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Identifying Available Funds (internal link)

Having developed a general overview of the jurisdiction's financial health and practices, the next step is to review specific techniques to identify available funds.

Analyzing revenue estimates

Your goal in analyzing revenue estimates for the upcoming instances in which managers either have significantly underestimated or completely ignored sources of revenue. The accuracy of the revenue projections is measured by comparing actual revenue for the current fiscal year with future projections and the jurisdiction's past experience.

The annualizing process is simple. Divide the actual current fiscal year's expenditures by the number of months it represents, and then multiply that figure by 12 to obtain the anticipated end-of-year expenditure estimate. For example, if $270,000 has been spent in nine months, you would divide $270,000 by 9 and multiply the answer ($30,000 average monthly expenditures) by 12, resulting in an estimated annual expenditure of $360,000. If the jurisdiction's budget estimate was $300,000, then the annualized figure of $360,000 suggests that expenditures for this item may have been underestimated.

Compare the upcoming fiscal year's budget estimate of revenue with the past fiscal year's actual revenue. Question any revenue source which is forecast to decrease, increase less than the annual rate of inflation, or which has been dropped.

The rate of inflation is usually defined as the percentage change in the Consumer Price Index (CPI) over the previous 12 months. The rate of change is published each month by the U.S. Department of Labor, Bureau of Statistics, or can be obtained from the AFSCME International Department of Research and Collective Bargaining Services.

Revenue sources

When you review the revenue projections, pay particular attention to the following major revenue sources:

Property tax

Property taxes are a major source of funds for many governmental units. Ask these questions when reviewing property tax revenue estimates:  


  • Does the forecasted revenue increase by roughly the same proportion as in the previous year?

  • Does the estimated revenue increase at least as much as the rate of inflation?

  • Does the estimated revenue appear to reflect increased revenues from any new development, such as housing, office or commercial construction? You may obtain information on new developments from local newspapers.


If property tax revenue estimates are lower than you expected, abatements may be the cause. Abatements are complete or partial waivers of taxes or fees that businesses would otherwise owe to a jurisdiction. Public officials in communities attempting to slow the erosion of their tax bases often offer businesses subsidies and tax abatements in order to encourage them to locate or remain in the jurisdiction. Most of these schemes take the form of "tax holidays" or a reduction in the assessed value of the property below the fair market value for a given number of years.

Although they may sound like good ideas, tax abatements should be discouraged. When tax abatements reduce the amount of revenue to the jurisdiction, a higher proportion of the property tax burden is forced onto individuals. In addition, evidence is growing that while firms will take abatements when offered, the business tax structure is not a very important consideration in the development plans of businesses. Of greater concern to businesses are the availability of a skilled labor force, access to raw material and consumer markets, and the quality of the transportation network. These are conditions that the jurisdiction should work to improve rather than offering tax giveaways.

Delinquent taxes

 The tax revenue portion of the budget often will contain an entry for uncollectible taxes. If this does not appear, the jurisdiction may have reduced its revenue estimate by the percent that it does not expect to collect. According to A Revenue Guide for Local Government (published by the International City Management Association), "as a general rule, local governments responsible for collecting property taxes should achieve at least 95 percent of the current levy. That is, no more than 5 percent of the current levy should become delinquent." Thus, a jurisdiction that collects less than 95 percent should be criticized as inefficient. If a jurisdiction is collecting $25 million from property taxes, an increase of only 2 percent would add another $500,000 to available revenue. The collection rate can be improved by a "get tough" policy. Such a policy would include publishing the names of delinquents in the local newspaper, phone calls, and, if all else fails and the amount of back taxes warrant it, elimination of services to the delinquent taxpayer.  

User fees

 User fees are a significant source of locally generated income for local governments. Typical user fees are public parking garage charges, water and sewer service charges, recreational charges, and use charges for public buildings and facilities. The fees should cover the full cost of providing the service or operating the facility. If user fee revenues are not keeping pace with inflation, you should ask if the fees are covering costs.


 If there is a general fund surplus at the end of a fiscal year, it can be carried over as available revenue for the next year. The actual amount of the surplus, which is generally not available until a few months after the close of the fiscal year, should be compared with the estimated surplus, if any, in the budget. If the actual surplus is greater than budgeted, the additional revenue is available for any purpose. Not all jurisdictions include surplus funds in the revenue portion of the next year's budget. Some retain this money to increase the fund balance. Surpluses also accumulate in independent funds including internal service funds, enterprise funds and special revenue funds. A description of these funds is provided in Appendix III.

Depending on the jurisdiction and laws governing the use of money in the independent funds, surplus money may be transferred to the general fund. If management argues that these monies cannot be transferred to the general fund or otherwise used for wage and benefit increases, ask under what authority these funds are restricted. If the jurisdiction established the restriction, it is likely the jurisdiction has the power to lift the restriction. Information on these funds and their restrictions is usually provided in the footnotes of the financial statement.

If transfers from the funds are prohibited legally and a surplus has accumulated, a jurisdiction may consider transferring eligible functions supported by the general fund to the restricted funds. This transfer will release general fund resources for other activities. For example, road maintenance functions that are currently paid from the general fund might be eligible for inclusion in a special revenue road fund supported by gas tax revenues dedicated to road maintenance. The general fund also may be able to "bill" the independent funds for services, such as personnel, police, fire, or general administrative overhead.

Interest on investments

 Many localities possess significant cash assets that earn interest. Budget planners often underestimate interest in the budget. A comparison between actual and budgeted interest from previous years and for the year-to-date will highlight this situation. Because expenditures are spaced evenly throughout the year, jurisdictions should invest the idle resources, striving to achieve the maximum return at the minimum risk, while allowing for ready access to invested funds. Short-term U.S. Treasury Notes and Money Market Funds are two common investments. One approach is to pool the idle balances of several local governments into larger amounts of investable funds. This can increase revenues by increasing the rate of return on investments.

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