HomeMy WebLinkAboutAdministrative Order 2024-02 Bozeman Fiscal Policies (2)
CITY OF BOZEMAN
Fiscal Policies
Per Administrative Order 2024-02
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City of Bozeman Policies & Procedures:
Financial Policies
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TABLE OF CONTENTS
TABLE OF CONTENTS .................................................................................................. 2
SECTION 1: PURPOSE .................................................................................................. 3
SECTION 2: FISCAL PLANNING AND BUDGETING ..................................................... 3
SECTION 3: REVENUE COLLECTION .......................................................................... 5
SECTION 4: EXPENDITURES AND PAYMENTS .......................................................... 6
SECTION 5: DEBT ADMINISTRATION .......................................................................... 8
SECTION 6: RESERVES AND FUND BALANCES ........................................................ 8
SECTION 7: FINANCIAL REPORTING AND ACCOUNTING ....................................... 10
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SECTION 1: PURPOSE
The City of Bozeman (City) is committed to responsible fiscal management through
financial integrity, stewardship of public assets, long-term planning, accountability, and
transparency. Adopted financial policies provide guidelines for financial decision making
and set the strategic intent for financial management. These policies are central to a
strategic, long-term approach to financial management. These policies are designed to
guide day-to-day and long-range fiscal planning and decisions making, and to achieve
the following general financial goals:
1. To deliver quality services in an affordable, efficient, and cost-effective basis.
2. Provide and maintain essential public facilities, utilities, and transportation
networks.
3. Maintain an adequate financial base to sustain a sufficient level of municipal
services to maintain the social well-being and physical conditions of the City.
4. Protect and enhance the City's credit rating so as to obtain the lowest cost of
borrowing and also to assure taxpayers and the financial community that the City
is well managed and financially sound.
5. Provide the financial stability needed to navigate through economic downturns,
adjust to changes in the service requirements of the community and respond to
other changes as they affect the City’s residents.
6. Adhere to the highest standards of financial management and reporting practices
as set by the Government Finance Officers Association, the Governmental
Accounting Standards Board and other related professional financial standards.
7. Fully comply with finance related legal mandates, laws and regulations.
8. Promote intergenerational equity for the City’s taxpayers and ratepayers by
spreading the cost of new or upgraded City infrastructure over time so that
generations benefitting from such infrastructure contribute to its cost.
To achieve these goals, fiscal policies generally cover areas of revenue management,
operating and capital budgeting, financial planning and forecasting, investment and asset
management, debt management, accounting and financial reporting, reserves, and
internal controls. These policies are reviewed every year as part of the budget preparation
process.
SECTION 2: FISCAL PLANNING AND BUDGETING
1. A comprehensive annual budget will be prepared for all funds expended by the
City.
State law provides that “Local government officials may not make a disbursement or an
expenditure or incur an obligation in excess of the total appropriations for a fund.” (MCA
7-6-4005(1)). The budget development process along with the annual appropriation
resolution are the mechanism by which the City Commission approves the financial and
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operational priorities for the City.
2. The budget will be prepared in such a manner as to facilitate its understanding
by community members and elected officials.
The budget presents a picture of the City government operations and intentions for the
year to the community of Bozeman. Presenting a budget document that is understandable
furthers the goal of effectively communicating local government finance issues to both
elected officials and the public.
3. Budgetary emphasis will focus on providing those basic municipal services
which provide the maximum level of services, to the most citizens, in the most cost-
effective manner, with due consideration being given to all costs--economic, fiscal,
and social.
Beyond adherence to this basic philosophy, Montana’s Constitution states that taxes shall
be levied for public purposes. The citizens of Bozeman should be assured that its
government and elected officials are responsive to the basic needs of the citizens and
that its government is operated in an economical and efficient manner for public purposes.
4. The budget will provide for adequate maintenance of capital, plant, and
equipment and for their orderly replacement.
All governments experience prosperous times as well as periods of economic decline. In
periods of economic decline, proper maintenance and replacement of capital, plant, and
equipment is generally postponed or eliminated as a first means of balancing the budget.
Recognition of the need for adequate maintenance and replacement of capital, plant, and
equipment, regardless of the economic conditions, will assist in maintaining the
government's equipment and infrastructure in good operating condition.
5. The City will avoid budgetary practices that balance current expenditures at the
expense of meeting future years' expenses.
The City is committed to long-term financial planning and ensuring that the current budget
does not expend funds that may be needed to avoid significant rate or assessment
increases in future years. The City uses six-year financial models for major funds to
ensure that revenues and expenditures balance throughout the years not just in the
current fiscal year.
6. The City will give highest priority in the use of one-time revenues to the funding
of capital assets or other non-recurring expenditures.
Utilizing one-time revenues to fund on-going operational expenditures results in incurring
annual expenditure obligations which could become unfunded in future years. Using one-
time revenues to fund capital assets or other non-recurring expenditures is best practice
to ensure that funding is maintained for annual expenditures.
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7. The City will maintain a budgetary control system to help it adhere to the
established budget.
The budget passed by the Commission establishes the legal spending limits for the City
in alignment with City Code section 2.06.150. A budgetary control system is essential in
order to ensure legal compliance with the City's budget. The budgetary level of control is
established annually in the resolution to adopt the budget and is in compliance with
Montana Code Annotated (MCA) and Bozeman Municipal Code (BMC).
8. A cost allocation plan will be developed and incorporated into the City budget.
The cost allocation plan distributes the costs of general government, and internal service
funds fairly between City departments based on the full cost of providing services. This
plan is updated annually.
9. The City will maintain long-range financial forecasts of 6-30 years for all major
funds and some minor funds.
To promote long-term strategic thinking and demonstrate the city’s ability to adapt to
changes in the economy, operating requirements and capital demands, the city will
prepare balanced financial forecasts that will incorporate both revenue and expenditure
estimates and reserve requirements for the city’s major operating funds. The forecasts
will identify revenues and expenditures that are anticipated to be sustainable over the
five-year period. The forecasts will be updated annually and provided to executive
leadership during the city’s budget process.
SECTION 3: REVENUE COLLECTION
1. The City will seek to maintain a diversified and stable revenue base.
A City dependent upon a few volatile revenue sources is frequently forced to suddenly
adjust tax rates or alter expenditure levels to coincide with revenue collections.
Establishment of a diversified and stable revenue base, however, serves to protect the
City from short-term fluctuations in any one major revenue source.
2. The City will estimate revenues in a realistic and conservative manner.
Aggressive revenue estimates significantly increase the chances of budgetary shortfalls
occurring during the year--resulting in either deficit spending or required spending
reductions. Realistic and conservative revenue estimates, on the other hand, will serve
to minimize the adverse impact of revenue shortfalls and will also reduce the need for
mid-year spending reductions.
3. The City will pursue an aggressive policy of collecting revenues.
An aggressive policy of collecting revenues will help to ensure the City's revenue
estimates are met, all taxpayers are treated fairly and consistently, and delinquencies are
kept to a minimum.
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4. The City will aggressively pursue opportunities for Federal or State grant
funding.
An aggressive policy of pursuing opportunities for federal or state grant funding provides
citizens assurance that the City is striving to obtain all state and federal funds to which it
is entitled, thereby reducing dependence on local taxpayers for the support of local public
services.
5. User fees and charges will be used, as opposed to general taxes, when distinct
beneficiary populations or interest groups can be identified.
User fees and charges are preferable to general taxes because user charges can provide
clear demand signals which assist in determining what services to offer, their quantity,
and their quality. User charges are also more equitable, since only those who use the
service must pay--thereby eliminating the subsidy provided by nonusers to users, which
is inherent in general tax financing.
6. User fees will be collected only if it is cost-effective and administratively feasible
to do so.
User fees are often times costly to administer. Prior to establishing user fees, the costs
to establish and administer the fees will be considered in order to provide assurance that
the City's collection mechanisms are being operated in an efficient manner.
SECTION 4: EXPENDITURES AND PAYMENTS
1. On-going expenditures will be limited to levels which can be supported by
current revenues.
Utilization of reserves to fund on-going expenditures will produce a balanced budget;
however, this practice will eventually cause severe financial problems. Once reserve
levels are depleted, the City would face elimination of on-going costs in order to balance
the budget. Therefore, the funding of on-going expenditures will be limited to current
revenues.
2. Minor capital projects or recurring capital projects, which primarily benefit
current residents, will be financed from current revenues.
Minor capital projects or recurring capital projects represent relatively small costs of an
on-going nature, and therefore, should be financed with current revenues rather than
utilizing debt financing. This policy also reflects the view that those who benefit from a
capital project should pay for the project.
3. Major capital projects, which benefit future residents, will be financed with other
financing sources (e.g., debt financing).
Major capital projects represent large expenditures of a non-recurring nature which
primarily benefit future residents. Debt financing provides a means of generating sufficient
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funds to pay for the costs of major projects. Debt financing also enables the costs of the
project to be supported by those who benefit from the project, since debt service
payments will be funded through charges to future residents.
4. A Capital Improvement Plan (CIP) will be adopted annually by December 31.
The Capital Improvement Plan (CIP) differentiates the financing of high-cost long-lived
physical improvements from low cost "consumable" equipment items contained in the
operating budget. CIP items may be funded through debt financing or current revenues
while operating budget items are annual or routine in nature and should only be financed
from current revenues. All capital replacement and construction projects must be adopted
in compliance with BMC section 5.07.
5. All expenditures must be compliant with BMC and Adopted City Administrative
Orders.
Administrative orders that address expenditures include but are not limited to the City’s:
Procurement Policy, Vehicle Use Policy, Vehicle/Equipment Replacement Policy, and
Information Technology Use Policy. All administrative orders and internal policies are
available on Laserfische in the City Commission>Administrative Orders/Internal Policies
page.
6. When possible, the City will spend resources in order of most to least restricted
balances.
Resources will be categorized according to Generally Accepted Accounting Principles
(GAAP) for state and local governments, with the following general definitions. The City
will spend its resources in the following order. Detail around each resource category is
included in the Reserves and Fund Balances section of this policy.
Restricted - Amounts constrained to specific purposes by their providers (such as
grantors, bondholders, and higher levels of government) through constitutional provisions
or by enabling legislation.
Committed - Amounts constrained to specific purposes by the City Commission; to be
reported as committed, amounts cannot be used for any other purpose unless the City
Commission takes action to remove or change the constraint.
Assigned - Amounts the City intends to use for a specific purpose; intent can be
expressed by the Commission or by an official or body to which the Commission
delegates the authority. The City Commission delegates this authority to the City
Manager.
Unassigned - Amounts that are available for any purpose; these amounts are reported
only in the General Fund.
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SECTION 5: DEBT ADMINISTRATION
1. The City will evaluate internal financials and market conditions when considering
issuance of long-term debt.
The City will ensure that projected revenues are sufficient to service the long-term debt,
that market conditions are favorable enough to warrant financing, and that the issuance
will not unduly affect the City’s credit rating and debt service coverage ratios.
2. The City will repay borrowed funds, used for capital projects, within a period not
to exceed the expected useful life of the project.
This policy reflects the view that those residents who benefit from a project should pay
for the project. Adherence to this policy will also help prevent the government from over-
extending itself with regard to the incurrence of future debt.
3. The City will not use long-term debt for financing current operations.
This policy reflects the view that those residents who benefit from a service should pay
for the service. Utilization of long-term debt to support current operations would result in
future residents supporting services provided to current residents.
4. The City of Bozeman will adhere to a policy of full public disclosure with regard
to the issuance of debt.
Full public disclosure with regard to the issuance of debt provides assurance that the
incurrence of debt, for which the public is responsible, is based upon a genuine need and
is consistent with underwriters’ guidelines.
5. The City of Bozeman will adhere to state of Montana General Fund limitations for
municipalities.
For the General Fund, Montana Code Annotated section 7-7-4101 allows the City to issue
an obligation only if it does not exceed 10% of the General Fund budget in each of the
two immediately preceding fiscal years, and debt service in the current or any future fiscal
year do not exceed 2% of revenue deposited in each of the two immediately preceding
fiscal years in the Fund. The term of an obligation cannot exceed 20 years.
6. The City will strive to maintain or improve current credit ratings.
Credit ratings ensure the City’s access to bond markets and provide assurance to the
citizen’s that the City government is well managed and financially sound.
SECTION 6: RESERVES AND FUND BALANCES
1. Reserves and fund balances will be properly designated into the following
categories:
Non-spendable fund balance - Amounts that are not in a spendable form (such as
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inventory) or are required to be maintained intact (such as the corpus of an endowment
fund).
Restricted fund balance - Amounts constrained to specific purposes by their providers
(such as grantors, bondholders, and higher levels of government) through constitutional
provisions or by enabling legislation.
Committed fund balance - Amounts constrained to specific purposes by the City
Commission; to be reported as committed, amounts cannot be used for any other purpose
unless the City Commission takes action to remove or change the constraint.
Assigned fund balance - Amounts the City intends to use for a specific purpose; intent
can be expressed by the Commission or by an official or body to which the Commission
delegates the authority.
Unassigned fund balance - Amounts that are available for any purpose; these amounts
are reported only in the General Fund.
2. A minimum level of General Fund undesignated reserve equal to 16.67% of
annual revenues will be maintained by the City.
This reserve is committed to be used for: cash flow purposes, accrued employee payroll
benefits which are not shown as a liability, unanticipated equipment acquisition and
replacement, and to enable the City to meet unexpected expenditure demands or revenue
shortfalls.
Property taxes represent the City's primary source of General Fund revenue. Property
taxes are collected in November and May of each fiscal year. Since the City's fiscal year
begins on July 1st, the City must maintain an adequate cash balance in order to meet its
expenditure obligations between July 1st and the commencement of the collection of
property taxes in November. The City’s Municipal Code section 2.06.108 requires the City
Manager to recommend a budget that results in a year-end General Fund unreserved
fund balance of no less than 16.67% of estimated General Fund revenues. The intention
of reserve as adopted by the City Commission is to ensure availability of funds and at the
same time compliance with the City’s Code. At no time may a budget be adopted or
amended in a manner that results in a year-end General Fund unreserved balance of less
than five percent of estimated General Fund reserves. This limit does not apply in case
of an emergency, pursuant to state law. Accrued employee payroll benefits represent a
bona fide obligation of the City. The City will maintain sufficient reserves to meet its annual
expenditure obligations. The City is subject to revenue shortfalls and unexpected
expenditure demands during the fiscal year. An undesignated General Fund reserve will
be maintained to be able to offset these revenue shortfalls or meet unexpected demands
occurring during the year, without suddenly adjusting tax rates or reducing expenditures.
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SECTION 7: FINANCIAL REPORTING AND ACCOUNTING
1. The City will manage and account for its financial activity in accordance with
Generally Accepted Accounting Principles (GAAP), as set forth by the
Governmental Accounting Standards Board (GASB).
GASB is recognized as the authority with respect to governmental accounting. Managing
the City's finances in accordance with GAAP and in accordance with the rules set forth
by GASB provides Bozeman citizens assurance that their public funds are being
accounted for in a proper manner.
2. The basis of accounting for City operations is dependent on the fund type.
Governmental Funds use the modified-accrual basis of accounting. This means that
revenues are recognized when they are earned, measurable and available. Expenditures
are recognized in the period that liabilities are due and payable. The budgetary basis is
the same and is used in the General Fund, Special Revenue and Debt Service Funds,
and Capital Project Funds.
Proprietary, Internal Service, and Fiduciary Funds use the full accrual basis of accounting.
Revenues are recognized when they are earned, and expenses are recognized when
liabilities are incurred. However, the budgetary basis in these funds is primarily based on
the modified-accrual approach. Instead of authorizing budget for depreciation of capital
assets, the budget measures and appropriates cash outflows for capital acquisition and
construction, which is a modified-accrual approach. In full accrual-based accounting debt
proceeds are recorded as liabilities rather than a revenue (funding source).
3. The City of Bozeman will prepare an Annual Comprehensive Financial Report
(ACFR) in conformance with Generally Accepted Accounting Principles (GAAP).
The report will be made available to the general public.
The ACFR shall be prepared in accordance with the standards established by the GFOA
for the Certificate of Achievement for Excellence in Financial Reporting Program. The
Certificate of Achievement represents a significant accomplishment for a government and
its financial management. The program encourages governments to prepare and publish
an easily readable and understandable annual comprehensive financial report covering
all funds and financial transactions of the government during the year. The ACFR
provides users with a wide variety of information useful in evaluating the financial
condition of a government. The program also encourages continued improvement in the
City's financial reporting practices.
4. The City will ensure the conduct of timely, effective, and annual audit coverage
of all financial records in compliance with the local, state, and federal law.
Audits of the City's financial records provide the public assurance that its funds are being
expended in accordance with Local, State, and Federal law and in accordance with
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GAAP. Audits also provide management and the Commission with suggestions for
improvement in its financial operations from independent experts in the accounting field.
5. The City’s asset capitalization policy is to capitalize and depreciate assets
greater than $5,000 with a useful life beyond one years.
Capital assets costing less than $5,000 or having a useful life of one year or less will be
treated as operating expenditures. The asset capitalization threshold will be applied to
individual assets rather than groups of assets unless the effect of doing so would be to
eliminate a significant portion of total capital assets.
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