Fiscally Ready Communities Best Practices
Budget Policy Guide

The Fiscally Ready Communities Budget policy guide supplements the local government’s process of establishing a budget. A detailed budget ensures that a local unit can maintain public services, while planning for their future, creating fiscal responsibility.

Fiscally Ready Communities Budget Policy Recommendations

• It is recommended that the local unit adopt a 2-year budget annually in addition to your 5-year forecast.
  • This helps a local unit evaluate their revenue and expenditures as they plan for the long term.
    • This is especially important for local units with low fund balances that put them at significant risk of unexpected changes in revenues and expenditures.
• It is recommended that the local unit of government approve a budget for all major enterprise funds.
  • This is especially important for local units with low net positions or deficits within enterprise funds that put them at significant risk of unexpected changes in revenues and expenditures.
  • Enterprise fund budgets must include budget depreciation.
• It is recommended that the local unit is fiscally conservative in the budgeting process.
  • This includes overestimating expenditures and underestimating revenue to prepare for unforeseen circumstances.
    • This is important because any activity which exceeds budgeted expenditures is a violation of Public Act 2 of 1968, as amended.
• It is recommended that department heads participate during the internal budget process and are prepared to answer questions during the budget presentation to the governing body.

Fiscally Ready Communities Budget Policies

The local unit shall have the following policies set in place:

• The local unit shall complete a 5-year financial plan, which includes an annual update.
  • The detailed financial plan includes the following information:
    • Department level revenues and expenditures.
    • Revenue projections that are based on actual revenue received in recent years and future assumptions that are justifiable.
    • All debt service must be accounted for in the financial plan.
      • The local unit shall not fail to pay principal of or interest on any municipal securities when due or payable.
• The local unit shall project a balanced budget for the current and succeeding four fiscal years.
  • The budget must not lead to a fund deficit and shall be in accordance with Public Act 2 of 1968, as amended.
• The budget should articulate priorities and issues for the budget cycle – this should describe significant changes in priorities.
• The local unit should have procedures in place for amending the budget after it is adopted.
• The budget should explain long range financial plans and its effect upon the budget and budget process (National Advisory Council on State and Local Budgeting, 1998).
• The budget should include the financial policies and goals of the local unit, including the local unit’s definition of a balanced budget (National Advisory Council on State and Local Budgeting, 1998).
• The budget should explain the effects of existing debt levels on current operations.
• The budget should include goals and objectives of organizational units and departments. The unit goals should be linked to the overall goals of the entity.
  • This should also include when the goals and objectives are expected to be accomplished.
• The budget should include funding the local unit’s pension and OPEB plans following Public Act 202 of 2017, when applicable.
  • Each pension system should be at least 60% funded or have an approved corrective action plan for each underfunded system.
  • Each retirement healthcare system should be at least 40% funded or have an approved corrective action plan for each underfunded system.
  • The local unit shall report its defined benefit funding ratios using the uniform assumptions established by the state Treasurer.
• The local unit shall review the Budget Manual created by Treasury on a regular basis because the key to sound fiscal health of governmental units is proper accounting, budgeting, and auditing of the local unit.
• The budget must be passed prior to the ensuing fiscal year.
• The local unit shall review GFOA’s recommended budget practices.
• The local unit shall review GFOA’s Detailed Criteria Location Guide.
• The local unit shall review the Distinguished Budget Presentation Award, to compare their budgets with other similar local governments.

Budget Policy Guide Review Table

Please use the table below to consider whether your budget policy guide needs an overhaul or a refresh. This document has been built so you can track where you are in the process.