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Financial Toolkit for Local Officials

Financial Toolkit for Local Officials - Intro

Local government and school district leaders are faced with unprecedented challenges including simultaneously managing public health responses and the budgetary impacts of financial crises. LGSA has many resources that can be useful to local officials as they deal with revenue disruption and rising demands for services. On this page we have provided links to guidance, tools, training and reports available on the Division’s web pages to assist you.

 

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Is My Municipality in Fiscal Stress

Is My Municipality in Fiscal Stress?

Financial Condition Analysis

Performing a regular, timely financial condition analysis can provide you with valuable information on the current state of your finances.

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Financial Condition Audits

To assist in understanding how financial condition issues impact other local governments, review our listing of all financial condition audits performed by OSC on cities, counties, school districts, towns and villages going back several years.

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Fiscal Stress Monitoring System©

The Fiscal Stress Monitoring System (FSMS) is OSC’s program to objectively identify issues with budgetary solvency—the ability to generate enough revenue to meet expenditures—for each county, city, town, village and school district. The system analyzes the financial information submitted to OSC by local governments against a set of uniform financial and environmental indicators.

FSMS Resources:

  • FSMS Fact Sheet [pdf] explains what the system is designed to provide, the components of the system and how results are analyzed.
  • FSMS Search Tool allows you to search for your municipality to assess your fiscal stress.
  • FSMS Manual [pdf] provides a basic discussion about the system while accompanying technical appendices provide details about the methodology OSC staff utilize in performing the assessments.
  • OSC FSMS Website outlines lists, publications and other tools available to determine the fiscal stress of municipalities.

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Addressing a Current Budget Deficit

Addressing a Current Budget Deficit

Control Spending

Local governments and school districts may be faced with budgetary shortfalls as a result of expenditures being underestimated in the current budget. Governing boards should consider modifying the current budget to lessen potential operating deficits. The following resources can assist you:

Managing Your Budget in Times of Fiscal Stress

It is more important than ever that finance officers actively monitor their budgets against actual revenue collections and expenditure outlays to minimize the risk of a year-end deficit.

Officials should determine what expenditures in the current budget are necessary or discretionary. Necessary expenditures include payroll, contractual obligations, debt service and public safety and health. Discretionary expenditures include capital improvements, equipment purchases, non-public safety and health-related overtime, travel and other non-essential contractual expenditures. Depending on results from your analysis, consider declaring a spending moratorium or reduce affected appropriations in the current budget. This would require Board approval, and input should be solicited from the community.

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Understanding the Budget Process

Local officials should closely monitor the progress of actual revenues and expenditures throughout the year, and identify any variances that might cause the local government or school district to end the year with a significant surplus or deficit. The timely detection of projected budget shortfalls allows actions to be taken early to address the shortfall, when only relatively small adjustments may be required.

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Information for Town Officials

OSC has developed guidance specifically for town officials related to budgetary and fiscal operations. Please see Chapter 3 for further details regarding the implementation and monitoring of town budgets.

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Related Webinars

  • Commonly Misunderstood Concepts in Budgeting Webinar - This session will identify the most commonly misunderstood concepts in budgeting by local officials and management, help explain how to properly implement these concepts and show ways to prevent pitfalls in the budget process.
  • Managing Your Cash Flow Webinar - This training will help local officials understand various procedures to control and account for cash. It includes key information on cash control and reporting, collection and disbursement procedures, and cash flow forecasting and how these activities affect cash flow models.

Use of Established Reserve Funds

If local governments and school districts have established reserves with surplus balances, the excess funds may be legally used to assist with existing expenditures to make up for revenue shortfalls.

Revenue Shortfalls and Use of Available Surplus Fund Balance

Some local governments’ budgets rely heavily upon revenues that may be reduced as a result of financial crises such as sales tax, state aid and local fees derived from water, sewer and recreation. The boards of these governments should consider the prudent use of surplus unrestricted fund balance and other methods to ensure services are provided.

Issuance of Short-term Debt

After exhausting other available options, governing boards may need to consider issuing some form of short-term debt in order to generate sufficient cash flow to meet the operational needs for the remainder of the year. Local governments have short-term instruments available for use (please consult your financial and legal professionals for further guidance regarding these financial instruments), including:

Tax Anticipation Notes (TANs)

TANs may only be issued in anticipation of the collection of taxes and assessments. Generally, the proceeds of TANs must be used for the same purposes for which the taxes or assessments in anticipation of which the notes are issued must be used.

Revenue Anticipation Notes (RANs)

RANs are a cash flow device that are issued to generate cash flow in anticipation of the collection or receipt of certain specific types of revenue. The proceeds of RANs may be used only for the purpose of meeting expenditures payable from the type of revenue in anticipation of which the notes were issued or for the redemption of notes in renewal of which the notes are issued.

Budget Notes

Budget notes are a form of short-term financing intended for any object or purpose for which a local government is authorized to expend money. Budget notes provide cash and may be used to finance increases in appropriations. The proceeds of budget notes must be used for purpose for which the notes were issued.

Deficiency Notes

Deficiency notes may be issued during a fiscal year to finance a deficiency in any fund or funds arising from revenues being less than the amount estimated in the budget for that fiscal year. The proceeds received from the issuance of deficiency notes are only to be used to finance a deficiency in a fund or funds arising from revenues being less than the amount estimated in the budget.

Guidance

OSC has developed the following guidance to assist in the accounting for these debt instruments:

  • Accounting for RAN and TAN Premiums [pdf] – Local governments are more often receiving significant premiums upon the issuance of TANs and RANs, and this clarifies the prescribed accounting treatment of TAN and RAN premiums and the restrictions on the use of these premiums.
  • Accounting for Deficiency Notes [pdf] – Local Finance Law allows for municipalities, school districts or district corporations to issue deficiency notes. Deficiency notes may be issued during a fiscal year to finance a deficiency in any fund or funds arising from revenues being less than the amount estimated in the budget for that fiscal year.

 

 

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Budgeting in Future Years

Budgeting in Future Years

Financial crises can impact the budgets of local governments and school districts for the foreseeable future. Governing boards should take a proactive approach to respond to these challenges by adopting a plan aimed at adopting structurally balanced budgets to ensure that necessary services can be provided in the most cost-effective manner. OSC has a number of resources available to officials to assist in this effort.

Understanding the Budget Process

The budget is an essential ingredient in the financial planning, control and evaluation process of local governments. Every governmental unit in New York State has to prepare an annual operating budget for its governmental and proprietary funds. However, in the case of the capital projects fund, the budget is for the period of the individual project, which may span more than one fiscal year. Simply stated, the budget is an estimated financial plan of a government which represents the spending authority for the various purposes of the government and the means of financing those proposed expenditures.

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Review Fund Balance Policies

Budgeting and Fund Balance Legislation Bulletin

Counties, towns, villages and fire districts can carry over a "reasonable amount" of unappropriated unreserved fund balance from one year to the next. Counties, towns and villages can fund supplemental appropriations from unappropriated unreserved fund balance or unanticipated revenues, if the total of all revenues recognized or reasonably expected to be recognized, together with unappropriated unreserved fund balance, exceeds the total of all revenues estimated in the budget and appropriated fund balance.

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Fund Balance Policy Webinar

Fund balance is a calculation of the surplus (or deficit) of assets over liabilities that has accumulated over the lifetime of a local government or school district. Generally, positive fund balance is a result of revenues having exceeded expenditures in one or many years, and those revenues most often come from real property taxes levied on the taxpayers. As custodians of the taxpayers’ assets, it is crucial for local government and school district officials to be able to clearly and methodically explain to the taxpayers and other interested parties, what their plan is for the use of these assets. Without a formally adopted fund balance policy for each operating fund, the use of these assets is subject to political agendas, and spur of the moment, haphazard planning. A fund balance policy can help tie multiyear plans together, while offering planning process transparency for the taxpayers.

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Carefully Estimate Expected Revenues

The process of estimating revenues usually begins with a historical analysis. Looking at revenues over time often is a fair indicator of future results, a three-to- five-year period is usually sufficient. The Finance Department or Chief Financial Officer should be able to provide accurate historical data to start the estimating process. In addition, accurate year-to-date numbers with estimates to year end are necessary for the process.

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Plan Your Budget and Alternative Budgets

After the budget has been approved, it is generally the responsibility of the governing board, budget officer, and department heads to see that services are delivered within the limits provided in the budget. They should closely monitor the progress of actual revenues and expenditures throughout the year, and identify any variances that might cause the local government or school district to end the year with a significant surplus or deficit.

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Resources:

  • OSC Planning Resources – Contains links to other resources provided by OSC for multiyear financial planning, capital and strategic planning, and planning/budgeting tutorials.
  • Open Book New York – Open Book New York provides detailed information regarding the accounting of how taxpayer dollars are utilized including data on local governments, such as revenues, expenditures, debt and multiyear comparisons of fiscal data.

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Review and Utilize Multiyear Plans

Multiyear planning can be a vital tool for local governments, especially those struggling with difficult financial conditions. It allows decision-makers to set long-term priorities and work toward goals, rather than making choices based only on the needs and politics of the moment. This is important when resources are limited, as they are in many fiscally strained localities, but can also be beneficial to all communities in avoiding future stress. Planning is also particularly helpful in identifying one aspect of fiscal stress that affects many of New York’s local governments, regardless of apparent current fiscal health – structural imbalances between revenues and expenditures. Simply put, local government costs have been growing more quickly than revenues. Expenditures have grown, on average, fueled by upward pressures caused by wages and salaries, healthcare costs and other employee benefits. Yet, revenues have grown more slowly or even declined – particularly in upstate cities struggling with stagnant property values, declining populations and troubled economies.

Multiyear Financial Planning

A multiyear financial plan can help residents and elected local government officials see the impact of their fiscal decisions over time. They can then decide what program funding choices to make in advance, avoiding sudden tax increases or dramatic budget cuts. Without a multiyear financial plan, fiscally-stressed localities sometimes try to limp along from year to year, spending down reserve funds or using various one-time revenues to keep afloat. But the practicality of those strategies is limited. As local governments have discovered, putting off painful decisions doesn’t make problems disappear – in fact, it usually makes them worse. Financial problems that remain hidden for a long time have a way of emerging suddenly as full-blown financial crises.

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Resources: Multiyear Financial Planning Spreadsheets

Multiyear Capital Planning

New York’s local governments are responsible for maintaining and improving a substantial portion of our public infrastructure. A safe and reliable transportation network, clean and abundant water, modern educational facilities and other capital assets form the foundation for successful communities. Unfortunately, numerous studies have pointed out that New York’s local governments have been underfunding their capital needs over the last several decades. In order to reverse this trend, additional federal, State and local resources may need to be dedicated for sustained investment. Equally important is a commitment by local governments to engage in effective multiyear capital planning. There are many benefits to a robust capital planning process. Local governments should, and in some cases must, create a comprehensive inventory of their capital assets and "know what they own." The process of prioritizing capital investments can make sure key assets are repaired or replaced before an emergency occurs. Finally, local government leaders can engage their community in understanding the costs and benefits of maintaining capital infrastructure.

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Resources: Capital Planning Tool Spreadsheet

Strategic Planning

Rather than operating with a "for-now" mentality, a multiyear strategic plan develops a long-term, usually multiyear, roadmap comprising a set of goals and objectives that help you successfully move forward from where you are now to where you want to be. A strategic plan is founded on a vision and continues long after the initial groundwork is set. It's a common sense tool that sets a clear path for the future, while also allowing for your vision to mature and change as time passes. Strategic planning is also a preventative measure designed to assist you in achieving maximum effectiveness and equity before a program or department reaches crisis level. Or, in management terms, strategic planning is "proactive," instead of "reactive." Semantics aside, strategic planning translates into good, common sense.

Carefully Develop Appropriations Based on Trends

Spending levels and financial resources must be accurately gauged to ensure that planned services are properly funded. Local governments should develop sound estimates to develop a realistic annual budget.

True Cost of Services

Since most elected officials are not involved in the day-to-day running of a department, they cannot be expected to know the true cost of a service. Therefore, it is difficult for them to intelligently decide upon the proper level of funding. This reality coupled with public pressure against tax increases can result in poor budgeting. By employing a somewhat different approach to budgeting, the focus can be shifted from the "bottom line" and "meat axe" approach to budgeting to an intelligent analysis of the true cost of providing services and the best manner in which to provide them. We often refer to this approach as "Contemporary Budgeting."

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Open Book New York

Open Book New York provides detailed information regarding the accounting of how taxpayer dollars are utilized. This includes data on local governments, including revenues, expenditures, debt and multiyear comparisons of fiscal data.

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Plan for the Use of Fund Balance

Combining a reasonable level of undesignated fund balance with specific legally established reserve funds provides resources for both unanticipated events and other identified or planned needs.

  • Appropriated Fund Balance – Another important financing source for the annual budget is available fund balance. The key to using this as a funding source is the proper estimation of its value. At budget time, the challenge for local government and school district budget officers is to calculate year-end fund balance months in advance.
  • Reserve Funds – Saving for future projects, acquisitions and other allowable purposes is an important planning consideration for local governments and school districts. Reserve funds provide a mechanism for legally saving money to finance all or part of future infrastructure, equipment and other requirements. Reserve funds can also provide a degree of financial stability by reducing reliance on indebtedness to finance capital projects and acquisitions. In uncertain economic times, reserve funds can also provide officials with a welcomed budgetary option that can help mitigate the need to cut services or to raise taxes. In good times, money not needed for current purposes can often be set aside in reserves for future use.

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Alternate Strategies

Local governments and school districts should explore a variety of funding and cost cutting strategies when developing budgets.

  • Identify Cost Savings Opportunities – Comptroller DiNapoli and OSC are committed to assisting New York’s local governments in identifying cost-savings and revenue enhancement opportunities. In the current economic environment, every dime counts, and municipal officials should be prepared to leverage savings whenever and wherever possible.
  • Shared Services in Local Government – Shared services can help municipalities increase effectiveness and efficiency in their operation. As municipal responsibilities become increasingly complex and demanding, municipalities should explore shared services and other cooperative opportunities as a way to reduce or avoid costs, improve service delivery, or maintain services.
  • Consider establishing a volunteer workforce and establishing consulting groups/committees made up of a cross-section of the community with expertise in finance and budgeting. Tapping into the various skill sets and the knowledge base that exists locally can assist local governments and their residents navigate through these difficult times and plan for the future.

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Hand holding out cash
Cash Flow Management Strategies

Cash Flow Management Strategies

Cash management includes policies and procedures which aid in controlling and accounting for cash and include measures that result in the effective utilization of cash. A cash flow forecast provides an estimate of the amount of cash that will be available for investment during the fiscal year and on a month-to-month basis based on historical trends and other logistical information. The forecast should include all major recurring flows and any major nonrecurring flows that are reasonably predictable. Cash flow forecasts are also useful in determining whether short-term borrowing will be needed to finance temporary cash deficits.

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