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City of Laramie P.O. Box C Laramie, Wyoming 82073 Administrative Services Division (307) 721-5223 FAX (307) 721-5211 TDD (307) 721-5295 TO: Department Heads Administrative Assistants Division Managers Project Managers FR: Janine Jordan, City Manager Malea Brown, Administrative Services Director DATE: July 2, 2012 RE: Budget Management Standards Staff members have consistently demonstrated uncertainty as to the amount of authority implicit in their departmental budgets. This confusion arises, in part, because operating, capital, and equipment expenditures are included within the total adopted budget for a departmental cost center. This memo serves to clarify the difference between operating, capital and equipment. Staff should adhere to the guidelines contained herein as they go about the work of managing their respective sections of the city budget. The Governmental Accounting Standards Board (GASB) and the Wyoming Municipal Procedures Act set forth standards for budgetary management. There are several definitions and directives within the Act worth highlighting as they provide the framework for appropriate and acceptable budget management and control at the municipal level. “Appropriation " means an allocation of money to be expended for a specific purpose; "Financial and compliance audit" means the determination in accordance with generally accepted auditing standards: "Budget" means a plan of financial operations for a fiscal year or two fiscal years, embodying estimates of all proposed expenditures for given purposes, the proposed means of financing them and what the work or service is to accomplish. "Budget" includes the budget of each fund for which a budget is required by law and the collective budgets for all the funds based upon the functions, activities and projects; A municipality may appropriate funds from estimated revenue in any budget year to a reserve for capital improvements and for depreciation within any capital improvements fund, and for the purpose of purchasing or replacing specified equipment or a depreciation reserve for equipment, which has been duly established by ordinance. Money in the reserves may be allowed to accumulate from year to year until the accumulated total is sufficient to permit economical expenditure for the specified purposes. Disbursements from reserves shall be made only by transfer to a revenue account within a capital improvements fund pursuant to an appropriation for the fund. The amount appropriated to reserves under this subsection in any budget year shall not exceed ten percent (10%) of the municipality's total revenues for that budget year. 16-4-105(c) Expenditures from capital improvement or equipment budget accounts shall conform to all requirements of this act as it relates to the execution and control of budgets. 16-4-107. Authorized purchases or encumbrances. All purchases or all encumbrances on behalf of any municipality shall be made or incurred only upon an order or approval of the person duly authorized to make such purchases except ---PAGE BREAK--- encumbrances or expenditures directly investigated and reported and approved by the governing body. 16-4-108. Limitation on expenditures or encumbrances; documentation of expenditures No officer or employee of a municipality shall make any expenditure or encumbrance in excess of the total appropriation for any department. The budget officer shall report to the governing body any expenditure or encumbrance made in violation of this subsection. 16-4-115. Appropriations lapse; prior claims. All appropriations excluding appropriations for capital projects shall lapse following the close of the budget year to the extent they are not expended or encumbered. All claims incurred prior to the close of any fiscal year shall be treated as if properly encumbered. Historically, staff have been advised and expected to manage their ‘bottom line’ budget which is defined in the Act as the plan of financial operations for given purposes, work or services to be accomplished. Those purposes and services are contained within the operational line items within any departmental cost center. Capital and equipment are not considered part of the department operating total and are subject to more stringent control standards. In fact, many cities do not include these items in departmental budgets at all; rather, they segregate all capital & equipment into a separate fund. A new GASB rule implemented in 2007 required that accounting roll up all department expenses within a cost center and for this reason accounting made the decision to account for capital and equipment expenses within the department accounts rather than segregate them to a different fund. “Appropriations” under the Act refer to the allocation of money for a specific purpose. Capital and equipment are to be treated as a specific purchase and controlled as such. The City of Laramie’s budget preparation and approval process supports this notion as capital and equipment expenditures are presented to the governing body individually, as compared to the operating budgets which are presented in total. Since these items are specific in nature no monies can be reallocated for other functions and reallocating monies cannot be done without prior transfer approval of the governing body . Alterations to capital and equipment appropriations must be made through a budget amendment and these expenses are not within the management purview of staff as a component of the operating budget. Capital and equipment are capitalized and move from expense to the balance sheet based on GASB rules and as reported in the CAFR. The use of capital monies elsewhere is a violation of the Act and generally accepted accounting standards. Lastly, if a department has one-time operating monies that have been approved by Council for a specific purpose then the allocation must be used for that specific purpose and cannot be used for other O&M or project line items. Because the governing body approved the funding for a specific purpose above the normal operations or function of that department these one-time monies must be used for the specified purpose unless an official budget transfer is completed. Most specific purpose one-time expense items should not be encumbered/rebudgeted unless tied to a project.