Where do we want to be?
Preparation of the annual budget typically occurs during the period February to June annually. Adoption of the budget must take place between 1 June and 31 August in line with the LGA requirements.
The budget needs to be accompanied by council’s revenue statement and allow time for completion of the ten year cash flow forecast and other information relating to funding and borrowing applications.
Key steps
Recommended resources
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Step 2.1 Confirm the budget framework and methodology
The time and effort required to prepare council's annual budget place considerable demands on elected members and council officers as they strive to meet legislative and administrative requirements. In response to these demands, Queensland councils have developed practical planning frameworks and methodologies to ensure their budgets are in place within prescribed timeframes and to high standards of accountability.
Refer in these Guidelines to Case Study 22 - Operational Plan and budget preparation - Gold Coast City Council (
PDF 66 kB) for an example of a typical budget planning and approval process.
Checklist 34 - Consider budget issues
The key elements to be considered by councils in preparation of their budgets are:
- Consistency with the Corporate and Operational Plans
- Revenue policy (including rating)
- Borrowing policy (including ten year cash flow forecast, grants)
- Budget methodology (roles and responsibilities, coordination, data collection, financial analysis, priority setting, committees and collective decision-making)
- Financial modelling (rates, fees and charges, payroll and human resources)
- Budget parameters (depreciation, funding, balanced budget)
- Corporate charges (overheads, on-costs, non-discretionary charges)
- Accounting structures (numbering, compatibility with the budget model)
- Secure access to the budget system
- Preparation of the revenue statement
- Structure of operational areas and assignment of responsibilities
- Capital works considerations versus operational matters
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Step 2.2 Prepare a budget checklist
Checklist 35 - Prepare budget checklists
The following checklists are provided to assist councils to deal with the numerous tasks associated with planning and preparation of budgets:
Pre-budget analysis typically includes:
- Incorporating responses to new and emerging issues into the budget
- Allowing for capital works projects and significant non-capital works projects
- Consulting as required and obtain approvals based on council’s priorities
- Clarifying funding arrangements
- Listing approved projects for inclusion in the budget
Budget tasks may involve council in the following:
- Appoint project sponsors and project managers as appropriate
- Establish a budget committee or budget team
- Schedule budget activities, deadlines and estimates procedures
- Establish a communication process
- Prepare and circulate the budget schedule and regular information updates
- Arrange budget input training
- Consult and obtain feedback on budget arrangements
- Ensure availability of key personnel and resources
Drafting budgets
Drafting a budget is an iterative process where each step informs the next, but at the same time raises questions that need to be re-examined and often re-worked. Council needs to take this into account in the budget schedule.
Post-budget
In line with the requirements of the LGA s524(1) council will need to arrange for sufficient copies of the budget to be made available for public inspection and/or purchase.
Checklist 36 - Complete post budget tasks
- Administratively, council will also need to follow through on the following:
- Update the ten year cash forecast
- Update business units ten year model where applicable
- Distribute budgets to elected members and responsible officers, and
- Email a copy of the budget to DLGPSR (required if seeking loans or if council holds operating leases, otherwise recommended as good practice).
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Step 2.3 Review service levels and performance targets
Before council prepares an Operational Plan and budget for the coming financial year, it is essential to review the service levels and performance targets in the Operational Plan. The revised Operational Plan will need to reflect any new initiatives, deletions and amendments to council's direction and activities arising from the annual review of the Corporate Plan.
Refer in these Guidelines to Stage 2, Step 2.3 - Assess council’s performance to ensure the Operational Plan reflects the decisions taken during the annual review of the Corporate Plan.
Checklist 37 - Review service levels and targets
On completion of this review, the Operational Plan will reflect council’s decisions on the following:
- New, expanded, reduced or obsolete services
- Revised maintenance standards
- New, amended or obsolete operating projects
- Adjustments to capital projects in response to infrastructure requirements
- New ideas and proposals, policies and plans, and
- Alignment of strategies and activities with outcomes from the Corporate Plan.
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Step 2.4 Review revenue policy
Step 2.4.1 Review legislative requirements
In order to improve accountability and transparency of revenue policy decisions, Queensland councils are required to prepare a Revenue Policy which is strategic in nature, and needs to be adopted in advance of the budget3. A council's revenue policy clearly sets out the principles to be used in setting its budget and the broad strategy it plans to use to raise revenue. These principles include those for setting rates and charges, such as the extent to which a user pays approach is adopted.
Section 12 of the LGFS requires that a local government’s revenue policy for the financial year must include details of the principles applied by it for the financial year for the following-
(a) making and levying rates and charges
(b) exercising its powers to grant rebates and concessions
(c) recovery of unpaid amounts of rates and charges
Section 519 (2) (a) of the LGA requires that each budget of a local government must be developed consistently with its corporate plan, operational plan and revenue policy.
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Step 2.4.2 Review the principles for the revenue policy
The revenue policy principles that have evolved over years of experience in Queensland local governments are presented as a checklist in the following summary:
Making of rates and charges
- User pays
- Simple and inexpensive to administer
- Equity and different levels of capacity to pay
- Flexibility to take account of changes in local economy
Levying of rates
- Clarifying council's and the ratepayers' responsibility to the system
- Simple and inexpensive to administer
- Financial cycle of local economic activity
- Equity with flexible arrangements for those with a lower capacity to pay
Recovery of rates and charges
- In exercising the recovery powers the aim is to reduce the overall rate burden on other ratepayers
- Transparency and making clear the obligations of ratepayers and the processes used by council to assist them meeting their obligations
- Making the processes clear, simple and cost effective
- Capacity to pay in determining arrangements for different sectors of the community
- Equity - having the same treatment for ratepayers with similar circumstances
- Flexibility - responding to changes in the local economy
Concessions for rates and charges
- Equity - having regard for differing levels of capacity to pay
- Transparency - making clear the requirements to receive concessions
- Flexibility to respond to local economic issues, and
- Consideration may be given by council to granting a concession to a class of landowner (New s 1035A of the LGA) without the need for an individual application.
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Step 2.4.3 Adopt the revenue policy
The revenue policy must be adopted, by resolution, in enough time before the start of the financial year to prepare a budget.
For examples of revenue policies from two Queensland councils, refer to Case Study 27 - Revenue policy - Booringa Shire Council ( PDF 262 kB) and Case Study 28 - Revenue policy - Mirani Shire Council. ( PDF 41 kB)
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Step 2.5 Prepare ten year cash flow forecast
Multi-year, long term forecasting enables councils to examine the likely scenarios affecting their future cash flow and use the available lead time to put plans and arrangements in place that will allow each council to carry out its functions in a financially responsible manner.
The Department4 requires all local governments to complete a standard ten year financial model as part of each council's borrowing applications5 . The Department assesses the cash forecast to determine whether the local government has the capacity to meet its intended loan servicing commitments and may seek further information to substantiate the credibility of the cash forecast or the local government's financial position.
For details of the pro-forma spreadsheet for the 2004/05 ten year cash flow forecast, refer to Template 11 - Model - Ten year cash flow forecast. ( PDF 36 kB)
The cash forecast is required to be signed by the Mayor and the Chief Executive Officer. In doing so, both must certify that the loans will be used for lawful, capital purposes and that a native title risk assessment has been conducted on any relevant land.
Other documents required include the adopted budget and borrowing policy for the current financial year, and un/audited financial statements or annual report for the previous year.
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Step 2.6 Prepare the revenue statement
A revenue statement is required to be adopted by council and accompany each budget of a local government - LGA s518 (1), s519 (d) - and must comply with the finance standard - LGA s520A.
Section 56 of the LGFS 2005 specifies that a revenue statement needs to contain details about revenue raising measures, rates and charges, rebates and concessions, charges for new development of infrastructure, variations on the operating capability of council and funding arrangements for depreciation and other non-cash expenses.
For examples of revenue statements that comply with the requirements of Section 56 of the LGFS, refer to Case Study 29 - Revenue statement - Booringa Shire Council ( PDF 50 kB) and Case Study 30 - Revenue statement - Caloundra City Council. ( PDF 395 kB)
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Footnotes
3 Refer to Local Government Bulletin 04/03 - Local Government Finance Amendment Standard (No. 1) 2003 ( PDF 126 kB)
4 Local Government, Planning, Sport and Recreation (DGLPSR)
5 Refer to Local Government Bulletin 06/04 - Local Government Borrowings for 2004/05 ( PDF 173 kB)
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