As the fall season rolls around, many governments begin preparing budgets for the upcoming fiscal year. Although this process is normally filled with financial analyses and forecasts, it’s also a great time to review your government’s financial policies.
Policy review during budget season ensures the policies align with your government’s goals and vision for the upcoming year. Although it’s a good idea to periodically review all of your government’s financial policies, the following policies can play in a large role in the budget preparation process:
Investment policy – While many states have statutes regarding the types of investments in which your government can invest excess funds, these statutes generally permit a wide variety of investment options. The investments in which your government chooses to invest can vary depending on the type of investment return you desire, compared to the level of risk you are comfortable with taking. State statutes often do not address custodial credit risk, concentration of credit risk, interest rate risk or credit risk. Consider addressing these risks along with allowable investments when developing an investment policy.
Fund balance and reserve policy – The Government Finance Officers Association (GFOA) recommends governments have a certain level of operating expenditures in reserves to ensure your government can continue to provide vital citizen services in the event of an economic downturn or unexpected emergency. It is important for your government to define what level is appropriate.
Capital assets policy – Capital asset and infrastructure construction, maintenance and repair projects are generally some of the most costly expenditures incurred by governments. With proper planning and assessment, your government can plan for future capital needs. This will assist your government in reducing the financial impact of these projects as well as ensuring readiness when potential future development occurs.
Grants policy – Although many governments are experiencing increasing costs with stagnant or decreasing operating revenue, there are many options for governments to apply for grants that can assist in providing funding to cover those costs. A policy related to grant administration will assist your government in seeking out grant opportunities and submitting consistently high quality grant applications.
Economic development policy – As your government looks to attract new business opportunities, a variety of incentives can be offered to encourage proprietors to invest in your community. Discussing and implementing an economic development policy will assist your government in quickly responding to potential new business opportunities.
Long-term financial planning policy – Although the annual budget process normally looks at the goals for the upcoming year, the most successful governments have policies to ensure the annual budget process is a stepping stone to reach long-term financial goals.
Operating budget policy – An operating budget policy should lay out the steps that need to be completed each year to create your government’s budget for the following year. A detailed policy can assist your government in creating that budget efficiently while ensuring the budget process is consistent with past practices. If you do not have an operating budget policy, now would be a great time to create one.
Financial policies are not meant to be put in place and never looked at again. These policies should be living documents that grow and evolve with your government. There’s no better time to review your government’s policies than when you are looking ahead and preparing next year’s budget.
For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.