Midyear financial review provides early warning

For many cities and towns, July 1 marks the beginning of a new fiscal year, which means January is the midpoint of their budget year.

All cities — no matter the size or budget complexity — should conduct a thorough review of their budget halfway through the fiscal year.

A mid-fiscal year review serves as an early warning system and is valuable for several reasons:

  • Council gets the chance to assess the accuracy of the revenue projections and expenditure estimates that were included in the budget.
  • Officials are able to evaluate if adequate resources are provided in the budget to reach the council's goals.
  • Council has the opportunity to make adjustments to the budget if needed.

In most cases, council should expect that half (or less than half) of budgeted regular and fixed expenditures have been spent at the midpoint. The same principle holds true for revenue that is collected on a regular basis, such as utility payments and hospitality taxes. Conversely, major sources of revenue, such as property taxes and business license taxes, will be low at midyear, because payments are due in the third and fourth quarter of a fiscal year beginning on July 1.

In addition to staying abreast of budget-to-actual results, officials should determine why any variances occurred and whether these variances are expected to be temporary or longer term.

The midpoint of the fiscal year typically supplies council with enough data to identify trends that may call for adjustments. For example, a change in the cost of energy or the price of fuel for one month may not reveal a trend. But six months of increases or decreases may offer a better guide for modifications to the budget.

A midyear budget review also gives council a chance to evaluate itself and the city. Is the budget allowing the city to reach its goals? Can those goals still be met by the year's end? Will projects be completed on time with no cost overruns?

Council must adopt a revised budget ordinance in order to amend the annual budget. That ordinance must be read no less than twice, with each reading separated by at least six days. If a city has established a procedure for adopting ordinances that requires additional readings, then council should follow this procedure.

To operate transparently, council should conduct a public hearing on the revised budget ordinance before adoption and advertise the hearing the same way that notice was provided for the budget public hearing, as required by S.C. Code of Law Section 6-1-80.

Cities and towns of all sizes benefit from good budget planning at the start of the fiscal year. But the process doesn't end there. A mid-fiscal year check-in provides prudent follow-through and gives council the chance to improve its spending plan as it is executed throughout the fiscal year.

More information on municipal budgeting.