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CITY F I N A N C E S Wunicipal Fundamentals For the past few years I have presented a session on municipal finance fundamentals at the League's a Newly Elected Officials' Conference. While this article does not include all the details from that two-hour session, I hope it provides a basic explanation of municipal financial management terms and concepts. j { 1 Y By Dan jordet J unicipal finance is not rocket supported debt. The primary revenue Studying any language requires a science. It is important for the source is property tax. grammar book. Municipal finance is non-financial manager to ■ Capital Projects Funds set up separate no different. understand that basic munici- accounts for capital projects, such While all businesses run on generally pal financial concepts are as road and bridge construction, accepted accounting principles, these ; easier to understand than assessment projects, or new buildings. are augmented by the Government ? orbital mechanics or rocket Accounting and Financial Reporting ?--- trajectory computations. It (GAAFR) handbook distributed by the is not a secret society,nor does it operate "It is not a secret Government Finance Officer's Associa- on magic or superstition. Municipal tion (GFOA). The Office of the State finance is simply a language used to nor does operate on magic W Auditor is familiar with and implements ; d • e the financial health and the rulings on finance,which are C'mion of a city organization. Once 1 superstition.Municipal determined by state statutes. Each city you have the basic vocabulary in hand, code or ci charter has items relatin ty g it is easier to understand and speak the is simplyI to describe to finance that act as local rules on such language. things as budgeting, spending limits, or the financial healtb 1 operation reserves. Understanding city funds By state law,all cities end their fiscal ' Municipal accounting is known as of a city organization." year on Dec. 31. Each city over 2,500 "fund accounting." Each "fund" in the ' system is like a separate pot to keep population is required to have acertified public accountant perform an track of income and expenses fora j ■ Enterprise Funds are like city audit after the end of each fiscal year. specific purpose: businesses that operate on the Following this audit, the annual }}I ■ The General Fund is just what it revenue generated by the products financial statements are prepared. In ' sounds like the general accounting they sell,such as water and sewer larger cities, a comprehensive annual 1 fund for the basic services provided services or mass transit. financial report (CAFR) is prepared by a city. Essential taxpayer services ■ Internal Service Funds track costs for with commentary on the financial 1 are provided with taxpayer dollars in divisions and departments that only information and supplemental informa- tr j this fund so that the use taxpayer provide service to the other depart- Lion on economics, tax base,and dollars can most easily be tacked and ments of the city organization, such demographics. In smaller cities, basic explained. These services include as purchasing, accounting, informa- financial statements with notes will j police and fire protection, street tion services, or public information. suffice. In either case, a summary ! maintenance, parks and recreation, ■ Trust and Agency Funds are dollars financial statement must be published in 3 planning and zoning services and, for which the city acts as fiscal agent, the official newspaper telling the public sometimes, general city administra- such as a town festival or a special about the city's financial condition. five costs. grant award project for a community■ Special Revenue Funds can track group. They are somebody elm The role of the city budget se'revenues collected and spent for a Budgeting is another integral tool in specific purpose, such as library money. the management of municipal finances. services or multi-government The municipal finance system A budget is a plan for the use of the cooperatives. Every useful system needs to have monies generated by the various income ■WP ebt Service Fund pays the recognized authorities for setting the sources of a city. Those resources al and interest on the city's tax conventions for using the system. include property taxes; state aid in the •TEMBER 2000 MINNESOTA CITIES 9 , 1 1 i