04-23-2002 PTRC Agenda - Laserfiche WebLink

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a SOLVING THE CHALLENGE : M I N N E S O T A ' S BUDGET DEFICIT ■ ■ Municipal Fundamentals For the past few years I have presented a session on municipal finance fundamentals at the League's 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. By Dan Jordet 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 as While all businesses run on generally pal financial concepts are road and bridge construction, assess- accepted accounting principles, these easier to understand than ment projects, or new buildings. are augmented by the Government orbital mechanics or rocket Accounting and Financial Reporting trajectory computations. It is (GAAFR) handbook distributed by the not a secret society, nor does it operate , society, Government Finance Officer's Associa- on magic or superstition. Municipal lion (GFOA). The Office of the State finance is simply a language used to , does operate Auditor is familiar with and implements describe the financial health and opera- the rulings on finance, which are deter- tion of a city organization. Once you or superstition. mined by state statutes. Each city code have the basic vocabulary in hand, it is or city charter has items relating to easier to understand and speak the lan- I I , finance that act as local rules on such guage. things as budgeting, spending limits, or the financial health and operation Understanding city funds reserves. By state law, all cities end their fiscal Municipal accounting is known asof a city year on Dec. 31. Each city over 2,500 "fund accounting." Each "fund" in the population is required to have a certi- system is like a separate pot to keep fied public accountant perform an audit track of income and expenses for a n Enterprise Funds are like city busi- after the end of each fiscal year. Fol- specific purpose: nesses that operate on the revenue lowing this audit, the annual financial ■ The General Fund is just what it generated by the products they sell, statements are prepared. In larger cities, sounds like—the general accounting such as water and sewer services or a comprehensive annual financial report fund for the basic services provided mass transit. (CAFR) is prepared with commentary by a city. Essential taxpayer services N Internal Service Funds track costs for on the financial information and are provided with taxpayer dollars in divisions and departments that only supplemental information on econom- this fund so that the use of taxpayer provide service to the other depart- ics, tax base, and demographics. In dollars can most easily be tracked and ments of the city organization, such smaller cities, basic financial statements explained. These services include as purchasing, accounting, infotma- with notes will suffice. In either case, a police and fire protection, street tion services, or public information. summary financial statement must be maintenance, parks and recreation, m Trust and Agency Funds are dollars published in the official newspaper tell- planning and zoning services and, for which the city acts as fiscal agent, ing the public about the city's financial sometimes, general city administra- such as a town festival or a special condition. tive costs. grant award project for a community ■ Special Revenue Funds can track group. They are somebody else's The role of the city budget revenues collected and spent fora Budgeting is another integral tool in money. al finances.the management of municipal specific purpose, such as library g p services or multi-government coop- The municipal finance system A budget is a plan for the use of the eratives. Every useful system needs to have rec monies generated by the various income ■ The Debt Service Fund pays the prin- ognized authorities for setting the sources of a city. Those resources in- cipal and interest on the city's tax conventions for using the system. clude property taxes; state aid in the 8 MINNESOT,A CITIES MAKCH 200