Municipal Finance Act (FHGG) (FHGG)

1. This Act regulates for the municipalities

a. the management of finances and services,

b. the expenditures and their approval, and

c. the accounting.

1. This law applies to the financial budget of municipal communities. Specific provisions of federal law are reserved.

2. The provisions of this law apply mutatis mutandis to institutions, municipal associations, and special purpose associations, unless their legislation or statutes contain their own regulations.

3. For the church communities of the recognized national churches, the provisions of this law apply mutatis mutandis, unless their national church law contains its own regulations.

4. For the financial budget of the Old Catholic church community, the provisions of the Corporations Act of December 9, 2013, apply mutatis mutandis.

1. The eligible voters or the municipal parliament, the municipal council, and the administration manage the budget according to the principles of legality, effectiveness, efficiency, and economy.

2. The originators and beneficiaries of specific services provided by the municipality are generally required to bear the reasonable costs (polluter pays principle).

1. The objective of fiscal policy management is the limitation of debt and the protection of equity.

2. The requirements of a business cycle and growth-appropriate fiscal policy should be taken into account to the extent possible.

1. The income statement budget shall be structured in such a way that, on average over several years, at least balanced statements of account are achieved. Expenditure surpluses spanning several years may only be budgeted if an adequate level of equity capital remains. If there is a deficit on the balance sheet, the subsequent year's budget may show a negative outcome, provided that the results of the income statements are, on average over several years, positive. This is subject to the provisions of § 68 paragraphs 5 and 6.

2. The investment statement budget shall be set so that the consequential costs of the investment, including interest and depreciation, result in a sustainable burden on the income statement.

1. Excess expenses shall be charged against the equity. If no equity is available, they shall be recorded as a negative position in the equity.

2. Excess revenues shall be used to eliminate the negative position in the equity. If no such position exists, equity shall be created.

3. If the balance sheet shows a negative annual result that cannot be offset by the cumulative results of the previous years, it must be settled linearly within six years.

1. The Executive Council, in collaboration with the municipalities, establishes the financial indicators relevant to the municipalities.

2. It determines the ranges for all financial indicators within which a healthy development of the financial budget is to be ensured.

1. The municipal council annually prepares a task and financial plan and submits it to the eligible voters or the municipal parliament.

2. The task and financial plan is based on the municipal strategy according to § 17a of the Municipal Act of May 4, 2004, and the legislative program according to § 17b of the Municipal Act.

1. The municipal council organizes public state activity in the task and financial plan into areas of responsibility.

2. The task and financial plan outlines the expected development of finances and services per area of responsibility for the budget year and at least three additional planning years.

3. The task and financial plan particularly includes

a. the situation assessment,

b. the planning of tasks and finances,

c. explanations,

d. the report of the strategic controlling body,

e. the audit report of the cantonal financial oversight.

1. The eligible voters or the municipal parliament decide on the services of the municipality and their financing for a calendar year with the budget.

2. The draft budget is part of the task and financial plan and corresponds to the first planning year of the plan.

3. In municipalities where eligible voters exercise their rights through the ballot procedure, the municipal council conducts an informational event in advance. In extraordinary situations according to § 18 paragraph 2bis of the Voting Rights Act of October 25, 1988, the municipal council informs the eligible voters with an explanatory report.

1. The Budget Contains for Each Area of Responsibility

a. a political mandate and

b. a separate budgetary credit in the profit and loss account and in the capital account.

2. The budgetary credits in the profit and loss account are determined as the balance of expenditure and revenue (global budget). Expenditure and revenue are shown separately.

3. The budgetary credits in the capital account include capital expenditures. Capital revenues are shown separately.

1. Budget appropriations must not be exceeded. Exceptions are permitted for supplementary appropriations, approved excess appropriations, and appropriation transfers.

2. Budget appropriations expire if not utilized by the end of the year.

3. They may only be used to deliver the services of the respective area of responsibility.

1. The eligible voters or the municipal parliament adopt the budget with the tax rate before the beginning of the fiscal year.

2. In a municipality with a municipal parliament, the tax rate, together with the budget, is subject at least to the optional referendum.

3. If the draft budget with the proposed tax rate is rejected, the municipal council presents a revised draft budget by the end of March of the budget year at the latest.

4. If the eligible voters or the municipal parliament reject the budget and the tax rate again, the municipal council submits the draft budget and the proposal for the tax rate to the government council for determination.

5. If no budget has been set by January 1st, the municipal council is authorized to incur expenditures essential for ordinary and prudent administration.

1. If the budget for a project does not contain sufficient credit, a supplementary credit must be requested in a timely manner from the eligible voters or the municipal parliament.

2. Supplementary credits are only permissible when compensation within the approved budget credit is impossible or would be disproportionate.

1. The municipal council may approve an overdraft in the following cases

a. when federal law, cantonal law, a municipal regulation, or a final court decision directly mandates an expenditure,

b. for urgent projects due to unforeseeable events when postponement would have adverse consequences for the municipality,

c. for passing contributions,

d. for write-offs and adjustments according to § 58.

2. The overdraft is only permissible if compensation within the approved budget credit would be disproportionate.

3. Overdrafts must be submitted to the eligible voters or the municipal parliament for approval with the annual report.

1. If a project listed in the budget cannot be completed within the accounting period, the unutilized funds allocated for it in the budget credit can be carried over to the new account.

2. The status and changes of the credit carryovers will be reported to the eligible voters or the municipal parliament in the annual report.

3. Transferred credits may only be used for the originally intended project. If this is financed by other means or is no longer pursued, they will expire.

1. The municipal council provides accountability in the annual report regarding the implementation of the legislative program as well as the achievements and finances of the municipality in the past year.

2. The annual report particularly includes

a. the report on the implementation of the legislative program,

b. the reports on the areas of responsibility,

c. the annual financial statement,

d. the audit report from the auditing body,

e. the supervisory report of the financial oversight.

3. The municipal council submits the annual report to the eligible voters or the municipal parliament for approval.

1. Municipalities differentiate between strategic and operational controlling.

2. Strategic controlling encompasses planning, decision-making, monitoring, and management within the political leadership cycle.

3. The eligible voters and the municipal parliament participate in strategic controlling within their powers according to the municipal law.

1. The Strategic Controlling Body advises on matters that are submitted to the eligible voters or the municipal parliament, in particular

a. the task and financial plan,

b. the budget draft,

c. the annual report,

d. financial transactions,

e. drafts of legislative decrees.

2. The Strategic Controlling Body reports to the municipal council and the eligible voters or the municipal parliament on the matters pursuant to paragraph 1. It provides a recommendation for decision-making.

3. The municipal council supplies the Strategic Controlling Body with the documents required to fulfill its tasks. The municipality may stipulate further regulations concerning the right to inspect documents and regulate the duty of information on the part of municipal bodies in a legislative decree.

4. The municipal code may assign the preparation of matters under paragraph 1e to another commission. This commission assumes the rights and obligations of the Strategic Controlling Body for those matters.

1. The functions of the strategic controlling body may be performed by a controlling commission. They shall not be delegated to an independent and autonomous administrative body or an external audit office.

2. In municipalities with an external audit office, the tasks of strategic controlling shall be carried out by a controlling commission.

3. In municipalities without a controlling commission, the audit commission shall perform the tasks of strategic controlling.

4. In parliamentary municipalities, the tasks of strategic controlling may be assigned to a parliamentary commission.

5. The municipality shall regulate the details in a legislative decree.

1. The municipal activities are governed by an appropriate controlling system. This encompasses the setting of objectives as well as the planning, implementation, and review of measures. The municipal council establishes the operational controlling system of the municipality.

1. The municipality specifies the political performance mandates of the individual areas of responsibility into operational performance mandates.

1. Municipalities ensure appropriate quality management.

2. The government council regulates the specifics in the ordinance after consulting the municipalities.

1. The municipalities systematically assess their risks and the measures taken.

2. The Government Council regulates the details in the ordinance after consulting the municipalities.

1. Component of Risk Management is the Internal Control System (ICS), with which financial risks are managed.

2. The municipality implements the necessary regulatory, organizational, and technical measures through the Internal Control System to protect assets, ensure the appropriate use of funds, prevent or detect errors and irregularities in bookkeeping, and guarantee the correctness of accounting and reliable reporting. In this context, it takes into account the risk situation and the cost-benefit ratio.

3. The cantonal financial supervision, according to §§ 99 ff. of the Municipal Law, issues the necessary directives after consulting the municipalities.

1. A municipality may participate in an enterprise pursuant to § 44 paragraph 1 of the Municipal Act through financial and non-financial contributions and the right to a seat on the strategic management body.

2. If several municipalities are jointly entitled to a seat on the strategic management body, the organization shall be considered an organization with municipal participation in all the involved municipalities.

1. The objectives of participation controlling are

a. to safeguard the interests of the owners,

b. to coordinate between owner and corporate interests,

c. to implement risk policy,

d. to provide transparency regarding the participations,

e. to standardize the instruments and processes for managing organizations with municipal participation.

2. Participation controlling consists of the participation strategy and the participation overview.

1. The participation strategy is a planning instrument containing the strategic guidelines for all of the municipality's participations.

2. The participation strategy establishes the municipality's objectives as an owner and the guidelines for the strategic governing body for each organization with municipal participation.

3. The municipal council presents the participation strategy to the eligible voters or the municipal parliament every four years.

1. The report on the organizations with municipal participation is provided in the Participation Report. This is appended to the annual financial statement.

1. If the fulfillment of municipal tasks is entrusted to individuals or organizations outside the administration, the responsible authority shall conclude a performance agreement with them.

2. The performance agreement shall specifically regulate

a. the tasks to be fulfilled,

b. the quality and scope of task fulfillment,

c. the remuneration, subject to the approval of the respective budgetary credit by the eligible voters or the parliament,

d. the reporting.

1. The report on contribution controlling and the fulfillment of service agreements is provided in the annual report in accordance with § 17.

1. Expenditure is defined as the allocation of financial assets for the fulfillment of public tasks.

2. An expenditure either leads to a reduction of funds (profit and loss account) or an increase in administrative assets (investment account).

1. Every expenditure requires a legal basis, a budget appropriation, and an expenditure authorization.

2. The legal basis can be

a. a law or regulation,

b. a court decision,

c. a resolution of the eligible voters or a resolution of the municipal parliament that is at least subject to a facultative referendum.

3. Supplementary credits, approved credit overruns, and credit transfers are equated with the budget appropriation.

1. The municipality shall establish the expenditure authorities of the voters, the municipal parliament, and the municipal council in a legislative decree.

2. The authorization of expenditure shall be carried out

a. For discretionary expenditures above a specified amount according to paragraph 1 by approval of a special credit by the voters or the municipal parliament,

b. For discretionary expenditures below the specified amount according to paragraph 1 by a decision of the municipal council,

c. For mandatory expenditures by a decision of the municipal council.

3. The municipal council may transfer its expenditure authorities to the subordinate organizational units to a certain extent through a legislative decree.

**1. Authority for Expenditure**

1. The authority for expenditure is determined by the total expenditure for the same object.

2. Expenditures that are factually related to each other must not be artificially divided.

3. Authorization for expenditure may only relate to multiple objects if the expenditures are interdependent or serve a common purpose, which creates a close factual connection between them.

4. The division of an expenditure into a freely determinable and a bound portion is permissible.

1. For recurring expenses, the total amount of the individual items is to be considered. If this cannot be determined, ten times the amount of an annual expenditure is decisive.

1. An expenditure is discretionary if there is relatively significant freedom of action regarding its amount, the timing of its execution, or other modalities.

2. An expenditure is mandatory if it is not discretionary within the meaning of paragraph 1.

1. A special loan is the authorization by the voters or the municipal parliament to enter into financial obligations for a specific project up to a certain amount.

2. A special loan must be obtained before entering into obligations.

3. The financial requirement for special loans must be included in the respective budget.

1. If a special credit is insufficient, an additional credit must be obtained from the voters or the municipal parliament in due time, subject to paragraph 2.

2. Additional credits are not required

a. for additional expenses due to inflation,

b. for mandatory expenditures,

c. for unforeseeable discretionary expenses, where the credit amount approved with a special credit is exceeded by up to 10 percent, but by no more than 250,000 Swiss francs.

3. The municipality may amend the amount specified in paragraph 2c in a legislative enactment.

4. Expenditures pursuant to paragraphs 2b and 2c are to be submitted to the voters or the municipal parliament for information with the annual report.

1. The municipal council must maintain control over the utilization of the special and additional credits.

2. The control must indicate the status of the commitments made and the obligations still expected to be required for the completion of the project, as well as the payments made.

3. The control over the special and additional credits must be included in the appendix to the annual financial statements.

1. The accounts concerning the special and supplementary credits shall be submitted to the voters or the municipal parliament for approval as soon as the project is completed or discontinued and the contributions from third parties have essentially been received. The account must be presented within two years after the completion or abandonment of the project.

2. If a planning credit was previously approved for the project, it must be settled together with the special credit.

3. An unutilized special credit shall lapse.

1. If the statement of account is not approved, the municipal council shall submit a revised statement.

2. If approval is again denied, the municipal council shall present the statement of account to the government council for approval.

1. Financial reporting provides a comprehensive, true and fair view of the municipality's assets, financial, and earnings position.

1. Financial reporting adheres to the principles of understandability, materiality, reliability, comparability, going concern, gross presentation, consistency, and accrual basis.

1. The annual financial statement includes the financial budget of the municipality.

2. The accounts of subordinate public-law institutions and enterprises without separate legal personality must be included in the municipal accounts.

3. The fiscal year is the calendar year.

1. The Annual Financial Statement includes

a. the Balance Sheet,

b. the Income Statement,

c. the Investment Statement,

d. the Cash Flow Statement,

e. the Notes.

1. The budget and the annual accounts are organized by areas of responsibility and presented according to a uniform chart of accounts for public budgets.

2. The cantonal financial oversight in accordance with §§ 99 et seq. of the Municipal Act regulates the minimum requirements for the functional classification and the chart of accounts. It takes into account the requirements of the municipal financial statistics and ensures comparability and transparency.

3. The municipality may also provide for an additional classification by organizational units (institutional classification).

1. The balance sheet contains on the assets side the current assets and non-current assets; on the liabilities side, it contains liabilities and equity.

2. The current assets include the short-term realizable financial assets. The non-current assets are divided into non-short-term realizable financial assets and administrative assets.

3. The administrative assets include the assets with a useful life of several years, which directly serve the fulfillment of public tasks.

4. The financial assets include all other assets.

5. The liabilities include current liabilities, short-term and long-term financial liabilities, short-term and long-term provisions, deferred income, as well as funds and special financing not subject to own jurisdiction.

6. Equity includes the balance sheet surplus or deficit, the funds and special financing of its own and superior jurisdiction, provided the latter leaves the community significant discretion.

1. A special financing refers to the earmarking of fees to ensure the financing of specific public tasks. This also includes independent economic enterprises or subsidized operations.

2. Other earmarked funds are referred to as funds.

3. The creation of funds and special financing generally requires a legal basis. Trustee-managed funds (legacies and foundations) do not require a legal basis.

4. Changes in the balances of funds and special financing are recorded in gross terms in the income statement.

1. The income statement includes expenses and income.

2. The income statement is divided into

a. the result from operating activities,

b. the financial result,

c. the extraordinary result.

3. The result from operating activities and the financial result constitute the ordinary result, which is credited to or charged against the balance surplus or deficit.

4. Expenses and income are considered extraordinary if they could not have been anticipated and are beyond influence and control. The extraordinary result is credited to or charged against the other equity.

1. The investment calculation includes all outflows and inflows of administrative assets.

2. It compares the investment expenditures to the investment revenues.

1. The cash flow statement provides information on the origin and use of financial resources. It is divided into operating activities, investing activities, and financing activities.

1. The Appendix of the Financial Statements

a. specifies the areas where deviations from general accounting principles occur due to overriding laws,

b. summarizes the accounting principles, including the essential recognition and valuation principles,

c. includes an investment schedule covering all financial and tangible assets of the financial and administrative assets, as well as a provisions schedule,

d. contains a participation schedule,

e. includes a report on contingent liabilities,

f. contains additional information relevant to the assessment of the asset, financial, and earnings position as well as the financial risks of the municipality,

g. explains the causes of changes in equity in the equity reconciliation statement.

1. Municipalities are required to maintain cost accounting for all services.

2. The Government Council governs the specifics in the ordinance.

1. The accounts of municipal and special-purpose associations, as well as organizations in which the municipality holds an interest pursuant to § 44 paragraph 1 of the Municipal Act, may be consolidated.

2. If a municipality provides for consolidation, the provisions on accounting contained in this law and the corresponding regulation shall apply to the consolidated entities, insofar as necessary for the preparation of the consolidated financial statements.

1. Assets are recognized if

a. they generate a future economic benefit or their use is intended for the fulfillment of public tasks, and

b. their value can be reliably determined.

2. Liabilities are recognized if

a. their origin lies in a past event,

b. an outflow of resources for their fulfillment is certain or probable, and

c. the amount of the outflow can be estimated.

1. Financial assets are reported at fair value.

2. Capital assets are reported at acquisition cost minus regular depreciation or at fair value, if lower.

1. Assets within administrative property that are subject to depreciation due to use are systematically depreciated on a straight-line basis according to their assumed useful life within each asset category.

2. If a permanent impairment of an item within the administrative property is foreseeable, its book value will be adjusted.

1. Municipalities shall ensure that they meet the requirements of the municipal finance statistics.

2. They are obligated to provide Lustat Statistik Luzern with the necessary data from the accounts, the budget, and the planning years.

1. The eligible voters or the municipal parliament shall elect an audit commission as the financial audit body or appoint an independent and autonomous expert body within the administration or an external audit firm.

2. The financial audit body is entitled to access the municipality's records to fulfill its duties. The municipal authorities are obliged to provide the necessary information.

1. The Audit Commission operates as a collegial body. It may delegate individual audit tasks to committees or, depending on the amount of the associated expenditure, to third parties based on a resolution of the eligible voters, the municipal parliament, or the municipal council.

2. The cantonal financial supervision pursuant to §§ 99 ff. of the Municipal Act issues the necessary directives for the audit by the Audit Commission.

1. If an external audit firm is designated for the examination, it must meet the requirements pursuant to the Federal Act on the Admission and Oversight of Auditors (Audit Oversight Act) of December 16, 2005.

2. The provisions of the Swiss Code of Obligations concerning corporations apply mutatis mutandis to the external audit firm.

1. If an autonomous and independent professional body of the administration is designated for the examination, it must meet the requirements according to the Audit Supervision Act.

1. The Audit Office is responsible for auditing the entire financial budget. It specifically examines

a. the annual financial statements and the separate accounts underlying them in accordance with § 46,

b. the use and accounting of special and additional credits,

c. whether an internal control system exists pursuant to § 25.

1. The auditing body provides a comprehensive written report to the municipal council. The report contains findings on the financial statements, the internal control system, as well as the conduct and results of the audit.

2. The auditing body prepares a summary report for the voters or the municipal parliament on the outcome of the audit and the accounts concerning special and additional credits. It issues a recommendation for the approval of the annual financial statement.

1. The following statutes are amended according to the Annex

a. Municipal Law of May 4, 2004,

b. Voting Rights Act of October 25, 1988,

c. Corporations Act of December 9, 2013,

d. Public Education Act of March 22, 1999,

e. Tax Law of November 22, 1999.

1. The Municipal Act remains applicable with regard to the financial budget to

a. the execution of the last budget adopted before the entry into force of this Act,

b. the drafting and approval of the corresponding annual accounts.

### 1. As the Basis for the 2019 Budget

The municipalities shall prepare an adjusted opening balance sheet as of January 1, 2018, by June 30, 2018. This shall include

a. the revaluation of financial assets at market values,

b. the revaluation of administrative assets at acquisition cost less ordinary depreciation or, if lower, at market value,

c. the revaluation of provisions and accruals,

d. the adjustment of other balance sheet items, provided that the differences from the old to the new accounting or valuation are significant.

### 2. Allocation of Value Changes

The value changes in the adjusted balance sheet are to be allocated

a. to the revaluation reserve in equity if they arise from the revaluation of financial assets,

b. to the corresponding funds and special financing if they arise from the valuation of their balance sheet items, or

c. to the appreciation reserve in equity for all other value changes.

### 3. Restatement of the 2018 Financial Estimate and Annual Account

Based on the adjustments according to paragraphs 1 and 2, the financial estimate for 2018 and the annual account for 2018 shall be restated according to the provisions of this law. The adjusted balance sheet as of December 31, 2018, shall be adopted as the opening balance sheet as of January 1, 2019.

### 4. Transfer of the Revaluation Reserve

The revaluation reserve shall be transferred as of January 1, 2019, in a manner that does not affect the profit or loss, to the balance surplus or deficit.

### 5. Elimination of Balance Deficit

If a balance deficit still exists after the transfer of the revaluation reserve into equity as of January 1, 2019, it must be eliminated by an additional transfer of appreciation reserves in the amount of this deficit.

### 6. Annual Transfer of Appreciation Reserve

Furthermore, the transfer of the appreciation reserve to the balance surplus or deficit occurs annually to the extent of the additional depreciation justified by the appreciation of administrative assets outside special financing. This compensation amount is recorded as extraordinary income charged to the appreciation reserves.

### 7. Examination by the Municipal Audit Office

The implementation of paragraphs 1 to 5 shall be examined by the municipal auditing body, and the audit report shall be submitted to the cantonal financial supervision in accordance with §§ 99 ff. of the Municipal Code.

### 8. Preparation and Submission of the Balance Adjustment Report

A balance adjustment report shall be prepared on the opening balance sheet as of January 1, 2019. It is to be submitted to the cantonal financial supervision in accordance with §§ 99 ff. of the Municipal Code. The balance adjustment report is to be submitted to the voting public or the municipal parliament by June 30, 2019, for approval.

1. The municipalities shall amend their municipal regulations and, if necessary, other municipal laws to comply with the provisions of this Act by January 1, 2018.

1. The Government Council shall issue an implementing ordinance for this law.

1. To support the implementation of this law, the government council may permit individual municipalities to apply certain provisions of the law prematurely after the unused expiration of the referendum period or after the adoption of the law in a possible public vote.

1. This law shall enter into force on January 1, 2018, with the exception of § 71. § 71 shall enter into force with the unused expiration of the referendum period or after the approval of the law in a possible popular referendum.

2. This law is subject to an optional referendum.