Capital Budgeting Brenda Armstead PPA603: Government Budgeting (MGB524DS) Instructor: Dr. Regis Chapman July 13, 2015

Introduction: According to Lee el at (2008), “Three main factors influence debt capacity: expenditure pressures, resource availability, and the commitment of governmental officials to use resources to meet debt requirements. Assessing resource availability involves analyzing all potential sources of revenue including own-source revenues; transfers from other levels of government; and types of self-financing including user charges, special assessments, impact fees, and a variety of other measures to collect fees or revenues sufficient to support the specific project or facility. Expenditure analysts look at the present and potential future commitments of jurisdictions. Population growth, changing economic conditions, the state of the current capital facilities and infrastructure base, and the socioeconomic characteristics of the population are important influences on potential future expenditures. Fiscal capacity analysis, focusing on the ability to generate revenues, and on expenditure needs, is used to determine present fiscal conditions and estimate future conditions” (P. 555).
Discuss how the debt capacity of a governmental entity is determined: “Within the FY2015 budget document are defined explanations of any changes from FY2014. Equally important as the aforesaid statement are the estimated revenues derived from taxes and various other sources, which is inclusive of the current tax rate structure and the valuation of properties for FY2015. Additionally, an itemization of proposed expenses by all municipal agencies is juxtaposed to previous FY actual expenses and current year-to-date (YTD) expenses. Further, there is an account of all outstanding debt service, as well as any capital expenditures that will increase the bond indebtedness for FY2015. These capital improvement projects are categorized and presented in a five (5) year format, based upon its defined level of importance determined by the City Council” (P. 36). http://www.ci.desoto.tx.us/ Every FY has an abundance of challenges and it takes a considerable amount of time to address those very issues. Most importantly, over the past few years, a wealthy of progress has been made to thwart those burgeoning matters that negatively impacted departmental operations and their allocated funds. The FY2015 budget is an extension of that work, which commenced nearly four (4) years ago when financial projection models revealed an incessant rise in property taxes. These fiscal reports played a major role in our current approach toward forecasting future revenues and expenditures. Proposing a .7574 tax rate for four (4) successive years and reinstating the retirement ratio back to its original match of 2:1 has truly been challenging. These two (2) achievements only came to fruition through the efficient, as well as effective management of human and financial resources that began in FY2012. From FY2012 to FY2014 and again with the FY2015 budget, departmental expenditures were strategically modified by using a process titled “zero-based budgeting”. By using this proven budgeting technique, departments were allocated funding based upon its essential needs and clearly defined benefits rather than historical expenditures. Each subsequent FY following the implementation of zero-based budgeting, the City of DeSoto has realized a growth pattern in its fund balances (FB) (P.36). http://www.ci.desoto.tx.us/ “The FY2015 planning budget was created by using a taxable assessed value of $2,880,797,042. This monetary figure represents an Estimated Growth Factor (EGF) that is 3.43% greater than FY2014 planning budget, which was 0%. By using an EGF of 2%, the City of DeSoto will realize an increase of $57,615,941 in taxable assessed values. In comparison to the current FY2014, this monetary difference will produce $5,762 in additional revenue for every cent on the tax rate. In FY2014, one cent on the tax rate was worth $287,736. This particular fund is utilized to address the principal and interest payments on debt acquired by the City. The methodology used to calculate the rate is derived from the taxable value of property and the monetary amount required funding debt service payments. In FY2014, the Interest & Sinking tax rate was set at $.2271. The FY2015 I & S tax rate will remain the same at $.2271 per $100 of property valuation.” http://www.ci.desoto.tx.us/
Evaluate the effect of refunding or reorganizing existing debt obligations: “Corporations reorganize and restructure for various reasons and in numerous ways. Companies reorganize to increase profits and improve efficiency. The reorganization of a company typically addresses the efficiency component in an attempt to increase profits. It’s not unusual for a corporation to reorganize on the heels of changes at the top. The new CEO often sees reorganization as a cure for a company’s ills, and companies sometimes hire a new leader based specifically on his vision for reorganization”(Kibilko, n.d.). “As City Manager of this community, I respectfully submit to you the fiscal year (FY) 2015 budget. The FY2015 budget represents my fourth authored financial document as City Manager. Preceding my appointment to the position of City Manager in 2011, I vowed to make changes throughout the organization that would improve the overall efficiency and effectiveness of all municipal services. This strategic initiative involved the eradication of antiquated financial policies, as well as operational practices that were being utilized to manage human and financial resources. At the conclusion of this restructuring venture in 2014, the City of DeSoto realized an unprecedented growth in its financial health and a three (3) year stabilized tax rate of .7574. Achievements of this nature and magnitude would not have been made possible without the leadership of our executive management team” (P.34). http://www.ci.desoto.tx.us/ “More than five (5) years ago, the City of DeSoto began to face a monetary meltdown due to past financial decisions and obligations. During this period of time, heroic measures had to be implemented in order for the City of DeSoto to maintain a competitive tax rate. However, this seemed to be merely impossible based upon a ceaseless diminution in taxable property values and escalating debt service payments. Providentially, the Administration was able to hire several professionals who had a wide array of experiences with re-engineering complex budgets and underperforming agencies. Fortunately, over a three (3) year period, these new staff members and the tenured executive management team members were able to consecutively produce balanced budgets with stable fund reserves” (P.34). http://www.ci.desoto.tx.us/ “Throughout this multi-year rebuilding endeavor, numerous sacrifices were made in order for departments to maintain their current workforce and superior customer service levels that residents greatly valued. Although it was a mind-bending process to successfully sustain the aforesaid priorities, the Administration continued its quest toward restoring employee benefits that were unfavorably reduced or unfunded in FY2010 by my predecessor. During the FY2012 budget planning process, I made it abundantly clear that these appropriations would once again become a reality within the next five (5) FYs. My primary focus was to restore annual salary increases and return retirement funding back to its original ratio of 2:1. Prioritization of the aforementioned matters was solely based upon my conversations with employees about such topics” (P.34). http://www.ci.desoto.tx.us/ “Since the adoption of the FY2012 budget, the City of DeSoto has continuously enhanced its financial health and stability. Throughout this period, there have been notable levels of success during a time when revenues were much lower than what was previously projected in years past. Without the indefatigable efforts of those who serve in leadership capacities, the City of DeSoto would not have been able to survive financially. These individuals were able to successfully reengineer organizational structures and obsolete operational practices. As a result of the advancements made in those two (2) particular areas, the City of DeSoto was able to reduce historical expenditures and improve public services” (P.38). http://www.ci.desoto.tx.us/ Analyze various funding alternatives that be used to support debt obligation:
“The General Funding is supported by property, hotel, sales and other taxes, franchise fees, licenses and permit fees, charges for services, fines and forfeitures, interest revenues, and administrative fee reimbursements. Revenue for the FY2015 GF budget is $33,591,289, which is $1,866,931 more than adopted FY2014 ($31,724,358). GF expenditures fund services for the Administration, Financial Services, Municipal Court, Information Technology, Human Resources, Development Services, Parks and Recreation, Library, Police and Fire. The expenditures show an increase from $28,067,515 for adopted FY2014 to $29,067,515 (FY2015) excluding transfers to other funds. These increases in expenditures are primarily due to a continuous rise in costs for personnel, supplies and professional fees” (P.39). http://www.ci.desoto.tx.us/ References:
City of Desoto, Soaring for Excellence; Adopted FY2014 – 2015 Budget & Planning Year 2015-2016 Texas: Retrieved from http://www.ci.desoto.tx.us/
Kibilko, J. (n.d.) 7 Types of Corporate Reorganization: retrieved from http://smallbusiness.chron.com/7-types-corporate-reorganization-17885.html
Lee, R.D. & Johnson, RW., Joyce, P.G. (2008). Public budgeting systems (8th ed.). Sudbury, MA: Jones and Bartlett. ISBN: 9780763746681