Most municipalities have enacted bylaws which constrain expenditure to the levels fixed by council appropriation. The exact terms of these bylaws vary from one municipality to another, but the general terms are similar.
The provisions set out below are stylized — although adopted from an actual bylaw — and are intended to highlight key aspects of the budget and control process. For both capital and operating expenditures, spending is limited to the budgeted amount, but the greater specificity of the allocation in this case of operating expenditures more tightly constrains the contractual authority of management.
Generally, all contracting will be made subject to the budgetary process: if this was not so, then the budget approval process would serve little practical purpose, a typical provision in a bylaw might read:
No money shall be payable by the City under any contract, and no noncash expense shall be incurred using City funds, unless authorized in a budget approved by Council. Except where Council otherwise approves, the exercise of any authority to enter into or award a contract on behalf of the City is subject to the identification and availability of enough funds in an appropriate account within the Council’s approved budget estimates.
Note that the budget does not give specific instructions regarding expenditure: The Emergency Services Administration is not instructed to spent $X on pens and pencils, and $Y on paper and photocopying. Rather it is given a general allocation or appropriation for “material and supply.” Within that general category, the relevant manager has considerable freedom on the items on which he or she may spend the money allocated.
A common concern is to prevent money that is approved for one purpose being devoted to some other purpose by City staff. So, for instance, if the material and supply budget approval of $24,230 is exceeded, it is not normally possible to transfer unexpended funds in the “Contractual” category over to cover the shortfall.
To achieve this effect, the relevant bylaw restrictions (which may be found not only in purchasing bylaws, but also in another general bylaw relating to financial administration), the council may enact a restriction such as the following:
No appropriation within a council approved budget shall be charged with an amount,
That is for a purpose other than that for which the appropriation was provided; or
That is in excess of the amount available under the appropriation.
Federal and provincial governments often enact legislative provisions voiding contracts entered without spending authority. For instance, subsection 111.3(2) of the Ontario Financial Administration Act provides that:
11.3(2) Every agreement providing for the payment of money by the Crown is deemed to contain a provision stating that the payment by the Crown of moneys that come due under the agreement shall be subject to,
(a) an appropriation to which that payment can be charged being available in the fiscal year in which the payment becomes due; or
(b) the payment having been charged to an appropriation for a previous fiscal year.
It is unusual to find provisions of this sort in municipal bylaws, but their absence is not as significant as might be expected. Since municipality’s staff have only the authority delegated to them by or under a buy-law, and since the authority to spend is limited to what council has appropriated, the result is essentially the same.
Some expenditures involve an ongoing commitment — capital expenditures being a case in point. Under an accrual accounting approach, an expenditure on a capital asset is a transfer of part of the city’s circulating capital to a fixed capital account.
This transfer represents the fact that if a city department purchases a new computer, the asset will be used for several years.
Generally, within the approval allocations, municipal administration will have considerable discretion with respect to contract award.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.
Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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