Budget FAQs

The City of Huntsville provides services to its citizens and business community to improve their quality of life.  Planning to pay for these services requires the coordinated efforts of the Mayor, the City Council and the management of 24 city departments.  The money received by the City from a variety of sources constitutes its revenue, and spending for public services is termed expenditures. State law requires Huntsville and all Alabama cities to adopt a plan each year that shows expected revenues and expenditures. This plan becomes the City’s annual budget.

Under City law, the Mayor proposes the budget to the City Council, outlining revenue and services. The Mayor must make choices, sometimes difficult ones, and establish priorities; the City cannot realistically afford every improvement suggested.

The Council considers the Mayor’s proposed budget, and after careful evaluation and possible changes, adopts the final budget.  The adopted budget becomes the City’s spending law and financial roadmap for the year. The Mayor and City managers must comply with the budget’s requirements and limitations.

State law and good business practices require Huntsville to balance its budget. City expenditures should not exceed City revenue and funds on hand.  Huntsville’s government operates in an ever-changing, complex economy, and since some budget items are based on estimates about the future, the budget includes the risk that actual events will be different than expectations.  For example, the cost of 2,000+ employees, the amounts local consumers will spend and pay in sales tax, fuel costs for 1,000+ vehicles, and how much a major road project will cost in property acquisition and construction one year from now all depend on many variables.

Responsible financial management requires City leaders to consider all potential risks for two reasons: to prevent the City from committing future funds it may not have, and to guide them in adopting a conservative budget or plan that is not based on overly optimistic assumptions – revenue higher or expenditures lower than expected.

Huntsville leaders have operated for many years with the philosophy that conservative budgets will lead, more often than not, to surpluses, or money that can be used for public services after it has been received.  This is preferable to operating a budget with deficits and having to use financial reserves to cover costs or possibly reduce services.

City managers continually compare actual events to the budget plan, and make adjustments when necessary. During the year, financial reports are provided to City leaders and the public that compare the budget to actual values, and provide information to help City leaders make decisions about possible changes in services and costs. The Mayor and City managers have the authority to make budget adjustments within certain boundaries, generally for the inevitable differences that occur between the estimated and actual costs of routine operations. Significant changes, however, require approval of the City Council.

The costs of most city services are paid from money received during the year, such as payroll and benefits for City employees.  Some services, however, are not affordable with current annual income alone, such as an expensive road improvement. The City will borrow money for this type expense, repaying it with funds from future income. City leaders make a serious commitment to people and businesses who lend money for these projects, to repay loans with interest on a precise schedule, often over a 20 year period. Therefore, the City’s budget, although it is a one-year plan, must consider financial events over a much longer period.

Responsible financial management especially dictates a conservative approach to borrowing money, so ensuring that future leaders and citizens will not be deprived of needed resources because of borrowing decisions influenced by overly optimistic estimates in the current budget.

The budget cannot be solely about providing public services to improve Huntsville’s quality of life in the budget year, but also planning for improvements in the future. Many good aspects of life in Huntsville develop slowly and require the combined efforts of city, state and federal governments, businesses and citizens. City leaders plan ahead for these things, and they are reflected in the current budget. Also, for the reasons described above, City lenders expect to see the City’s long-term financial plans, which helps to establish their level of confidence in the City’s ability to repay their loans.

The City’s long-term planning is most evident in the budget through its Ten-Year Capital Improvement Plan.  This plan presents the City’s assumptions about the revenue over the next ten years and how City leaders propose to spend it.  The highest expenditures are for large projects, such as roads, new sewer lines and parks. Long-term plans to upgrade or maintain certain City assets are included too, such as resurfacing streets, improving traffic controls, or keeping sewer plants operating in compliance with legal requirements. Some future City initiatives are not always clear in the budget year, but money is allocated for them in a general manner in the plans, based on experience, with the goal of improving the City’s economy and well-being.

The loans and interest payable to City lenders are also shown in the plans.  This information, combined with all other expenditures, helps City leaders, the public and lenders understand how much of the City’s revenue is committed to repayment of debt.

Some City revenue has “strings attached.”  This revenue can only be spent for specific purposes.  The restrictions are made by City, state and federal law, and sometimes by legal agreements.

The budget must show this restricted revenue and how it will be spent.  City financial reports during the year must also show how the restricted revenue was actually spent, to demonstrate that the City has complied with the law.

As already described, budgets are based on estimates, and the actual results are often different; this is budget risk. Sometimes, actual events create differences that are negative, some significantly, and the City’s ability to respond to these events may be difficult.  The City, like most responsible people and organizations, has a “rainy day fund,” or money set aside to help the City continue to provide services and fulfill commitments when revenue is not adequate. This fund helps protect against budget risk. The budget refers to these as financial reserves and fund balance reserves.

City Council law requires a precise financial reserve equal to 11.5 percent of expected revenue in its General Fund (see further details on the General Fund in the budget proposal). This translates to about 42 days of primary operating costs the City is required to keep on hand to assist in times of financial crisis.

As a further responsible and practical management practice, the City also keeps cash reserves in its long-term capital plans. These plans include costs to repay City debt and related interest over many years, and, as with primary operating costs, revenue expected by the City to pay these costs can vary.  Having reserves provides more financial stability, and creates greater confidence among the public and City lenders. The budget shows all of the City’s financial reserves.

City leaders are accountable to the public and oversight agencies for the money spent by the City.  To assist all people in understanding the City’s financial activities, this budget and City financial reports are intended to disclose all financial resources available to the City and how those resources will be spent, at the most practical level.

The City is a complex financial organization whose activities are sometimes difficult to communicate in a manner easily understood by everyone. However, all of the information contained in the Mayor’s budget document is intended to promote accountability and transparency, a priority of Mayor Tommy Battle and the Huntsville City Council.