Legal Studies 479
Local Government Law in Alberta (OCW)


Legal Studies 479
Local Government Law in Alberta (OCW)

Legal Studies 479

Unit 4: Municipal Finances

4.2  Budget Process

4.2.1  Purpose and Limits

Since the sources of funding for municipalities are not endless, councils have the often difficult task of allocating a finite resource (money) to competing priorities.  Should councils fund infrastructure or programs or some of each?  When making those decisions, councils have to be careful custodians of the public purse and make the best use of scarce financial resources.

Municipalities cannot spend funds other than as provided for in their operating and capital budgets, unless the Minister has authorized that expenditure.   Therefore, the budget process for municipalities is often lengthy, sometimes starting as early as July of the year before.  In larger municipalities, department managers may spend days before the council examining and weighing each line item in their budget against each other and competing priorities.

4.2.2  Operating Budget

The operating budget deals with the day-to-day costs of running a municipality and establishes the funding necessary for those programs and facilities that council has determined are necessary for good governance of their citizens.  The budget sets municipal priorities for the next budget cycle, which generally ranges from 1–3 years.  The Act (section 243) requires that a municipality adopt an annual operating budget, which must provide for funding of:

  • municipal policies and programs;
  • debt required for capital projects;
  • requisitions under other acts—for example, the Alberta Housing Act;
  • depreciation for municipal public utilities;
  • transfers to reserves;
  • transfers to the capital budget; and
  • amounts to cover any deficits.

The operating budget must also include estimated amounts for sources of revenue and transfers—including those from property and business taxes, business revitalization taxes, community revitalization levies—and from the other forms of taxes authorized by section 382, as well as grant funding and transfers from reserves.  An operating budget is the detailed estimate of both expenditures and revenues for the operational costs of programs and services. 

The expectation is that municipal budgets will balance.  Municipalities are not allowed to budget for a deficit, and the Act requires that the total actual revenues over a four–year period must be equal to or greater than total actual expenditures (section 244).

4.2.3  Capital Budget

By contrast to the operating budget, the capital budget is the detailed estimate for fixed assets or infrastructure including buildings, equipment, vehicles, water and sewer facilities, and land.  The capital budget must set out amounts necessary to acquire, construct, remove or improve capital property; the anticipated sources and amounts of money to pay those costs; and the amount to be transferred from the operating budget (section 246). 

Although not required by the Act, it is generally a good idea for municipalities to have a long-range capital plan, covering three to five years.  A long-range capital plan provides a longer range view of what capital expenditures are needed and when they will be needed; the future cost of maintaining the asset when it has been built or purchased; and how the asset will be financed. 

In 2002, the Public Sector Accounting Board (PSAB) released a research report, “Accounting for Infrastructure in the Public Sector,” in which a key recommendation was that municipalities record and report their capital assets in their financial statements, including information on the condition of those assets.  As of 2009, Alberta municipalities have been required to prepare municipal financial statements using the net financial assets (debt) model and to include a reporting of their tangible capital assets in accordance with the CICA Public Sector Accounting Handbook.  All municipalities in Canada have standardized reporting requirements based upon that Handbook.  For more reading on this topic see the following:

Summary Comparison of the CICA Public Sector Accounting Handbook and CICA Handbook – Accounting

A Quick Guide to Municipal Financial Statements

4.2.4  Limits on Expenditures

It is important for municipalities to adopt both operating and capital budgets, because a municipality cannot pass its property and business tax bylaws until both budgets are adopted by council (section 247).

Those budgets are also important because municipalities can only expend monies in accordance with the operating budget, interim operating budget, or capital budget, or as otherwise authorized by council.  Municipalities may also make expenditures for emergencies or where funds are legally required to be paid (see section 248).  However, a council must establish a procedure to authorize and verify the expenditures not included in a budget.


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