The City of Richardson and “A Balanced Budget” There is a great deal of confusion among certain residents over what a “balanced budget” is and whether the City of Richardson should have one. Indeed, the phrase "balanced budget" has become a "red herring", used by some to mislead residents into believing that the City has a finance problem when it doesn't. To help Richardson residents understand why these concerns are unfounded, how municipal finances are different from for-profit or personal finances, and why certain inflammatory statements about the City's finances are simply not true, this editorial will explore what the phrase "balanced budget" means, whether municipalities in Texas are required to have balanced budgets, and how citizens are to evaluate the financial state of the City. “Balanced Budget” Are Municipalities Required to Have a Balanced Budget? Budget versus CAFR Conclusion and Postscript So, what are the take-aways from this new understanding? First, the budget is primarily a one-year, cash-based document, which is understandable by residents who have a solid background in accounting and large company (especially non-profit) finance. Second, the CAFR is a multi-year, accrual-based document that conforms to the very specific and often highly complex rules promulgated by the GASB, so it is written for a small audience of analysts of research firms and buyers of municipal debt. The CAFR will contain many items that will be misunderstood by the casual reader, even if the reader has some background in accounting. Third and therefore, conclusions derived from numbers in the CAFR made by anyone who is not one of those specialists on municipal finance are likely to be misleading if not completely wrong. Postscript: For the benefit of the reader who continues to be concerned about some of the allegations they have heard that Richardson runs a deficit every year or that Richardson is propping up its reserves through selling debt, please consider the following: The City's Comprehensive Annual Financial Report is prepared by six City of Richardson employees, all of whom are CPAs with a specialization in municipal finance or Certified Government Finance Officers or both (see page 8) Each year, the City's CAFR receives a Certificate of Achievement for Excellence in Financial Reporting. Only about 15% of Texas cities earn this certificate, which is designed to encourage "state and local governments to go beyond the minimum requirements of generally accepted accounting principles to prepare comprehensive annual financial reports that evidence the spirit of transparency and full disclosure…" The cities that are awarded this certificate have had their CAFRs reviewed "by selected members of the GFOA professional staff and the GFOA Special Review Committee (SRC), which comprises individuals with expertise in public-sector financial reporting and includes financial statement preparers, independent auditors, academics, and other finance professionals." Most importantly, the analysts at the international ratings agencies Moody's and Standard & Poor's ARE specialists in examining CAFRs and municipal finances, and they have given Richardson’s recent debt offerings the highest possible ratings. So we know that the numbers are laid out correctly because of bullet points one and two, and we know that experts believe that the numbers show a successful, well-run City because of bullet point three. The reader should bear this in mind when coming across statements on the Internet that say otherwise.