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A Budget Review of the City of Keene

Info: 5291 words (21 pages) Essay
Published: 22nd Jul 2021 in Finance

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Abstract

Municipal governments are faced with the task of providing a wide variety of services for a diverse citizenry with conflicting interests while maintaining financial solvency. This review aims to analyze the fiscal solvency of the City of Keene by completing a comprehensive budget review. Areas of research include budget components, budget techniques, analytical models, budget sources, financial management and communication plan in relation to the budget process used in the preparation of Keene’s 2018-2019 budget. The research evidence supports the fiscal solvency of the City of Keene.

Keywords: budget, fiscal solvency, budget components, budget techniques, analytical models, budget sources, financial management, communication plan

The City of Keene is a serene city situated on the notable Chisholm Trail in Johnson County, in the northern region of Texas. The first settlers arrived in the area in 1852 (Hart, 2010). Keene was formed, and continues to operate, utilizing a city charter. The City of Keene is responsible for providing administrative services, fire rescue services, police, utility, municipal court, permitting, and economic development to over 18,000 people and 36 square miles (VizionForce, 2018). The City of Keene has recently adopted their fiscal year 2018-2019 budget. This budget begins on October 1, 2018 and ends September 30, 2019. A comprehensive budget review is necessary to ensure the citizens of Keene that their community leaders are utilizing the most fiscally sound measures available. This budget review will determine whether city leaders are acting in the best interests of the community and its stakeholders. 

Budget Components

The City of Keene drafted their budget utilizing a conservative approach to revenues and expenditures. Budgeting with this method incorporates the view that revenues will remain the same or slightly above their prior levels unless there are unpredicted monetary issues that may affect the projected returns. The adopted budget for fiscal year 2018-2019 strives to maintain their previous commitments, maintain expected service levels and implement the priorities of the City Council (City of Keene Management, 2018). The budget contains many components that are employed to create the overall budget that is implemented. These include operating budgets for the General Fund, Water/Sewer Fund, Debt Service Fund, and the Capital Projects Fund.

Personnel Services Budget

 Personnel costs for the City of Keene are budgeted in the General Fund and the Water/Sewer Fund. The personnel services include salaries and fringe benefits for full-time equivalent (FTE) and part-time employees (PTE). In addition to the regular salary, the fringe benefits that are calculated in the personnel services budget and provided to employees include overtime wages, auto allowances, longevity pay, payroll taxes, workers compensation, health insurance, life insurance, retirement and long-term disability. It is not a legal requirement for the City to provide health insurance, life insurance, training benefits, or other non-monetary benefits (Menefield, 2017).

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The costs include wages and salaries, overtime wages, on-call pay, longevity pay, workers comp, various types of insurance and retirement benefits. The Federal Insurance Contributions Act (FICA) or payroll taxes are also accounted for within the personnel services budget. These taxes are imposed by the federal government and they set the amount of agency contributions. Social Security and Medicare are funded by these taxes. The federal government sets the annual agency contributions. For 2018, the social security tax rate is 6.2% for the employee and 6.2% for the employer for a total of 12.4%. The Medicare tax rate for 2018 is 1.45% for employees and 1.45% for employers for a total of 2.9%. For 2019, these rates look to remain the same. Although, the maximum earnings rate has increased to $132,900 (Office of Retirement and Disability Policy, 2018). The City of Keene’s contribution of the social security and Medicare payment is considered a fringe benefit. When calculating the cost of these benefits, the City only calculates the government portion of the payment into the personnel budget. The budget allots funding for pensions for full-time employees. This is a great benefit offered by the City because many smaller governments do not offer this advantage to their employees. The personnel services budget is broken down by classification codes and line items. These codes assist in located specific items within the budget. The personnel services budget makes up the bulk of the entire budget for the City of Keene.

Operating Budget

The operating budget for the City includes the cost of items needed for Keene to conduct business. Some of these include the following:

  • Facilities Maintenance
  • Equipment
  • Travel and Training
  • Supplies
  • Vehicle
  • Communication

The City of Keene operating budget is an incremental operating budget. Budgets of this kind directly link spending to a type of service or item. This type of budget shows any modest increase or decrease due to events such as inflation or expected events that may occur (Menefield, 2017). This kind of budget has four main components. These components include the estimated cost for the coming year, the cost for the current year, the object code and the item and/or service. It is beneficial that for the layperson the City of Keene adds an additional column into the budget to account for the actual spending for the prior budget cycle. This enables a comparison for the current budget.

Capital Budget

The city is calling for the continuation of already existing capital improvement projects. In addition, they intend to replace or rehabilitate existing streets, drainage, water and sewer systems. Unlike budgeted expenditures, the capital improvement expenditures will not lapse at the end of the fiscal year. They will continue until the project is either complete or abandoned. Some of the capital improvement projects that were included in this budget are:

  • Necessary accessories for the new police car
  • Revisions to the City Codes
  • Street improvements
  • Improvements to the parking lot at the firehouse
  • Various vehicle purchases
  • A generator for the new City Hall
  • OSSI conversion for county dispatch
  • Resurfacing of the floor at the animal shelter
  • Completion of Phase 1 of the new city website
 

Capital Improvement Plan

The City of Keene has adopted a 5-year capital improvement plan (CIP). This CIP was developed to take the projected growth in population and necessity for expansion of current city services and infrastructure. Utilizing a CIP, the City will be able to budget for the current capital improvement projects and evaluate the current and proposed future capital improvement projects. The current CIP began in the 2017-2018 fiscal year and is scheduled to run until the 2021-2022 fiscal year. See Appendix for the capital improvement plan. The adopted CIP has a total of $1,097,750 in improvement projects that are either already in progress or are set to take place this fiscal year. These projects are to be funded with bond proceeds-capital project loan from the General Fund. The budget projections include a capital expenditure in the amount of $395,000. The capital improvement projects the City of Keene has undertaken for its citizens are important and necessary in order to increase the quality of life for the citizens of Keene.

Budget Techniques and Analytical Models

The City of Keene adopted budget techniques such as forecasting revenues and zero-based budgeting in order to manage its budget for the 2018-2018 fiscal year.

Forecasting Revenues

Forecasting revenue method is used to foretell the prospective revenue collection that is founded on current factors such as economic, administrative, demographic and structural conditions of the city. The model that the metropolitan government adopted in forecasting its revenue is called the Status Quo Model (Menifield, 2017). Status Quo Model is where the future is presumed similar to the past situation; therefore, the city government estimated their budget for the 2018-2019 fiscal year to be at the same level with the one that was proposed in the 2017-2018 fiscal budget. This model is advantageous to the city government because of its simplicity to execute. A modification of the economic aspects of Keene may affect this model.

Zero Based Budgeting

Keene adopted the zero-based budget technique which are inverse methods of customer decision making.  The previous year’s budget was reviewed, and corrections were made in the area of expenditures and revenues regarding performance prospects (City of Keene Management, 2018). In the zero-based budget technique, Keene’s city manager is required to justify all the expenses that have been budgeted and not only those modification that was made from the previous year’s budget. The baseline of this budgeting technique is not the previous year’s budget but the fact it starts at zero where all expenditure and budget are assessed and approved.

Budget Analysis

The analytical models that were applied to Keene’s budget included both the cost-benefit analysis model and the cost-effectiveness.

Cost-Benefit Analysis

The cost-benefit analysis model was used to make a comparison of the budget of a project and its advantages (Menifield, 2017). This was carried out in the budget whereby the metropolitan made a comparison of the cost of the sewer and water projects and made a comparison of their budget estimate as its profits in revenue rates.  The city decided to make several alternatives that will return a higher profit with the project’s benefits. Keene decided to continue with the current projects that improve the revenue. Keene also maintained the development of the program for the city to replace the automobiles and equipment.

Cost-Effectiveness Analysis

The cost-effective analysis model was applied to the budget whereby Keene city administration presumed that there are advantages in the budget and focused on making the minimal expenditure to accomplish the goal. This model is applied such that all the alternative profitable means are assessed and evaluate the ones that are cost effective. Some of the cost-effective options the city adopted are: adjust the employee’s cost of living, maintain the contribution and advantage of health coverage, retain the existing tax charges, update the personnel policies, offer fund enhancement schemes and create policy to restore infrastructure as well as the sewage, water, drainage and the streets (City of Keene Management, 2018).

Budget Sources

Revenue sources and revenue forecasts are essential aspects to government officials and citizens at the level of local government. Government officials must be aware of which revenue sources coincides with each fund within the organization.

Property Taxes

Property tax is taxes that are imposed on personal property, privately possessed service and real property (Menifield, 2017). Property taxes are a significant mainstream of revenue for Keene and constitute to 54% of their revenue’s sources. Personal assets comprise of those assets that can be relocated such as equipment, automobiles, and inventory. The real property comprises of businesses, land, homes and permanent structures while privately possessed assets can integrate both above. In this budget, Keene decides to maintain the property tax rate that they operated in the previous fiscal year.

Sales Taxes

Sales taxes are charges accrued with the trade of goods as well as services. Sales tax is also a significant contributor to Keene’s tax revenue and comprises 12% of the revenue fund. They are charges that are accrued with the trade of goods as well as services. The revenue sourced from the sales taxes was augmented by a margin of 4% which is a representation of a definite rise when contrasting the preceding and the current revenue for the year (City of Keene Management, 2018).

Franchise Fees

Franchise fees are license and permits offered for a limited span of time. Franchise fees consist of 15% of Keene’s total revenue sources (City of Keene Management, 2018). Keene presumes that the enterprise will function with a given rate and worth, will be available for the entire society and will also be able to describe the duties of the proprietor as well as the Keene municipal administration. Furthermore, it might also incorporate the city’s use of rights-of-way (Menifield, 2017). Examples of franchise fee include telephone utilities and cable service companies and they usually create substantial quantities of revenue for the city. License or permits are privileges sold by the local government and purchased by persons or businesses that allows them to operate a range of various engagements in the city such as authorization to construct structures and partake in other supervised activities. The rate of the fee for the license or permit varies depending on the action.

Charge for Services

Charge for services are the charges issued to people that willingly utilize services provided to the public such as a toll rate to raise funds for a new public amenity. Thereby one does not have to pay the fee if they do not utilize that public service. This revenue source contributes to 10% of the budget revenue source. The primary objective of this revenue is to offload some of the budget into the overall income system. Keene planned to increase the rates that were imposed on Emergency Management Services (EMS) (City of Keene Management, 2018).

Intergovernmental

Intergovernmental consist of grants given to the City of Keene from the national administration and constitutes 8% of the total revenue source. The State of Texas can also avail this grant for the metropolitan City of Keene (Menifield, 2017). Economic Development Support funds are given to the municipal government for the utilization of a wide range of strategy aspects and thereby used for a variety of activities and programs by the metropolitan government. This grant is the most preferred grant because of the minimal regulation regarding its use. Administrative Allocation constitutes a large portion of the grants Keene receives. These grants are utilized for a particular project and are tied with stringent rules for the engagements to be completed within a given time span. Some of the projects that are covered by this fund include food and medical aid.

Other revenues

From time to time, the City of Keene accepts revenue from sources that are not in the above categories such as donations, auctions of assets and equipment. This revenue source comprises 1% of the total revenue source (City of Keene Management, 2018). There are no charges imposed, and there is no defined procedure for disbursement of these funds. Keene may also obtain revenues from asset leasing to other administrations or private sector and from the investments (Menifield, 2017). This revenue can come from an instance where the city charges other governments for services like accommodation of inmates. Other revenue sources categorized in this section include funds from penalties, forfeitures, and fines from the police department as well as the courts. These funds are usually ordinary and documented well which makes it easy to track.

Revenue Management

The City of Keene adopted other budget policies as of September 2018 in an attempt to manage their revenue sources to ensure that the administration obtained adequate funds and revenues. They encompassed the following:

I. They planned an increase of 2.9% increment of CPI in the charges for sanitation that are imposed on clients.

II. They also include a fresh scale of certification charges for individual costs.

III. They maintained the current rates for the sewer and water services.

IV. They maintained the employer input toward retirement at 2:1.

V. They maintained the endurance charges in the budget.

VI. Employers pay full benefits to include health, vision and dental health services by their employers.

VII. Employees receive a  3% cost of living.

VIII. The administration extended the employer input of 70% towards coverage for dependent health in the case that a spouse is not qualified for health coverage via their employer.

IX. The city also surpassed the 15-day income investment that it had in its fiscal policy (City of Keene Management, 2018). The City of Keene’s Charter and related financial policies require fiscal personnel to prepare and present the City Council with a proposed budget to be adopted prior to the beginning of the fiscal year, which began on October 1, 2018, and will end on September 30, 2019 (City of Keene Management, 2018).  The adopted budget is a balanced budget in that there is enough collective revenue to offset expenditures while maintaining mandatory reserve dollars per the City Charter (City of Keene Management, 2018).  The adopted budget is a conservative budget with a general fund and proprietary fund that underestimates anticipated revenues to offset growth increases and allow for surplus dollars that turn into reserve funds.  With new vehicles, equipment, facilities, etc. the budget was balanced by using existing reserve funds.  Utilizing these dollars makes it possible to leave the tax rate flat while upgrading the necessary equipment to meet the growing need of the City.  Personnel salary increases are budgeted to increase in a comparable manner to the cost of living increases and also to remain competitive in a global employment market. The City of Keene participates in Texas Municipal Retirement Systems by contributing at a two to one ratio and at an acceptable rate to ensure employee pensions are available in the long-term future (Acturiarial Funding Policy, 2018). 

Financial Management

The City of Keene’s Charter and related financial policies require fiscal personnel to prepare and present the City Council with a proposed budget to be adopted prior to the beginning of the fiscal year, which began on October 1, 2018, and will end on September 30, 2019 (City of Keene Management, 2018).  The adopted 2018-2019 budget is a balanced budget, which indicates that there is enough collective revenue to offset expenditures while maintaining mandatory reserve dollars per the City Charter (City of Keene Management, 2018).  The City of Keene is a fiscally conservative organization with a general fund and proprietary fund that underestimate anticipated revenues to offset growth increases and allow for surplus dollars that turn into reserve funds.  Personnel salary increases are budgeted in a comparable manner consistent with the cost of living increases and while remaining competitive in a global employment market. The City of Keene participates in Texas Municipal Retirement Systems by contributing at a two to one ratio and at an acceptable rate to ensure employee pensions are available in the long-term future (Acturiarial Funding Policy, 2018). 

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The City of Keene’s population has increased nearly 10% over the past decade. This population growth has contributed to more than $20,000 in additional revenue that is received from new home growth (City of Keene Management, 2018).  Population increases are expected to continue rising by approximately 12% over the next ten years.  With this growth in mind, the city has focused on street improvement projects to upgrade and maintain existing infrastructure by dedicating $325,000 in funding in their Capital Improvements budget for the 2018-2019 budget year (City of Keene Management, 2018).  Procurement of new vehicles, equipment, and facilities required that the budget is balanced by using existing reserve funds.  Utilizing these dollars makes it possible to leave the tax rate flat while upgrading the necessary equipment to maintain existing services and meet the growing need of the city.  The City of Keene participates in local groups for first responders, traffic management agencies, and maintenance and construction organizations (NTCOG, 2018); this networking increases the level of service provided to the citizens of Keene while ensuring accountability and consistency within the organization.

The financial policies and City Charter of Keene mandate sound accounting and budgeting practices that allow for the active growth of the city to meet the needs of society while maintain existing service levels and meeting long-term financial promises.  The conservative nature of Keene’s fiscal management allows for a surplus to offset growth within the city. The City of Keene is a financially solvent organization. 

Communication Plan for Budget Process

Budget Process

The budget process begins almost as soon as the previous year has been adopted. During the months of March, April, and May department heads are tasked with projecting revenues and expenditures utilizing the zero-based budgeting method. Once completed, the department heads then must present their findings to the City Manager. Those projections are then aligned with the City Manager’s future plans for capital projects. Soon thereafter, budget workshops begin. These workshops focus on the goals of the City Council, workshops continue throughout the remaining year. The City Manager is tasked with balancing the budget and must prioritize the requests of each department, making cuts where necessary and required. Once the budget is balanced, the City Manager presents a proposed budget to the City Council. His or her presentation is the key to successful adoption of the budget.

Not only is accurate information important but so is the way that the data is presented to the decision makers, in this case, the City of Keene City Council. It is imperative that all data collected is displayed in a manner that is effective and easily understood. A good way to achieve effective communication is through the utilization of tables and charts and PowerPoint presentations.

Tables are the most commonly used tool when displaying data. There are various types of tables to choose from, including trend analysis. Trend analysis shows the change in a variable over time and is one of the easiest methods to use (Menifield, 2017). The more data utilized, the more reliable the forecast is. The results of the data can and does aid the user in seeing trends over time.

Charts are another commonly used visual aid for the display of data, especially financial data. Charts are easy to glance at and return the intended information without much thought or analysis. There are various kinds of charts to choose from including scatter grams, line graphs, pie charts, and bar/column charts.

Scatter grams are used to display a pattern or correlation between two variable (Menifield, pg. 238). This type of chart is fairly simple to construct, especially if the scatter gram is constructed utilizing Excel. Line graphs are best used when displaying patterns over time. The biggest difference between a line graph and a scatter gram is the use of a line that plots the data instead of individual points (Menifield, 2017).  Pie charts display the division of data in respect to the value(s) as a whole. One downfall of using pie charts is that they are not very useful when the data has a negative value. Bar/column charts are very similar in nature to pie charts and just like a pie chart, they are not very useful when negative data is present. An important fact for users to know when using bar/column charts is they must know that the data displayed shows the change in revenue stream versus the actual contributions of each revenue source (Menifield, 2017). One downfall of using bar/column charts is the utilization of percentages instead of actual dollar amounts, making it difficult for the user to know how much revenue is included with each category.

Lastly, PowerPoint presentations usually go hand in hand with the use of tables and charts. Most all budgets are presented utilizing some sort of PowerPoint software. It is vital that the key players in the budget process are familiarized and proficient with presentation software. Generally, PowerPoint presentations are a brief summary of the overall budget and contain only the highlights.

Overall, no matter the type of display you choose to utilize it is imperative to understand and know your audience. Clarity and ease of understanding are of the utmost importance. Improper use of table and charts and lengthy presentations can lead to confusion and loss of interest and ultimately could jeopardize the acceptance of the budget.

Summary

The City of Keene is a quaint community tucked away in Johnson County, Texas providing a variety of services to roughly 18,000 people. The City operates under a Council-Manager government composed of a Mayor and six council members. The City Manager presented a very conservative, balanced budget for the fiscal year 2018-2019 utilizing zero-based budgeting and forecasting measures. The budget presented is a continuation of both previous commitments as well as new commitments to improve expected service levels. The City of Keene budget was formed through budget workshops and budget committee meetings starting in March running through July 2018. 

The 2018-2019 budget retains the view that revenues will remain mostly the same as previous years. One of the city’s largest expenses is personnel costs. In hopes to retain its valuable employees, personnel costs were looked at closely, including the continuance of fringe benefits to include a 3% COLA. In addition to personnel costs, the city is looking at extensive capital improvement projects to include repairs to its water/sewer infrastructure and its roadways. The City adopted a 5-year capital improvement plan (CIP) that will run from 2017 through 2022. This adoption will allow the city to spread the cost of improving its infrastructure out over time as well as enable them to plan ahead for future growth. 

Like most cities, property taxes are the city’s main source of revenue and constitute 54% of its income. This current budget year the city elected to retain its current property tax rate. Other sources of revenue include sales tax, franchise fees, service charges, and grants. In addition, the City of Keene closely manages revenue sources and ensures the collection of adequate fees for various services that they provide.

The adopted budget for the fiscal year 2018-2019 is balanced using reserve funds. This years’ budget is conservative and allows for any surplus at yearend to be returned to the reserve fund. By utilizing reserve funds, the city was able to leave the tax rate as it was in the previous fiscal year as well as enabling it to make the necessary equipment and infrastructure upgrades.  The population of Keene is forecasted to grow 12% each decade (City of Keene Management, 2018). Thus increasing the need for future financial planning to support such growth in order to allow the city to meet the needs of its residents in the near future as well as long-term. The City of Keene’s conservative fiscal management more than allows for the inevitable continual growth of its population. 

Finally, one of the most important pieces of the budget process is the presentation of financial data. One must consider the audience that the data is being presented to and formulate their plan of attack from there. The data needs to be presented in a way that everyone can easily understand, otherwise, you risk the chance of causing mass confusion and a failed attempt at getting the budget adopted in a timely manner. The adoption of a budget has to happen in a very scheduled, organized manner.  A poorly planned and communicated budget presentation can lead to major delays in the adoption of the budget, further delaying the major projects that are time-sensitive. 

References

  • Acturiarial Funding Policy. (2018, November 9). Retrieved from Texas Municipal Retirement Systems: https://www.tmrs.com/TMRS_highlights_statistics.php
  • City of Keene Fiscal Year 2018-2019 Budget (2018). Capital Improvements Program & Fee Schedule.
  • City of Keene Management. (2018). Tax and Budget Documents. Retrieved from City of Keene Texas: www.keenetx.com https://keenetx.com/resources/tax-budget
  • Hart, B. (2010, June 15). KEENE, TX. Retrieved November 5, 2018, from Handbook of Texas Online: http://www.tshaonline.org/handbook/online/articles/hgk03
  • Menefield, C. (2017). The Basics of Public Budgeting and Financial Management (3 ed.). Lanham, Maryland: Hamilton Books.
  • NTCOG. (2018, November 7). City of Keene. Retrieved from North Central Texas Council of Governments: https://www.nctcog.org/trans/manage/its/nct-regional-its-architecture/regional-its-architecture/stakeholders/city-of-keene
  • Office of Retirement and Disability Policy. (2018, October). Research, Statistics & Policy Analysis. Retrieved from Social Security Administration: www.ssa.gov
  • VizionForce. (2018, November 5). Welcome to the City of Keene. Retrieved from City of Keene: https://www.keenetx.com

Appendix

City of Keene 5-Year Capital Improvement Plan

Note: The information provided in this table is specific budget adopted by the City of Keene

City of Keene Fiscal Year 2018-2019 Budget.

 

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