AGENDA #5b
BUDGET WORKING PAPER
TO: W. Calvin Horton, Town Manager
FROM: Kay Johnson, Interim Finance Director
SUBJECT: Report on History of $800,000 Rollover and How to Move Away from Budgeting it as a Revenue
DATE: March 30, 2004
For 10 years, the Town of Chapel Hill has used $800,000 in appropriated fund balance as a part of its revenue budget projection. A lower amount was used in years prior to 1994-95 as shown below. In some years, the Council has used an additional one-time allocation for fund balance in excess of the $800,000.
|
Year |
Amount of Appropriated Fund Balance in Original Budget |
|
1990-91 |
700,000 |
|
1991-92 |
740,000 |
|
1992-93 |
605,000 |
|
1993-94 |
691,000 |
|
1994-95 |
935,000 |
|
1995-96 |
800,000 |
|
1996-97 |
800,000 |
|
1997-98 |
800,000 |
|
1998-99 |
965,000 |
|
1999-00 |
850,000 |
|
2000-01 |
800,000 |
|
2001-02 |
800,000 |
|
2002-03 |
1,070,000 |
|
2003-04 |
1,290,306 |
The $800,000 is an estimate of the difference between revenues and expenditures from the prior year. This working paper discusses the history of the $800,000 rollover and how to dispense with budgeting it as a revenue.
BACKGROUND
The use of appropriated fund balance as a rollover has been used for years by the Town of Chapel Hill. The $800,000 as a base rollover amount began in fiscal year 1994-95. The $800,000 rollover has been available to return to the base budget in successive years, since revenues generally exceed budget because of conservative budget practices, and expenditures generally are lower than budget because of unfilled positions and the requirement that all departments stay within their overall budget.
DISCUSSION
Historically, the $800,000 in appropriated fund balance has allowed the Council to budget more in expenditures than would otherwise be possible. For example, in the current 2003-04 budget year, the Council budgeted $1,290,306 in appropriated fund balance (savings from prior years). The amount includes two elements: one is the $800,000 that the Council anticipated would be restored in the next budget year through a combination of revenues in excess of budget and expenditures less than budget; the remaining $490,306 is the portion of the unbudgeted Utility Franchise fee from 2002-03 that the Council planned as a one-time spending allocation in 2003-04. Without the use of appropriated fund balance, we would have needed to have reduced our expenditure budget by $1,290,306 in fiscal year 2003-04.
The Council has the option of not budgeting a rollover of $800,000 each year for the next year’s budget. The Council could elect to replace all or a portion of the appropriated fund balance with a tax increase or other revenue source. Because the Town is required to have a balanced budget, if there are no additional revenues to supplant the use of the $800,000 from savings, we would need to reduce our expenditure authority by $800,000.
The Council could use a combination of a tax increase and a reduction of the rollover fund balance appropriation. For example, if the Council raised taxes an additional .23 of a cent, the appropriated fund balance rollover could be reduced by $100,000 without affecting expenditure authority.