. 18). Significant non-routine capital expenditure is described with the dollar amounts shown (Budget, p. 245). I rate this section as outstanding, for meeting the requirements of disclosing nonroutine expenditure items, even though capital expenditure is not defined. 8. Legal debt is “not [to] exceed 3% of the assessed valuation of the taxable property within the City as shown by the last preceding assessment” (Budget, p. 261). The City’s budget states explicitly that it does not have general debt outstanding, but does have revenue bond outstanding. The revenue bonds that are outstanding are identified, and described with the amount of interest rate charged, when the bond was issued, and expected date of completion. The principal and interest payments are recorded under each debt service requirement (Budget, p. 262-4). A special section addressing long-term City debt, and brief information explaining City’s bonds promotes transparency. For being transparent about debt ensures an outstanding rating. Operations Guide 1. Each department has their own departmental chart, and a description of the department’s purpose presented along with their portion of the budget. This criterion is rated as proficient because the actual description of the departments themselves is not discussed, except their stated purpose/mission statement along with extraneous information. 3. The City’s organizational chart is presented at the beginning of the budget (Budget, p. iii). This chart deserves an outstanding rating, because at the top of the hierarchy are the Citizens of Arvada, then below them the City Council. 4. A summary table of position is provided for the entire entity (Budget, p. 284-289). The table does not include the prior year, the current year, but only the budget year position list is included. The weakness of this portion of the budget is that it does not provide a position list for previous budget years or future budgeted years. Having previous position lists in the budget allows the public to compare and contrast the proposed position list with previous position lists. For this reason, the budget’s presentation on position listing is rated as proficient. Communications Device 3. Under the legal requirements heading, a process is described how the budget is developed, reviewed, and adopted (Budget, p. 10). A budget calendar is provided that encapsulates the budget processes (Budget, p. 14). How the budget can be modified is described under the headings budget and accounting controls (Budget, p. 14-15). I rate this section as proficient because the information presented on how a proposed budget

4 becomes an approved budget was under a non-related section. 4. Charts and graphs have been extensively used to convey essential numerical information that was disclosed in the budget itself. The numerical data was converted into charts, tables, and graphs in order to for the numbers to have meaning to the reader. I rate this section as outstanding, for the use of extensive graphics to explain numerical information. 6. A table of contents is provided to help the reader to locate information within broad category. Almost, all the pages are numbered, except the transmittal letter is not numbered. The page number identified in the table of contents agrees with the actual page number. The table of contents is rated as proficient. It could have improved, if a second detailed table of contents was provided for sections that had sub-headings within them. Conclusion OpenTheGovernment.org is a broad coalition of civil society working together to make the federal government a more open place. Maintaining public trust is described as “…the government being openly accountable for its decisions, actions and mistakes.” In the transmittal letter the City Manager describes its decisions to eliminate, add, or reduce funding for programs or services, which ensured the City maintained the level of services to its residents in unpredictable global economic environment. The broad categorization given in the letter to justify its decisions gives an impression that the City’s staff for the most part understood what was best in order to maintain a balanced budget. The budget as a document provides a glimpse into the operation of city government. However, the details of how city government was to be operationalized was not discussed, except to provide broad categorization of purpose of each program within the City’s departments. This budget creates an illusion that the City government is accountable to its residents. However, the budget can still be used in general terms to check on the workings of City Government, without really understanding objectively how City Government becomes operationalized. It is this weakness that can serve as potential loss of public trust.