ADOPTING THE APPROPRIATION ORDINANCE By STEVE McCLURE, Director, DCCA

Many Illinois municipalities operate under a fiscal year beginning May 1. And, since Illinois law requires municipalities to adopt the annual appropriation ordinance no later than the end of the first quarter of the new fiscal year, this is a good time to review the ordinance and procedures which must be followed to adopt it.

The appropriation ordinance is one of the most important ordinances adopted each year. This ordinance provides the legal authority under which the municipality allocates money to specific spending activities. In addition, it establishes the municipality's legal spending limit for the fiscal year, and serves as the basis for the property tax levy filed in December.

As a result, it is crucial for local officials to carefully anticipate and appropriate for all expenditures they wish to make during the fiscal year. Even so, one must remember that the appropriation ordinance only outlines those expenditures which can be made if adequate revenues are available; it does not necessarily mean that sufficient revenues are actually on hand to pay for such expenditures.

State statutes set forth a number of requirements which must be followed by communities with over 2,000 population when adopting the appropriation ordinance. Chief among those requirements are publishing a public notice and holding a public hearing. By law, these municipalities must give at least 10 days notice of the public hearing, including time and place of the hearing and location where the document may be inspected. (This notice must be printed in a newspaper published in the municipality, or, if none exists, in a newspaper published in the county and having general circulation in the municipality.) The public hearing itself must be held at least 10 days prior to adoption of the ordinance. The draft of the appropriation ordinance must be available for public inspection during a period of at least 10 days prior to its adoption, although the draft ordinance may be revised at any time following the hearing and prior to its adoption.

Within 10 days after adoption, the appropriation ordinance must be printed in book or pamphlet form or be published in a newspaper of general circulation within the community. Within 30 days of adoption, the municipal clerk must file a certified copy of the appropriation ordinance with the county clerk. At the same time, an estimate of revenues, certified by the chief fiscal officer, must be filed.

It is important to note that, once the appropriation ordinance is adopted, it is not easily changed. However, State law does provide four situations in which corporate authorities can alter the appropriations. First, line-item transfers may be made by a two-thirds vote of the corporate authorities any time during the second half of the fiscal year; however, transfers may not be made between different departments or funds. Second, corporate authorities may adopt a supplemental appropriation to authorize expenditure of money not available at the time the original ordinance was adopted. (A supplemental appropriation may also be used to appropriate money on hand at the beginning of the fiscal year which was not appropriated.)

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Third, the appropriation ordinance may be increased if a petition to authorize the increase is signed by at least 50 percent of the electors who cast ballots for the mayor or board president during the last election. The fourth method applies only to emergency spending needs to reduce an imminent threat to the public health and safety, such as clean-up after a tornado. Again, such an emergency authorization must be approved by a two-thirds vote of the corporate authorities.

Because these procedures are somewhat difficult, most municipalities avoid the need for changing the appropriation ordinance after its adoption by inflating their appropriation beyond the amounts actually needed. Unfortunately, this action often causes the appropriation ordinance to lose its value as a management tool for the monitoring and control of expenditures; becoming instead a "worst case" spending ceiling. For this reason, we recommend municipalities prepare an "operating budget" in addition to the official appropriation ordinance.

Such "operating budgets" are intended to establish more closely the realistic spending limits intended by corporate authorities. In other words, the appropriation ordinance specifies the maximum amount which can legally be spent, while the operating budget establishes the maximum amount which may, by legislative policy, be spent. As such, it limits expenditures to the level truly necessary, rather than giving department heads "carte-blanche" to spend to the limits set forth in the appropriation ordinance.

Unless the municipality has adopted the alternative Budget Officer's Act, there are no statutory requirements relative to the operating budget, and, therefore, there is flexibility in the format for this budget. We recommend that the budget for each fund include four items: beginning cash balance, projected revenues, budgeted expenditures and ending cash balance. Including this information enables officials to easily compare beginning and ending cash balances and revenues in relation to expenditures, thus making it easy to determine that the budget is balanced.

The various statutory provisions relative to the appropriation ordinance are found in Chapter 24, Section 8-2-9 of the Illinois Revised Statutes. Or, for further information, call DCCA's Office of Local Government Management Services, toll-free, at 1-800-562-4688. •

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