Mayor and Council



   For the meeting on:

  November 19, 2012
   Department:   Finance
   Responsible staff:  Gavin Cohen, Chief Financial Officer
  phone: (240) 314 - 8402
  GCohen@rockvillemd.gov


Subject
Biennial Budgeting

Recommendation
Staff recommends that the Mayor and Council review the agenda materials and provide direction as needed.


Change in Law or Policy
Moving to a biennial budget may require changes to the City Charter, City Code and Financial Management Policies.


Discussion
Attached are two articles that describe many of the considerations that relate to multi-year budgeting. Attachment A, Multi-year Budgeting: A Primer for Finance Officers, presents the concept of multi-year budgeting and its benefits and drawbacks. Attachment B, Taking the Plunge: The Conversion to Multi-year Budgeting, describes one city's conversion from an annual budget to a biennial budget, emphasizing the most important considerations for governments pondering multi-year budgeting.

Due to the considerable time investment that it would take to transition to a biennial budget, the Mayor and Council should provide direction as early as possible for the preparation of the first biennial budget in FY 2015/2016. This transition would include an entirely redesigned budget book to accommodate the increased amount of information related to the biennial budget. The FY 2015/2016 biennial budget would be prepared under the direction of the Mayor and Council elected in November 2013.

Types of Biennial Budgeting and How the Different Types Work
Exhibit 1 on page A-2 of Attachment A cites three different types of biennial budgets and summarizes the biennial budget characteristics and the underlying expenditure and revenue assumptions of each type. The three biennial types that are included in this article are: Biennial Financial Plan, Rolling Biennial Budget, and "Classic" (Traditional) Biennial Budget.

  • The Biennial Financial Plan is similar to what the City does now except it produces a tentative spending plan for a second year. At the end of the first year, the tentative spending plan is modified and adopted for year two. Under this type of biennial budgeting, a separate document is prepared every year and the budget is adopted every year.
  • The Rolling Biennial Budget requires staff to prepare a budget for two years although each year would be adopted separately and a budget adjustment process would take place between years one and two. Under this type of biennial budgeting, one document is prepared every two years, but the budget is adopted every year.
  • The Classic Biennial Budget requires staff to prepare a formal budget for two years. This two-year budget would be adopted at the same time, with a budget adjustment process taking place between years one and two. Under this type of biennial budgeting, one document is prepared every two years and the budget is adopted every two years.

Reasons for Adopting a Multi-Year Budget
In a survey distributed by the Government Finance Officers Association (GFOA) Research Center, governments reported multiple reasons for converting from annual budgeting to a multi-year approach. These reasons include enabling departments to take a long-term view in their decision making process; improving the linkage between long-term priorities and the budget process; improving the linkage between the operating and capital budgets; and, reducing staff hours dedicated to budget development. In addition, moving to a multi-year budget would allow the Mayor and Council to focus on other policy areas and would enhance long-term financial and program planning.

Disadvantages to Adopting a Multi-Year Budget
Despite the advantages of multi-year budgeting, commonly cited drawbacks include difficulties forecasting revenues and expenditures, difficulties converting from an annual budget to a multi-year budget, and increased staff time during the first year of the multi-year budget. Although these are commonly cited drawbacks, not all governments with multi-year budgets experience these difficulties. For the City of Rockville, the areas that staff would need to focus on would be the initial staff time required to establish policies and procedures related to the multi-year budget process and educating the Mayor and Council on their roles and responsibilities associated with adopting a two-year budget. As mentioned above, the transition from an annual to a biennial budget would also include an entirely redesigned budget book to accommodate the increased amount of information.

Recommendation
If the Mayor and Council agree that the advantages of a biennial budget outweigh the disadvantages described in this report, staff recommends that the Mayor and Council move from the current annual budgeting process to a biennial budgeting process using the Classic Biennial Budget type. For both the Biennial Financial Plan and the Rolling Biennial Budget there is an increased amount of work in year one, without the benefit of formally adopting a two-year budget. Staff recommends the Classic Biennial Budget due to the time savings related to the preparation and adoption of the budget every other year.

Biennial Budgeting in Relation to 2-and 4-Year Mayor and Council Terms
Under the current two-year term of office, the newly elected Mayor and Council would adopt one biennial budget or spending plan once elected.

Mayor and Council 2-Year Terms
M&C Terms
11/2013 - 11/2015
11/2015 - 11/2017
11/2017 - 11/2019
11/2019 - 11/2021
Biennial Budget Years
FY 2015 / 2016
FY 2017 / 2018
FY 2019 / 2020
FY 2021 / 2022
Annual Budget Years
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022

Under a four-year term of office, the newly elected Mayor and Council would adopt two biennial budgets, one at the start of the term and the other midway through the term.

Mayor and Council 4-Year Terms
M&C Terms
11/2013 - 11/2017
11/2017 - 11/2021
Biennial Budget Years
FY 2015 / 2016
FY 2017 / 2018
FY 2019 / 2020
FY 2021 / 2022
Annual Budget Years
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022

Mayor and Council History
In preparation for the FY 2014 budget season, the Mayor and Council directed staff to prepare several finance worksessions to begin in October 2012. This is the fourth in the series of several worksessions intended to provide information for the Mayor and Council and assist with the development of their budget priorities.

Meeting Date
Agenda Item
October 15, 2012 State of the FY 2014 General Fund Budget
City Employee Compensation
November 5, 2012 Capital Improvements Program (CIP)
November 19, 2012 Biennial Budgeting
December 3, 2012 City Contracting
Reducing the City Budget, What it Means to Cut Costs
December 17, 2012 Costs and Revenues Associated with New Development

Fiscal Impact
There is no direct fiscal impact as a result of this item; however, direction from the Mayor and Council may require additional research into how the City would be impacted by implementing a biennial budget.


Attachments
Attachment A - Multi-Year Budgeting: A Primer for Finance Officers
AttachA_Primer_Multi-YearBudgeting.pdfAttachA_Primer_Multi-YearBudgeting.pdf

Attachment B - Taking the Plunge: The Conversion to Multi-Year Budgeting
AttachB_Conversion_Multi-YearBudgeting.pdfAttachB_Conversion_Multi-YearBudgeting.pdf


Department Head:



Gavin Cohen, Chief Financial Officer
Approved on: 11/08/2012

City Manager:

Barbara B. Matthews, City Manager
Approved on: 11/13/2012