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Rules for Missouri Fourth-Class Cities
XII. Budgets and the Budget Process
Parenthetical numbers in the text refer to sections of the current Revised Statutes of Missouri, abbreviated as RSMo.
Not a single cent of public money can be spent until a budget has been formally adopted following procedures set out in the statutes (67.010). While there are no budget police or squads of inspectors general making sure that everyone complies, that doesn't mean this requirement cannot be enforced. City funds are public money.
John Ballard recounts that some years ago, a small city had no city budget and one cantankerous citizen. The citizen filed suit. The court only had to glance at the law before freezing all of the city's income and outgo. The city couldn't pay city employees or its bills — everything was put on hold. The city quickly scratched down some figures and gave them to the judge. He was not impressed. Step by step, the city had to go through the statutory procedures. Remember, almost every entity (even a city) has a cantankerous citizen.
The budget officer
Every political subdivision must designate someone as budget officer (67.020) who prepares a proposed budget for the board. This may be the clerk. Everyone connected with the city must provide the budget officer with any requested facts or figures. The budget officer prepares a draft and then gives it to the board. The board may, as often as is necessary, give it back for revisions before adopting it (67.030).
At a minimum, the budget must have:
- A budget message that clarifies changes from the prior budget
- Estimates of revenue for the coming year, the current year and the prior year
- Estimates of spending for the coming year, the current year and the prior year
- Listing of note payments due the coming year and report of balances remaining;
- A summary. The budget must balance (67.010)
Notice that much of the budget is the budget officer's educated guess. Future revenue is not known and even the current year total is not complete. The last solid figures come from two years ago. The same for spending. The current year is unfinished and the next year is an educated guess. Because of this, budgets are subject to revision as the budget year progresses. Neither budget officer nor board can anticipate everything that will happen 13 or 14 months in the future.
The budget hammer rule
"No expenditure of public moneys shall be made unless it's authorized as provided herein" (67.080). Statutes are very clear on this point.
Unless there has been a formal resolution to adopt, accepted by a majority board vote, no funds can be spent.
Any increase in spending above what has been budgeted during the course of the year must be approved by board resolution (67.040). The resolution must, statutes say "set... forth the facts and reasons making the increase necessary..." Internal transfers may be made from one fund to another, so long as they do not put the budget out of balance. Total spending can be no more than revenues received, plus any balance on hand at the year's beginning.
Retention of paper
Documents related to the budget must be kept on file for three years. These are public records, open to being viewed on request by anyone during reasonable hours (67.060).
The budget law doesn't specify the city's fiscal year. The fiscal year, by board decision, can begin any month. When to begin and end the city fiscal year is a matter the board should consider in terms of cash flow and report needs.
Failure to adopt
Should the board fail to adopt a budget by the start of the city fiscal year, the last-adopted budget remains in effect until the new budget is adopted. This means that any spending cannot exceed that in the last budget (67.070).
The board cannot financially obligate its successors in office. Any purchase that costs more than the year's anticipated revenue plus balances on hand requires voter approval of a bond issue. Bonds require an exceptional majority, usually two-thirds, and become a lien against all taxable property in the city.
Many public entities dodge the bond issue requirements through lease-purchase. In doing this, the agreement must be "subject to future appropriations" and can be cancelled by a new board when elected, even if board membership doesn't change. This puts the vendor at additional risk, which is usually factored into the price quoted. Use this approach with caution.
State auditor concerns
The Missouri state auditor performs audits on public entities when a sufficient number of taxpayers have signed a petition requesting such an audit. For more information on petition audits see: http://www.auditor.mo.gov/local/petition.htm. The state auditor issues several petition audits every year. It's good to review past audit reports, which are available at the state auditor's website (http://www.auditor.mo.gov/). The state auditor recommends you establish certain policies and good auditing practices, which you will not find in any Missouri statute.
For example, the state auditor believes public entities should always have a current inventory of all their equipment and other property. That makes sense. It's suggested that you inventory all the equipment owned by the city, including not just vehicles and large equipment, but also computers, chairs, file cabinets, etc. Label each one and keep a list in a computer file or other file so you always know what you have.
In its reports, the state auditor has chastised local jurisdictions for not having a travel reimbursement policy, not bidding health insurance (if offered) every three years (as required by law), not having a vehicle use policy, credit card use policy, or a cell phone use policy, etc. It has criticized local jurisdictions that do not keep close records on maintenance for trucks and other vehicles.
You might ask your city clerk to download some of these reports as a way of educating the aldermen and city employees to learn sound financial management. Local governments have suffered losses (including by embezzlement) when basic accounting practices are not followed, or when there is little, or no, segregation of duties.
Fourth-class City Real Estate and Equipment Inventory Record (PDF)
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