Why Budgeting Matters

1. Why Budgeting Matters NC Local Government Budget Conference Wilmington, NC July 2007

2. Outline • Rationale for Why Budgeting Matters • Illustrate Rationale Using Examples from Charlotte-Mecklenburg Utilities Department

3. Why Budgeting Matters • Numbers help us evaluate policy choices • Without numbers, planning is fantasy • Numbers make planning real • It quantifies the options and informs decision-making • Numbers help us manage the enterprise

4. 1. Numbers Help Evaluate Choices • Without numbers, planning is fantasy • How do we know to do X vs. Y? • Help evaluate and determine public policy • Quantifies options • Without numbers, analysis is not possible

5. Charlotte City Council Policies • Average residential rate increase must be 8% or less • Fund balance must be maintained at 35% of next year’s operating budget We could not evaluate policies if not for the numbers.

6. 2. Numbers Help With Planning • Control spending • NC General Statute • Make possible financial planning/analysis for a community/organization

7. Why is Financial Planning Important? • Resources must be adequate to meet needs (cash flow) • Cost savings (competition and optimization) • Credit Rating

8. CMUD Financial model • Update yearly for 7 year period • Projects a level of spending for capital program • Projects operating budget • Projects revenues

9. $211,000 $229,800 $211,900 $185,400 $165,974 Commercial paper $372,980 $441,700 Revenue bond issues Model 2008 2009 2011 2012 2010 $105,413 $100,949 $110,079 $114,956 $96,679 Operating 24,050 20,950 42,450 38,950 28,850 PAYG 133,729 150,199 146,188 165,073 130,212 Debt Service $258,728 $276,562 $298,717 $318,979 $255,741 Total Expense 51% 53% 49% 51% 53% Debt Service % 5.77% 7.99% 5.94% 7.69% 6.74% Rates $93,371 $98,731 $99,825 $ 105,763 $90,193 Fund Balance 40% 39% 39% 38% 40% % of expense 1.20 1.18 1.30 1.27 1.16 Bonds test

10. CIP Needs • 10 year needs • 5 year CIP • 1 year budget

11. Identifying Projects • Land use • Council priorities • Advisory input • Special needs • Public-neighborhoods & developers

12. Prioritization of projects • City • Internal

13. Funding Status: First Year Program Category: Sewer Project Title: Street and Minor Sewer Main Extension Project Description: Notes CMU CIP Project Number: 99S04 Account Number: 633.79 Appropriations to Date: $98,700,000 Estimated Balance June 30, 2005: $9,644,706 Costs 2004-05 2005-06 2006-07 2007-08 2008-09 Total $1,500,000 $1,500,000 $1,500,000 $1,500,000 $1,500,000 $7,500,000 Planning/ Design Acquisition $100,000 $100,000 $100,000 $100,000 $100,000 $500,000 Construction $6,700,000 $4,200,000 $4,200,000 $4,200,000 $4,200,000 $23,500,000 Equipment $0 $0 $0 $0 $0 $0 Total $8,300,000 $5,800,000 $5,800,000 $5,800,000 $5,800,000 $31,500,000 Revenues Sewer Revenue Bonds $8,300,000 $5,800,000 $5,800,000 $5,800,000 $5,800,000 $31,500,000 Total $8,300,000 $5,800,000 $5,800,000 $5,800,000 $5,800,000 $31,500,000 Operating Budget Impact: Additional costs are anticipated for labor, service call response and routine maintenance.

14. FY 06-10 Capital Investment Projects/Water

15. Sources of Capital Funds

16. Cash Flow

17. Allocating Capital Costs to Customers • Today’s customers (rates/paygo) • New customers (capacity fees) • Today’s and future customers (rates/debt service)

18. Conservation Rates Charge Type FY 2008 Water Fixed Charge (per account) $1.80 Variable Charge (per Ccf) Residential - Block 1 1.33 - Block 2 2.18 - Block 3 4.31 Non-Residential 1.73 Sewer Fixed Charge (per account) 1.80 Variable Charge (per Ccf) 3.22

19. Capacity Fees ¾”Line FY 2008 Water $408 Sewer $1,295 Capacity Fee Formula: Net book value of asset # of units of plant capacity X Average daily consumption

20. 3. Numbers Help Us Manage • Resources • Projects • Operations of the Organization We Do This Through a Number of Methods.

21. Operations • Increase expenditures – 4% • Growth in accounts • Water billed • Rate impacts on different capital spending scenarios

22. Rate Impact

23. Rate Impact ($277 M)

24. Water Billed (FISCAL YEAR) 40 39 38 37 35.8 36 35 34.6 Billions of Gallons 34.2 34 33.5 33.3 33.2 32.8 33 32 31 30.4 30 2001 2002 2003 2004 2005 2006 2007 2008 Projected Budget

25. Water Revenue as a Percentage of Total Annual Revenue 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% July Aug Sept Oct Nov Dec Jan Feb March April May June (558) (541) (583) (1,823) (502) (13) (208) (In thousands) 1,258 574 2007 Average Cumulative 1,258 1,832 1,274 733 150 (1,673) (2,175) (2,188) (2,396)

26. 13 11.88 12 11.44 11 10.9 10 8.83 9 8.34 8.25 8.2 8 7 6 5 2000 2001 2002 2003 2004 2005 2006 Average Monthly Consumption Residential Usage per 100 Cubic Feet

27. Conclusion • Planning (front end) and Evaluation (back end) are necessary activities • However…. • Budget is what keeps organizations grounded in the reality of: • What’s possible given resources • What the consequence of choices are • Managing the organization • Without Budget, Planning and Evaluation wouldn’t be possible