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MEMORANDUMTO: Robert Reichardt, Ph.D.FROM:Inayet Hadi, Budget AnalystDATE:19 April 2007RE:GFOA Budget Rating for City of Arvada
 Introductory Section
I have evaluated the City of Arvada 2005-2006 Biennial Operating and CapitalBudget against the Distinguished Budget Presentation Awards Program (DBPAP) criteriaset forth by Government Finance Officers Association (GFOA). The budget is reviewedunder four major categories. The four major categories are, policy document, financial plan, operations guide, and the budget as a communication device. This memo will endwith a conclusion addressing how the budget serves as a tool to maintain and build publictrust.My overall impression of the budget compared to the criteria set forth by GFOAwas the City’s budget could have achieved a higher form of alignment with non-mandatory recommendations proposed by GFOA. For instance, the recommendation tohave a policy on asset inventory was not present in the City’s budget, insteadmanagement of fixed assets was regulated to a program to fix and maintain capital assets.This memo discusses mandatory criteria only as set forth by GFOA in the DBPAP. Non-mandatory criteria’s discussion was eliminated from this memo due to an e-mail receivedon 10 April 2007 instructing us to touch on each of the mandatory criteria.
 Policy Document 
1. GFOA’s Adoption of Financial Policies (2001) recommended three financial policies for states and local governments to be clarified in their budget. First, have a policy defining a balanced budget. The City’s budget uses internal and externalaccounting controls to ensure that the adopted budget approved by the Council remains balanced each quarter, or every three months (Budget, p. 14). Second, have a policy onlong-range planning. The City’s budget recognizes this as sound, and describes the process on how long-range planning is facilitated (Budget, p. 12). Finally, adopt a policyon asset inventory. In the current budget there is no asset inventory policy present, butresponsibility for fixed assets management is placed under the Finance Departmentauthority (Budget, p. 109). The financial policies are listed under the section FinancialOverview beginning on page 16 of the City’s budget. The lack of discussion of how long-range planning is conducted, what major policy changes occurred, or targets set as resultof the long-range planning is missing from the budget. This serves as a potentialweakness. Having met two recommended practices out of three is rated as proficient.1
 
4.The City Manager highlighted policy changes, the economy, administrativechallenges facing the City, and etc... in the transmittal letter (letter). The recommendedaction proposed by the City Manager are explained through out the budget, butsummarized in the letter. For instance, to contain the increasing salary and benefits costsof City employees, the letter maintains that offering competitive compensation packageswill retain employees thus keeping costs at a predictable rate. The letter also mentions programs or services to be eliminated or new programs or services to be added. Previousassumptions to the five-year model that were revised are mentioned in the letter. I think the strength of the letter is that at the end of the letter, the City Manager mentions threeissues that remain unresolved and discussed in the budget. The three issues are discussed briefly, and then requests guidance from the Council for further actions. Because theletter address important issues facing the City Council, I rate this section as outstanding.
 Financial Plan
2.The document provides an overview of revenues and expenditure sources(Budget, p. 25). The expenditures and revenues are presented in two formats, in a matrix,and in a single schedule (Budget, p. 27-29). The revenues are presented by major types,such as taxes, charges for services, intergovernmental revenues, etc… Each major typeof revenue is further sub-categorized, for example, taxes is sub-divided into property tax,auto use tax, building use tax, etc… (Budget, p. 30-1). Expenditures are represented byfunctional categories such as, professional services, debt services, capital improvement,etc… (Budget, p. 34). The strength of this section is that the description of major revenues and expenditures is easy to understand. This section also, receives anoutstanding score.3.The budget presents a matrix with prior, current, and the budget year on the sameschedule (Budget, p. 27). The information presented in the matrix is for the entity as awhole with each non-major funds included in the aggregate. Since this budget is a biennial budget the finances sources and expenditures for the prior, current, and both budget years are presented in two separate schedules, one for each revenues andexpenditures. Having met the requirements of DBPAP criteria, the score is outstanding.4.Individual revenue sources are described in the budget subtitled by major category (Budget, p. 30-33). The trend analysis method is used to estimate revenues based on budgets from previous years, and expected economy forecast. The revenues thatare described represent more then 75 percent of the total revenue of all appropriatedfunds. The underlying assumptions about future revenues are described in general termswith an emphasis towards stability in future revenue collections based on previous budgeted years (Budget, p. 271-2). The level of description of each revenue assumptiondoes not promote much faith, unless one has previous knowledge that the numbers usedare accurate, or the future revenues forecast will materialize. Because of the lack of trustin the projections based solely on the presentation of the budget, I rate this section as proficient.5.The budget provides a definition of a “fund balance” (Budget, p. 303). The fund balance is presented for both the budget years, including the schedule showing beginningfund balance, increase and decreases in total fund balance (Budget, p. 36). The fund balance is presented for each major fund and non-major fund separately. The budget2
 
describes the process to be used during each quarter to determine the consequences inincrease or decrease of revenue by a significant amount. If a fund shows increase thenthere is no change to the budget, but if the anticipated funds do not materialize then cutswill take place (Budget, p. 12). The change in fund equity is presented separately for bothyears. I rate this section as proficient, because I could not find in the budget a statement if there a particular line item that would increase or decrease by more then 10%.6.The Budget does not define capital expenditure. The budget does present in a piechart the total dollar amount of capital expenditure for the two budget years (Budget, p.18). Significant non-routine capital expenditure is described with the dollar amountsshown (Budget, p. 245). I rate this section as outstanding, for meeting the requirements of disclosing nonroutine expenditure items, even though capital expenditure is not defined.8.Legal debt is “not [to] exceed 3% of the assessed valuation of the taxable propertywithin the City as shown by the last preceding assessment” (Budget, p. 261). The City’s budget states explicitly that it does not have general debt outstanding, but does haverevenue bond outstanding. The revenue bonds that are outstanding are identified, anddescribed with the amount of interest rate charged, when the bond was issued, andexpected date of completion. The principal and interest payments are recorded under eachdebt service requirement (Budget, p. 262-4). A special section addressing long-term Citydebt, and brief information explaining City’s bonds promotes transparency. For beingtransparent about debt ensures an outstanding rating.
Operations Guide
1.Each department has their own departmental chart, and a description of thedepartment’s purpose presented along with their portion of the budget. This criterion israted as proficient because the actual description of the departments themselves is notdiscussed, except their stated purpose/mission statement along with extraneousinformation.3. The City’s organizational chart is presented at the beginning of the budget(Budget, p. iii). This chart deserves an outstanding rating, because at the top of thehierarchy are the Citizens of Arvada, then below them the City Council.4.A summary table of position is provided for the entire entity (Budget, p. 284-289).The table does not include the prior year, the current year, but only the budget year  position list is included. The weakness of this portion of the budget is that it does not provide a position list for previous budget years or future budgeted years. Having previous position lists in the budget allows the public to compare and contrast the proposed position list with previous position lists. For this reason, the budget’s presentation on position listing is rated as proficient.
Communications Device
3.Under the legal requirements heading, a process is described how the budget isdeveloped, reviewed, and adopted (Budget, p. 10). A budget calendar is provided thatencapsulates the budget processes (Budget, p. 14). How the budget can be modified isdescribed under the headings budget and accounting controls (Budget, p. 14-15). I ratethis section as proficient because the information presented on how a proposed budget3
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