Author: Financial Management Resource Bureau
Many communities are in the beginning stages of their budget process for the next fiscal year. Ideally, this process will generate a comprehensive budget document that lays out the upcoming budget proposal within the context of the community’s fiscal condition. Much more than simply a departmental budget report from the community’s financial software, the budget document should reflect the community’s process. Follow this link for a comprehensive overview of the municipal budget process.
While the governing structure of each municipality may be different based on charter, by-laws and/or special acts, generally the budget process should start with the executive body (mayor, city/town manager or select board) developing policy priorities, and establishing annual goals and objectives. After goal setting occurs, a five-year financial forecast including revenues and expenditures should be produced to identify the community’s fiscal condition. Next, departmental submissions of operating and capital budget requests are presented, followed by a series of meetings with policy boards and stakeholders to develop consensus ahead of voting on the budget before the start of the fiscal year. All these components come together to create an informative budget document.
Components of a Budget Document
In a budget process that follows best practices, the executive body should produce a series of policy goals for the community that translates into spending parameters, refers to financial policies for guidance, develops goals and objectives for the community and individual departments, creates a five-year forecast of revenues and expenditures and capital improvement plan, and has a community-wide organizational chart.
The contents of the document should be laid out in coherent sections with clear headings and page numbers, use subsections when applicable, and share a cohesive design. The goal is to produce a digestible document that provides readers with all the deliberation and analysis that went into creating the city or town’s budget. A good budget document will communicate effectively to members of the public as well as municipal staff, boards, and committees.
The following components should make up the primary sections of the budget document:
- Table of Contents
- Organizational Chart
- Budget Calendar and Process
- Budget Message
- Forecast
- Overview of Revenues and Expenditures
- Revenues Section
- Departmental Budget Sections
- Capital Investment Section
- Financial Policies
- Appendix
Each section should follow a standard format and be easy to navigate and understand, and the table of contents should make it simple for the reader to find sections quickly. The organizational chart shows the municipality’s general reporting structure, including elected boards and officials as well as appointed staff and departments. The level of detail for the organization chart will depend on the complexity of the community’s structure.
A visually coherent budget calendar should also lay out the main steps in preparing the budget and show milestones throughout the process. These may include the dates of policy board meetings, when revenue projections are presented, budget submission dates, and target dates for preliminary and final budget submission. Readers should come away with a sense that the municipality has a standard, deliberative process and follows it closely.
As a preamble to the data-heavy portion of the document, the budget preparer (the mayor or city manager in a city, or the finance director/accountant or town administrator/manager in a town) should provide a narrative that outlines the community’s policy priorities for the year and the plan to address them. A “budget message” includes an overview of how the city or town’s financial situation influences its goals and objectives for the year and how the goals are translated into budgeting parameters. It is also important to include a summary of any increases or decreases to the budget, including the percent change relative to the current fiscal year, and a discussion of the main drivers of change that shows how this year’s budget is responsive to policy priorities.
Following the budget message is a five-year forecast, an essential planning and policymaking tool that projects revenues and expenditures over a multi-year period. A well-designed forecast allows a municipality to evaluate the impact of various decisions and policy choices, identify challenges, analyze different scenarios, and budget sustainably for the future.
After the forecast, there should be a high-level overview of revenues and expenditures, summarizing the community’s main revenue sources and proposed expenditures by type (fixed costs like benefits and insurance, departmental expenditures, capital expenditures, school budget, other expenditures) and demonstrating that the proposed spending is balanced to available revenue.
A dedicated revenues section can provide greater detail to the main revenue types. This could include a brief explanation of the property tax levy’s increase under proposition 2 ½ and the nature of any new growth in the community, as well as detail on how economically linked revenues like local receipts or motor vehicle excise performed. Multiple years of actual revenue collection should be included for all sources of revenue.
Departmental budgets make up the detailed “expenditures” section that covers all departments and cost centers (benefits, insurance, etc.) funded in the operating budget. Ideally, each department/cost center should have its own section with standardized formatting, a summary of any change in amount and percentage, and a detailed explanation for any significant budget changes, including operational changes or major equipment purchases. Each departmental budget entry should be made up of the same basic elements: department overview with a mission statement and objectives, personnel table, organizational chart, budget narrative, and budget data. Include a table for personnel costs and expenditures in various categories, starting with multiple years of actual expenditures followed by the prior year’s budget and this year’s proposed spending, with the change from the prior year’s budget in amount and percentage in the last two columns. The format of this table should mirror departmental budget worksheets used to submit the budget, making it much easier to compile and use the information for the budget document.
The capital investment section summarizes proposed capital spending projects and explains how each project aligns with the community’s capital investment policy. This includes brief descriptions of each project and its associated department, cost, and funding sources (such as free cash, stabilization fund(s) or debt financing) and a table that lists each proposed project, its cost and funding source(s). After detailing capital projects, include a summary from the community’s five-year capital plan (using the capital budget as the first year) outlining each project’s estimated cost and funding sources in subsequent years.
After drafting the expenditure portion of the document, include any adopted financial policies that impact the budget in the next section. These policies can provide context for spending requests or appropriations that may not be part of departmental or capital submissions. For instance, a reserves policy outlines the community’s strategy for managing its stabilization fund(s) and free cash balance. The details of the reserve policy explain why a certain amount of free cash (or other specified revenue source) was appropriated for deposit into the stabilization fund or special purpose stabilization fund. A capital investment policy contextualizes how the community intends to balance capital and operating spending and determines the funding source to utilize. Similarly, a debt management policy provides context on the balance of cash vs debt-finance capital projects. Including these policies in the budget document allows the budget preparer to easily reference them in the budget message, making it an effective tool for communication and accountability.
The Appendix is a place to include any information or data that would provide the reader with additional context, give more general information on the community’s finances, or provide information that makes the document more accessible. For instance, data showing the city/town’s reserve levels over time, or a glossary of municipal finance terms used can provide additional value to the reader.
For more in-depth guidance, the Division of Local Services offers online resources related to budgeting and planning as well as creating the budget document.
Helpful Resources
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Editor: Dan Bertrand
Editorial Board: Tracy Callahan, Sean Cronin, Janie Dretler, Emily Izzo, Christopher Ketchen, Paula King, Jen McAllister, Jessica Sizer and Tony Rassias
| Date published: | January 16, 2025 |
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