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The Municipal
Appropriation/Budget Procedure

By JAY HEDGES, Director,
Department of Commerce & Community Affairs

The holiday season has passed and a new year is here. For those who work in local government, there is the passing of another year and the ushering in of a new year, a "fiscal" year. This is the time that municipal corporate authorities reflect upon their accomplishments and unmet goals of the past year and set priorities for the next fiscal year. There will be much planning, and many meetings, discussions and decisions relative to the availability of revenues and for what purposes they shall be spent.

The authority and procedures that must be followed by cities and villages in order to expend public monies is found in the Illinois Revised Statutes (Ch. 24/8-2-9). All other units of local government except municipalities are required to prepare and adopt an annual budget document which also serves as an appropriation ordinance. However, a municipality may adopt the Illinois Optional Municipal Budget Act (Ch. 24/8-2-9.1) which provides for the adoption of a budget document in lieu of the appropriation ordinance. Although home rule municipalities are believed to have the power to adopt their own appropriation or budget procedures, all have continued to conform with the existing statutes.

APPROPRIATION ORDINANCE REQUIREMENTS There is no legal requirement for non-home rule municipalities to prepare a budget. The passage of an annual appropriation ordinance sometime within the first quarter of each fiscal year is the only requirement necessary to expend public monies. All expenses of the municipality must be appropriated for within the ordinance.

At least ten days prior to the adoption of the appropriation ordinance, the corporate authorities of municipalities over 2,000 population are required to make available, for public inspection, a copy of the tentative appropriation ordinance. If the municipality prepares an administrative budget on which the appropriation ordinance is based, then the budget may be made available for inspection. The municipality must hold at least one public hearing, notice of which must be published in one or more newspapers published in the municipality. If no newspaper is published in the municipality, the notice of hearing must be published in a newspaper published in the county with general circulation in the municipality. The notice must be published at least ten days prior to the time of the hearing and must state the time, place and date of the hearing. The notice must also advise where copies of the proposed appropriation ordinance or budget will be available for public examination.

After adoption of the appropriation ordinance, it must be printed in book or pamphlet form or be published in one or more newspapers published in the municipality. If there is no newspaper published in the municipality, the ordinance must be published in a newspaper of general circulation within the municipality. The printing or publication must be done within ten days after the adoption of the appropriation ordinance. You may wish to consider publishing the ordinance in pamphlet form instead of a newspaper to save money. In municipalities under 500 population in which no newspaper is published, the publication requirement can be met by posting notice in three prominent places within the municipality.

REVISIONS TO THE APPROPRIATION ORDINANCE There are instances when it may become necessary for a municipality to make changes in the spending levels set by the appropriation ordinance.

1. PA 85-1178, effective on August 13, 1988, eased earlier restrictions on supplemental appropriations. In the past, a supplemental appropriation ordinance could only be adopted if the municipality received unexpected additional revenue after the appropriation ordinance was passed. PA 85-1178 now enables a municipality to also adopt a supplemental appropriation to spend money from fund balances available when the appropriation ordinance was adopted but which were not appropriated at that time.

January 1989 / Illinois Municipal Review / Page 13

2. Any time after the first half of the fiscal year, the corporate authorities, by a 2/3 vote of all members, may make line-item transfers of money within any department from one corporate object or purpose to another. Transfers cannot occur between departments or funds.

3. By a 2/3 vote of the corporate authorities, additional appropriations may be made following an emergency to suppress or prevent the spread of disease or to prevent or remove an imminent danger to persons or property.

4. If a petition is signed by at least 50 percent of the electors who cast their votes at the last municipal election for mayor or president, the appropriation can be amended. From a practical perspective, this is extremely unlikely.

Because of the legal restrictions on revising the appropriation ordinance, items are usually inflated beyond the amounts that would be actually necessary for expenditure purposes. As a result, if a municipality does not carefully monitor its expenditures in relation to the revenue available, it may end the fiscal year with an operating deficit.

There are other apparent weaknesses in the current law such as the adoption of the appropriation ordinance during the first quarter of the current fiscal year rather than before the beginning of the fiscal year. If the appropriation ordinance is adopted late in the first quarter, expenditures during that quarter are based on the prior year's appropriation for a twelve month period. This procedure does not promote sound financial management. Also, there is no provision of any monies to be set aside for contingency expenses although the courts have generally allowed five to seven percent of the total appropriated for each fund. In many instances, this amount is inadequate.

ADMINISTRATIVE BUDGET Recognizing the limitations of the appropriation ordinance by itself has led many Illinois municipalities to adopt an alternative management document to assist in the day-to-day spending operations. This document, known as an "administrative or operations budget" provides the municipality a degree of informal, non-binding control over the expenditures of the municipality within the considerations of the available revenues. The adoption of an administrative budget is highly recommended for all municipalities to strengthen management control over expenditures and revenues.

The budget is a comprehensive financial plan which projects both anticipated revenues and proposed expenditures for a fiscal year. Those responsible for preparing and controlling the budget process must carefully examine the existing services and programs, determine the degree of continuing commitment to present services and programs, examine and review the need for new services and programs, set specific attainable goals and prioritize them based on the needs of the municipality. These decisions must be, made within the scope of the resources available to the municipality during the coming fiscal year and those to be available for future priorities.

OPTIONAL MUNICIPAL BUDGET ACT In 1967, the Illinois General Assembly passed the Illinois Optional Municipal Budget Act (Ch. 24/8-2-9.1 et seq.). The intent of the Act was to further strengthen municipal budgeting and management practices. The Act is voluntary and to date, only a small number of the 1,280 municipalities have opted to use it. Although the option has been available for over twenty years, many local municipal officials are still unaware of the legislation and its provisions while others have preferred to continue past practices.

Implementation of the Act requires a 2/3 majority vote of the corporate authorities holding office for

Page 14 / Illinois Municipal Review / January 1989

adoption. It may be abandoned by a similar vote. A summary of the Act's provision include:

1. A budget officer is designated.

2. The budget officer is responsible for establishing and encouraging sound fiscal management procedures.

3. The budget officer must compile the budget with revenue estimates and expenditure recommendations for all of the municipal departments. A Chart of Accounts must be established, using any of the formats recommended by the National Committee on Governmental Accounting, the Department of Commerce and Community Affairs, or the Comptroller of the State of Illinois.

4. The annual budget serves in lieu of the appropriation ordinance and must be adopted prior to the beginning of the fiscal year.

5. The budget may contain an amount set aside for contingencies (unforeseen expenditures). This amount cannot exceed 10 percent of the total budget less the amount set aside for contingency purposes.

6. The budget may be revised by deleting, adding to, changing or creating new objects or purposes at any time during the fiscal year by a 2/3 majority vote of those holding office. Of course, no increase can be made to the budget unless funds are available.

7. The tentative budget must be made available for public inspection at least ten days prior to its passage. A notice must be published not less than one week after the budget is made available for public inspection and at least one week prior to the public hearing.

FILING REQUIREMENTS WITH COUNTY CLERK Within 30 days after adoption, a certified copy of either the Annual Appropriation Ordinance or the Optional Budget is required to be filed with the County Clerk. Estimate of revenues, by source, anticipated to be received and certified by the chief fiscal officer must be included (Ch. 120/643).

Local municipal officials entrusted with public monies have a responsibility to assure that the monies will be obligated, expended and accounted for in accordance with the Statutes and local ordinances. Demands by the public have never been greater for the need for more efficient and effective uses of public monies. Today's officials have need for information concerning their duties and responsibilities as well as ways of improving their fiscal planning and management skills. Only through knowledge and training can they more fully carry out their obligation for the betterment of their municipality.

If you would like additional information or need some assistance, contact our Office of Local Government Management Services. Simply call our local government hotline 1-800-562-4688 (LOC-GOVT).

January 1989 / Illinois Municipal Review / Page 15

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