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City Budget Process

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1. What is a budget?

The budget is a plan. It is a financial proposal that annually directs the provision of public services and facilities. This plan represents the City Manager’s and City Council’s commitment to provide for the most important citizen needs within the boundaries of available revenue (funds).

The money collected by the city from taxes, grants, fees, and many other sources to pay for this plan is called revenue. The money spent on salaries, materials, and equipment to provide these planned services and facilities is called expenditures. By city law, revenues and expenditures must be equal in the Annual Budget. This is what is meant by a balanced budget.

In Newport News, water services are provided by a separate department with its own distinct budget. Likewise, automotive maintenance and repair services for city-owned vehicles, solid waste collections, and wastewater (sewer) maintenance are provided by a department with an individual budget separate from the other general operating city departments. The City Council must give approval to each separate budget. They are included in the city’s overall (total) budget plan.

If you have any questions, please email the Department of Budget and Evaluation.

2. Why do governments budget?

As a practical matter, most large public and private organizations, and many smaller ones, prepare budgets in order to manage their finances properly. Governments have two other primary reasons for creating budgets. Governments provide facilities and public services to meet their citizens’ needs that are paid for with public funds. Usually there is not enough revenue to provide for all the citizens’ needs, so compromises must be made. The budget process provides a mechanism where elected officials, after hearing the diverse views of citizens, taxpayers, and other interested parties, can compromise and reach an accord on spending priorities.

In addition, the city creates a budget because it is legally required to do so. Section §6.02 of the City Charter requires the city to prepare an Annual Operating Budget. If you have any questions, please email the Department of Budget and Evaluation.

3. What is the timeline for the budget process?

During the month of September, the Budget Department begins to brief the City Manager on the financial outlook for the upcoming fiscal year. Actually, the City Manager and City Council are made aware of how operations are proceeding financially more often. When creating a new annual budget, a hard look is taken at historical, current, and projected future revenue and expenditure trends at this time.

The Department of Budget and Evaluation (DBE) develops the City Manager’s budget guidelines for the city departments and agencies. These directions are issued in early October. Department heads use these guidelines and their own analysis of their departmental needs, and prepare their operating budget requests during November through January, submitting them to DBE.

Following the Budget Department’s analysis of these requests, operating department personnel and DBE staff meet to jointly review the requested budget. The requested budget is then reviewed again, by the operating department, DBE staff, and with the City Manager. At the conclusion of this series of hearings and reviews, the City Manager decides upon a specific level of total funding to be proposed in the budget. After all funding decisions have been made by the City Manager, a Proposed Budget is prepared by the Budget Department.

Under the law, the City Manager’s proposed budget must be submitted to the City Council no later than May 1 (“...60 days prior to the beginning of each fiscal year...,” City Charter, Section §6.02). The City Council may conduct several work sessions on the budget at this time using supplementary information such as staffing data and program details as needed. Also at this time, public hearings on the City Manager’s proposed budget held, as required by the City Charter. They must occur within 30 days after the City Manager’s proposed budget is submitted (Section §6.02). Only 1 public budget hearing is required; however, 2 are usually held - 1 each in the northern and southern areas of the city.

City Council may conduct further work sessions on the budget after the public hearings. The proposed budget is voted upon at a regularly scheduled City Council meeting, concluding with adoption of the budget, with rate and fee and appropriation ordinances.

The approved budget takes effect on July 1, marking the beginning of the new fiscal year. Only 8 weeks later, the preparation of the next year’s budget begins again, as the current budget is implemented and the past year’s audit of financial activity is prepared. If you have any questions, please email the Department of Budget and Evaluation.

4. Why does the budget begin in the middle of the calendar year?

Many organizations have adopted 12-month financial planning periods which do not begin or end with the calendar year. These financial or fiscal years are often set to be parallel with similar organizations. Most governments, school systems, and many nonprofit enterprises use a July 1 to June 30 fiscal year. By law in Virginia, the State and all other local governments are required to have a fiscal year that begins on July 1 and ends on June 30.

If you have any questions, please email the Department of Budget and Evaluation.

5. How are spending decisions made?

The City Manager and City Council make the final decisions on what is included in the budget and what funding levels will be. But before these choices can be made, information, recommendations, and preferences are provided to these decision-makers by a wide range of groups which have an interest in government programs and finances.

One good way to gain a sense of the diversity of involvement in the budget process is to glance down a list of speakers for a typical budget hearing. There are speakers representing senior citizens, public education, the handicapped, taxpayers associations, and the general citizenry, for example. These community group representatives, as well as elected officials, individuals, department heads, the Budget Department staff, and other interested parties, all have an important role in the budget setting process.

Citizen recommendations presented to the City Council and City Manager at the public budget hearings subsequently are discussed at work sessions by them with the Budget staff and department directors and their staff as necessary. All of these participants contribute to the final decisions each year on what are the most important citizen needs for public services and facilities in Newport News and their funding levels. If you have any questions, please email the Department of Budget and Evaluation.

6. What budget documents are required to be prepared?

The Proposed Operating Budget is required by City Charter to be reproduced and made available to the public. Additionally, the City Code specifies certain requirements as to content and format. Copies of the Proposed Operating Budget are available for review by the public usually around the beginning of April. They are available in any city library, on the city’s website, or the Budget Department. The City Charter specifies in Section §6.08 that the proposed budget will not be open to public inspection until after it has been made public by the City Manager.

The adopted (approved) budget is usually available at the start of the new fiscal year, in order to allow sufficient time for incorporating any changes to the proposed budget and for printing the document in final form. The adopted budget document is then available for examination in any city library, on the city’s website, or the Budget Department. The city presently prints limited budget documents for distribution to all city libraries, City Council, and operating departments of the city. The budget document is not printed in quantity for general distribution to organizations or individuals.

If you have any questions, please email the Department of Budget and Evaluation.

7. What are the legal responsibilities of the City Manager and City Council regarding budget setting?

The City Manager initiates the budget process. The City Manager sets the expenditures of the budget and establishes the revenue estimates to finance the budget. The City Council may increase, decrease, or delete individual items in the proposed budget except for Debt Service expenditures. The City Manager must propose, and the City Council must adopt, a balanced budget. If you have any questions, please email the Department of Budget and Evaluation.

8. Once the budget is approved, can it be changed?

After the final approval of the budget by the City Council, only limited types of changes may be made. A department may transfer its own funds internally from one expenditure category to another should the need arise. Money cannot be moved from one department to another without approval of the City Council, as recommended by the City Manager.

Supplementary appropriations that may be needed require the recommendation of the City Manager and approval of the City Council. Sufficient funds must be available for such appropriation. If you have any questions, please email the Department of Budget and Evaluation.

9. Where do city revenues come from?

Real estate and personal property taxes are the city’s two main sources of revenue, comprising nearly half of the city’s general revenue sources. All other taxes, fees, licenses, and earnings are the remainder of general revenues. State and federal revenues comprise about 10 percent of General Fund revenues, primarily as categorical aid in the Human Services (social services) area.

Many city revenues, while paid by citizens as taxes to the state and federal levels, come back to the city in the form of aid programs or grants. Each year, the city or city agencies receive funds from state and federal sources for everything from transportation projects to education assistance. Even though these programs are paid for with revenue derived from a citizen’s income and sales taxes, the city usually has little choice in deciding on what to spend the money. The federal and state governments establish the policies and guidelines for these programs that the city must follow in order to be eligible to receive these grants and aid.

While it is still true that much of government revenue is derived from local taxes, user fees are a source of funds for selected public services. Water, sewer, garbage collection, and certain recreation programs are a few examples of public services whose costs are paid for primarily by user charges. If you have any questions, please email the Department of Budget and Evaluation.

10. Since the final budget can be only an estimate, what happens when the actual spending or revenues is higher or lower than the city expected?

If city finances are healthy, the city will complete the fiscal year with expenditures lower and revenues higher than anticipated, that is, with a surplus. Many government financial experts believe that a surplus, or reserve, makes good management sense. As excess city funds are identified, they generally are either used to fund supplementary appropriations to the current year’s budget, are used to fund extraordinary or emergency projects, or unplanned capital projects as they arise.

A far more serious situation exits when revenues are over-estimated and/or not budgeted expenses are incurred, so that a potential deficit situation exists. In such instances, immediate action has to be taken to curtail spending. There is little, if any, opportunity to pursue the alternative remedy, that is, to increase revenue yields, once the budget has been approved. To date, the General Fund has never incurred a year-end deficit from this type of situation. If you have any questions, please email the Department of Budget and Evaluation.

11. How is the operating budget organized?

The front portion of the budget document contains revenue and expenditure summary tables, and explanatory charts. The middle section, comprising the bulk of the document, contains information about the spending plans of city departments. These pages are grouped by functional categories such as public safety, general government, and schools, showing the functions of the departments and what types of expenditures that are planned to be made during the budget year. In addition, measures of service levels are provided through the inclusion of service indicators.

Department descriptions are generally detailed by major operating divisions or activities. Three years of financial information are shown for revenue and expenditure items contained in the budget. If you have any questions, please email the Department of Budget and Evaluation.

12. What is the Capital Improvements Plan?

The Capital Improvements Plan (CIP) is a planning document. It lists many projects that the city desires to accomplish, generally over a five-year period. The CIP includes new construction or renovations to existing school buildings and other city structures, major street, bridge and sewer repair projects, and upgrades to existing park facilities or new park structures.

The CIP is a dynamic instrument that may change from year to year as infrastructure needs in the city are identified. Basically, the preparation, approval and financing process for the CIP are:

1. Development of a CIP by the City Manager and staff
2. City Council approval of a CIP after public hearings
3. City Council approval of a CIP funding source, which is usually a Bond Authorization (after a public hearing)
4. An appropriation of funds to the project
5. Award of a construction contract for the project to be built

These elements are explained further below.

First, the city prepares the multi-year planning document based on all known information about particular projects. Project categories are developed for buildings, school facilities, sewers, streets, etc.

The next step is to request City Council adoption of a resolution approving the CIP. This is an important step that indicates that the city has identified certain infrastructure needs. It does not mean that all projects will be accomplished within the time frames shown in the planning document. Project timing may change for a variety of reasons such as alternative ways to get the project accomplished, need for the project and cost. The City Council has total flexibility to accept, reject or modify projects in the plan.

Capital Improvements Plan (CIP) changes require a different procedure. Upon the recommendation of the City Manager, the City Council may amend the Capital Improvements Plan by a majority of affirmative vote. The CIP is not a formal budget. Appropriations are made on a project-by-project basis only. Only the first year of the plan is approved by City Council on an annual basis. This provides the City Council with flexibility in executing the plan and the ability to add to the CIP with unprogrammed projects as necessary.

If you have any questions, please email the Department of Budget and Evaluation.

13. How does the city pay for Capital Improvement Plan projects?

Before a project can be started, an approved funding source must be identified. If enough uncommitted funds are available, the city may pay cash to have the project done. Most projects however, must be financed over a long time period since rarely do city governments have the money readily available to pay for high-cost capital projects.

Financing projects is similar to a homeowner’s mortgage. The city borrows a large sum of cash to pay for projects and then repays it with interest over a long period of time, generally 20 years. The amount repaid each year is called debt service. The general purpose behind the use of long-term debt for financing capital projects is that these facilities will last for many years so that current taxpayers will not have to absorb the full cost of their construction. Borrowing also serves to smooth the cost impact of large expensive structures (such as a school or fire station) over more than the facility’s shorter construction period.

Before the city can borrow the funds or even commit to begin a project, State law requires that several steps be complied with.

The state requires that a public hearing be conducted on a bond authorization by the City Council. A bond authorization indicates an amount of funds that the city intends to borrow (at some time in the future) to pay for capital projects. A notice (advertisement) that the public hearing will be held by the City Council must be advertised in the newspaper twice during the two-week time period before the public hearing is actually held. The advertisement lists the amount of funds that the city intends to borrow (at some time in the future) and provides an estimate of the amount of money by category that it intends to spend on capital projects.

The public hearing gives citizens an opportunity to express their views about the city’s intention to incur additional debt for capital projects. If the bond authorization is not approved, capital projects can only be done when the city has saved enough money to pay cash for the project.

If the bond authorization is approved by the City Council, it signifies that the city will use bonds as the fund source to pay for projects up to the amount of the bond authorization. It does not mean that the city intends to sell bonds immediately or even in the very near future. Generally, the city only sells bonds when the cash is needed and when market conditions are the most favorable (lowest interest rates) for the city to borrow the money. If you have any questions, please email the Department of Budget and Evaluation.

14. What does the Bond Authorization permit the city government to do?

The bond authorization gives the City Manager authority to bring individual requests for funding for capital projects to the City Council for their action (that is, approval or disapproval of funding). Projects often may be financed in stages - to accomplish the architectural / engineering element, to land purchase when necessary, or to perform studies as required by regulatory agencies. Approval of funding is called an appropriation. When an appropriation of funds is made, construction or whatever work the project calls for may start. Once the work begins, the city is generally committed to doing the project and eventually selling bonds.

If you have any questions, please email the Department of Budget and Evaluation.

15. How can the city proceed with projects if it has not sold bonds to get the cash needed to pay for them?

The city receives most of its revenue on a seasonal basis. Property taxes are collected in November - January and again in May - July. This money must last the city for the entire year. Usually, the city will have enough cash on hand to be able to meet its regular monthly bills and still have enough cash to “front-fund some capital projects. When bonds are eventually sold, the cash that was used to front-fund projects is reimbursed to the city from the bond proceeds.

This procedure is in the best interest of the city as it maximizes the use of the city’s available cash. Bond sales are timed to market conditions (interest rates) and actual cash needs. Actual cash needs are determined by the amount of funds that have been expended on individual capital projects.

If the CIP is approved, the financing process can be summarized as:

• A funding mechanism is approved which generally is bonds (the bond authorization)
• Projects receive funding (an appropriation) on an individual basis
• Project costs are paid for from existing city cash (front-funded)
• Bonds are sold to re-pay any city funds that were used and for the remaining costs of the projects
• The funds borrowed are paid off usually over 20 years (debt service payments)

If you have any questions, please email the Department of Budget and Evaluation.

16. How much can be borrowed?

State law sets the city’s debt limit at 10% of the assessed value of real property located in the city. The city’s adopted policy is that the General Fund’s annual debt service will not exceed 9.5% of the combined city and school revenue for that year. If you have any questions, please email the Department of Budget and Evaluation.

17. How does the budget affect property taxes?

As was mentioned previously, real estate and property taxes are an important source of the revenue used to pay for the cost of government services and facilities. The amount of revenue anticipated to be received by the city is the major factor in calculating the level of expenditures the city may budget. If you have any questions, please email the Department of Budget and Evaluation.

18. How can I express my opinion to elected officials on budgetary issues?

The most direct means of addressing elected officials concerning the budget is by participating in a public budget hearing. These public hearings are held in the evening at two different locations. Notice of a Budget public hearing appears in the newspaper about one month before the hearing. If you wish to speak, you may sign up at the public hearing site that evening of the hearing. You will be asked to furnish your name, address, and the subject matter you wish to address.

All speakers who sign up will be heard, generally in the order in which they registered. Speakers are requested to limit their remarks to three minutes. It will help the effectiveness of your presentation if you have your comments well organized or, better still, in written form.

Written comments, whether or not you personally attend a hearing, are always accepted before or after a hearing by mailing or delivering your comments to the City Clerk’s office. Be sure to include your name, address, telephone number, date, and the subject matter or hearing to which your comments pertain.

Those residents who prefer to voice their views in a less formal forum than public hearings may wish to do so through involvement in organizations such as their PTA or civic associations, as these groups frequently maintain a continuing interest in the budget and often delegate representatives to speak at public hearings. A listing of City Council appointed Boards, Commissions, and Committees can be obtained from the City Clerk’s Office.

These groups provide advisory and administrative support to the City Council through their varied statutory functions. It is through these groups that a variety of citizen’s concerns are heard, acted upon, or recommended to the City Council for action. If you have any questions, please email the Department of Budget and Evaluation.