New Best Practices in Budgeting

Transcription

1 New Best Practices in Budgeting Presenters: Merrill King, Finance Director Minnetonka, MN Bradley Harris, CPA - Consultant University of TN Joseph Beach, Finance Director Montgomery County, MD Moderator: Crystal Dionne, CPA Bedford, NH Date: Sunday, May 18, 2014

2 Logistics Scan the QR code to download the presentation This session is 50 minutes long. There will be time for Q/A at the end. Please use the microphones for Q/A This session is worth 1 CPE credit Self-scan for credits or see a GFOA staff person Please complete the session evaluation

3 Our Speakers Merrill King, Finance Director Minnetonka, MN Master s LBJ School of Public Affairs; 23 years of government finance at both the State and Local levels Bradley Harris, Finance Consultant University of TN CPA and Certified Municipal Finance Officer; former Finance Director, now consultant to approximately 100 cities throughout TN Joseph Beach, Finance Director Montgomery County, MD MA George Washington University; JD University of Baltimore; served in a variety of senior management positions within Montgomery County

4 Roadmap for the Session GFOA Standing Committees (7) - Advisory Provide Direction to GFOA by formulating new policies, raising professional standards, and offering technological solutions. Promotes Professionalism Committee on Budgeting and Financial Reporting Recommends policies on budgeting, management and other related areas of public finance. The committee is a forum of information exchange about emerging issues, concepts and techniques. Currently 40 issued BPs

5 Roadmap for the Session Adopted by the Executive Board 2/28/14 Effective Presentation of the Budget Document Merrill - Last revision 1996 Establishing Government Charges & Fees Brad - Last revision 1999 Financial Forecasting in the Budget Preparation Process Joe - Last revision 1999 What s Next for the Budget Committee?

6 New Best Practices in Budgeting GFOA 108 th Annual Conference, Minneapolis May 18, 2014 Effective Presentation of the Budget Document BEST PRACTICE Merrill Shepherd King Finance Director/Treasurer Minnetonka, Minnesota

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8 The Budget Document Communication Goals: Identify services to be provided At what costs How it will be funded Rationale behind key decisions

9 Organization Logical flow and sequence of information Reduce redundancy

10 GFOA s Distinguished Budget Presentation Awards Program 1. Introduction & overview 2. Financial structure, policy & process 3. Financial summaries

11 GFOA s Distinguished Budget Presentation Awards Program 4. Capital & debt 5. Departmental information 6. Document-wide criteria (glossary & statistical/supplemental section)

12 Detail Convey only key information. Round numbers where appropriate. Scrub for numerical errors and typos. Excessive detail can detract from primary points.

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14 Design Simple & easy to use. Appealing front cover, color Tabs & dividers on hard copies Bookmarks & hyperlinks for electronic Accommodate large electronic files

15 Ensure work by different individuals and/or programs do not overlap and contradict each other. Example: Consistency between department presentations. Consistency

16 Highlights a.k.a. Budget-in-Brief Internal component or external document. Effective use of tables, charts and graphs saves narrative for analysis and interpretation.

17 Environmental Fund Expenditures & Revenue $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Recycling Fees Other Revenue Contract Rebate Expenditures

18 Bit-O-Budget

19 Bit-O-Budget

20 Format Hardcopy and web version should be identical, including page numbers. Font size and orientation (landscape v. portrait) should be consistent throughout document.

21 Format Pages should be numbered sequentially. Refer to GFOA s BP Website Presentation of Official Financial Documents.

22 Additional Resources BEST PRACTICES A Framework for Improved State and Local Government Budgeting (NACSLB, 1998) Statistical/Supplemental Section of the Budget Document (2005) Presentation of the Capital Budget in the Operating Budget Document (2008)

23 Additional Resources BEST PRACTICES Website Presentation of Official Financial Documents (2009) Presentation of the Departmental Section in the Operating Budget Document (2012) Budget Awards Program: Building a Better Budget Document (Fishbein, GFOA, 2013)

24 Additional Resources Budget Awards Program Home Page

25 Your honeypot is not empty. GFOA has resources for you.

26 New Best Practices in Budgeting GFOA 108 th Annual Conference, Minneapolis May 18, 2014 Establishing Government Charges and Fees BEST PRACTICE Brad Harris Finance and Accounting Consultant University of Tennessee

27 Government Services Direct Recipients Recreational Services Civic / Community Centers Facility Rentals Fitness Facilities Garbage Collection Libraries Museums Many others

28 user fees totaled $2.6 billion and were 21.1 percent of local governments $12.5 billion in total revenue.

29 over 500 different types of user fees. Source: Local Government User Fees, Best Practices Report ; Joint Legislative Audit Committee, 2004

30 A West Coast City Operating with a structural gap for more than fifteen years, but able to cover those gaps by using discretionary reserves and one-time funding sources. THEN, voter-mandated tax reduction rising pension costs due to stock market losses enhanced (negotiated) benefits steadily increasing employee health insurance

31 A West Coast City The situation had worsened to the point where these solutions were no longer enough to cover the projected structural deficit of $43 million in the next fiscal year, potentially growing as large as $102 million two years after that.

32 A West Coast City Comprehensive approach to improving its finances The city reviewed its financial policies, including its user fee policies. The city had limited ability to raise property taxes, so if services were not covering the intended portion of their costs with their fees, then that subsidization was taking away from the city s ability to fund other services that don t have as much potential to use charges and fees.

33 What to consider? Consider applicable laws and statutes before implementing specific fees and charges What does your local government charter, code, policies allow? Planning, timeliness are essential What is to be accomplished?

34 What to consider? Adopt formal policies regarding charges and fees Factors - affordability, pricing history inflation, service delivery alternatives Recovery - full cost? More or less than 100%? Other considerations - regulating demand, subsidizing, competition, demand, visibility Collection - how will fees and charges be levied and collected?

35 What to consider? Calculate the full cost of providing a service Direct and indirect costs Activity Based Costing Collection Costs

36 What to consider? Review and update fees and charges periodically Smoothing charges and fees Cost reduction Benchmark fees and charges with other jurisdictions

37 What to consider? Provide public with information on fees and charges Citizen feedback Disclose policies about cost recovery, subsidies, etc Providing the service on a on-going basis

38 Financial Forecasting in the Budget Preparation Process Presenters: BEST PRACTICE QR Code Joseph F. Beach, Director of Finance, Montgomery County, Maryland Date: May 18, 2014

39 Financial Forecasting: The Basics o Several years into the future o Underlying Assumptions and Methodologies o Concisely Stated o Regularly Monitored & Updated

40 Financial Forecasting: The Basics o Regularly use it and refer to it o Begin the process with it/end the process o Collaborate: Enterprise wide Iterative process

41 Financial Forecasting: Define Assumptions o Time Horizon o Objective of forecasting policy Conservative Objective/Accurate o Political and Legal Issues o Major Revenue & Expenditure Categories

42 County Council Approved FY14-19 Public Services Program ($ in Millions) Est App Projected Projected Projected Projected Projected FY13 FY14 FY15 FY16 FY17 FY18 FY Total Revenues Property Tax (less PDs) 1, , , , , , ,752.7 Income Tax 1, , , , , , ,695.4 Transfer/Recordation Tax Investment Income Other Taxes Other Revenues Total Revenues and Transfers Available 4, , , , , , ,902.5 Non-Operating Budget Use of Revenues Debt Service Current Revenue for the CIP Change in Reserves Retiree Health Insurance Pre-Funding Set Aside for other uses (supplemental appropriations) Total Other Uses of Resources Agency Uses Montgomery County Public Schools (MCPS) 2, ,084.3 Montgomery College (MC) MNCPPC (w/o Debt Service) MCG 1, ,325.9 Agency Uses 3, , , , , , ,173.9 Total Uses 4, , , , , , ,902.5 (Gap)/Available

43 Financial Forecasting: Gather Information o Inside and Outside o Disruptors: Events, Elections, Industries, and More o Document Assumptions o Other Long Term Planning Capital Budgets Maintenance Plans Replacement Funds Long Term Contracts Labor Contracts

44 Financial Forecasting: Preliminary/Exploratory Analysis o Business Cycles o Demographic Trends Population Employment School Enrollment o Outliers and Historical Anomalies Bubbles, Busts and Special Situations o Relationship between Variables What are the drivers: Costs and Revenues

45 Distributions S&P 500 Index November Distributions from October 15 Filings and Adjustments and the S&P 500 Index $ $ $ $ $ $ est. Tax Year Nov. Dist. S&P500

46 Financial Forecasting: Select Methods o Extrapolation Historical Data to Predict Future Behavior o Regression/Econometrics What are the Variables o Hybrid Forecasting Knowledge-based + Quantitative Method

47 Reassessment Rate Average Rate Real Property Reassessments by Levy Year (Three-Year Phase-In) Montgomery County 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% 17.0% 15.0% 26.0% 28.0% 44.0% 60.0% 42.0% 18.0% -3.1% -7.9% Historical Average: 17.9% 3.5% 5.5% 3.0% 1.1% 2.7% 6.4% 21.8% 13.5% 36.3% 51.8% 65.0% 63.3% 43.4% 16.2% -8.6% -10.6% -14.5% -17.0% 11.0% 4.1% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -40.0% Levy Year T riennial Reassessment Average SOURCE: State Department of Assessments and Taxation

48 Financial Forecasting: Implementation Issues o Which method or methods to use o Consider using ranges o Who are the Audiences Legislators Public Media Labor Rating Agencies o What are the objectives

49 Financial Forecasts: Use the Forecast Do: o Credibility/Trust o Transparency o Forces: What could change the forecast o Accuracy Tolerances Avoid: o Overpromising o Crying wolf

50 Financial Forecasting: Presentation o Message: Clear, Simple, and Reasoned o Consistency with Status Quo Assumptions If Not, Why there is a departure o Assumptions ==== Forecast o Implications of the Forecast o Collaborate

51 Pct. Chg. Annual Percent Change in lncome Tax Revenues from Withholdings, Estimated Payments, October 15 Filings, and Revenue Adjustments 30.0% 25.0% 20.0% 17.3% 18.4% 19.5% 24.0% Rate increase from 2.95% to 3.2% 15.0% 10.0% 5.0% 0.0% 10.9% 10.9% 3.2% 0.1% 2.0% 9.7% 5.5% 6.7% 12.8% 12.7% 10.6% 10.9% 8.8% 4.3% 8.9% 7.4% 8.8% 7.2% 6.2% 10.0% -5.0% -10.0% -15.0% First Gulf War and Recession Beginning of Three-year Stock Market Decline and Recession -8.3% -3.3% Stock Market Collapse and "Great Recession" -11.9% -4.9% -20.0% Tax Year

52 Financial Forecasting & Decision-making o Reserves All Weather Comparison to peer jurisdictions o Structural Balance Define Clearly

53 Financial Forecasting & Decision-making o Long Term Financial Planning Policy o Long Term Capital Improvements Operating Impacts Debt Service o Compensation & Benefits Policy

54 Financial Forecasting Resources o Best Practice: A Framework for Improved State and Local Government Budgeting, NACSLB, o Best Practice: Long-Term Financial Planning, o Best Practice: Appropriate Level of Unrestricted Fund Balance in the General Fund, 2002, o Best Practice: Inflationary Indices in Budgeting, 2010.

55 Financial Forecasting Resources o Best Practice: Appropriate Levels of Working Capital in Enterprise Funds, o Best Practice: Structurally Balanced Budget Policy, o Financing the Future, Shayne Kavanagh, GFOA, o Probability Management, Sam L. Savage & Shayne Kavanagh, GFR, February 2014, page 10-18

56 Coming Attractions Public Participation in Planning, Budgeting and Performance Management (last revision 2009) Alternative Service Delivery (combined with Managed Competition as an SD Option) (last revision 2007) Proposed: Monitoring the Budget (new) Proposed: Surplus Fund Balance in the GF (new) Proposed: Revenue Policies (new) Continuous Review of Committee Work Plan

57 o Questions? The End