THE MUNICIPAL FINANCIAL PROCESS

By JOHN M. COSTABILE, Chicago Heights

The municipal financial process has its complexities like any other financial process. The following outline is presented as a six step process to simplify the basic requirements. The steps presented are the budget, the treasurer's report, the tax levy, the abatement, the audit and the single audit, and GASB AND SEA (Service Efforts and Accomplishments Reporting) regulations. These steps present the basics and are not intended to be all inclusive.

1. THE BUDGET

A budget is a plan for the coordination of resources and expenditures. The first step in creating a budget is the review of revenue and expenditure history in order to develop projected estimates. Various analytical steps can be used in this process. The review includes the audit, the last budget, most current monthly spending, and other factors that may have an impact on the budget. A public notice of the budget hearing is published in a local paper a minimum of two weeks before adoption. This notice includes a statement of estimated revenue and expenditures and the availability of the budget for inspection.

A non-discrimination of handicapped notice can be included as part of the budget. A signature block of the person to contact must be included along with the publication notice.

Pension fund employer taxes are obtained for IMRF from IMRF, and for police and fire from the department of insurance. Social Security is computed on the basis of the previous year plus the increase in pay times the current rate. The current rate being 7.65 which includes social security 6.20 and medicare 1.45. The portion of pensions paid through real estate taxes is distributed according to the percentage levied. This differs from the replacement tax which is distributed according to a fixed percentage.

The motor fuel tax expenditures can be estimates from the municipal engineer. They become part of the capital plan and can include employee cost for street maintenance in addition to street department expenditures. For additional information IDOT publishes a motor fuel tax handbook. Prior approved expenditures are tracked by the Department of Transportation by approved account number. The reserve MFT fund balance should reflect that amount and therefore may not reflect fiscal expenditures when account number and fiscal year don't coincide.

2. THE TREASURER'S REPORT

The annual treasurer's report is printed within 6 months of the previous fiscal year closing. This report includes revenues, expenditures, ending fund balances, alphabetical vendor listing, and employee payroll listing.

3. THE TAX LEVY

The tax levy is based on the current budget. It is filed with the county clerk by the last Tuesday of December. In collar counties when the tax levy is increased, the lessor of 5 percent more than the prior years extended levy or an amount above the CIP index, a municipality must decide about going to referendum, cutting services, identifying additional revenue sources, or spending down the reserve in a fund balance. This last option may be advisable if future revenue enhancements will be put in place or a one time expenditure is causing the reduction in fund balance.

To compute the current allowable extension of cap funds in collar counties take the extension of the previous year times the consumer price index divided by the assessed valuation less new construction. This

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equals the limited rate times the total current equal assessed valuation.

DECCA publishes a tax rate and levy manual which lists the various levies that non-home rule municipalities are authorized to impose under state statute. This manual lists 73 levies which are authorized to meet operating or capital outlay expenses, and another 26 levies which are authorized to meet operating or capital outlay expenses, and another 26 levies which are authorized to cover debt costs on general obligation debt for specific public improvements (example new public works building or recreational areas). For each authorized levy, the tax rate and levy manual provides: a) the name of the levy; b) the maximum tax rate permitted, if any; c) a statement as to whether a referendum or special vote of the corporate authorities is needed; d) other special limitations or requirements, and; e) the statutory citation. No ceiling is applied to Liability Insurance, Audit, IMRF and Social Security, Bond and Interest, Police Pension, Workmans Compensation and Unemployment Insurance if there is no tax cap or the tax cap is not exceeded. Home rule governments in Illinois, which are exempted from tax cap legislation can impose virtually any type of property tax levy, without rate limitation, except where specifically prohibited by state statute or by the Illinois Constitution.

4. ABATEMENT

The abatement should be filed by the last Tuesday in December, unless extensions are permitted by the county clerk.

5. THE AUDITS

The audit and the single audit must be available for public inspection before being accepted and placed on file by the council or board. A legal notice is not required for acceptance of the audits.

6. GASB AND SEA (SERVICE EFFORTS AND ACCOMPLISHMENTS REPORTING)

Municipal auditors follow GASB regulations when

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doing the audit. GASB regulation 11 concerning when to recognize revenue and expenditures, has not yet been implemented. SEA regulations, which have some similarity to program budgeting, are supported by GASB but are not in force yet.

IGFOA will review budgets and audits prior to GFOA submittal for municipalities desiring recognition of achievement of excellence in financial reporting. GFOA approval recognizes that a municipality has taken steps to provide comprehensive financial information. Upon approval the audit is recognized as a comprehensive financial report. The budget review includes items such as a five year capital plan, two years of actual expenditures, current expenditures, estimated year end expenditures, and the proposed expenditures.

After this quick review of the basic municipal financial process, one final step remains, — balancing the budget! •

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