2002-11-13 Finance Dir Memo to Commission re Section 7.06 City Charter Budget Provisions

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Memorandum To: Jonathan Thomas, Charter Commission Chair From: Charles Hansen, Finance Director CC: Kathleen Miller, City Administrator Item Title/Subject: Budget Provisions in the City Charter Date of Report: November 13, 2002 Section 7.06 of the City Charter contains the sentence: “The Council shall adopt the budget by a resolution that shall set forth the total for each budgeted fund and each department with such segregation as to objects and purposes of expenditure as the Council deems necessary for purposes of budget control.” One of the ways this sentence is significant is that it sets what is known as the level of budgetary control. The sentence is slightly ambiguous, but I think most people would read it as establishing the level of budgetary control on the object level. Understanding this requires some knowledge of accounting terms. Pertinent terms include fund, department, character, and object. A fund is a fiscal and accounting entity with a self-balancing set of accounts that are segregated for the purpose of carrying on specific activities or demonstrating compliance with legal restrictions. For instance, the Water Utility Fund records money collected from water utility fees and demonstrates that those monies were spent on the operation of the water utility system. A department is an organizational unit set up within a fund to perform a specific service. For instance, Police is a department within the General Fund. A fund may have one or more departments. Character is a major subdivision of expenditures within a fund or department. Examples include: personnel costs, supplies, contractual services, capital outlay, debt service, and transfers. Objects are more detailed descriptions of expenditures within character groupings. There may be several objects describing specific insurance or pension costs within personnel; several objects describing types of supplies; separate objects for principal and interest within debt service, etc. The budget is currently prepared, and will continue to be prepared with extensive detail down to the object level. This is not a problem. The problem arises in trying to enforce budgetary control on the object level during the year. Departments prepare their budget requests in the summer of one year for moneys to be expended during the succeeding calendar year. So some expenditures will happen eighteen months after the request was made.