STATE BUDGET LAW REQUIREMENTS
While the general concept behind the budgetary process in a city or town is relatively simple, there are a number of requirements in Arizona State law which adds a certain amount of complexity to this process. To familiarize local officials with the State budget law, this chapter wfll cover the topics of funds, the State imposed expenditure limitation, alternatives to the State expenditure limitation, the property tax levy limitation and budget deadlines.
FUNDS
First of all, a city or town must have what is commonly called a "general fund." The term general fund is only a descriptive name, and there is no specific legal requirement to establish an account by this particular name.. A general fund is required by state statute, which stipulates that each city or town "prepare a full and complete statement of the financial affairs of such political subdivision for the preceding fiscal year and an estimate of the different amounts which will be required to meet the public expense of each such political subdivision for the current fiscal year.” 33
There are several national accounting standards which may be used as a guide to fund types you may wish to establish. For example, you may wish to establish a library or utility fund. If bonds are outstanding, certain funds may be required by the bond resolution, and there are also special requirements for improvement districts.
33 A,R.S.§ 42-17101
34 A.R.S.128-6533
35 General Counsel Opinion 4-20-1987
36 Article IX, Section 20, Arizona State Constitution
13
The State imposed limitation uses actual payments of local revenues for FY1979-80 as the base limit. TheEconomic Estimates Commission has determined this base limit for every city and town based oninformation supplied by each community in 1980. This base consists of those expenditures "controlled"
by the State limitation and does not include those revenues specifically exempted from the limitation. The UERS Manual clarifies that the expending of development/impact fees are not excludable expenditures and this will be enforced beginning FY 2000-2001.
- Revenues received from the issuance of bonds or other long-term obligations.
- Bond principaland interest payments are also exempt.
- Revenues received as payment of dividends or interest.
- Trust and agency accounts.
- Federal grants and aid of any type.
- Other grants, aid, contributions or gifts of any type.
- Amounts received from the State that is included under the State's own
appropriationslimitation. Unfortunately, this does not exclude revenues
received from regular State sharedsources, but it does exempt such things as
flood control money appropriated by the State anddistributed to a particular
city. It also exempts local transportation assistance funds (lotterymoney)
from the local expenditure limit.. - Interagency or interdepartmental transfers which are funded with monies
already subject to theexpenditure limit. This means that you won't have to
double count expenditures within thelimit. - Amounts or property accumulated for the purchase of land, buildings or
improvements or forconstructing buildings or improvements if the voters have
approved such accumulation andpurpose. This is a voter approved public works
reserve fund for limited purposes. - Amounts received from the highway user revenue fund over and above that
received in 1979-80. - Revenues received from another political subdivision pursuant to an
intergovernmental contractas long as the other entity includes the payments
under their expenditure limit, if applicable.Political subdivision as used
for this exemption includes a city or town, county, school district
orcommunity college district. Intergovernmental contracts with the State are
also exempt underthis provision. - Amounts expended for the construction, reconstruction, operation or
maintenance of a hospitalfinancially supported by a city or town prior to
January 1, 1980. - Amounts to pay off warrants issued prior to July 1, 1979.
- Refunds, reimbursements or other recoveries of amounts expended which were
already includedonce under the expenditure limit or otherwise excluded from
the limit.
In addition to the constitutionally specified exemptions from the
expenditure limit, involuntary tort judgments are not subject to the
expenditure limitation.38
37 Article IX, Section 20, subsection 3 D, Arizona State Constitutions
14
The Economic Estimates Commission (EEC) will determine each year just how much each city and townunder the State imposed limit can increase its budget for the next fiscal year. This determination will bemade on the basis of a standard increase in inflation and the population growth of your particular
community.39 The inflation increase is to be measured by an index called the GDP implicit price deflator which is a U.S. Department of Commerce statistic. Population figures to be used in the calculation will be supplied by the Arizona Department of Economic Security (DBS).
State law requires that the EEC provide each city and town with a preliminary estimated expenditure limit for the coming fiscal year by February i, and a final expenditure limit figure by April i. If the estimate received by February i is felt to be inaccurate for any reason, you may appeal to the EEC for an adjustment through a process detailed in Exhibit B in the appendix.
In addition, cities and towns should report all annexations to the Population Statistics Unit at the Department of Economic Security and your local council of governments (COG). The population in the annexed area will be considered when developing the population estimate which is used in determining the expenditure limitations by the EEC as well as for distribution of lottery funds.
Annexations occurring after the EEC determines your expenditure limit (on or before April 1) but before the beginning of the fiscal year can also be used to adjust your population estimate for that year if they are submitted in time for both DES and the EEC to act. The EEC requires that requests for such adjustments be provided to them at least three weeks prior to the adoption of that city's tentative budget. Also, prior to action by the EEC, DES must review the requested population increase. The necessary materials should be provided to DES with sufficient lead time for their review.
If, on the other hand, the estimated State imposed limit appears to be correct but does not allow for the expenditure of sufficient funds to meet local needs, the budget law provides four options to potentially solve this problem:
- A Local Home Rule (Alternative Expenditure) Limitation.40
- A Permanent Base Adjustment. 41
- A Capital Projects Accumulation Fund.42
- A One-time Override.43
All of these options require voter approval and, therefore, entail a certain amount of risk. If the voters say "no," then the city or town will be under or subject to the State imposed limitation. Procedures required to seek each of these options are detailed later in this chapter.
It is critical to note that a city or town cannot use its personnel, equipment, materials, buildings or other resources to influence the outcome of any election and city or town employees cannot use the authority of their position to influence the vote or political activities of a subordinate. 44
NEW CITY OR TOWN LIMITATION
The Economic Estimates Commission by law must determine the base limit of a newly incorporated city or town. This will be accomplished by calculating the average amount of actual FY1979-80 per capita payments of local revenues for all cities and towns within the county in which the new city or town is located. This average per capita figure will then be multiplied by the population of the new city or town resulting in the base limit for such community.45
39a.r.s.s, 41-563
40Article IX, Section 20, subsection 9, Arizona State Constitution
41Article IX, Section 20, subsection 6, Arizona State Constitution
42 Article IX, Section 20, subsection 3 d viii, Arizona State Constitution
43Article IX, Section 20, subsection 2, paragraph C, Arizona State Constitution
44 A.R.S. §41-500.14
45A.R.S. §41-563 A (6)
