Revenues got you down? Start with your revenue policies.

• Author: James, Perry E.
• Position: Best Practices

We've all been there. That critical point in the budget process has finally arrived--the day the revenue forecasts are matched up against expenditure requests. "Ouch," we all say to ourselves, as our eyes quickly drop to that bottom line difference between the two. Revenues are not going to be sufficient to cover the proposed expenditures. Departmental budget requests have already been pared down significantly, leaving revenue adjustments as the only desirable action.

We know the drill. It's time to start asking those necessary revenue questions:

* Can we raise our revenue estimates some more?

* When did we last raise those inspection fees?

* Will the Board allow a tax increase?

* How much of our recreation budget should we be directly recovering from citizens? Have we adjusted that percentage in recent years?

* Can we find some new revenue sources to tap instead of proposing a tax increase?

* Are there services for which we might begin charging?

* How large an increase to general fees and charges will the public accept this year?

GFOA has addressed this very scenario in no less than three recent recommended practices: Setting of Government Charges and Fees (1996), Financial Forecasting in the Budget Preparation Process (1999), and Adoption of Financial Policies (2001). While each of these recommended practices addresses the revenue questions from a different perspective, they all share three common threads that are applicable to the situation described above:

* There are many different types of government revenues, each of which has unique characteristics that should be taken into consideration in forecasting and analysis.

* Governments should adopt revenue policies to set the rules for budget forecasts, and these policies need to be endorsed by the governing body.

* All revenues should be regularly reviewed and updated, based on the guidelines in the revenue policies and the unique nature of each revenue source.

This article demonstrates how one government has used this guidance to bring rigor to the revenue adjustment process.

FROM REACTIVE TO PROACTIVE

In developing revenue estimates for the fiscal 2003 and 2004 budgets, finance personnel at the City of Raleigh, North Carolina, worked with budget staff to change its reactionary approach to addressing revenue fluctuations. Consistent with the GFOA recommended practices, what developed was a revenue adjustment manual that established rational revenue adjustment processes based on the...