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What is a
budget and why is a budget required?
The budget is
the financial plan for how an organization will receive and
spend money for a set period of time known as a fiscal
period.
It provides an outline of the operating plan for the upcoming
fiscal year. To legally spend money, a municipality must
adopt
an ordinance "appropriating" its money AS
29.25.010). The budget is part of the appropriations
ordinance that provides the authority to legally receive and
spend money.
What period
of time is covered in a budget?
A budget covers
a time frame known as a fiscal period. Generally a fiscal
period covers twelve-months and is referred to as a "fiscal
year." A fiscal year can be whichever 12-month time period
your governing body chooses. Most municipalities in Alaska
follow the State of Alaska's fiscal year, which is July 1
through June 30. Some follow the federal fiscal year, which
is October 1 through September 30, and some use the calendar
year, January 1 through December 31, as their fiscal year.
What is the
difference between an operating budget and capital budget?
An operating budget deals with
money that can be used for general operating expenses such
as administrative wages, electricity, phone, etc. The money
received for operations is frequently referred to as unrestricted
revenues. The operating budget needs to reflect your community's
goals and objectives and identify the services and activities
to be provided.
A capital budget plans for the
financing, purchasing, and improvement of major community
facilities. The capital budget is frequently made up of various
grants to a community to accomplish specific goals. Capital
project revenues are frequently referred to as restricted
revenues, since they are identified for a specific purpose.
How is a
budget prepared and adopted?
Alaska Statutes
(AS
29.35.100) state "The governing body shall
establish the manner for the preparation and submission of
the budget and capital improvement program. After a public
hearing, the governing body may approve the budget with or
without amendments and shall appropriate the money for the
approved budget."
To prepare and
adopt a budget, the municipality's administration and governing
body must follow certain procedures set out in law. A public
hearing must be held before the budget is adopted, minimum
notice requirements must be met (this is five days by statute,
but your local ordinances may require a longer notice period),
and the budget must be adopted by non-code ordinance authorizing
the appropriation.
Under state law, preparation
and administration of the budget is the responsibility of
the chief executive officer (mayor or manager). The governing
body is responsible for adopting the budget and ensuring it
is administered appropriately. Usually, administrative staff
with the assistance of the mayor or manager gathers information
on estimated revenues and expenses and prepares a draft budget
for presentation to the governing body. The governing body
then reviews the information, makes needed changes based on
policy decisions or new information, and, after the public
hearing is held, adopts the non-code ordinance approving
the budget.
The budget
ordinance is adopted the same way other ordinances are
adopted. A non-code ordinance is used because the budget
is a limited one time per year document that changes every
year and is not placed in the permanent code of ordinances.
The budget ordinance language should allow some flexibility
for dealing with slight over and under estimates of revenues
and expenditures.
Commerce has
several publications available on preparing a budget, which
are listed in the "Additional Resources "
section below and also provides training and technical assistance on preparing a
budget.
Note: Keep in
mind the municipality must adopt an annual budget
in order to receive any state revenue sharing. This means
both the meetings of the governing body and the public hearing
must take place before the start of the new fiscal year.
What is a
balanced budget?
A budget is
balanced when the money to be received (revenues) are greater
than or equal to the money to be spent (expenditures). Expenditures
and revenues do not have to match exactly dollar for dollar.
As long as you have more money coming in than you have going
out, you have a balanced budget
What does an elected official
have to do with budgets?
Through the
work of elected officials, a local government uses the budget
as its main tool to achieve its goals and objectives. These
goals include:
- Set long-range policies
and objectives.
- Determine annual budget
goals and priorities.
- Review the draft budget,
make changes, and look at other alternatives.
- Adopt budget and appropriation
ordinance.
- Review budget on a monthly
basis.
- Review and approve or reject
budget changes during the year.
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