What Is a Municipal Budget, What Is an Audit?

On Friday, May 29, the Colorado’s Division of Local Affairs (DOLA) offered a class in municipal budgets at City Council Chamber. The trainer, Jerrod Biggs, covered budgets, audits, fund accounting, revenues, expenditures and enterprise funds.

****What Are Budgets?

Budgets are forward-looking plans finalized in the fall, which project revenues and expenses for the next year, and compile anticipated income and expenditures. A sustainable budget takes the long view and can maximize investment dollars, by taking advantage of quantity discounts, scheduling maintenance in most cost effective manner, such as doing roof work to protect interior work. A balanced budgets are year-to-year, without long-range planning. Budgets are designed for public distribution and use, and can guide staff spending all year. Changes to budgets require amendments.

Audits are sometimes confused with budgets, but audits look backward to examine the past year’s finances by reviewing revenue and expense records to ensure that finances are handled in accordance with the law and best practices. An opinion is issued and can be used to judge credit worthiness for securing loans and grants.

By law, governments must submit their budgets to DOLA by January 31 -- with detailed supporting documentation. Budgets must include proposed expenditures and expected revenues, beginning and ending account balances and previous three years’ actual figures. A written budget message must recap the last year and project the coming year. Budgets cannot include deficit spending; they must be balanced.

Planning to spend reserves, money the local government has accrued that is not allocated, is required when spending is delayed and is not considered deficit spending. It is akin to an individual saving to buy a home, building up a down payment, then making the purchase.

Budgets are influenced by ordinances or resolutions, goals and priorities, community profile, capital plans, and department summaries. Local governments work on a calendar year while the state uses a July-June fiscal year.
Fund accounting is required by statute and keeps income and expenses for each project in dedicated funds. Funds are usually subaccounts of the city’s checking account, rarely separate accounts. The term color of money is used to describe restrictions that come with funding. For example, most of us in Salida are familiar with GoCo lottery money and know that it has to be used for parks and trails.

**What are Revenues?

Four primary sources are available to local governments:
1) property tax
2) sales tax
3) intergovernmental revenue
4) other revenue- like fees.

Municipalities are not permitted to institute additional income tax. DOLA presented a pie chart that shows that 70% of Salida’s revenues come from sales and use tax. The statewide average is 50% based on 2012 numbers (the most recent available figures). Similar cities with populations of between 4,500-6,500 average 44% of their revenue coming from sales tax. Buena Vista and Poncha Springs are 73% and 67% respectively for sales tax revenue. Mr. Biggs explained that Chaffee County municipalities are highly dependent on sales tax because our economy is tourism-driven. Many Colorado communities diversify revenue and earn revenue from property taxes. Salida chose to not have a property tax in lieu of increasing sales tax revenue.
Enterprise funds are a form of intergovernmental funds and come from a government owned and operated businesses like water, sewer, and recreation districts. In 1992 Tabor defined it as an activity at least 90% funded by its own fees. Enterprise funds are tied to consumer price index with 3% emergency reserve required. Tabor allows governments to build reserves in enterprise zone funds when fees collected are greater than costs. DOLA considers that building reserves is prudent and desirable, especially in a city that derives so much of its revenue from tourism.


An operating budget includes the costs of a functioning government. Operations are usually larger cash outlays than capital because they encompass salaries, maintenance, supplies. Salaries and benefits are usually the largest portion of any municipality’s spending. Some cities (e.g. Centennial) have lower percentages of wages because they contract out for most services. Cities who hire everything in-house have percentages of 80-85% for personnel costs. Salida spends 70% of its general fund on people, required taxes and benefits. The numbers alone don’t explain divergent percentages.

The statewide average for police is 20%. Cities similar to Salida spend 15%, while Salida currently spends 18%. Buena Vista and Poncha Springs spend 22% and 42% respectively. Poncha is not a full-service city, thus the higher percentage.

As capital investments grow, maintenance costs grow too. Prior to the recent street initiative, capital investment was at 37% of Salida’s budget. This was more than double the State average, which is 16%. As a result of the initiative, Salida’s capital expense budget is now more than three times higher than state average. Mr. Biggs advised that residents approve taxes or are willing to make contributions when they know specifically what the money is going toward. Many communities (and non-profits) struggle with similar issues of unrestricted funds. Unrestricted funds may be used for operations or capital as needed.

Capital cannot be moved to operations without a new law or resolution – such as a proposed budget amendment. The presentation provided a basic understanding of government financial terms and requirements. DOLA provides considerable review in accepting a community’s budget plan. They compile actual figures every year and make those public. Citizens and city staff may study the actuals and compare to other communities.

Finally, for those who are interested, Mr. Biggs recommended Governing Magazine, as a resource to learn more about good practices in governance.

DOLA assists municipalities with financial and governance planning, and has four branches: Division of Local Government, Division of Housing, Property Taxation and Board of Assessment Appeals.

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