OVERVIEW
FINANCIAL STRUCTURE AND OPERATIONS
The City's accounting system is organized and operated on a "fund basis" under which each fund is a distinct self-balancing accounting entity. A fund is "an independent fiscal and accounting entity used to record all financial transactions related to the specific purpose for which the fund was created". Funds are established for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, legal restrictions or limitations. The City's annual operating budget is prepared in conformity with Generally Accepted Accounting Principles (GAAP).
The annual budget, adopted by the City Council, provides for the general operation of the City. The annual budget is adopted by the City Council in June of each year for the General, Special Revenue, Debt Service and Capital Projects Funds. The resolution sets a combined appropriation of the funds for the operation of the City.
The City Manager is authorized to transfer budgeted amounts between departments to assure adequate and proper standards of service. Budgetary revisions, which increase the combined appropriations in individual funds, must be approved by the City Council. The City Manager is authorized to decrease department budgets to reflect savings generated by position vacancies. The budgetary level of control is at the departmental level.
The City provides a full range of services to its citizens. These include police, fire, emergency medical, street construction and maintenance, traffic signalization, parks, recreational, cultural and social, planning, building and safety, economic development, environmental, and general administrative services.
Services are categorized into a departmental structure to afford similarity in service provided. Departments may receive funding from one or more funds. Through the budget process and ongoing activity, the City Council oversees the operation of the City and sets forth community priorities and policies to be implemented by the City Manager. The City Manager directs the department managers in the administration of City programs and service delivery. The City Manager establishes administrative policy in areas under his purview.
To monitor and evaluate departmental effectiveness, a project-performance program has been initiated. Under this program, each department sets forth the projects and programs to be undertaken during the fiscal year. Projects and programs may be short-term (with a specific completion date) or ongoing programs. A listing of each department's projects and programs is submitted at the beginning of the fiscal year as an overview of the department's work program. This information is compiled in the budget document and provides a detailed overview of the City's work program for the fiscal year.
The more significant departmental projects and programs provide the basis for the departmental goals and objectives and workload indicators included in the departmental budgets.
Departmental work programs are updated periodically. Completed projects, completion dates, new projects undertaken, as well as specific actions completed in providing ongoing programs, are established and reviewed. This process provides an ongoing measure of departmental activity and effectiveness in meeting the City Council's priorities.
GANN LIMIT
The adoption of the appropriation limit occurs annually to comply with the California Constitution, Article XIIIB (as amended) and Government Code Section 7910. The Gann Limit restricts annual expenditures the City may appropriate. If certain proceeds of taxes exceed allowed appropriations, the excess must either be refunded to the State Controller or refunded to the taxpayers. For the fiscal year ending June 30, 2006, the appropriation limit was established on June 21, 2005 at $80,888,014. The City's tax proceeds are projected to be less than the established appropriation limit.
BUDGET PROCESS
The process of creating an operating budget for the City requires a great deal of effort on the part of the City Council and all members of the City's management team.
The budget process begins with a mid-year review. This allows department managers the opportunity to review their current work program and begin to plan for any changes, which they may recommend for the following year. Following the mid-year review, departments are requested to submit a prediction budget, which provides an estimate of the department's proposed budget and which highlights any new programs, major cost items or reductions in programs.
A preliminary revenue estimate is also prepared at this time. This information is compiled by the finance department and presented to the City Manager and departments as a prediction budget. At this early stage, the prediction budget normally identifies a gap between revenues and requested appropriations. This "gap" is then addressed through the various stages of the budget process.
Early in the budget process, the City Council provides policy direction to the City Manager and management team. Using the prediction budget and City Council policy direction, the City Manager provides direction to departments for preparing their line-item budgets. Line-item information is then forwarded to finance staff for compilation. Once the initial line-item requests are compiled, finance staff works with the City Manager and departments to identify any gap in revenues and expenditures, and to review departmental work programs.
At this point, the budget undergoes another review. Department managers are presented with updated revenue projections and any projected gap between revenues and expenditures. Actions available for addressing the budget gap are discussed, along with the merits of the various work program components. During this review, department managers adjust their budgets based on the City Manager's direction. During this time, City Council Budget Study Sessions are held to discuss departmental work programs and review specific policy issues. A separate session is used to review the proposed Capital Improvement Program. Final adjustments are made by the City Manager, and the manager's recommended budget is prepared for presentation to the City Council. An additional City Council Budget Study Session may be held to ensure that the budget accurately reflects the City Council's objectives for the coming year. City Council adjustments are then incorporated into the manager's recommended budget.
The finalized recommended budget is then presented to the City Council during a regular City Council meeting. The final budget is adopted, incorporating any final adjustments directed by the City Council as a result of the public hearing.
Budget Amendment Procedures
The City's operating budget may be amended by three methods: 1) purchase order carryovers, 2) administrative carryovers approved by the City Manager, and 3) City Council action. Under all instances where appropriations are increased, funds must be available to match the request.
Administrative Carryovers
At the end of each fiscal year, the finance department requests that each department review its budget for items or programs for which any planned expenditure is pending. This may include a project which has been initiated or an item ordered but not completed or received.
Administrative carryover requests are reviewed by the finance director to determine the merit of the request and to ensure that funding is available. A recommendation is then made to the City Manager on the carryover request; who in turn determines which requests are appropriate and authorizes the administrative carryover request. The approved carryover request increases the department's budget appropriation in the new fiscal year.
City Council Action
Throughout the year, the City Council considers departmental requests for additional appropriations to fund activities not included in the Adopted Budget.
Capital Improvement Program
Each year, the City Council adopts a Capital Improvement Program (CIP) which identifies all of the major projects to be undertaken to improve facilities and infrastructure within the city. During the fiscal year, a separate CIP document that reflects the current year program and proposed projects for the next four to five years is prepared.
Department heads submit all proposed projects for their department in the foreseeable future, along with their best cost-estimate. The request includes the particular year for the project, any funding sources that may be available with either future sources or ones which might have been previously designated; the justification for the project, and any on-going costs after the project is completed. The CIP budget team then compiles the information and presents a draft CIP program to the City Council. The projects are prioritized, based on City Council and staff input. Additional projects may be approved during the year by City Council action.
Capital projects may be funded from a variety of funds, with the majority of projects funded from restricted funds.
The City Council places a high priority on the maintenance and enhancement of recreational facilities, as reflected in the CIP for fiscal year 2004-2005. However, the projected budget gap has resulted in a significantly reduced budget level for 2005-2006.
CIP Carryovers
Every year, staff reviews each capital project and carries forward prior year appropriations for projects that have not been completed or for which long-term funding is being accumulated. The carryovers are handled administratively and are not included as part of the current year CIP Budget. Projects funded in prior years, but not started, are reviewed with the City Council during the CIP Budget Study Session. This review is designed to determine whether such projects continue to be City Council priorities. The budget for any project that has not been started and is no longer a City Council priority is made available for unfunded projects.
Equipment Replacement Fund
The City has set aside funds in replacement accounts for major equipment purchases. The purpose of the replacement account is to reduce the impact on the operating budget when a major item that the City owns needs to be replaced. Examples of equipment replacement would be printing presses and communications hardware.
In the 2005-2006 budget, equipment designated for replacement is noted. This practice meets the purpose for which the money was set aside and allows the City to allocate funds each year for replacement needs. Without these funds, the City's operating budget would experience significant fluctuations depending on the equipment needs in any single year.
Allocated Costs
As part of the City's effort to incorporate stronger cost accounting controls and methods, the cost of operating certain departments is allocated to user departments. This process is used to fund those departments, which provide inter-departmental services. This allows these departments to operate in a manner similar to an Internal Service Fund.
Departments allocated include fleet maintenance, reprographic services and risk management. Fleet maintenance and reprographic services are allocated based on a department's actual service usage during the prior calendar year. Risk management is funded by a separate charge for workers' compensation and one for property and liability insurance. The appropriations for these programs are included in the operating budget of departments. Allocated costs have not been adequate to cover all expenses in the fleet management fund. These allocations will be increased each year until the full costs of operations are recovered.
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