Research Proposal on "City of Norfolk VA Case Analysis 2008 Budget Project"

Research Proposal 16 pages (4546 words) Sources: 1

[EXCERPT] . . . .

City of Norfolk VA 2008 Budget Project

The budget for the City of Norfolk outlines the intended fiscal spending plan for 2008. In many ways, the city budget is like a corporation, but in other ways, accounting and budgeting are very different, as the city is also a government agency. Cities often use a modified accrual basis for accounting. This is largely because funds often come in after the expenditure is realized. The following will explore details of the budget for the City of Norfolk, VA for the 2008 fiscal year.

Budget Format and Approach

Like many cities of similar size, the City of Norfolk uses a modified accrual basis for their budgeting and accounting (p. 9). This method allows expenditures to be recorded when the liability is incurred. For instance, purchase orders and contractual commitments are recorded as expenditures when they are executed (p. 9). However, revenues are recorded similar to a cash basis. They are recorded as soon as they are measurable and available (p. 9). This accounting method is based on known and foreseeable expenses in the future.

The accrual based accounting used in the preparation of Norfolk's budget differs from standard accrual-based methods and represents a hybrid accounting method due to differences in the timing of known expenditures and cash received. Budget appropriations and expenditures must be approved on a yearly basis. The approach used in preparation of the budget is forward-looking and depends on the ability to foresee future expenditures.

Because this budget is based on the future and not on items that are already known, a certain amount of funds are approved to cover any reasonable overages. If expenses exceed the budgeted amount, then a new budget may have to be approved during the course of the year. This approach to capital budgeting is a common approach to capital budgeting and city planning. City planning budgets differ significantly from that of other institutions in that they place more emphasis on projected, rather than actual expenditures.

The budget is divided into departments, with an appropriate amount allotted towards that division. In addition, a certain amount is set aside for risk management and capital improvements to public buildings and resources. The budget is divided into the operating budget and the general fund. The general fund is further subdivided into an undesignated general fund balance, a risk management reserve, and an economic downturn/leveling reserves (p. 4). This structure provided for foreseeable expenditures, as well as provides an allotment for the unexpected.

A majority of the City of Norfolk's budget is allotted towards the general fund. The risk management fund is generous, in proportion to the general fund, largely because the city is self-insured and must have sufficient funds available to cover unanticipated worker's compensation, or in the event of a liability claim (p. 4). This is a generous amount and would not be necessary if the city had another form of insurance coverage. The decision to be self-insured is a risky proposition, but the City of Norfolk feels that long-term expenditures for health insurance outweigh the risks that they assume.

The economic downturn and leveling reserve are intended to protect against a drop in the value of revenues due to general economic decline. The budgeted amount in this fund is small, as compared to the general fund. It is only slightly less than the amount set aside for the risks associated with being self-insured. The budget approach taken by the City of Norfolk is a conservative approach and works on the assumption that unforeseen events will occur from time to time. The amount set aside for self-insurance may seem high, but if a major event occurs, this amount may be small. In order to offset this potential risk and set aside additional funds for emergencies, the general fund has a practice of attempting to accumulate funds to build up a ready reserve, should it be needed (p. 4). This budget takes a conservative approach to risk, providing multiple sources of emergency fundage in the event of a catastrophic event.

Quality of the Budget Presentation

The budget is presented in an organized fashion that clearly delineates sources of revenue from expenditures. It provides an estimation of the forces that are expected to drive the local economy in the future. The report moves from general to specific information about each of the departments.

One of the key criticisms of the budget presentation is that on pages 19-28 it provides estimations and trends in economic growth. It presents the information graphically and presents a narrative of the same information. Within the text, the source of the information is cited. However, there is much ambiguity as to how the projections and figures were derived. For example, statistics point to an estimation that property tax revenue will grow over the next year (p. 20). This information was obtained from the Real Estate Assessor's Office. The estimation was based on past trends and does not consider the drop in income due to a general economic depression in the housing industry. Like many of the numbers and predictions in this section of the report, the analysis does not consider all of the factors that could affect the outcome.

One cannot always base future predictions on past performance. This analysis provides a clear picture of the past and works under the assumption that the future will mirror the past. In today's volatile economy, this could be a vital mistake that could cause future estimations to be inaccurate. One of the key weaknesses of the budget presentation is that it tells what happened and what is expected to happen in the future, but it does not determine causality. This lack of depth could be problematic, especially as they are relied upon as a primary source for budgeting and planning for the future.

The budget presentation is uses many graphs and illustrations to illustrate key trends. The information is presented in a form that is easy to understand and that allows the reader to quickly access the information that they wish to obtain. However, the presentation could be much stronger if the reasons for the trends were examined in greater detail. The reader needs to understand how these figures were derived in order to be able to take appropriate actions in the future.

Executive Proposals and Goals

The City Manager, Regina Williams, addresses key proposals and goals for the FY 2008 budget, stating that this year's budget has been challenging to balance (i - xvi). The first key goal of the City Manager is to regain control of previously uncontrollable elements of the budget, such as non-personnel staff of Police and Fire units (p. iv). The Mayor held several Town Hall Meetings to determine which issues played most heavily on the minds of the citizens. Based on these meetings, the Mayor decided to place several key issues at the forefront of the agenda.

The first priority on the agenda was to provide the stimulus for much needed economic development in the Norfolk area. Transportation improvements were also high on the priority list. The third item on the agenda was infrastructure repair and replacement. Code enforcement also made the list top citizen priorities. Surprisingly, programs to enhance the quality of life for children were last on the list (p. iv). These was the list obtained from the citizens during Town Hall Meetings and will form the driving force in the budgetary concerns for the 2008 fiscal year. The City Manager has promised to make these items a priority in the new fiscal year.

City Departments were asked to keep these goals in mind as they prepared their budget requests for the 200 FY. As the department managers submitted their budget, these concerns were addressed by way of requests for additional police presence, additional fire and rescue assistance, and extended hours for the library, and parks and recreation facilities (p. iv). Additional street sweeping was also included in the budget items (p. iv). These requests for new programs and services totaled almost $90 million (p. iv). However, regretfully, many of these items could not be approved due to tight budgetary constraints, including cuts of Federal funding.

Revenues and Expenditures

Total revenues for 2008 have increased when compared to the past two years. Total revenues for the approved 2008 budget were $795,835,700 (p. 2-7). By comparison, total expenditures for the FY 2008 budget were $795,835,700 (p. 3-2). One must keep in mind that cities are not the same as a for-profit organization. They are expected to spend everything that comes in for the benefit of their citizens. Therefore, budgets tend to reflect a balanced approach to revenues vs. expenditures.

The three largest revenue-producing categories are as follows.

Amount

Categorical Aid

Real Property Taxes

Other Local Taxes

Source: pp 2-1 through 2-7

The three biggest expenditures that the city has are as follows.;

Amount

Education funds

Public Safety (Police and Fire combined)

Debt Service

Source: pp. 3-1 to 3-2

Intergovernmental transfer payments totaled $4,361,400, which was up 30.4% from FY 2007… READ MORE

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