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City Budgeting Basics From the League of Minnesota Cities Handbook for Minnesota Cities Role and purposes of budgeting Generally, cities are required to prepare an annual budget, hold a property tax hearing*, and give notice of the proposed budget adoption. Certain forms of city government, such as home rule charter cities, may have additional requirements. A budget is a comprehensive financial plan for a specific period of time. It outlines city activities and service levels, and contains estimates of probable costs and available revenues during the coming year. It can be a tool through which cities can monitor spending, and it can also provide data which can be used in setting priorities for the use of city funds. In addition, it can be used to evaluate the level and quality of services the city has provided in previous years. Finally, it can be a source of information to city staff and taxpayers regarding the decisions and policies made by the city council. Besides an annual operating budget, cities should consider planning for spending on capital improvements. Many cities have discovered that efficient capital financing improves when they prepare, adopt, and implement a multi-year capital improvement program and budget. The multi-year capital budget matches available resources with proposed public improvements, facilities and equipment needs. One advantage of the capital programming process is a catalog of existing facilities and equipment. City employees can then estimate the lifespan of each public facility and piece of equipment, and prepare a calendar of projected replacement dates. An important part of the capital planning process should be a determination of the funding required each year to provide for orderly replacements without burdening the community with future high debt loads. Budget goals An important goal for cities is having a balanced budget. A budget is balanced when the expenditures are equal to revenues. The council will need to estimate the future expenditures and revenues of the city and make adjustments to balance the budget. Cities must estimate several kinds of expenditures. These can include such things as current expenses, capital outlay expenditures, and debt redemption. Certain basic expenditures consist of fixed charges and are comparatively east to estimate. These are items such as rent, interest expense, salaries, contractual costs, and other charges the city has established by agreement and cannot diminish during the budget year.