City Budget Analysis

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CityBudget Analysis

CityBudget Analysis

Budgetis a significant tool that provides a quantitative expression of anentity’s plan for a defined fiscal period. It indicates theanticipated sources of revenue and the way an entity intends to spendit. This paper will provide the analysis of the budget for ChampaignCity. The Champaign City has a total population of about 83,424people (City of Champaign, 2016). Some of the goals that influencedthe process of preparing the budget include the enhancement of thequality of life of all residents, delivery of first-rate services,and achievement of environmental sustainability. The paper will focuson the types of budget formats, top three revenues as well asexpenditures, and the deficit in Champaign’s 2016 budget.

BudgetFormats

ChampaignCity used two types of formats in its 2016 budget. The line-itembudget format was used to present the overall expenditure andrevenue. A line budget is differentiated from other formats becauseall items are listed in the vertical columns. A line budget format ispreferred because of its simplicity and the ease of justifyingdifferent sources and allocation of funds (Lunenburg, 2010). Thepurpose of using a line format is to enhance financialaccountability. Secondly, the management of Champaign City used aprogram format in its 2016 budget. For example, the library taxaccount is one of the numerous programs undertaken by the city as asource of revenue and it receives financial allocations each year.

ThreeSources of Revenue

Thecity of Champaign has three major sources of revenue that contributemore than half (59.17 %) of the total earnings per year. The firstand the most significant source of revenue is sales tax. The city’smanagement collected about $ 37.3 million from sales by the end ofthe financial year 2016, which represented a 2.5 % increase from thefiscal period (City of Champaign, 2016). Projections on the growthrate of sales tax were based on staff expertise, economic outlook,and historical trends. However, the city’s share of the revenuegenerated from sales tax is about 2.5 % (City of Champaign, 2016).

Thesecond largest source of the city’s revenue is property tax. Theleadership of the city collects taxes from the owners of differentproperties, but the most important type of asset that generates therevenue is the land. It is estimated that the city collected about $23 million in the financial year 2016, which represented about 19.92% of the total revenue collected in the same fiscal period (City ofChampaign, 2016). The amount of property tax collected in the yearrepresented a 1.51 % growth compared to the previous financialperiod. The rate at which the city charged property tax was based ona three year’s equalized assessment value. Some of the keycontributors of property tax include the Champaign Market Place, LLC,Bankier Family, and Campus Property Management.

Thethird largest source of the City’s revenue is the income tax. It isestimated that Campaign City collected about $ 8.02 million in thefiscal year 2016, which represented approximately 6.95 % of the totalrevenue generated in the financial period. Although income tax wasranked among the top three sources of revenue for the city, the totalamount collected during the year declined by 1 % compared to fiscalperiod 2015 (City of Champaign, 2016). This represented a decreasefrom $ 99.0 in 2015 to $ 97.0 per capita in 2016. The fall in theamount of income tax in spite of the fact that the city increasedcorporate and individual rates to 5.25 % and 3.75 %, respectively in2015 (City of Champaign, 2016).

Table1: Three sources of revenue

Sources of revenue

Sales tax

Property tax

Income tax

Amount derived from the source

$ 37.30 million

$ 23.00 million

$ 8.02 million

Percentage of the total revenue

32.30 %

19.92 %

6.95 %

Source:City of Champaign (2016)

TopThree Expenditure Categories

Mostof the revenues generated by the city of Champaign are spent inmaintaining security, which is confirmed by the fact that expenditureon policing activities is allocated the largest amount. For example,the total police expenditure in 2016 was $ 23,907,779, whichrepresented a 3.81 % increase compared to the amount spent in 2015(City of Champaign, 2016). The amount allocated for policerepresented 19.65 % of the total expenditure. This category ofexpenditure was subdivided into several expenses, where theday-to-day operation was allocated largest amount ($ 10,988,913),followed by administration ($ 7,016,400), and investigation ($2,866,489) (City of Champaign, 2016). The purpose of allocated alarge amount in police expenditure was to enhance peace and order inthe city.

Fireexpenditure received the second largest financial allocation in 2016.Allocation for fire expenses amounted to $ 17,742,042, whichrepresented about 14.03 % of the total expenditure for the year (Cityof Champaign, 2016). Fire expenditures included suppression ($11,577,169), administration ($ 4,493,975), and building safety($971,203), among others. The purpose of allocating a lot ofresources was to protect property, life, and the environment. This isachieved through the delivery of professional services with integrityand compassion. The Department of fire expected to receive about $197,276 in donation, which could be the reason for a decline in theamount allocated in 2016 compared to 2015 (City of Champaign, 2016).

Thecity’s management allocated about $ 12,065,273 to public works,which represented about 9.92 % of the total expenditure. Most ofthese funds were spent on engineering services ($ 2,269,171), publicworks administration (2,041,836), street upgrade services ($1,228,018), among others (City of Champaign, 2016). The aim of makinghuge allocations to public works is to help the city maintain thebuildings, infrastructure, vehicular equipment, grounds, and deliverspecialized services. However, public work expenditures decreased by0.93 % in 2016 compared to the financial year 2015.

Table2: Top three expenditure categories

Police expenditure Fire expenditure Public works

Amount spent on the object

$ 23,907,779

17,065,273

$ 12,065,273

Percentage of the total expenditure

19.65 %

14.03 %

9.92 %

Source:City of Champaign (2016)

Solvencyof the City

ChampaignCity, similar to most of the public entities, applies an expansionaryapproach or policy when preparing its annual budget (Owio &ampEkong, 2016). This is confirmed by the existence of a budget deficitof ($ 121.67 million – $ 115.47 million) $ 6.2 million in the budgetprepared in 2016 (City of Champaign, 2016). The deficit wasattributed to a draw down that was done on fund balance, especiallyin the Capital Improvement Fund. It is estimated that the city drewdown about $ 5.3 million in the Capital Improvement Fund.

Conclusion

Budgetis a significant tool that helps public entities manage their sourcesof revenue and expenditure in each financial period. The governmentof the Champaign City used line-item and program formats to prepareits budget for the financial period 2016. The three key sources ofrevenue for the city include sales, property, and income tax. Itsmajor expenses include police, fire, and public works. The city’sadministration operated with a deficit of $ 6.2 million, which was anindication of an expansionary policy in planning for the entity’sfinances.

References

Cityof Champaign (2016). Embracinggrowth, preserving community: Fiscal year 2015/16 financial plan forcommunity services.Champaign: City of Champaign.

Lunenburg,C. (2010). Systems of budget administration. Focuson Colleges, Universities, and Schools,4, 1-8.

Owio,E. &amp Ekong, C. (2016). Budget deficit and economic growth inSierra Leone: An empirical re-examination. Journalof Business and Human Resources Management,2 (1), 1-17.

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