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

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During the intervening months, new products and services will become available, old ones may become unavailable, and new services may be mandated by federal or state law, or required by the City Council. Responding to these changes requires some flexibility on the object level of the budget. The quarterly financial report is prepared on an Excel spreadsheet with over 1,750 rows. Many of these are used in heading or total rows, but it would be no exaggeration to say that at least 1,200 are budgeted revenue or expenditure objects. Meeting the changing demands for service will often require a department to overspend the budget in one or more objects. This usually can be offset by under spending other in objects. Defining the level of budgetary control at the object level would mean returning to the City Council for a resolution to approve each change on the object level. Writing the resolutions would take huge amounts of staff time away from meaningful work and clog the Council agendas. Ken Malloy, Principal of MMKR, the City’s auditors, addressed this issue during his Management Report for the City’s financial statement presentation last summer. The Management Report stated: “During our audit procedures it came to our attention that the City has established the level of budgetary control at the “object” level, however, when disclosing expenditures in excess of appropriations only those in excess by department in the General Fund and by fund total in the Special Revenue Funds were disclosed. This disclosure by department and by fund is consistent with former financial statements and with industry practice, but is not consistent with the City Charter. Further this disclosure is to be consistent with the level of budgetary control. We recommend the City review this issue and make changes as needed to report expenditures in excess of appropriations with City policy.” In his verbal comments, Mr. Malloy went on to say that he knew of no other Minnesota city that established its level of budgetary control at the object level. I am recommending that the City Charter be amended to establish the level of budgetary control at the department level in funds with multiple departments and at the fund level in funds with only one department. A resolution of the City Council should be required to change appropriations at the department or fund level. I recommend that the City Administrator be authorized to approve moving appropriations from one character of expenditure to another within a department budget as long as the total department budget is unchanged. Department Directors should be authorized to approve moving appropriations from one object to another within a character of expenditure as long as the total character budget is unchanged.