Common Questions about Local Budget Law
Links to more detailed information
Where can I get training on Local Budget Law?
Every year the Department of Revenue Finance and Taxation team presents seminars designed for budget officers, budget committee members, and governing body members. The seminars are usually free, day-long, and presented in about a dozen locations around the state in February and March. Check our website for an announcement in January.
Where can I direct my questions regarding Local Budget Law?
Contact one of the Finance and Taxation Analysts at:
Oregon Department of Revenue
Finance and Taxation
PO Box 14380
Salem OR 97309-5075
For alternative formats, in compliance with the Americans with Disabilities Act (ADA), telephone 503-378-4988 or 1-800-356-4222.
Introduction to Local Budget Law
What is Local Budget Law?
Oregon's Local Budget Law is a series of statutes (ORS 294.305 to 294.565) that require local governments to prepare and adopt annual or biennial budgets following a very specific process. Local Budget Law does several things:
Are all local governments subject to Local Budget Law?
- It sets standard procedures for preparing, presenting, and using budgets for most of Oregon's local governments.
- It encourages citizen involvement in the preparation of the budget before it's formally adopted.
- It gives a method for estimating expenses, resources, and proposed taxes.
- It provides a way of outlining the programs and services provided by a local government, and the fiscal policy used to carry them out.
No. Local governments include the following types of jurisdictions. The asterisks mark those that may not under certain conditions be required to follow the Local Budget Law process. For more information, see ORS 294.316.
What is the Local Budget Law process?
- School districts, education service districts, and community colleges.
- Special districts:
- County service
- Diking and drainage*
- Emergency communications
- Highway lighting
- Mass transit
- Park and recreation
- Rural fire protection
- Soil and water conservation*
- Vector control
- Intergovernmental entities (councils of governments) formed by inter-governmental agreement under ORS 190.010*.
- Urban renewal agencies.
Local budget law requires certain, specific actions as a local government prepares its budget.
What is a budget?
- The budget officer prepares a proposed budget.
- The governing body appoints voters to the budget committee.
- The budget officer publishes notices of the budget committee's first meeting.
- The budget committee reviews the proposed budget, considers comments from the public, sets fiscal policy, and then approves the budget and tax levies.
- The budget officer publishes notice of the budget hearing, including a summary of the budget approved by the budget committee.
- The governing body holds a hearing on the approved budget.
- The governing body modifies the budget as it feels necessary, adopts the budget, makes appropriations and imposes and categorizes property taxes.
- The governing body certifies the property taxes to the county assessor.
- During the fiscal year, when the local government is operating under the adopted budget, the governing body may change the adopted budget. Changes are necessary before additional money is spent or money is spent for a different purpose than as appropriated.
A budget is a financial plan containing estimates of revenues and expenditures for one fiscal year or biennium.
When does a fiscal year or biennium start and end?
A fiscal year begins on July 1 and ends on the following June 30. Local governments may also choose to budget on a biennial basis. A biennium is a 24-month period beginning on July 1 of one calendar year and ending on June 30 of the second calendar year following. See the Local Budgeting Manual for more information about biennial budgeting.
The budget officer
Who can serve as the budget officer?
Each local government that is subject to Local Budget Law must have someone designated as its budget officer. The budget officer may be appointed by the governing body or designated by charter or ordinances. An employee or officer of the local government may serve, or the governing body may appoint someone not otherwise affiliated with the local government. The budget officer does not have to live within the boundaries of the local government, unless required by the local government's charter. The budget officer can't serve simultaneously as an appointive member of the budget committee.
What are the responsibilities of the budget officer?
The budget officer must present a balanced budget to the budget committee. The estimates of resources and expenditures must be made in "good faith." The budget officer is responsible for timely publishing of all notices required by Local Budget Law. Most budget officers are also responsible for monitoring budget expenditures during the budget year and arranging for the governing body to make any budget changes required after adoption. The budget officer is under the supervision of the executive officer or the governing body of the local government.
What is a budget fund?
A budget fund is a fiscal and accounting entity used to record financial resources and an equal amount of expenditures and other requirements related to specific activities or objectives.
What is a general fund?
A general fund contains the estimates of the revenues and expenditures needed to run the daily operations of the local government such as wages, supplies, rent, and utilities.
What is a special revenue fund?
A special revenue fund accounts for money that must be used for a specific purpose. You must set up a special revenue fund when required by law, or by other agreement. If you receive a special purpose grant or impose a special purpose local option tax, you probably need a special revenue fund.
What is a capital project fund?
A capital project fund records expenditures to build or acquire capital facilities, such as land or buildings. It is a type of special revenue fund. A capital project fund is needed only while a project is under way. Once the building is built or the land or other asset acquired, the fund is closed. The money for this type of fund usually comes from the sale of general obligation bonds, a special local option tax, or a grant.
What is a debt service fund?
A debt service fund most often records the repayment of bonds. In the case of some general obligation bonds, the money for the fund can come from a special property tax levy. The expenditures in the fund pay the bond principal and interest payments. Taxes dedicated to repay bonds cannot be used for any other purpose. You must set up a debt service fund if you levy property taxes that are outside your permanent rate limit to pay the principal and interest on general obligation bonded debt.
What is a trust and agency fund?
A trust and agency fund accounts for money for a specific purpose that you hold in trust for someone else. For example, bequests or donations may be given to you with the provision that the interest income be used to aid the library, cemetery, or park system. You would budget the principal and the interest it earns in a trust and agency fund.
What is a reserve fund?
A reserve fund accumulates money to pay for any service, property, or equipment that your local government can legally perform or acquire. It functions as a savings account. A resolution or ordinance of the governing body is needed to set up a reserve fund. The reserve fund must have a specific purpose, such as the purchase and repair of road maintenance equipment. Once money is placed in a reserve fund, it can only be spent for the specific purpose of the fund. Purchases are made directly out of the reserve fund. At least every 10 years, the governing body must review the fund and declare whether or not the fund is still needed.
What is an enterprise fund?
An enterprise fund records the resources and expenses of acquiring, operating, and maintaining a self-supporting facility or service, such as a parking garage or swimming pool. A separate enterprise fund allows you to compare the revenue from the fees to the cost of operating the facility.
What is a contingency fund?
This is a trick question. There is no such thing as a contingency fund. You may budget an operating contingency line item within any operating fund. But you cannot have a stand-alone fund for contingencies.
Preparing the proposed budget
Are there forms for preparing a budget?
The estimates of resources and expenditures for the coming year are recorded on forms called budget detail sheets. There are different forms for the different types of funds. You can download the forms from our website or call 503-945-8293 to order paper copies of the forms. These detail sheets meet all the requirements of the law. Many budget officers prefer to create their own budget detail sheets in a spreadsheet or accounting program. If you decide to do this, follow the formats we provide to ensure that your budget complies with statutory requirements.
School districts use a budget detail format required by the Department of Education. This format contains the same elements as the detail sheets for other local governments, but the columns are arranged in a different order.
Why must a budget show amounts for multiple years?
The law requires that the budget show a short history of each fund for a basis of comparison. The detail sheets have columns where the actual resources and expenditures for the prior two years are shown. There is a column that shows the current year's budget. There are three columns for the budget for the coming year, as it goes through the process of being proposed, approved and adopted.
Where do I find the actual data?
The figures for the two "actual" columns come from your "in-lieu of audit" report, audit review, or audit report. See ORS 297.435 to determine which type of audit you need.
Where do I find the data for "Adopted Budget This Year"?
This data is found in your budget detail sheets for the current year. Use the numbers in the far right column, "Adopted by Governing Body." If you've done a supplemental budget during the current year, make those changes to the adopted numbers.
Why are there three columns for the budget for the coming year?
All of the budget detail sheets have columns to record the progress of the budget as it moves through the various required phases.
What are the detail sheets for the various types of funds?
- The "Proposed by Budget Officer" column is where the budget officer shows the proposed budget estimates. The budget committee uses this column as the starting point for its work.
- The "Approved by Budget Committee" column is where the budget committee decisions are recorded. The numbers may be the same as the proposed budget or they can differ greatly.
- The last column, "Adopted by Governing Body," records the final decisions of the governing body. This column contains the final adopted budget figures.
- For the general fund, the detail sheet LB-20 shows the estimated resources, and the LB-30 shows the estimated expenditures and other requirements. The LB-31 provides additional room for more line items if needed.
- The LB-10 form can be used for special revenue, capital project, enterprise, or trust and agency funds.
- The LB-11 is for reserve funds.
- The LB-35 is for debt service funds. The LB-36 provides room for listing more bond levies if needed.
What are some common fund resources?
Most funds have an ending balance—money left unspent or unobligated—at the end of each fiscal year. The following year, this becomes the "available cash on hand" if you are on the cash basis of accounting, or the "net working capital" if you are on the accrual basis of accounting. Estimate how much of this beginning fund balance will be available on July 1. Include money that is held in a savings account, certificate of deposit, or other investment instrument, as well as your checking account balance.
If your local government has the authority to levy property taxes, they are a budget resource.
Each fund that includes a property tax as a resource should also show a resource called "previously levied taxes." Previously levied taxes are the taxes that aren't collected in the year they are billed. They are received in subsequent years as the county tax collector pursues collection of delinquent accounts. Use the actual amounts received in past years to help you make your estimate of previously levied taxes.
Another resource is "interest earned." Local governments must place their money in some type of interest-bearing account. If there is money in a fund during the year, then the interest earned on that money is a resource for the fund. Estimate what you think those interest earnings will be. If you have the money from more than one budget fund commingled in the same bank account, you will need to allocate the interest earnings (which are reported by the bank as a lump sum) among the various budget funds.
Fees or assessments for services you provide can be resources.
Revenue sharing money sent to counties and cities by the state is a resource.
Grants, gifts and endowments provide resources for many local governments.
If you have used equipment or property that will be sold in the upcoming fiscal year, the proceeds from the sale would be a resource.
A budgeted transfer from one fund to another is a resource to the receiving fund.
How do we budget for grants that we haven't received yet?
If you have applied for a grant, you may include that money as a resource, even if it hasn't been awarded yet. Alternatively, your policy may be to wait until after grants have been confirmed to add the grant proceeds to your budget.
Do fund expenditures and resources always have to balance?
Yes. The total resources must equal the total requirements in every fund. If there are more expenditures than there are resources, you must revise the budget until it's balanced. Don't be tempted to unrealistically inflate the estimated resources in order to balance. Instead, identify requirement items that can be reduced to balance the fund. The budget officer can provide the budget committee with information about the additional requirements that were not included in the proposed budget. It's the budget committee's responsibility to decide which requirements to add and which to reduce or eliminate to maintain balance. The budget committee may also decide to seek voter approval for additional local option tax or bond revenue to balance the budget.
Estimating the amount of taxes to be received
The budget detail sheets have a line for "taxes necessary to balance" or "taxes estimated to be received." Where does that number come from?
The taxes estimated to be received next year can come from property taxes levied under a local government's permanent rate limit, from a local option tax approved by the voters, or from a debt service levy for certain bonds. Property tax revenue is considered the "balancing" resource. If other resources are sufficient to pay for the estimated expenditures, then no property taxes are needed.
What is my local government's "permanent rate limit?"
Property taxes are "ad valorem," which means they are determined according to the value of the property. A local government's permanent rate limitation is a constitutional limit on the tax rate it can impose annually to finance its operations. It is expressed as a tax rate, in dollars and cents per $1,000 of assessed value. You can call your county assessor's office and ask them what your permanent rate limit is. There is also a listing of permanent rate limits in the Local Budgeting Manual, Appendix D.
If our permanent rate isn't enough to meet our needs, can we change it?
Generally not. Your limit was computed as a result of Measure 50 (1997), as a percentage of the taxing authority your voters had approved at that time. You cannot change that now. If your local government merges or consolidates with another similar local government, your permanent rate limit will change. If your district dissolves, and then gets voter approval to reform, you can ask the voters for whatever rate limit you wish. The Legislature can also enact additional statutory limitations on top of your permanent rate limit, reducing the effective rate you can impose, but this is rare.
How much revenue will we receive from taxes under our permanent rate limit?
There are three steps to follow to estimate taxes to be received. The first step is to multiply your rate limit by the estimated assessed value in the coming year of the property in your local government's territory. This amount of taxes that your rate would raise must then be reduced for the loss due to the other constitutional limit, known as the Measure 5 limit. Finally, the result must be reduced again for the loss due to discounts and uncollectables. See the Basic Budgeting Book for a more detailed explanation of these calculations.
How do I determine the estimated assessed value of the property in my local government's territory in the coming year?
Ask your county assessor. Usually an acceptable estimate can also be made by multiplying this year's value by 1.03. This method can be used because, generally, assessed values increase by about 3 percent per year.
What is the Measure 5 limit?
Measure 5, which became Section 11b of Article XI of the Oregon Constitution, limits the amount of property tax an individual property can pay. Taxes billed by local governments are categorized as "general government," "education," or "exempt from limitation." The general government category is generally for taxes imposed for non-education local governments and urban renewal agencies. The education category is generally for taxes imposed by school districts, education service districts, and community colleges. The unlimited category is usually for taxes imposed to repay general obligation bonds.
The limit for the general government category is $10 per $1,000 of real market value. The education limit is $5 per $1,000 of real market value. If the taxes extended against a property are more than allowed in either category, then the taxes in that category are reduced to the limit. This process is called "Measure 5 compression." Local option taxes are reduced first. If the taxes in the category are still too high, then the permanent rate taxes of all of the taxing districts are reduced proportionately.
How do I estimate Measure 5 compression loss?
Ask your assessor for a copy of Table 4a from the annual Summary of Assessments and Levies (SAL) Report. This table shows your local government's assessed value, constitutional (compression) loss, and taxes actually billed in the current year. You can use the history of loss from several years to determine the average or trend of loss for your local government.
What are losses from discounts and uncollectables?
Oregon law grants a discount to taxpayers who pay their property taxes on time. If the full amount is paid by November 15, a three percent discount is granted. If two-thirds of the total amount is paid by November 15, a two percent discount is granted. Because of this discount, you will never receive 100 percent of the taxes billed.
Additionally, not all taxpayers pay their property taxes right away. The amounts not paid in the year billed are called "uncollectables" for that budget period. These uncollectables become the delinquent taxes that flow in later as "previously levied taxes."
Your county tax collector can tell you the county's annual collection percentage. A table of collection percentages can also be found in the annual Local Budget Law and Notice of Property Tax Forms booklets. The collection percentage tells you the percentage of current year taxes that are actually collected after the losses from discounts and uncollectables are subtracted. Multiply the amount of taxes billed after Measure 5 compression by the collection percentage to get the amount of taxes estimated to be received next year. This is the number you use as the budget resource "taxes estimated to be received."
Do we have to levy our full permanent rate?
No. The permanent rate is a limitation. That means you can levy anywhere up to the full permanent rate. If the amount that the permanent rate will raise, added to the amount of other resources that you expect to have is more than your total requirements, then the full permanent rate does not have to be levied. There is no penalty for imposing less than your full limit if you are a general government district. If you levy less than your full permanent rate one year, you can still levy up to the full limitation next year if it is needed. School districts may have their State School Fund grant reduced if they do not impose their full permanent rate.
How do I estimate the taxes for our bonded debt levy?
When your voters approve general obligation bonds, they also agree to repay those bonds with property taxes. The amount of tax that you impose each year for bonded debt payments is based on the amount of the principal and interest payments coming due during the budget year. These bonded debt levies are not subject to the limits of Measure 5, so a compression loss adjustment is not needed. But just like the permanent rate taxes, you need to compensate for the loss from discounts and uncollectables.
Take the total amount of principal and interest payments that must be made in the year for which you are budgeting. Add any amount required in the year after that for principal and interest payments that come due before tax revenue is distributed in November and December. This amount for the second year is budgeted as an "unappropriated ending fund balance" (UEFB) in the year for which you are budgeting now.
Subtract from that total all of the other resources available to the debt service fund, such as beginning fund balance, transfers, and interest earnings. Next, divide the total by the collection percentage for the county. The result is the amount of your debt service levy. Example:
|Total debt service
|Taxes to be imposed
Notice that in order to receive the $93,500 you need in this example to pay the principal and interest, you must impose a higher amount; $97,396. The budget committee must approve this higher tax amount. If the budget committee approves only $93,500, you would receive only 96 percent of that ($89,760 here), which wouldn't provide enough money to make the payments.
Bonded debt taxes are always imposed as a dollar amount; never a tax rate.
We want to ask our voters for local option taxing authority. Where can we get help writing the ballot measure?
See Tax Election Ballot Measures (150-504-421) or call a Finance and Taxation analyst at Department of Revenue.
How do I know what expenditures and other requirements to budget for?
Look at this year's budget and consider requests and information provided to you by the governing body, chief executive officer, and department heads. Each expenditure item should be estimated to the best of your ability. Expenditure items are grouped into "object classifications":
There are other types of fund requirements, that are not included in the object classifications just listed. These include:
- Personnel services are wages, health and worker's compensation insurance premiums, Social Security taxes, and any other expenses that result from having employees.
- Materials and services include a wide range of expenses such as fire and liability insurance, utilities, building rent, office supplies, vehicle fuel and maintenance, and other routine operating expenses. This object classification also includes the cost of professional services, such as auditors or attorneys, for which you contract out.
- Capital outlay includes the purchase of items that are considered capital assets. Your governing body must decide how it defines a capital asset. Some local governments set a dollar limit while others use useful life, or a combination of the two. Capital outlay can include the purchase of land, buildings, vehicles, furniture, and other types of durable equipment.
Is there a limit to the amount of money that can be budgeted in the contingency line item?
- Transfers to other funds. The governing body may want to use some of the resources from one fund to pay for expenditures in another fund. To do this, a transfer of money is budgeted from the first fund to the second. The transfer is a requirement of the first fund. The actual expenditure is also a requirement of the fund receiving the transfer. The transfer amount becomes a budget resource in the receiving fund.
- General operating contingency. This money is budgeted for use during the year to deal with unexpected operating situations that cannot be specifically identified at the time you are preparing your budget.
- Unappropriated ending fund balance. This is how you budget to have a certain amount of money left in a fund at the end of the year for which you are budgeting. You may need to do this to ensure that your local government begins the following fiscal year with enough cash to operate until tax money or other revenues are received later in that fiscal year. The unappropriated ending fund balance becomes part of the cash on hand or net working capital to begin the next fiscal year. Money budgeted in an unappropriated ending fund balance can't be spent in the year it's budgeted that way, except under very limited circumstances.
- Reserved for future expenditure. You can budget an amount that is to be saved and carried forward beyond the year for which you are budgeting. This is money that is not expected to be spent, and so it is not appropriated, but it still must be shown in the budget.
No. But money must be moved out of the contingency line item to another object classification before you can spend it, and there is a limit on how much money can be moved out of contingency easily, using just a governing body resolution. No more than 15 percent of the total appropriations of the fund can be transferred out of contingency with a resolution. For example, if the total appropriations of the fund are $100,000 (including $20,000 for operating contingency), only 15 percent, or $15,000, of the appropriation may be transferred out of contingency using a resolution. In this example, the remaining $5,000 can be transferred out and spent only after you adopt a supplemental budget. The 15 percent is cumulative throughout the entire budget period. That is, it's 15 percent per year, not per resolution.
The size of the operating contingency should be based on past experience and on the purpose of the fund. Don't use it to cover up improper or lazy estimating practices, or as a "savings account." Funds where the costs can be accurately predicted, such as a debt service fund, cannot include a general operating contingency.
What are the 'limited circumstances' in which an unappropriated ending fund balance can be spent?
Generally, money budgeted as an unappropriated ending fund balance can be spent only in an emergency situation caused by a natural disaster or civil disturbance. See ORS 294.481.
Is it possible to start the fiscal year "in the hole?" Should I budget a negative amount because we spent more in the previous year then we should have?
No. Each year's budget is a new plan. You must never budget a negative resource. See OAR 150-294.361(1)-(B).
The budget committee
What is the budget committee?
The budget committee is a local government's fiscal planning advisory committee. The committee consists of the elected governing body members and an equal number of district voters appointed by the governing body.
Who can be appointed to the budget committee?
Any registered voter of the local government except officers, agents, or employees of the local government.
What about people who volunteer for other committees or commissions of the local government?
That is a tricky question. The reason for having appointed members on the budget committee is to balance the influence of the governing body and fairly represent the interests of the public. If an appointed member of the budget committee brings with him or her a vested interest in one program or project at the expense of others, it could create a perceived conflict of interest. If other interested citizens are available and willing to serve, it might be better to appoint one of them instead. However, having said that, as long as the commission members are not employees or "agents" of the local government, the law does not prohibit them from serving on the budget committee also. An agent is one who has been given the authority to act for, or in place of, the governing body.
Can the mayor's wife be appointed to the budget committee?
Spouses of officers, agents or employees of the local government may serve as appointed members of the budget committee if they are qualified voters and not themselves officers, agents, or employees.
How long do members serve?
Appointed budget committee members have three-year terms. If you budget on a biennial basis, your appointed budget committee members have four-year terms. Terms should be staggered so that approximately one-third or one-fourth of the terms expire each budget period. Members may be re-appointed for successive terms. If a member resigns, becomes ineligible, or is unable to serve out their term of office, the governing body appoints a replacement to complete the term. There is no provision in the law for "alternate" members.
What if no one will serve on the budget committee?
If the governing body is unable to appoint qualified individuals to vacant positions, the budget committee may function with a reduced number of members. For example, if a five-member governing body, after making a good faith effort to seek qualified citizen members, can fill only three of the appointed positions, the budget committee can function with eight members rather than ten. A majority would then be five instead of six.
What are the budget committee's main functions?
In one or more public meetings, the budget committee meets to review, discuss, and possibly make changes to the proposed budget presented by the budget officer. In addition, in at least one of its meetings, the budget committee must hear and consider questions and comments from any member of the public who wants to discuss the proposed budget. Upon completion of its deliberations, the committee approves the budget and formally sets the tax rate or amount needed to balance the budget.
What are the rules about budget committee meetings?
Budget committee meetings are "public meetings" A quorum is required to conduct committee business. (A quorum is one more than half of the committee.) A majority of the budget committee membership is required to approve any motion. Minutes of each meeting are kept. It is important that the minutes are accurate because the budget process is required by law and you may need to document that your process was in compliance with state statutes. The approval of the final budget document and the rate or amount of tax to be imposed, in particular, should be in the form of motions with the vote count recorded in the minutes.
Is the mayor a voting member of the budget committee?
Usually, unless your city charter or ordinances say otherwise.
When can the budget officer release the proposed budget to the budget committee members?
You may give the proposed budget to the budget committee at any time prior to, or at the budget committee meeting where the budget message will be presented. This is the first budget committee meeting and prior public notice is required. When the proposed budget is released to the budget committee, it becomes a public document and must be made available to anyone who asks to see it.
Can the budget committee meet and discuss the budget before the first meeting for which public notice is published?
No. If the proposed budget is released before the first budget committee meeting, it is for the use of the individual budget committee members. The committee should not get together in person, by telephone, or via e-mail before the first public meeting to discuss or deliberate on the proposed budget.
Any deliberation on the proposed budget must take place at a properly advertised public meeting. One of the reasons Oregon uses the budget committee process is to ensure free public input and full disclosure of budget deliberations. To circumvent local budget law puts your local government and its property tax levy at risk. It is much better to abide by the spirit of the law and hold all discussions at public meetings.
What sorts of things can the budget committee discuss before the first meeting for which notice is published?
The committee can:
What can the budget committee not discuss before the first meeting?
- Receive training on the budget committee process, calendar, expectations for committee members, etc.
- Discuss committee members' preferences for ground rules, rules of order, conduct of meetings, method of voting / reaching consensus, etc.
- Receive orientation on the organization and its various departments or programs and staffing, and on the activities or services provided by each.
- Receive orientation on the budget document, the fund structure and the types of activities or programs and expenditures made from each fund in the budget.
- Discuss the current year budget or prior year budgets, including what, in general, might be done differently next year.
What sort of notice is required for the first meeting?
- Specific estimates of revenue, expenditures or appropriation amounts associated with any fund, object classification or line item, resource or requirement.
- The question of whether to fund specific programs or expenditures.
- The question of whether to impose any specific tax levy, or the amount of any levy.
Notification of the first budget committee meeting must be published in a newspaper of general circulation within the district, by first-class mail, or by hand delivery to every street address. See Chapter 8 of the Local Budgeting Manual for more detail on publication requirements.
Can we "post" the notice of the first budget committee meeting in a public place or on our website?
Local Budget Law requires the notice be published two times in the newspaper, published one time in a newspaper and posted on your website, mailed by first class mail, or hand-delivered. If you choose to publish one time in a newspaper and post on your website, the newspaper notice must give the website internet address where the notice is posted. As long as you publish in one of those ways, you may also post the meeting information on your website or in a public place if you wish.
What if we can't hand-deliver or mail notice to each street address because our post office uses only PO boxes?
If you publish by mail, you must send the notice to every street address, PO Box number, and Rural Route number in your district. Do the best you can. Document the situation and the steps you take to comply.
What happens at the first budget committee meeting?
By the end of the first meeting, the budget committee should have elected a chair, adopted rules of order, received the budget message, received a copy of the budget, and set dates for any future meetings.
The budget committee may hear questions and comments from the public at the first meeting, or they may do so at a subsequent meeting.
What is the budget message?
The budget message explains the budget. It gives the budget committee and the public information that will help them understand the proposed budget. The law requires the budget message to contain a brief description of the financial policies reflected in the proposed budget and explain the important features of the budget. For example, here is a sample passage from a budget message:
"The proposed budget contains a reserve fund for equipment purchases. Our policy is to set aside money each year from our operating revenues so there will be money available to purchase new equipment when the need arises. We hope this reserve fund will provide for adequate equipment without having to ask our voters for additional taxes."
The budget message must also explain significant changes from the prior year's budget in revenues or appropriations and explain any major changes in financial policies.
Who prepares the budget message? Who reads it?
The budget message is prepared by or under the direction of the chief executive officer or the chair of the governing body. It must be in writing so it can become part of the budget committee's records. It is delivered at the first meeting of the budget committee by the budget officer, the chief executive officer, or the governing body chair.
How many meetings are required?
The number of budget committee meetings varies from year to year and with the unit of government. Some committees meet only once. Others may meet several times. Factors such as the size of the local government, detail in the budget or number of funds, the personalities of individual budget committee members, and the number of people who want to ask questions or make comments can result in various numbers of meetings.
What other information is available to the budget committee?
The budget committee may demand and receive from any district officer or employee any information it requires during consideration of the proposed budget. The budget committee may also require such staff members to attend budget committee meetings. Such requests by the budget committee should be made through the chief administrative officer of the local government or the budget officer.
What is a quorum? What happens if we don't have a quorum at a budget committee meeting?
A quorum is one more than half the total number of the members. If a quorum is not present, the members who are present may not discuss committee business, and no action may be taken. See Oregon's Public Meetings Law for more information.
What if we have a quorum, but cannot get a majority of the members of the budget committee to approve the budget?
Any action by the budget committee requires approval by a majority of the entire committee. For example, if the budget committee has ten members, six are present at a meeting (a quorum), but only five of the six present agree with a motion to approve the proposed budget, then the motion does not pass. A majority of the entire committee (six in this example) is required. The total number of the budget committee is not reduced if one or more of the governing body positions is vacant. It is the responsibility of the budget committee to negotiate a budget and tax that is acceptable to a majority of its members.
Can the budget committee add or delete programs or services?
Generally, the budget committee's role is not to directly establish or eliminate specific programs or services. Standards and budget parameters established by the governing body give the budget officer and administrative staff general guidelines for budget development. The budget officer then prepares a budget which reflects the governing body's parameters. This proposed budget is what the budget committee considers during its meetings. Budget committee influence on programs and services is most often exerted at a higher level, when it approves the overall budget and establishes the tax levy. Having said all that, if a majority of the budget committee agree, they can add or delete funding for specific services. However, final authority for administration rests with the governing body, so they can make changes after the budget committee has approved the budget.
Can the budget committee determine how much an employee is paid?
The budget committee does not approve specific personnel, employee contracts, or salary schedules, nor does it negotiate salary contracts.* The budget committee may increase or decrease the total personnel services expenditures in the proposed budget.
*Exception: The county budget committee or the Tax Supervision and Conservation Commission approves changes in the salary of elected county officials. ORS 204.126.
As a budget committee member, I think the budget officer is estimating too much for some expenditures, and we are wasting taxpayer money. Should I say something?
If the budget officer is making the estimates in "good faith," he or she has not violated Local Budget Law. However you can certainly raise the issue. As a budget committee member, you have a responsibility to represent the public's interest and question any expenditure that seems excessive. You can argue for what you think is best in regard to how public monies are spent and try to convert a majority of the committee to your point of view. You may also testify at the budget hearing to try to influence public opinion.
Can the Oregon Department of Revenue do something about this?
No. ORS 294.490 prohibits the department from interfering with the fiscal policies of a local government except for obtaining compliance with Local Budget Law.
Should we approve the property taxes as a rate or as an amount?
Permanent rate taxes can be imposed as a rate per $1,000 of assessed value, or as a dollar amount. Local option taxes must be imposed the same way as they were stated in the ballot measure in which the voters approved them, either as a rate or as an amount. Taxes for general obligation bonds are always imposed as a dollar amount.
The budget committee should approve the taxes in the same way (rate or amount) as the governing body intends to impose them.
What is the advantage of approving taxes as a rate versus an amount?
If you impose your permanent rate taxes as a rate, you will receive whatever amount of tax revenue that rate will raise when applied to the value of the property in your territory (after losses for Measure 5, discounts, and uncollectables). If the value goes up, your tax revenues go up.
If you impose your taxes as an amount, the county assessor calculates the rate per $1,000 of assessed value necessary to raise exactly that amount. You are assured of receiving the amount you ask for, but forego any increase that you might have realized if values increase. However, if to balance your budget you need less than the full amount your permanent rate would raise, then the easiest way to ask for the exact amount you do need is to impose your taxes as a dollar amount. Remember to adjust for Measure 5, discounts, and uncollectables. You cannot ask for an amount in excess of the amount your permanent rate limit would raise.
What happens after the budget committee agrees on the budget?
After public input is received, and all issues are resolved to the satisfaction of a majority of the budget committee, the committee votes to approve the budget and the rate or amount of each tax levy. Approval of the taxes and the budget should be in the form of a formal motion, recorded in the minutes of the meeting. Sample motion to approve the budget and taxes:
"I move that the Sample District budget committee approve the 2007-2008 fiscal year budget and the property taxes it contains at the rate of $4.2379 per $1,000 of assessed value for operating purposes, at the rate of $1.50 per $1,000 for local option tax, and in the amount of $97,396 for payment of bond principal and interest."
Does the budget committee have any other duties?
After the budget is approved and the tax levy rate or amount is established, the committee's work is finished as far as Local Budget Law is concerned. Local charters or policy may have additional duties. Some governing bodies may reconvene the budget committee at a later date in the event a supplemental budget is needed. Sometimes budget committee members ask to join the governing body in any public meetings or appearances concerning the budget. Meetings of the budget committee like these may be called at the discretion of the governing body, but are not required by Local Budget Law.
Publishing the hearing notice and budget summary
After the budget committee has approved the budget, what is the next step?
The governing body must publish a notice and hold a public hearing on the budget that was approved by the budget committee. The notice must include a financial summary of that budget.
Are there forms for publishing the notice of the budget hearing?
These forms and instructions for completing the forms can all be found in the Local Budget Law and Notice of Property Tax Forms booklets.
- Education districts use Form ED-1.
- Community colleges use Form CC-1.
- Municipal corporations use Form LB-1.
- Urban renewal agencies use Form UR-1.
As part of the Notice of Budget Hearing, do we have to publish a summary of the general fund?
You have to publish a financial summary of all of the funds in your entire budget. If all you have is a general fund, then the only fund you need to summarize is the general fund. If you have several funds, combine the amounts in all funds for the summary.
What if we publish the budget summary and then discover an error in the numbers?
Some publication errors, such as typographic and arithmetic errors, or failure to publish within the required time period, can be corrected. See ORS 294.451 for an explanation of what can be corrected and the process for doing so.
If your error is of another kind, to be fully compliant with the law you must republish a corrected summary (just those funds that were wrong). If it is necessary to reschedule the budget hearing because of the time it takes to publish a corrected summary, you must also publish the hearing notice portion of the form.
Can we "post" the notice of the budget hearing?
If your total estimated expenditures are $100,000 or less ($200,000 for a biennial budget) and there is no newspaper published in the territory of your local government, you can post the hearing notice and financial summary in three conspicuous places in the area for 20 days before the hearing date.
We are subject to the jurisdiction of the Multnomah County Tax Supervising and Conservation Commission. What notice do we have to publish?
Not less than five days and not more than 30 days before the date of the hearing, publish
a notice stating:
- The date, time and place of the hearing;
- The place where the complete budget document is available during regular business hours for inspection by the general public;
- Total budget requirements and taxes to be levied;
- Changes in the amount or rate of proposed ad valorem property taxes; and
- The place where copies of the complete budget or parts of the complete budget may be obtained.
Can we hold the budget hearing the same night that the budget committee holds its first meeting?
No. The notice of the budget hearing must include a summary of the budget approved by the budget committee. The notice must be published between five and 30 days before the hearing. Therefore it is impossible to hold the hearing the same date as the budget committee meets and approves the budget.
I published my budget hearing notice (LB-1) showing the hearing as being on a certain day. Then we had to postpone the hearing for a week. What do I do now?
At least five days before the new date, publish a revised notice. Only the notice portion of the form is required, not the financial summary.
The governing body
At the budget hearing and afterward, what action does the governing body take?
At the public hearing, the governing body must hear questions or comments from any person who wishes to speak about the approved budget. The governing body can adopt guidelines for the conduct of the hearing, as long as every member of the public is treated equally.
If no members of the public attend or wish to speak, the hearing may be adjourned.
Following the hearing and no later than June 30, the governing body must adopt the budget, make appropriations, set the property tax levy rate or amount, and categorize each levy as to its Measure 5 category. If taxes are imposed, the governing body must certify the tax to the county assessor no later than July 15.
Can the governing body change the budget that was approved by the budget committee?
After the budget hearing, the governing body may make additional adjustments to the budget that was approved by the budget committee. Expenditures and taxes can be reduced. The amount of the estimated expenditures for any fund may not be increased more than $5,000 or 10 percent, whichever is greater, unless a summary of the revised budget is again published and another public hearing is held. In addition, the amount or rate of property tax may not exceed the amount or rate that was approved by the budget committee unless the governing body publishes the revised budget again and holds a second public hearing. Remember that the second hearing can occur not less than five days or more than 30 days after the re-publication.
If the governing body increases expenditures by more than 10 percent do we have to re-publish the entire budget or just those funds that were changed?
Yes. The publication form no longer requires a summary of each fund. Instead, the form shows a summary of the entire budget. So it is not possible to publish just a summary of the funds that were changed. However, it is probable that only a few of the numbers on the form will change, so much of the original information can be re-used.
Can the governing body change the budget approved by the budget committee in ways that the budget committee does not approve?
The governing body has that right.
What if we can't adopt our budget before June 30?
Local Budget Law makes no provision for not having an adopted budget in place by the beginning of the new fiscal year. ORS 294.100 makes it unlawful for any public official to spend public money without the authority established by an adopted budget. Any who do so are at risk of a civil suit by the district attorney or any taxpayer and being ordered by the court to repay the money from their own pocket. Additionally, you must adopt the budget, make appropriations, and levy and categorize taxes before you can certify your taxes to the assessor. The deadline for tax certification is July 15 unless the assessor grants an extension.
If you fail to adopt your budget by June 30 it is still important to follow the other provisions of Local Budget Law. You should still timely publish all notices, hold all required hearings, etc., even if you missed the June 30 deadline.
What are appropriations?
The governing body must pass a resolution or ordinance to appropriate all of the budgeted expenditures in every fund. An appropriation is what gives public officials the authority to spend public money. An appropriation is a limitation on how much can be spent and on what it can be spent for. It is unlawful to make any expenditure without appropriation authority to do so. A public official who does so is at risk of a civil lawsuit under ORS 294.100. If found guilty, the official could be ordered to pay back the money out of their own pocket.
Are there certain categories of appropriations that must be used?
Yes. The lawful appropriation categories for general governments (found in ORS 294.456) are: personnel services, materials and services, capital outlay, interfund transfers, debt service, special payments, and operating contingency. School districts appropriate by the "function" codes in ODE's Budgeting and Accounting Manual. Community colleges can appropriate in several different ways. They can appropriate by instruction, instructional support, student services, community services, college support services, interfund transfers, debt service and operating contingencies; or by the function codes used by school districts; or by program and the object classifications used by general governments, above. All appropriations must be in one or the other of these categories. Categories such as "other" or "miscellaneous" are not lawful.
What about reserves for future expenditure and unappropriated ending fund balance? How are they appropriated?
Those items are not intended to be spent in the year in which they are budgeted that way. Therefore, they should not be appropriated.
We have always budgeted for "miscellaneous expenses" that cannot be specifically identified at the time we are preparing our budget. What appropriation category are they in?
In an operating fund, that sort of requirement is correctly budgeted and appropriated as an operating contingency. Other funds should not contain such requirements.
In which category is our "rainy day fund" appropriated?
Under Local Budget Law, if you want to set aside savings for the future, the correct way to do it is to establish a reserve fund or a reserve amount in an operating fund. Any monies that you do not have an immediate need for and that you wish to save for the future should be budgeted as "reserved for future expenditure." Such a line item is not appropriated, because you do not intend to spend it. Should a need arise during the fiscal year, there are ways under Local Budget Law to change your budget and appropriate the money at that time.
What is meant by "categorizing the tax?"
Measure 5, passed by Oregon voters in 1990, became Article XI, section 11b of the Oregon Constitution. It limits the amount of property tax a property can pay to $5 per $1,000 of real market value for education, and to $10 per $1,000 of real market value for all other government purposes. Tax levies to pay debt service on certain bonded indebtedness are exempt from these limitations. So the three Measure 5 categories are "education," "general government," and "exempt from limitation." The governing body of every local government that imposes a property tax must adopt a resolution or ordinance that states which of the Measure 5 categories each of its tax levies is in. In other words, the resolution categorizes the tax for purposes of Article XI, section 11b.
Note that some general government entities also levy taxes that will be used for education, or vice versa. If you split your levy between two categories, the portion used for each category must be categorized and certified to the assessor separately, so the Measure 5 limits can be accurately calculated.
Certifying your tax levy to the county assessor
What documents do I have to file with the county and state?
A local government that levies a property tax and that is subject to Local Budget Law must file two copies of the following with the county assessor (of every county in which the district is located) by July 15:
A local government that does not levy property tax and that is subject to Local Budget Law must submit two copies of the resolutions adopting the budget and making appropriations.
- The notice of property tax and certification, Form LB-50, ED-50, or UR-50;
- The governing body resolutions adopting the budget, making appropriations, imposing the tax, and categorizing the tax for the purposes of Article XI, section 11b (Measure 5); and
- Any new ballot measure approving taxing authority that is being imposed for the first time.
A local government that does levy a property tax, but that is not subject to Local Budget Law must submit two copies of the LB-50 and two copies of the resolution imposing and categorizing the tax.
A school district must also submit a copy of its complete budget document to the education service district and the Department of Education by July 15.
Every local government must also submit a copy of its complete budget document to the county clerk by September 30.
Unless specifically requested, please do not send a copy of your complete budget document to the county assessor or to the Oregon Department of Revenue.
Changing the budget during the fiscal year
We have money budgeted that we want to use in a different way. How do we make that money available where it is needed?
What is a supplemental budget?
- You can spend money in an appropriation category for anything in that same fund and appropriation category without changing your budget, as long as you do not exceed the appropriation amount.
- A resolution by the governing body can transfer money from one appropriation category in a fund to another existing appropriation category in the same fund or in another fund. See ORS 294.463.
- If a fund is no longer needed, it can be closed and the money transferred to the general fund by governing body resolution. See ORS 294.353.
- A supplemental budget can transfer money between other funds or create new appropriation authority. See ORS 294.471.
- Money can be loaned from most funds to another fund by governing body resolution. See ORS 294.468.
A supplemental budget is the primary way in which to change the adopted budget during the fiscal year. Most often a supplemental budget is necessary when an occurrence, condition, or need arises that was not known at the time the budget was adopted, or when additional funds are made available after the budget is adopted.
What is the process for adopting a supplemental budget?
The procedures for adopting a supplemental budget are similar to those for the annual budget, although the budget committee need not be involved. If estimated expenditures in any fund are being changed by more than ten percent, these procedures include a public hearing. A notice and summary of the changes in any fund that is changing by more than 10 percent are published five to 30 days prior to the hearing. If the change is 10 percent or less, the supplemental budget can be adopted at a regular meeting of the governing body, with a notice of that meeting published not less than five days before. The notice must include a statement that a supplemental budget will be considered. See ORS 294.471 for more information on the process.
We adopted one supplemental budget and now we need another. When we determine the process to use for the second supplemental budget, is it 10 percent of the budget as it is now, after the first supplemental budget, or 10 percent of the original budget?
The 10 percent is from the budget as last amended. If expenditures change by more than 10 percent from the amount in the most recently adopted budget, a hearing is required.
What does a supplemental budget look like?
It is a revised version of your original budget. It should show the new amounts for any resource items or expenditure categories that are being changed or added. The resolution or ordinance adopting the supplemental budget should state the new amounts for each revised item. You may also need a resolution making additional appropriations. The appropriation should be to the same level of detail as your original budget for the category of expenditure that is changing.
Example: "The Board hereby adopts a supplemental budget to increase general fund resources line 1 "Cash on Hand" by $500 to a new total of $40,500, and to increase general fund expenditure line 20.1.5 "Vehicle Fuel" by $500, for a new total of $1,750 for that item, a new general fund total of $300,000, and a new total budget of $400,000. The Board hereby appropriates the additional $500, for a new total appropriation in general fund materials and services of $20,500."
When we publish notice of a supplemental budget, do we need to publish the entire budget?
No. You only need to publish a summary of the changes in those funds that are being changed by more than 10 percent. There is a form for publishing the notice in the Local Budget Law and Notice of Property Tax Forms booklets.
Are there situations in which we don't have to do a supplemental budget in order to change the adopted budget?
Yes, several. ORS 294.338 lists exceptions to Local Budget Law in which the governing body can change the adopted budget without a supplemental budget. The most common are an unexpected grant for some specific purpose or an unforeseen occurrence that requires the expenditure of nontax monies.
Other situations in which a supplemental budget is not required are found in ORS 294.471 (reducing appropriations), 294.476 (September election), 294.478 (using school emergency funds), 294.463 (appropriation transfer), 294.481 (natural disaster), 294.468 (interfund loan), and 294.343 (internal service appropriation).
If one of these provisions apply to a situation, you may make the change under that authority instead of by adopting a supplemental budget. If none of them apply to your situation, you must do a supplemental budget.
The change we want to make is less than 10 percent of the adopted amount. That means we don't have to do a supplemental budget, right?
Wrong. The amount or percentage of change doesn't matter. If you cannot find a statute that authorizes an exception to the need for a supplemental budget, then you must do a supplemental budget, no matter how large or small the change.
We usually just do a supplemental budget near the end of the year to cover any changes we've made to the budget. Is this wrong?
Possibly. Local Budget Law is very clear that overspending an appropriation is unlawful. So it is very important that appropriations are changed before any expenditure that exceeds your existing appropriation or for any purpose for which there is not an appropriation. Failure to do so could cause the governing body to be held personally liable for the return of the money.
Can we loan money from one fund to another?
Yes. A governing body resolution can authorize a loan from most funds. The exceptions (the funds from which you cannot make loans) are generally debt service funds and funds with monies that are restricted by the Constitution to specific uses. See ORS 294.468 for more detail.
What rate of interest do we charge ourselves on an interfund loan?
The rate of interest may be the rate of return on monies invested in the Local Government Investment Pool or any other rate the governing body determines.
When do we have to pay back an interfund loan?
If the loan is for operations, it must be paid back in the same fiscal year or biennial budget period or in the next one following. A capital loan may be paid back over a term of up to ten years. If a loan is not repaid in the same year it is made, the repayment must appear as a requirement in the budget for the year in which it is planned.
Can we use the money we have budgeted as unappropriated ending fund balance for something else?
The only situations in which you can use that money for another purpose during the same budget year are in the event of fire, flood, earthquake, or other natural disaster; of civil disturbance; or of involuntary conversion (arson, theft, vandalism, etc.). If you have such a situation, you may create the necessary appropriation authority by resolution or supplemental budget. See ORS 294.481.
The consequences of noncompliance with Local Budget Law
If we do not comply with every little detail of Local Budget Law, will the Budget Police come to arrest us?
Probably not. But:
What if I, as a budget officer or a member of the governing body, don't agree with the Oregon Department of Revenue on the interpretation of Local Budget Law?
- Any deviation from the law could be grounds for a civil lawsuit against any public official who spends public money without having followed the law.
- Tax Court could deny some or all of your property tax levy.
- Your auditor could cite the violation in your audit report.
- The Oregon Department of Revenue could order your local government to correct its procedures. (ORS 305.110, 294.505, 294.510)
If the department has issued a formal order that causes you to be aggrieved, you may appeal to Oregon Tax Court under ORS 305.275.
More often, the Finance and Taxation analysts provide informal advice. Local Budget Law has been around for decades. The analysts use their experience and knowledge of the statutes, Attorney General advice and past court decisions to interpret the law. These informal interpretations represent their informed opinion. If you disagree, we suggest you seek advice from your own legal counsel.