A primer on park district finance

Part I — Focus on the budget and appropriation ordinance.

Editor's Note:The following is the first in a series of four articles dealing with park district finances. The second article will appear in the March/April issue.

By Robert A. Porter

The park district budget and appropriation ordinance is, very simply, the legal authority which allows an agency to authorize funds for its expenses. This process brings together all revenues (taxes and other sources) with a game plan for allocating these funds to meet expenses.

Financial management

The budget and appropriation ordinance is developed on financial management concepts and philosophy. Financial management is the process by which a park district obtains money and seeks to use it effectively and efficiently. A sound program of financial management should:

• utilize the revenue derived from the tax levy to best serve the public's interest and welfare. The park district should then rank these needs in terms of priorities. This analysis should be a continuing process of the financial management program.

• operate each service program in the most efficient manner possible. A service program is being operated efficiently when a maximum level of service is being produced from each dollar spent to operate it.

• insure that the agency's money will not be misappropriated or diverted for purposes other than the agency's objectives.

These three objectives are accomplished by the use of a realistic budget, an efficient accounting system, an effective reporting system and an annual certified audit.

Getting started

The budget and appropriation ordinance is processed and filed within the first quarter of the fiscal year. For the majority of park districts, the fiscal year begins on May 1. The budget process is a continuing saga, but most agencies gear up for the following year's budget each January. It is suggested that a budget calendar be established.

The annual budget is basically a plan for receiving and spending money during a fiscal year; that is, it is a map to direct financial traffic along a preselected route. In addition, the budget shows the public how an agency proposes to spend taxpayers' money. Finally, the budget serves as a controlling device for expenditures and a collection-measuring device for revenue projections.

Legal requirements

The law requires the budget and appropriation ordinance to contain:

• a statement of cash on hand at the beginning of the fiscal year for each fund,

• an estimate of revenue to be received from all sources during the fiscal year,

• a statement of estimated expenditures, and

Illinois Parks and Recreation 7 January/February 1987

Potpourri Editor's Note: This section is designed to share information about successful programs, services, activities and management techniques with recreation professionals. The Schaumburg Park District and Studebaker's Restaurant and Bar, and restaurant and bar owned by Chicago Bear Walter Payton, have joined forces to develop a special community park which will be dedicated to veterans. Various community organizations, including the Schaumburg Park Foundation, are participating in the fund-raising program. Those efforts began in Veterans Day, 1986, and will continue on the first Tuesday of each month through that holiday this year. Studebaker's collects a $10 door donation from each visitor between 5 and 9 p.m. on the designated Tuesdays. In return, these contributors enjoy an open bar and buffet, and dancing. Participating community organizations are promoting the activity as a special party, membership drive or group outing above and beyond their regular yearly events. Park district staff help the organizations develop activities — dance contests, olive races, etc. — during their night at Studebaker's. The Park Foundation will hold all proceeds from these fund-raising events through the end of the year; the funds will then be given to the park district. The Foundation hopes to generate in excess of $60,000 toward the development of the veterans' park. Additional information is available from Jerry Handlon, Director, Schaumburg Park District, 235 E. Beech Dr., Schaumburg, IL 60193.

• an estimate of cash expected to be on hand at the end of the fiscal year.

Since legal requirements and generally accepted governmental accounting practices require fund accounting, the cash balance and anticipated revenues and expenditures should be included on a fund basis in the budget.

The law is not clearly defined as to the exact type of itemization of proposed expenditures. However, efficiency presupposes a detailed breakdown. The more articulate the budget, the more information a reporting system will furnish to decision makers.

The annual budget is a plan for receiving and spending money during a fiscal year.

The law requires a 30-day public inspection period with a public hearing before the agency budget can be adopted.

Devising a budget

Budgets may be established on a cash basis, accrual and modified accrual systems. Many park districts utilize the modified accrued budget process because of the tax receivable dates. The type of accounting procedures should be reviewed with your certified auditor.

Two questions relating to this process are commonly asked:

If one line item in a fund is overspent, is a transfer from another line item allowed?

A park board can make transfers between various items within any fund in the budget and appropriation ordinance not exceeding in the aggregate 10 percent of the total amount appropriated in the fund. The ordinance may be amended at any time

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if major revisions are required. However, the same adoption procedures previously noted must be followed.

Does an agency have to show a zero fund balance at the end of a fiscal year to be non-profitable?

An agency can and should have a positive cash position at the end of the fiscal year unless it projects dissolving or issuing tax anticipation notes. The board must determine what the sufficient level of carry-over should be for the agency. A rule of thumb is one quarter of fiscal expenses to cover late taxes, slow program fees or emergency expenses.

The budget and appropriation ordinance now requires that an Estimate of Revenue Statement be attached as a requirement for filing these papers with the county clerk. Failure to comply with this attachment requirement is the same as total non-compliance and can prohibit a park district from legally spending any funds.

The amount of detail in the budget and appropriation ordinance is determined by the individual park board. Citizens are becoming better informed and, thus, more sophisticated in the evaluation of governmental spending. Therefore, it behooves park agencies to do a responsible job in the budget process.

A balanced budget is essential to the future of an agency. A deficit budget should only be engaged when borrowing or fund balance reduction is projected.

Financial projections

One of the most difficult aspects of budgeting is projecting income and expenses 12 to 18 months in the future. The rise and fall of equalized assessed valuation (EAV) is not controlled by the park board. The rise (never a fall) of utility expenses and unexpected costs like insurance are also beyond board control. In addition, Cook County park districts do not have the knowledge of EAV before the required filing of the budget and appropriation ordinance.

Thus, a park board must accurately guess for the EAV in its budget and appropriation ordinance as it did in its previous levy ordinance. A low percentage of estimate work can cause mid-year budget cuts or budget and appropriation amendments.

Keep in mind that the first quarter (the most expensive in most cases) will be completed before filing and full EAV knowledge is obtained in Cook County park districts. The use of professional administrators, prepared planning, past experience and good leather on the seat of the pants helps insure a high rate of budget success.

Conclusion

The format for the budget and appropriation ordinance varies from agency to agency, and an agency should consult its auditor and attorney for format. Format is the mechanical layout of the document.

The budget and appropriation ordinance is a vehicle used to help a park district meet its objectives and remain financially stable. The ordinance does not require publication, but it does require a public inspection period and a public hearing within the first quarter of the fiscal year.

A certification page and an estimate of revenue must be attached to the document. Refer to your attorney and auditor with specific questions.

ABOUT THE AUTHOR: Robert A. Porter is the director of the Lemont Township Park District.

Illinois Parks and Recreation 9 January/February 1987