Year-End Budget Amendment: What To Do and When To Do It
November 20, 2015
Category: Guest Author , Budgets and Budgeting
By now most of you have spent weeks, if not months, preparing your preliminary budgets. Once completed, the required public hearings and the (sometimes lengthy) review process with your elected officials can begin, leading ultimately to the adoption of the final budget before the end of the year. One of the often overlooked items in this process is the year-end budget amendment for the current year. Following is a discussion of some suggested steps for this year-end budget amendment process together with a few considerations you may want to keep in mind.
RCW 35.33.121 for cities and towns, and RCW 35A.33.120 for code cities, limits annual expenditures to the amounts appropriated for each fund in the budget for the current fiscal year. Consistent with these provisions, most cities adopt their budgets at the fund level, rather than at the department or line-item level. Budgets adopted at the fund level usually have an enabling clause in the ordinance or the budget exhibit that describes appropriations by fund without providing any further detail within that fund or department.
As we get closer to year-end, finance directors, clerk-treasurers and others will examine year-to-date expenditures and forecast them through the year-end period. This can be done at the fund level, department level or any other level your city desires. The minimum that should be done is to project expenditures through year-end for the purpose of seeing whether there will be sufficient appropriations remaining to meet all anticipated expenditures.
If your projections reveal a variance between budget appropriations and expenditure projections, a year-end budget amendment will be needed. Appropriations by fund are increased as necessary, based on your projections. Many cities will also identify a funding source for any increases in appropriations. This might be from over-collection of certain revenue sources like sales tax, from savings realized in other funds, or from fund balances or reserves.
Here are a few tips as you consider the need for a year-end budget amendment. Whether the city accounts using cash-basis or a full-accrual method for financial statement purposes, you will want to insure that twelve monthly or four quarterly payments are projected through year-end. For instance, larger amounts like payments for jail services, contracted service providers like fire districts or police services through a sheriff’s office, contracted court services, etc., include twelve monthly or four quarterly payments as appropriate. A helpful step in this process is to print a general ledger expenditure detail report and review the number of payments, and for full-accrual cities, review the status of prior year and current year accruals. After expenses are projected through year-end, total projected expenditures can be compared to the budget, and any projected budget deficit will need to be addressed by a year-end budget amendment prior to the end of the year.
Keep in mind that cities are required by RCW 35.33.151 (cities and towns) and RCW 35A.33.150 (code cities) to keep appropriations open for twenty days after the close of the fiscal year for payment of claims incurred during the year. This can happen, for instance, when an item is purchased and delivered prior to year-end, but the city receives the invoice for payment after year-end, or when services are provided to the city prior to year-end but the invoice is not received until after the start of the new year. It is helpful to have good communications with your departments to assist with this year-end projection. They will know if there are significant costs incurred on capital projects that the city has yet to receive an invoice for, or if large bulk purchases will be made near year-end, like fleet vehicles or purchases for the city’s annual computer replacement program. To the extent that these items are expected to, or might possibly, cause a fund to go over budget, then the year-end budget amendment would need to include these items. If your city keeps track of encumbrances for purchase orders or contracts, it might be a good idea to print a list of the encumbrances prior to taking the year-end budget amendment to the city council and review the list with each department. That will give you a better understanding of the significant items that might need to be paid prior to year-end, or soon thereafter, for items received or services provided prior to year-end. Again, any significant items that are expected to, or could, cause a fund to go over budget, will need to be planned for in the year-end budget amendment.
After all of the review and projections have been completed, it is important to have your council adopt this year-end budget amendment prior to December 31st to prevent the possibility of having expenditures exceed appropriations in any fund, as an amendment cannot be adopted after the end of the year.
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