- Budget Basics
State Law Governing Budgets
There are several state laws that govern the development of a City budget and the collection of revenues. The two most important ones are the found within Chapter 67 (informally known as the Balanced Budget Law) and the Hancock Amendment to the State Constitution.
According to Section 67.010 of the Missouri Revised Statutes, expenditures cannot exceed revenues and any unencumbered balance in any given year.
The Hancock Amendment states that any new sales or property tax must first be approved by the voters. Increasing property values, as a result of reassessment, cannot bring windfall revenues to government entities. Liberty is required to follow an established formula when calculating its maximum levy. As a general rule, the levy rate must decrease when the assessed valuation increases. Beyond small inflationary adjustments allowed by the formula, increases in revenue from the property tax is a result of new construction and/or increased in personal property in Liberty.
About the Budget
Each year, the Liberty City Council, with recommendations from city staff, must develop a budget for the following fiscal year, which runs from January 1 to December 31. The City budget is reviewed by the City Council Budget Committee. The City Council Budget Committee is responsible for the initial review of the annual budget submission, recommendation of the budget to all of City Council and the budgets ongoing review and implementation.
For most people, reading and understanding a budget is an overwhelming task. This document describes what is in a budget, the process required to adopt one and common terms used when talking about budgets.
What is a budget and why is it important?
A budget serves as a plan for the City on how resources will be raised and allocated in order to provide quality services to residents. It is a commitment made by the City Council on how money collected will be spent in the upcoming year.
The budget provides accountability to Liberty residents on how the City of Liberty spends money. It also provides Council with the opportunity to examine how revenues and expenditures relate to long-term funding priorities and established Council goals.
Parts of a budget
Budgets are often separated into a number of smaller sub-budgets or funds. The first separation often discussed is between operating and capital budgets.
The Operating Budget funds on-going city operations. The City of Liberty’s operating budget includes personnel and operating costs for delivery of public safety (Police and Fire), Maintenance of City Streets and Facilities, Parks and Recreation Services (including parks programming, maintenance, the Community Center, Sports Complex and Senior Services), Historic Preservation and Planning and Development, as well as internal support such as human resources and technological support.
A Capital Budget supports the long-term assets of the city. The City of Liberty’s Capital Plan encompasses maintenance and repair of existing infrastructure, construction of new infrastructure, plus construction or purchase of new facilities and/or equipment
Within each of these budgets, there are a number of funds. A fund is a set of accounts that record revenues and expenditures for specific activities or government functions. You can think of the funds as similar to using different checking or savings accounts for general spending, house payments, car payments, etc. In the City of Liberty, there are six different types of funds:
This is the largest fund within the City’s budget. It is the main operating fund of the city and accounts for all revenue and expenditures of general government operations and services. All financial resources that are not required by law or Council policy to be accounted for in another fund are in the general fund.
Special Revenue Funds
These funds are legally restricted to being spent for specific purposes. For example, revenue in the Police Training Fund is generated through a fee on each ticket and is spent on the costs of training for the police department. Liberty has four Special Revenue Funds: the Parks Fund, the Police Training Fund, the Cemetery Fund and the Frank Hughes Memorial Trust Fund.
Debt Service Funds
These funds are legally restricted to being used to make principal and interest payments on the bonded debt of the City. Bonded debt is the money the City owes on outstanding bonds, which are similar to private loans.
These funds account for activities that are financed and operated similar to private enterprises. The costs of providing goods or services are recovered through user charges based on the level of usage of the service. The City’s Enterprise Funds are: the Water Operating Fund, the Sewer Operating Fund and the Sanitation Fund.
Capital Projects Funds
These funds are restricted to major capital projects or capital equipment purchases. The use of these funds is outlined in the City’s 3-year Capital Improvements Plan. Liberty’s Capital Projects Funds are the Liberty 2010 Fund, the Roadway Development Fund and the Parks Sales Tax Fund. These funds are supported by voter-approved sales or transportation taxes, for specific project categories.
These funds are used to account for resources held in trust by the City for specific purposes. The principal of the trust and the interest earned on the principal can only be used to support the primary purpose of the trust. The City has three such funds. They are the Fairview Cemetery Trust Fund and the Mt. Memorial Cemetery Trust Fund, both established for the maintenance and repairs for the cemeteries. The third is the Frank Hughes Memorial Trust Fund which was established for maintenance of the Frank Hughes Library.
The Fund Balance is calculated by deducting the cash outflows from the inflows from any given year. the difference is available funding that is not tied to any specific expenditure. It can be thought of as the City's savings account. The purpose of this money is to safeguard against revenue interruptions/losses and be available for unforeseen expenditures in the case of an emergency. Maintaining a strong fund balance also assists in maintaining Liberty's strong bond ratings.
By Council policy, the General Fund must maintain a fund balance between 18% to 22% of annual General Fund revenues.
Development & Adoption of the Budget
The budget process is an on-going process that occurs throughout the year, however in the summer of each year budget development begins with the preparation of an evaluation of the City’s financial condition and long-range forecasting for revenues available to meet operating and capital needs.
In the fall, staff presents a proposed budget to the Council for review during study sessions. These meetings are open to the public and the agenda for upcoming meetings can be found on the cable channel or online.
Final council review and adoption of the budget generally occurs in December. The budget is effective January 1, annually.