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GFOA CRITERIA AND THE FY 2000-2001 LAS CRUCES CITY BUDGET

Introduction

The GFOA criteria system is considered to be the most accurate and comprehensive method of assessing the quality of any public budget as compiled by the budget officials assigned to that task. In the case of Las Cruces, the Budget Director and his team have compiled a 400 page document, based on political and financial decisions made by the Mayor, City Manager, and City Council, that would seem to meet many of the GFOA standards, but would fall short on some aspects of the desired criteria. This report will, first, present a brief profile of Las Cruces, then discuss each of the GFOA’s major evolution dimensions and will, lastly, provide insight into which areas seem to require attention in the LC budget and which already comply with GFOA criteria. This Report will conclude with concrete suggestions for improvement, using comparisons with other cities, and practical recommendations.

We need to keep in mind, however, that budgeting is frequently defined as a discipline essentially based on politics. Phrased differently, the bottom line of budgeting is invariably political in nature. There are a great number of constantly fluctuating factors involved in politics that are reflected in the complex budget process, several of which will be analyzed and discussed in this report primarily focusing on GFOA criteria in relation to the FY 2000-2001 Las Cruces City Budget.

Basic Demographics and General Description of Las Cruces

Las Cruces was established in 1894. As the city grew over the decades, its population rose to 75,000. It now represents the second largest city in the State of New Mexico. Las Cruces, the county seat of Dona Ana County, is located in the fertile Mesilla Valley between the picturesque Organ Mountains and the famous Rio Grande. The location of Las Cruces lies well south of Albuquerque. Farther south and east is El Paso, Texas. Deming is located west of Las Cruces and is the county seat of Luna Country.

The population base of Las Cruces is quite diverse and is comprised of various races and ethnic groups, such as, in descending order of size, Hispanic-American, Anglo-American, and Native-American. Briefly speaking, the economy of Las Cruces is principally based on agriculture and on emerging technologies mainly associated with New Mexico State University, where some of the nation’s most prominent agronomists, engineers, and computer science specialists are employed. Las Cruces is also home to many cultural attractions, including highly appreciated art galleries, museums, performing arts centers, and theaters. Finally, more than 1,100 employees work for the City of Las Cruces and are directly included in and affected by Budget information to be presented in this Report (Ericson, 2000, Schobey, 2000).

Description of GFOA Criteria

In order to ensure excellence in the preparation and presentation of Public Budget documents nationwide, a privately organized organization based in Chicago, Illinois offers a prestigious award to Budget and Finance Officers who produce high-quality budgets meeting strict criteria. Awards are based on adherence to mandatory criteria that fall into four major categories described fairly poorly and all too concisely by our text author (Lynch, 1995), but quite clearly and professionally by the GFOA itself in a general statement and in its evaluation sheet entitled “Detailed Criteria Location Guide? essentially a quality assessment scorecard.

Firstly, the GFOA sees the ideal budget as a document reflecting policies of the organization that created it. In many ways, this is a very basic concept that every Thai schoolboy learns at the age of six when he must decide to spend his Twenty-Five Baht on either candy or a John Wayne Western. However, the policy of a city government, for example, must be far more consistent than the schoolboy’s; it should extend over several years so that confusion in planning and projection is avoided. There can be short-term goals, but they should fit into a larger plan of development based on community needs. These needs are articulated in a Budget Message segment, an important statement that the GFOA reviews carefully to ensure that it is consistent with the rest of the document.

Secondly, and logically enough, the GFOA insists that the budget “include all funds that are subject to appropriation.?lt;span style="mso-spacerun: yes"> This guarantees that the document explains where funding is derived (sources of revenue) and where it is spent (expenditures). The GFOA prefers that the budget director prepare these figures in several graphic, narrative and numerical ways so that the reader can visualize the total financial picture more easily. Comparison of three annual budgets is a useful device and also sheds light on trends. Other criteria must be included, e.g. capital expenditures, debt figures, and the basis for spending so that accounting will be made easier in related documents.

Thirdly, the Budget should reflect a clear-cut organizational plan so that it serves as an “Operations Guide.?lt;span style="mso-spacerun: yes"> There must be a clear explanation of functional units within the organization as they relate to monies expended. Somewhere in the Budget, at least, funding levels and outlays should be described as a function of time. Any changes in major structural elements underlying the budget should also be mentioned to comply with GFOA criteria in this section of their guidelines.

Lastly, the budget should serve, according to the GFOA, as a communications device or platform. The format of an excellent budget, capable of winning the GFOA’s award, should be designed to inform the public visually, graphically, numerically and descriptively of budget priorities and objectives. Because staffing of a city, for example, always entails large numbers of employed personnel, full time equivalents (FTE) should be displayed. The same principle should apply to other categories of expenditures, such as numbers of fire engines purchased, and so forth. The GFOA likes to call this segment of their criteria the “Popular Budget? because of its immediate public appeal, as opposed to hundreds of pages of dry figures that can be interpreted only by CPAs and MPAs.

Now, it is important to turn to the Las Cruces City Budget, the document under assessment in this analysis, and determine to what extent it meets these well-defined and carefully circumscribed criteria. The critical question to be answered is: To what extent did Las Cruces in its FY 2000-2001 Budget adhere to GFOA guidelines and is this document worthy of praise by the GFOA?

The Fiscal 2000-2001 Las Cruces City Budget as a Policy Document

The first major GFOA dimension focuses primarily on policy aspects of the budget and how clearly they are expressed, for purposes of our analysis, in the Las Cruces City Budget. The FY 2000 ?001 Las Cruces Budget, approved last year by the Mayor and City Council, includes a brief Budget Message, as part of the Summary Section, and presents general descriptive information, written in elementary style, under a variety of secondary headings. In spite of its relative brevity, the Message and Summary do, however, contain helpful sub-headings and do highlight the purposes and emphases of each line-item allocation.

In fact, an informative segment outlining the content to follow heads each subdivision in the Budget Message. Often, however, there is no unified statement of policy within the Message, since this is presented in a section to follow. Under these circumstances, since even the succeeding section seems rather thin in its overview of long term policies, the public cannot determine, except through rough analysis of amounts allocated later in the document, the driving policies and guiding philosophies behind the budget. What policies are mentioned are usually briefly described, are sometimes displayed graphically, and inevitably look back retrospectively over several years, rather than forward as a projection. These policy-revealing figures and explanatory comments are included in the Appendices of the Budget.

Short-term policies, another GFOA criterion, are presented in the introductory section of each major budget heading. These polices take the form of explanatory notes that imply policy directions and priorities. The policies are, or at least were during the last Fiscal Year, operational in the sense that they constitute actual budgetary amounts allocated for various purposes and have been implemented or “operationalized?within normal functioning parameters of the City.

Throughout the Budget, the balance of qualitative and quantitative material seems to meet GFOA standards in the sense that priorities are described both in prose and in figures, forming a unified impression of direction and purpose, in spite of the normal budget priority struggles which must occur within the City Council. No direct reflection of these policy struggles seems to surface in the text of the Budget itself, except perhaps upon careful analysis of amounts allocated for various departments and programs.

Lastly, there does not seem to be a distinct recognition in this budget of how it has changed, in terms of policy, from year to year. Indeed, due to on-going electoral politics in Las Cruces, overall unity might have been adversely affected if a multi-year approach had been included in this single FY Budget running from July 1, 2000 to June 30, 2001. It is likely that more political debate would have occurred if the budget had extended over several years, involving funds that had to be committed for longer periods.

The Las Cruces Budget as a Financial Plan

The FY 2000 ?2001 Las Cruces Budget document, upon review, seems to describe all of the funds available to the city for allocation and appropriation. There is, in fact, an overview of the general fund derived from tax revenues, license fees, and service charges, among other sources of income. This is clearly and concisely presented with a graphic insert enabling the public to see at a glance the source of the revenue which constitutes approximately 70% of the entire budget (Casillas, 2000).

The City Budget seems to meet mandatory financial-data criteria in the GFOA’s Guide for a one-year period, but not for three years as suggested. These three-year figures may be elsewhere in the document; but they are not conveniently visible to the general reader. Of course, this is not a biennial or a triennial budget and so one might not expect them to be presented. There are, however, ‘project summaries?that run over a five-year period for City projects funded by revenue bonds. Fortunately, the Las Cruces Budget offers a descriptive section explaining the nature of revenue sources and the basis or assumptions on which they are predicated. There are projections and trends offered in textual format, rather than in figures, but this would seem to meet GFOA criteria.

There is no running budget section for expenditures, but there are a number of departments that report periodically on progress being made; in their reports they project anticipated withdrawals against all allocations. In this sense, the GFOA’s criteria may not be met specifically, but the budget analyst is able to see the rate at which funds are disbursed for each program. Perhaps surprisingly for a relatively small city such as Las Cruces, the narrative description provided is helpful and insightful. It also reveals the reasoning behind each appropriation.

There are, in fact, capital expenditures itemized on pages 37 and following; these are presented in prose format with Item Reference Numbers for cross-verification.

The Las Cruces Budget as an Operations Guide

Award-winning budgets must be presented in such a manner as to display distinct organizational units. Their cost-categories should not be unclearly described or uncertain in their divisional segmentation. In other words, functional units must serve a definable purpose and be visibly linked to specific costs. There should be a prominently positioned listing or itemization of departments and their personnel. Under appropriate headings, programs should be clearly defined in terms of their overall purpose and impact on the budget. In fact, GFOA criteria call for structural details for all functional units. Keeping these concepts in mind, it is important to examine the Las Cruces City Budget as an “operations?document.

Fortunately, program goals and resources are clearly delineated, as on page 327, for example, with objectives and operational parameters presented in crisp, focused narrative and figures. Summary analyses or overviews are also provided, placing into proper perspective the larger units into which such programs are nested.

It is commendable that the Las Cruces Budget Director has stated his municipal government’s mission in introductory passages and the city’s budget philosophy information is located prominently within the first 20 pages of the more than 350 comprising the whole budget document.

It is a bit more difficult, however, to locate performance indicators, reflecting “productivity per employee?expectations. Nonetheless, there is a section in the Las Cruces City Budget that attempts to quantify this factor. The section in question is entitled “Performance Based Budget? It is the final section of the document, and points to outputs, as opposed to, or as matched against, monetary inputs. Not only are expenditures on specific programs tracked, but, also, performance indicators and standards or workloads are calculated in accordance with a formula, as stated on page 244. The Police Performance Budget is one of the more detailed and professionally prepared of all departments, in my opinion (see pp 348 ?49).

The Appendices contain graph-type material meeting or exceeding the GFOA’s criteria and, taken together, adequately portray the city’s organizational patterns and sub-component functional units. A master foldout chart seems to be lacking.

Personnel charts and graphs in the Las Cruces City Budget are available on a functional unit basis within the document, thus meeting GFOA requirements in this respect. This information is neatly presented under “Employee Summaries? An attractive bar graph displays progressive employee information from 1996 to 2001, exceeding the GFOA’s 3-year expectation in this report. Specific salaries are noted on highly detailed graphic inserts under this heading. Anticipated charts are mentioned in narration, but have not been presented graphically, at least not upon rapid inspection of the Budget.

In summation, all GFOA criteria under this heading appear to have attained at least a “proficient?rating, if not always “outstanding? in my estimation. An exception may be the absence of an overall organizational chart. However, closer inspection of the Las Cruces City Budget, by professional analysts, may indicate certain shortcomings.

The Las Cruces Budget as a Communications Device

The final basis used by the GFOA for assessment and evaluation of the overall quality of a Budget document is related to its usefulness as a means for Communicating to the public, as well as to internal departments within the City. In the case of the Las Cruces City Budget, the commendably detailed nature of the narrated segments, as well as the graphic inserts and aids, is a definite asset in promoting the communications role of the Budget.

However, closer examination of the GFOA criteria under this heading reveals, for example, that there is no clearly marked Executive Summary, although one is called for by the GFOA. There are summaries clearly denoting sub-sections, but the overview seems weak to me as a communications device. The complexity of the Las Cruces Budget tends to shift attention away from clarity and conciseness.

The philosophy and development sections seem inadequate by GFOA standards and on-going budget process analysis statements, as called for under the criteria, are available, but perhaps less structured than called for. A glossary (a list of terms), although brief, is appended for the reader’s convenience. There is a well-developed, long-term planning section. Additionally, there is an elaborate Table of Contents, of course, which is a mandatory requirement of the communications segment.

The graphic layout, binding, subject tabs, artistic design and other external features of the Las Cruces are of commendable quality and promote the City’s image in a favorable light. But other aspects, as noted on the accompanying GFOA criteria assessment sheet might be judged inadequate in my estimation.

Improvements Possible in the Las Cruces Budget

At first glance, the Las Cruces Budget is an attractive document. It is divided professionally into plainly labeled sections and displays data in formats that are easily interpreted by the lay public. However, it seems to be lacking in an integrated approach. Aronson et al., (1996, 135) point out that interprogram efficiency is a desirable characteristic that should be incorporated into every budget. While the Las Cruces Budget Director’s intra-program descriptions are adequate, there should be a more fully integrated overview of how separate programs interact, how they avoid duplication of service and how they achieve cost economies by maintaining what Aronson et al. (1996) call inter-program efficiency. The net benefits that reach the public should be more carefully delineated with a breakdown of programs and a graphic layout showing interrelatedness of programs. This would also meet GFOA criteria, particularly under the “Budget as an Operations Guide?heading.

The second improvement that could be built into the Las Cruces Budget document involves the important category of Performance and Productivity. The Las Cruces Budget Director only spends two and a haft pages (243-245) describing and validating this concept under his heading “Performance Based Budget? Without an adequate explanation of what productivity expectations are required for employees, the Las Cruces Budget looks like a document that basically takes residents?taxes and spends them, in a careless fashion, on a variety of “pretty sounding? programs. The people need to know what concrete results are being achieved with their hard-earned dollars. The Budget Director claims that his budget is a “line item budget combined with a performance based budget? but close examination indicates that specific expectations and productivity quotients are lacking. The GFOA evaluators will surely notice this, and such a deficiency in my estimation could cause Las Cruces to forfeit the Award.

These are the two primary areas, in my opinion, that require strengthening in the Las Cruces City Budget, although other less glaring deficiencies could doubtless be found.

Comparative Analysis: Phoenix and Las Cruces

Firstly, the Phoenix Budget is much larger in magnitude than the Las Cruces City Budget. Its capital improvement program for the five year 2001?005 period will exceed 3.4 Billion Dollars, whereas the Las Cruces Capital Improvement Budget for the same period is projected, according to page 228 of the document under study that reflects a one year figure of 12 million dollars, to be on the order of only 60 Million Dollars, assuming political and other considerations hold constant Realistically, flux will occur during this timeframe. (http://www.ci.phoenix.az.us/BUDGET/budhig00.html).

Secondly, the essential needs of a city the size of Phoenix are very different than those of Las Cruces. These differences are apparent in the types of programs that Phoenix has, in comparison to the far smaller and more restricted programs being funded in Las Cruces.

To illustrate this point, the Phoenix Sky Harbor International Airport is a massive facility, funded by the City, in contrast to Las Cruces, which apparently has no allocation at all for its small airport except a small matching fund for federal and state funding (p 37).

The City of Phoenix is on a modified zero-based budget system. This implies that only basic survival budgets for City Departments are submitted in the form of initial estimates in order to maintain current service levels during the Budget Year (http://www.ci.phoenix.az.us/BUDGET/budpro00.html). This differs from the formal definition of a zero-based budget according to which no reference is made to past expenses (Lynch, 1995). The Las Cruces City Budget seems to rely on a process similar to that of Phoenix, since its budget requests are predicated on the previous year’s spending levels, modified only by special needs or approved requests for increases.

Suggestions and Recommendations

When examining the LC FY 2000-2001 Budget, it appears even to the casual observer that the document is graphically attractive with bar and pie charts, tables and other visual aids. For this reason, the clarity with which it presents the various topics and data categories is commendable. In fact, last year, the LC Budget met or exceeded all GFOA criteria and actually won the Award for FY1999. This fact is noted in the beginning pages of the document and would seem to indicate that this year’s budget, similar in all respects, should also earn the Award. However, I feel that there may be some deficiencies in FY 2000-2001’s presentation, as pointed out in the text above and in the recommendations below, that require improvement.

Speaking briefly in favor of this year’s Budget, I recognize that the narrated portions are extremely helpful for the average reader. The prose is well written and is insightful in its summarization. It points out with clarity the main features of each budget category. So it is fair to state that, in many respects, GFOA criteria are met, and in some cases exceeded; however, there are several recommendations and suggestions that should be made in each of the major GFOA criteria sections.

à When examining this Budget as a Policy Document, it appears to me that it is only of medium quality because of certain short descriptive segments justifying or explaining important policies. As a formal recommendation I would reinforce the descriptive text accompanying each narrative section, perhaps expanding it by at least 20%.

à Can we state that this Budget is a good Financial Plan? Yes, because it portrays budget allocations clearly and in a well-organized manner. There would be no major recommendations necessary in this section. Even the GFOA evaluators from last year commended the LC Budget Director on the accuracy of his Financial sections.

à Next, we need to inquire, “Is this Budget a good Operations Guide??lt;span style="mso-spacerun: yes"> I feel there could be some improvements in this area, bringing the document up to GFOA standards. As a brief illustration of weaknesses under this heading, I feel that, although there are good narrative sequences in this Budget, they are not always described as organizational units, in the GFOA sense of the term. There are relatively few details under the Police Department for example, that explain, in depth, the organizational structure of their operations and even less in terms of actual performance achieved per dollar, a figure that would be helpful when portraying Operations (p 350).

à Lastly, under the Communications Device segment of GFOA criteria, we must acknowledge that this Budget does impact the City effectively, but that certain sub-titles could be improved, especially the Community Services and Facilities Division where information is not summarized in sufficient detail and where the overview is not as complete as it might be.

Brief Concluding Statement

The FY 2000-2001 Las Cruces City Budget is a detailed document professionally prepared by the Budget Director and his competent Staff. The suggestions and recommendations made above are meant only as broad guidelines for possible improvement of this 400 page document. Obviously, the Budget Department has done an admirable job in collecting data, conferring with City Departments, interacting with the City Council, and in compiling the final document. The Las Cruces City Budget is a truly professional and attractive volume. It meets most of the GFOA criteria and should be the recipient of a National Award in spite of the suggestions and recommendations presented in this report.

References

Aronson, J., and Schwartz, E., Management Policies in Local Government Finance, Fourth Edition, International City / Council Management Association, Washington, D.C., 1996.

Casillas. D. et al. City of Las Cruces Fiscal Year 2000/2001 Budget, Las Cruces, NM, 2000.

Ericson, J, “City of Las Cruces? Las Cruces, NM, 2000. http://www.las-cruces.org/main/welcome.htm

Fairbanks, F. Highlights of the 1999-2004 Capital Improvement Program, Phoenix, AZ, 2001.http://www.ci.phoenix.az.us/BUDGET/budhig00.html

Lynch, D., Public Budgeting in America, Fourth Edition, Prentice Hall, Inc., Upper Saddle River, New Jersey, 1995.