The Municipal Budget (Part 1): Understanding municipal budgets

The fundamentals of Municipal Budgets.

The Michigan Municipal League in cooperation with the Municipal Government Financial Officers Association prepared the document titled: {Finance 101} Understanding Municipal Budgets and Financial Reports. The document is only 23 pages but it contains a wealth of information regarding municipal budgets and financial reports. The information is brief but comprehensive. At the end of each topic area is a section titled “Key take-aways” that provides you with a summary of key information related to the topic.

“Understanding the budget” is located on pages 17-21 of the document. This topic area starts out by explaining that budgets serve a different purpose in a government than they do in a business.  The document goes on to state:

  • In a business, budgets are a plan to shoot for; often they can be an aggressive plan that you may or may not be likely to achieve;
  • In a government, the expenditure side of the budget is called “appropriations,” and it is the legal authority for management to provide a given level of services. It is actually illegal to spend more than the budget appropriations (P.A. 2 of 1968).

The document goes on to explain that the municipal budget is not a forecast of the amount of money that your local unit of government expects to spend, but it is the maximum amount that management is allowed to spend.

Therefore, if your local unit of government is spending money in a way that is not consistent with the approved annual budget, this is a red flag that will require further review and explanations. Remember, your municipal budget is a document that is both a financial plan and a policy document. It should not be stored on a shelf never to be used again until the next budget season. Your municipality should be monitoring spending based on the annual budget because, as noted, it is illegal to spend more than the budget appropriations.  There should also be procedures for amending the budget.

One of the more important goals of your local unit of governments is to have fiscal sustainability. One meaning of fiscal sustainability for your local unit of government is, “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (Brundtland, 1987)

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. 

Those in Michigan State University Extension that focus on land use provide various training programs on planning and zoning, which are available to be presented in your county.  Contact your local land use educator for more information.

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