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BUDGET PROCESS A-1 RECOMMENDED BUDGET PRACTICES The City of Missoula is striving to incorporate the recommended practices promulgated by the National Advisory Council on State and Local Budgeting (NACSLB) in its annual budget. The NACSLB was created to provide tools for governments to improve their budgeting processes and to promote their use. The NACSLB focuses on long-term financial planning and encourages governments to consider the longer consequences of actions to ensure that impacts of budget decisions are understood over a multi-year planning horizon and to assess whether program and service levels can be sustained. Practices encourage the development of organizational goals, establishment of policies and plans to achieve these goals, and allocation of resources through the budget process that are consistent with goals, policies and plans. There is also a focus on measuring performance to determine what has been accomplished with scarce government resources. Following are excerpts of the NACSLB’s budget practice recommendations. BUDGET DEFINITION The budget process consists of activities that encompass the development, implementation, and evaluation of a plan for the provision of services and capital assets. A good budget process is characterized by several essential features. • Incorporates a long-term perspective • Establishes linkages to broad goals • Focuses budgeting decisions on results and outcomes • Involves and promotes effective communication with stakeholders • Provides incentives to government management and employees These key characteristics of good budgeting make clear that the budget process is not simply an exercise in balancing revenues and expenditures one year at a time, but is strategic in nature, encompassing a multi- year financial and operating plan that allocates resources on the basis of identified goals. A good budget process moves beyond the traditional concept of line-item expenditure control, providing incentives and flexibility to managers that can lead to improved program efficiency and effectiveness. MISSION OF THE BUDGET PROCESS The mission of the budget process is to help decision makers make informed choices about the provision of services and capital assets and to promote stakeholder participation in the process. Communication and involvement with citizens and other stakeholders is stressed. Communication and involvement are essential components of every aspect of the budget process. PERFORMANCE BUDGETING The City of Missoula is moving to a Performance Budgeting approach for the development of its annual operating budget. Performance budgets emphasize the accomplishment of program objectives as opposed to a description of what is going to be purchased by the government. Performance budgeting involves a shift away from a debate by the City Council of what is going to be purchased toward a debate regarding what is going to be accomplished. The City of Missoula is in the early stages of its Performance Budgeting efforts. Each department is in the process of identifying performance objectives, identifying and tracking workload indicators, and establishing quantifiable performance measurers. It is anticipated that it will take 3 – 5 years to fully implement the performance budgeting system. ---PAGE BREAK--- BUDGET PROCESS A-2 FINANCIAL TREND ANALYSIS The budget process begins in the winter with the initial updating of the five-year financial trend analysis for the City as a whole. Using the latest fiscal, operational, and legislative information, the finance office staff works collaboratively with city departments to update the city’s most recent financial trend analysis. The financial trend analysis assists the City Council and the city administration in focusing on the “Big Picture” of the city’s financial operations. NEEDS ASSESSMENT PHASE Late Winter – Early Spring Departments have an opportunity to assess current conditions, programs, and needs. Examination of current departmental programs or positions for possible trade-offs, reduction, or elimination is strongly suggested. During this phase, departments are encouraged to thoroughly review all programs and services, assessing their value and priority to the citizens. At the same time, departments are asked to submit requests for new or expanded programs. The first proposals submitted for review are those capital requests that fit within the City's five-year capital improvement program. From this process, they prepare their preliminary departmental budgets. BUDGET DEVELOPMENT AND PRIORITIZATION PHASE The Finance Department compiles and tabulates the budgetary information submitted by the individual departments and begins the preparation of the preliminary budget in cooperation with the Mayor, City Administrator and the City's CIP and operating budget teams. The needs of the city departments are weighed against projected funds available and a determination must be made as to which services will be included in the final budget. The operating budget includes proposed expenditures and the means of financing them. All capital and operating new requests are scored and ranked by the CIP and operating budget teams. Within the framework of the City’s financial capacity, City Council priorities and departmental needs assessments, budget requests are reviewed and a preliminary City operating budget takes shape. The purpose of the preliminary budget is to enable the community, stakeholders and the City Commission to comment on a balanced budget well before it is adopted. CAPITAL IMPROVEMENTS PROGRAM (CIP) AND ITS RELATIONSHIP TO THE OPERATING BUDGET The City of Missoula prepares a Capital Improvement Plan (CIP) document separate and apart from the Annual Operating Budget. Unlike the Annual Operating Budget, the CIP is a multi-year capital improvements plan that forecasts, but does not obligate, future spending for all anticipated capital projects. Whenever the City commits to a CIP plan, there is an associated long-range commitment of operating funds. For this reason, it is important to evaluate capital commitments in the context of their long-range operating impact. Most capital projects affect future operating budgets either positively or negatively due to an increase or decrease in maintenance costs or by providing capacity for new programs to be offered. Such impacts vary widely from project to project and, as such, are evaluated individually during the process of assessing project feasibility. The multi-year, long-range fiscal analysis also provides an opportunity to review the operating impact of growth-related future capital projects. ---PAGE BREAK--- BUDGET PROCESS A-3 ADOPTION/IMPLEMENTATION PHASE Public hearings are conducted to enable citizens and other interested parties to comment on the proposed budget. Following the public hearings, the City Council may modify the proposed budget or may adopt it without changes. The budget and the corresponding property tax mill levy must be adopted by the 3rd Monday in August. Management control of the budget is maintained by revenue and expenditure reports, whereby departments are able to compare actual results to the budget throughout the fiscal year. In addition, the Finance Director prepares quarterly budget reviews on a city-wide basis, with presentations to the City Council at a public meeting. These budget reviews are aimed at examining expenditure patterns, and recommending corrective action to be taken during the year. AMENDING THE BUDGET The city’s budget may be amended during the course of the year, following public notice, a public hearing, and a majority vote of the City Council. The Finance Director presents an Ordinance to the City Council at a duly noticed public meeting. The Council considers the Ordinance. If approved, a formal public notice is forwarded to the newspaper, setting the date, time, reason, and funding source for the proposed budget amendment. At the public meeting, the Council hears information from the public, Department Heads, and the Finance Department. The City Council considers the Ordinance and may approve, table, or deny the Budget Amendment. The City Council exercises budgetary control at the summary object of expenditure level (salaries, operations, and capital). Within those areas departments can spend as needed for individual line items.