Tuesday, September 05, 2006

Budget 101: Part 1

Our city General Fund has large negative balance. This is very bad-- though it's not an easy issue to get people excited about. In this article I'll explain in broad terms how the city budget works. In Part 2 I'll explain why our financial situation is so precarious.

Municipal budgets are made up of multiple funds, each of which is an independent account with income and expenses. For example, there is a road fund which gets income from the city's share of the gas tax, and is used to do things like fix potholes. Most of the funds have dedicated sources of income which are spent on a specific city service.

The "General Fund" is a catch all operating fund which includes many different functions. It includes the salaries and related expenses for the police and fire departments, as well as city employees such as the City Manager, planning department, finance department, and legal services.

Each fund should begin and end each year with roughly a zero balance. Income and expenses for a fund should net to zero each year. If a fund overspends for a year, it should be corrected in the following year by either increasing income (taxes, fees, grants), or decreasing spending (services, employees).

Our budget year starts on July 1, and we don't yet have ending numbers for last year (July 1 2005 to June 30 2006). But here's the trend in the General Fund leading up to this year (rounded to nearest $10,000):
2003-2004 -$400,000
2004-2005 -$580,000
2005-2006 -$1,180,000
Word has it we began 2006-2007 with a balance on the order of -$800,000. It's an encouraging improvement, but still a very big hole to fill-- especially when you see that income for the fund is only between $2,000,000 and $4,000,000 per year. And when you look at the details there are a few more scary surprises.

Here's where the General Fund revenue comes from. I'll use the budgeted numbers for 2006-2007. Remember we haven't actually seen this money yet. The city expects an income of just over $3,700,000 this year. Here's where it will come from (we hope):
34% from property taxes (limited by statute)
18% from franchise fees (from gas, power, cable, etc.)
15% from federal grants (for waterfront park)
12% from charges to other funds for services
9% from the city room tax
4% from licenses and fees (such as fees for reviewing plans)
3% from other state taxes (such as cigarettes and liquor)

Here's how we plan to spend the General Fund:
34% to the fire department
34% to the police department
16% to parks
7% to reduce the deficit
4% to planning department
4% to administration
Sliced a different way, 62% of the General Fund pays for salaries and benefits of city employees-- mostly police and fire.

Tomorrow I'll talk about why all these numbers represent a real problem for our city.


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