Municipal Budget Part 3: Municipal budget legislation
What legislation in Michigan governs Municipal Budgets?
April 26, 2019 - Author: Crystal Wilson, Michigan State University Extension
Municipal Budget Public Acts
The Uniform Budgeting and Accounting Act 2 of 1968 and PA 621 of 1978 establish the procedures for creating and managing annual balanced budgets by local units of governments in the state of Michigan.
It is important for municipal officials to have a comprehensive understanding of the Uniform Budgeting and Accounting Act 2 and PA 621
The Uniform Budgeting and Accounting Act 2 of 1968 is an Act that:
Provide for the formulation and establishment of uniform charts of accounts and reports in local units of government; to define local units of government; to provide for the examination of the books and accounts of local units of government; to provide for annual financial reports from local units of government; to provide for the administration of this act; to prescribe the powers and duties of the state treasurer, the attorney general, the library of Michigan and depository libraries, and other officers and entities; to provide penalties for violation of certain requirements of this act; to provide for meeting the expenses authorized by this act; to provide a uniform budgeting system for local units; and to prohibit deficit spending by a local unit of government.
PA 621 of 1978, establishes budgeting requirements and prohibits deficit spending by local units of government. PA 621 of 1978 states:
Michigan law provides that no money shall be disbursed from a local unit except pursuant to the General Appropriations Act adopted by the legislative body. The purpose of the General Appropriations Act is to present the expenditure side of the budget in a form necessary to allow the expenditure of funds and to prevent deficits by limiting expenditures to available resources. The appropriations act must include estimated revenues by source, in each fund, to finance the expenditures.
It is also very important to note that PA 621 of 1978 requires the annual monitoring of municipal budgets to prevent deficits, as well as procedures for amending the budget. The Act states:
The General Appropriations Act must also include estimated revenues, by source in each fund, to finance expenditures. Both revenues and expenditures must be monitored during the fiscal year to prevent incurring a deficit. The general appropriations act must be amended as soon as it becomes apparent that a significant change in revenues or expenditures is known.
Therefore, the legislative body of each local unit must pass a general appropriations act (budget) for the general fund and each special revenue fund.
The general appropriations act (budget) must:
- State the total mills to be levied and the purpose for each millage levied (truth in budgeting act)
- Include amounts appropriated for expenditures and to meet liabilities for the ensuing fiscal year in each fund
- Include estimated revenues by source in each fund for the ensuing fiscal year
It's important to note that the General Appropriations Act (the budget) must be balanced, but only for a single year. However, experts at MSUE state:
A budget that may fit the statutory definition of a “balanced budget” may not, in fact, be financially sustainable. A true structurally balanced budget is one that supports financial sustainability for multiple years into the future. A government needs to make sure that it is aware of the distinction between satisfying the statutory definition and achieving a true structurally balanced budget.
How do municipalities handle the spending of funds and the transfers of funds in the budget? The Uniform Budgeting and Accounting Act (MCL 141.437 141.439 Expenditure of funds; transfers within appropriations. Sec. 19) state:
- A member of the legislative body, the chief administrative officer, an administrative officer, or an employee of a local unit shall not authorize or participate in the expenditure of funds except as authorized by a general appropriations act. An expenditure shall not be incurred except in pursuance of the authority and appropriations of the legislative body of the local unit.
- The legislative body in a general appropriations act may permit the chief administrative officer to execute transfers within limits stated in the act between appropriations
In conclusion, when local units fail to maintain balanced budgets, then the state of Michigan through the Local Financial Stability and Choice Act - Public Act 436 of 2012 establishes a system of fiscal controls to correct the situation and put the local units of government back on fiscal track. There will be increased State involvement in the management of the local unit of government’s budget, and the State can limit local units of government’s decisions as it relates to their budget and finances.
Increased State involvement can happen in one of four ways:
- Consent agreement – MCL 141.1548 Section 8 – An agreement with state and local unit of government, which provide measures necessary to address the financial emergency and provide stability
- Emergency manager – MCL 141.1549 Section 9 - (1) The governor may appoint an emergency manager to address a financial emergency within that local government as provided for in this act. (2) Upon appointment, an emergency manager shall act for and in the place and stead of the governing body and the office of the chief administrative officer of the local government.
- Neutral evaluation process – MCL 141.1565 Section 25 – The state treasurer may, in his or her own discretion, determine that the state monitor the neutral evaluation process initiated by a local government under this section and may identify 1 or more individuals who may attend and observe the neutral evaluation process.
- Chapter 9 bankruptcy – MCL 141.1566 Section 26 – Requires approval from the Governor
Michigan State University Extension and the Michigan Department of Treasury are providing joint training on best practices for fiscal and operational planning for Michigan’s communities. Click on the link to learn more about the program and to register for one of the training sessions. https://www.canr.msu.edu/fiscal_management/fiscally-ready-communities