WA STATE PUBLIC WORKS BOARD CENTRAL WA LOCAL GOVERNMENT REGIONAL ACADEMY August 28, 2013

1. WA STATE PUBLIC WORKS BOARDCENTRAL WA LOCAL GOVERNMENT REGIONAL ACADEMY August 28, 2013 “KEY CONCEPTS IN A BUDGET PROCESS” Toni Nelson, Director of Professional Services Vision Municipal Solutions

2. Session Agenda • Principles of budgeting • Review key terms & concepts • Fiscal Sustainability • Reserves • Contingencies • Discuss policies and their role • Budget Process – how does it work?

3. Budget Definition The Budget is an economicplan that focuses the entity’s financial & humanresources on the accomplishment ofspecific goals & objectives established by the policy makers. The budget establishes the annual (or biennial) expenditure levels for “all “departments & funds. • These expenditure levels are called appropriations, and they represent spending limits.

4. Budget definition continued…… • The mission of the budget process is to help decision makers make informed choices about the provision of services and capital assets and to promote stakeholder participation in the process. National Advisory Council on State and Local Budgeting

5. What is a budget? • It’s more than a way to authorize expenditures. • More than just a management tool • The budget is a political and managerial process that has financial and technical dimensions. • GFOA (Government Finance Officers Assoc.) has identified a critical gap in the local budget process. Which is the: • Long-term implications of current decisions

6. It’s a long time horizon….. What is that we see on the horizon Will our budget decisions today impact future years and if so, did we plan for it? We’ve heard about vision / purpose Now let’s translate it into long term accomplishments

7. National Advisory Council on State and Local Budgeting (NACSLB) 1. Stakeholder Input 8. Adjust as necessary 2. Vision/Mission 7. Monitor results 3. Short-term goals 6. Adopt budget 4. Direction to staff 5. Operating / budget Impacts

8. 1 Stakeholder Input • Citizen / taxpayer to Policy Maker • “I’ll trust you with my taxes but I want equal value (or better) in return” • How do we know what the citizens value? • Citizen Surveys • Formal surveys • Citizen interest • Citizen satisfaction • Topical surveys • Bond elections • Facilities (Library for example) • Focus Groups

9. NACSLB – Principal 1(National Advisory Council on State and Local Budgeting) • Establish Broad Goals to Guide Government Decision Making • A government should have broad goals that provide overall direction for the government and serve as a basis for decision making.

10. 2 2 Set Broad Goals • Consistent direction over a period of years. • Usually not specific to programs or times • Incorporate other policy actions / documents • Comprehensive Plan, Park Master Plan, Capital Facilities Plan • Should review and update annually (biennial if you adopt a biennial budget) • Policy making at its best • An unusual council/board activity • Usually a retreat type setting • Usually requires some type of facilitation • Focus on what makes a better community • Communicate goals • To the community and to the staff • Newsletter, web site, announcements

11. Example 3 • Broad Goal – Promote Citywide Economic Development • Short-term Goals: • Develop promotional campaign • Improve feeling of safety in downtown • Review land use policies for alignment • Clarify standards and expectations for development permitting

12. Budget Priority Setting • Inherent step of the budget process: • Demand for services always exceeds resources • Use the information gathered from: • Community input • Management Retreats • Staff • Results will assist in determining those functions/programs considered the most important to the attainment of service goals and objectives

13. Budget Priorities/Level of Service • Strategic planning to evaluate results • Administrative Retreat • Council Retreat • Include capital assets as a component of “level of service” • Managing capital assets is often overlooked • Streets and Roads • Utilities • Evaluate the level of service to be provided • Use a matrix for ranking services • Essential • Discretionary • Mandated

14. Budget Priority SettingMethods used • Informal method (most often used by smaller entities) • Depends heavily on the judgment or intuition of key individuals • Does not follow a standardized set of procedures • Lack of consistency • Lack of transparency • Formal method • Follows a defined, consistent and usually written process • Provides increased transparency • Provides methodology for service evaluation • Provides greater level of accountability

15. Evaluating Level of Service Community priorities vs. revenue shortfall • What is our direction? • More of the same? • Something different? • Have we considered alternatives? • Contracting for services • Partnering with others • Use of volunteers

16. 2 3 Establish program priorities • Also known as “short-term goals” • Usually achievable in next few years. • Related to “broad goals” • The tangible policy direction related to specific budget proposals • Can be part of the same “broad goals” retreat • Might be too much to accomplish at one time • Build on prior work

17. Fiscal Sustainability • Sustainability is the notion that current economic and consumption patterns should not reduce opportunities for future generations by depleting or impairing resources. • Sustainability demands balance among economy, environment and community.

18. Fiscal Sustainability • “More with less” a short term solution • Need for long term solution in essential service areas • “Less with less” • not sustainable unless repeatedly applied • Sustainable budgeting requires: • Level of service evaluation • Evaluate supporting revenues in conjunction with service • Long term planning and evaluation • Contingencies • Reserves

19. Evaluating the Numbers • Do we have any of the known fiscal stress indicators? • Declining fund balances • Ending and beginning fund balance of 5% or less? • Interfund loans to the general fund for “operating” costs • Debt service ratio to operating revenues • Major employer has moved &/or reduced staff significantly • Current revenues no longer meet the demands of service delivery • Cost of service cannot be sustained at current levels

20. Red Flag indicators

21. Declining Fund Balance

22. Utility Fund Example

23. Financial Condition-Evaluation • Red Flag Checklist • Provides a starting point for further discussions • Evaluation of fiscal signs will assist with developing the budget strategy. • Fiscal review should include the question: • is this short term or long term? • What is the strategy to stop the bleeding?

24. Reserves & Contingencies • How much is enough? • GFOA recommended best practice • No less than 2 months of regular operating revenue or expenditures for the general fund. • Utility funds – no less than 45 days of working capital • Differences between reserves and fund balance • External demands and/or fiscal policies to set the definitions of “reserved” fund balances • Contingencies – what are they and why do we need them? • Historically, economic cycles will continue to occur • Contingencies are considered a best practice to handle the unknowns.

25. Fund BalancesShould it be used? • RCW 35.33.051 states that preliminary budget “shall include unencumbered fund balances estimated to be available” at year end. • Use the “Common sense test” when forecasting • Avoid using Beginning/Ending fund balances to balance M & O budget • RCW requires revenue forecasting, not appropriation! • Appropriating all revenue sources = zero cash at year end • Develop a financial policy for the maximum/minimum ending (unrestricted reserve) fund balances at year end

26. Long Range Plans –Ties to the Budget Process Capital Facilities Plan Historical Plan Fire Master Plan Park Plan Transportation Plan Land Use Plan Economic Development Plan ` Water Comp. Plan Public Safety Master Plan Storm Drainage Comp. Plan Sewer Comp. Plan

27. Capital Facilities Plan (CFP) • The CFP is a 6 – 20 year plan of capital projects with estimated costs and proposed methods of financing. • Required by those entities fully planning under the Growth Management Act (GMA) • It is a strategy for defining : • Public facilities needed • Where they will be provided • When the project will occur • How they will be financed

28. Connect the Dots….. • Connect current year capital spending with longer-term plans. • Concentrate on long-term financial sustainability. • Commitments to continuing outlays should be avoided unless ongoing supporting revenue growth is assured. • Commitment of income to debt service

29. Developing a Process for Preparing and Adopting the Budget

30. Balancing the Budget Keep your “eye” on the Priorities that you set! Look to the results of evaluating Level of Service: Reduction in services? Cut or eliminate? Delivery of service using new approach? Translate results to budget Communicate the results in your budget message

31. Budgeting Best Practices • Reserves • General Fund • Utility Funds • Contingencies • Plan for the unexpected • Long Term planning • Capital Replacement • Infrastructure enhancements • Evaluate results • Performance measures • Outcomes rather than budget compliance

32. Tools for Success Start early – use calendar Communications Public, Council, Staff Fiscal Sustainability evaluation Long-term planning Monitor and assess frequently throughout the year Outside resources available: GFOA.org (best practices) State Associations (AWC, APWA, MRSC, WACO) Professional Services