Written By Curtis L. Coonrod
[Revised October 14, 2022]
Even though we adopted a budget, the State will change it, right?
Probably. Most units are advised by their fiscal officers to advertise and adopt appropriations, rates, and levies that are too high for the State to approve. Consequently, the state will change them later.
Why does our fiscal officer tell us to adopt a budget that is too high?
Your fiscal officer does not necessarily know how much revenue your unit will have. Therefore, he does not necessarily know what appropriations you can afford. That will be determined later by State analysts. If the budget is adopted at a high level, the fiscal officer can negotiate the cuts with the State when the revenues are determined.
Why do we need State approval?
Under the “tax freeze” (more accurately called the state property tax limitations) your unit is limited to a certain amount of property tax revenue for the coming year.
The Department of Local Government Finance (DLGF) has the task of reviewing each and every local government budget to assure the property tax levies are within this “freeze.”
If levies are above the freeze, the DLGF will make cuts.
So, why don’t we just adopt a budget that is within the “freeze” so the DLGF will not have to make cuts?
You could do that, but you would be taking some risks. Once a budget is adopted by the fiscal body, the DLGF can cut it but they cannot raise it. If the fiscal body makes too many cuts, they can’t be restored later.
The same is true of the budget advertisement that is placed in local newspapers early in the budget process. Once appropriations and levies are advertised, they can be cut but they cannot be increased. That is why a prudent fiscal officer will usually advertise appropriations and levies that are in excess of the amounts actually expected.
Is property tax the only revenue that is uncertain?
No, practically all of the revenues are uncertain at the time the budget is adopted. Revenues other than property tax are called “miscellaneous revenues.” Your local fiscal officer estimates these, usually with help from the county auditor. However, they are all subject to revision by State analysts. Consequently, your fiscal officer cannot be certain what the final miscellaneous revenues will be.
So, we have no choice but to turn over control to the State?
There are ways executives and members of the fiscal bodies can assert more control over this process. Here is the easiest way. Take the advice of your fiscal officer, and adopt levies, rates, and appropriations that are high. But also ask your fiscal officer to estimate the amount that will be cut by the DLGF. Go through the budget and identify where these cuts should be made. Adopt a resolution addressed to the DLGF. Tell them the cuts you prefer, and in what priority. Usually, the DLGF will honor the request of the executive and/or fiscal body to make cuts in certain ways.
Will the DLGF tell us what line items to cut?
No. The DLGF will tell you how much each fund needs to be cut, but not which departments and line items. The ultimate burden is on local officials.
What if we decide not to make the cuts?
If the DLGF tells you a fund needs to be cut, it means they think you may run out of cash unless the cuts are made. Obviously, you don’t want that to happen. On the other hand, the DLGF is notoriously conservative in estimating revenues. It is likely you will have more cash than the DLGF says you will. Regardless, the right thing to do is make all the cuts to the DLGF orders. Then, if additional revenue is available, you can make additional appropriations or simply let the revenue accumulate until next year.
If you have questions or would like further information about budgets, please contact us at: Coonrod@CoonrodCPA.com
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This article is intended to provide information of general interest to local government officials in Indiana. The information is not guaranteed to be applicable or appropriate in particular circumstances. Local officials should consult competent professionals before acting on any information contained in this article. We are not attorneys. Advice of a legal nature should be sought only from qualified attorneys.
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