Page 55 - Southlake FY23 Budget

BUDGET OvERvIEw

GUIDE TO THE BUDGET DOCUmEnT

BASiS oF Budgeting

The City of Southlake’s basis of budgeting for its major fund groups (General Fund, Utility Fund, Storm Water
Utility Fund, Southlake Parks Development Corporation Fund, Crime Control & Prevention District Fund and
Tax Increment Finance District Fund) and for all Special Revenue Funds is modified accrual, per the Generally
Accepted Accounting Principles (GAAP).

Revenues are budgeted according to when they are both measurable and available. Revenues are considered
to be available when they are collected within the current period, or soon enough thereafter to pay liabilities of
the current period. The City considers property taxes, franchise taxes, licenses, and interest associated with the
current fiscal period susceptible to accrual if they are collected within 60 days of the end of the current fiscal
period. Only the portion of special assessments receivable due within the current fiscal period is considered
to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be
measurable and available only when cash is received.

Expenditures are budgeted according to when the liability is incurred, regardless of the timing of related cash
flow. The exceptions are debt service, compensated absences, claims and judgments, which are budgeted as
expenditures according to when the payments are due. The City’s basis of budgeting is the same as the basis of
accounting, as reflected in the City’s Comprehensive Annual Financial Report.

Fund Accounting

Funds are unique to governmental type agencies. In the corporate world, “Funds” do not exist. The company
receives revenues and writes checks to pay for its expenses and reports them for the company as a whole.
Governments handle this process differently.

The City of Southlake has 55 funds with specific purposes which are defined by federal, state, or local laws. They
include the General Fund which is used for general City operations, the Utility Fund which is used to support the
City’s water, sewer, drainage, and solid waste service, and a multitude of Special Revenue, Debt Service Funds,
and Capital Project Funds. Simply stated, funds are set up like separate companies which must operate under
specific parameters.

For example, the City receives $0.02 of sales tax for every dollar spent in our city limits. One of those pennies
goes to the General Fund and can be spent on general operating costs, like supplies, salaries, and general
maintenance. The other penny is split between our Crime Control and Prevention District, the Community
Enhancement and Development Corporation, and the Southlake Parks Development Corporation. These three
units of the City of Southlake were voted on by the residents, but state law determines how that money is spent.
The City can only use it for the purposes outlined in the original referendum presented to the voters, so the
separate funds were set up to account for the revenues and expenditures of each unit.

In another example, the City receives proceeds from bonds issued for various projects. The Official Statement for
a bond issue outlines how much money the City will receive, how that money will be repaid, and how the money
can be spent. This document is legally binding on City officials and is enforced by federal, state, and local laws. If
the Official Statement says we received $12,000,000 for roadway improvements, City Council and management
may not opt to spend it on equipment or supplies. The money is recorded in a Capital Project Fund for roadway
improvements and can only be spent on roadway improvements.

Although these examples are for three very specific funds, the same concept of expense restrictions applies to all
55 funds. As a result, reporting revenues and expenses for the City of Southlake includes 55 miniature financial
statements in addition to a Citywide financial statement. It may appear that money is available to spend when in
fact the majority of the money is restricted by law.

54 FY 2023 City of Southlake | BUDGET BOOK
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