Planning and Performance Budgeting: Lessons Learned

Transcription

1 Planning and Performance Budgeting: Lessons Learned International Seminar on Building New Countryside and Promoting Balanced Regional Development for a Harmonious Society Hengyang, Hunan Province, China August 22, 2006 Harry Kitchen Economics Department,Trent University, CANADA 1

2 Importance of Budgets An important and necessary management and planning tool Properly structured municipal budgets contribute to the accountability/transparency of the overall municipal finance system and minimize corruption and misappropriation of funds. Properly structured municipal budgets and accounting systems provide invaluable information for almost every decision that local and rural governments make. 2

3 Budget Roles or Objectives Should achieve: Financial control Operational management Financial Planning - Forecasting - Risk Management 3

4 Structure of Municipal Budgets Generally involves the preparation of two budgets: 1. An annual operating or current budget that records projected revenues and expenditures plus relevant capital asset transactions for the upcoming fiscal year; 2. A capital budget that lays out future capital expenditure projects and anticipated revenues for funding these projects. 4

5 Municipal Budgets (cont.d) Consolidated budget combines the annual operating and capital budget. It records the amount of total estimated revenues available for the current period and the source of additional revenue for financing current and future capital projects. 5

6 Role of Budgets Financial control input oriented with emphasis on restricting expenditure increases and little or no attention devoted to benefits. Operational management based on achieving goals or outputs. This requires that targets or objectives be achieved. Financial planning - requires forecasting exp. and revenues with an emphasis on impact studies 6

7 Critical Issues in Budgeting Setting up performance budgets this requires that targets/goals/workloads be set and monitored. Forecasting and impact studies that measure the impact of current decisions on future budgets. Providing budgetary information that permits municipalities to manage risk to minimize liability costs. 7

8 Critical Issues: Capital Budgets, A Special Case Problems: Capital spending decisions often ignore future operating & maintenance costs. Some consider debt costs but almost all ignore opportunity costs in making budgetary decisions. Depreciation/asset replacement costs are often excluded from annual operating costs. 8

9 Critical Issues (cont.d) Infrastructure spending and growth management (controlling of urban sprawl & infilling) are often not integrated. Short-term projects are favoured over long term projects because of i) short term of locally elected officials; and ii) uncertainly of the impact of future annual interest and debt repayment charges on local budgets. 9

10 Fully Developed Capital Budget Has five steps: 1. Inventory of capital assets what exists, what is its age and condition. 2. Development of a capital investment plan (CIP) includes the urgency of building, benefits from it, cost and financial impact of project. 3. Development of multi-year CIP 10

11 Five Steps (cont.d) 4. Developing the financial plan this includes information on a rural municipality s ability to finance the project, sources of funds, etc. 5. Implementing the capital budget this involves the support of the public and taxpayers. 11

12 Critical Issues Developing Performance Measures Required in Australia, New Zealand and the province of Ontario in Canada. Three steps: 1. Defining the purpose of the service/ program. 2. Determining outcomes. 3. Selecting performance measures (outputs). 12

13 Examples of Performance Measures Solid waste collection and disposal operating cost per tonne or household; Water treatment operating cost per million litres of water treated; Water distribution operating cost per kilometre of distribution pipe; Sewage treatment and disposal - operating cost per cubic metre treated; 13

14 Examples (cont.d) Roads operating cost per lane kilometre; Fire protection operating cost per household or per $1,000 of assessment; Police protection - operating cost per household or per $1,000 of assessment; General administration costs - administration cost as a percentage of total municipal operating cost. 14

15 Advantage of Performance Measures Permits local officials to benchmark activities over time and with each other. Improves managerial accountability and provides a more competitive operating environment - incentive to improve efficiency. Helps municipalities develop budgets based on realistic costs and benefits. 15

16 Defining Performance Measures Requires accurate & complete data on input costs & measures of output. Input costs include total costs of activity. Output measures are straight forward for services such as water & sewage, solid waste collection and disposal, snow removal, etc. Output measures are more difficult for education, crime prevention, fire prevention, social services, nevertheless, they have been attempted. 16

17 Importance of Public Sector Accounting Standards To achieve: reliable, understandable, timely, and consistent information that meets the needs of persons for whom the statements are prepared. an accounting of the full nature and extent of the financial affairs and resources for which the municipal government is responsible. 17

18 Importance (cont.d) greater accountability of the municipal government in undertaking the financial affairs of the municipality and the resources entrusted to it. a proper accounting of the sources, allocation, and uses of financial resources in the period. information that shows the state of the municipal government s finances. 18

19 Users of Accounting Information External users include constituents, creditors, suppliers and those doing business with the govt. Internal users those involved with planning, organization, execution and evaluation of programs Senior levels of govt. 19

20 Critical Issues - Accounting Set up fund accounts wherever possible (water and sewer, for example). Use accrual based accounting that includes an annual measure of deprecation or capital assessment replacement costs (required in Australia and New Zealand). Recognizes that some monies are non-fungible - they must be spent on a specific service. Develop an asset management program this requires an assessment of the physical condition of the asset along with a plan for asset maintenance and replacement. 20

21 Critical Issues Financial Reports should provide information to determine whether current revenues are sufficient to pay for current year expenditures. This improves transparency and provides an incentive for municipal officials to be accountable for their actions. should provide information about the sources and uses of financial resources and about how the government finances its activities and meets its cash requirements. 21

22 Financial Reports (cont.d) should also provide information to determine whether the jurisdiction s financial position has improved or deteriorated as a result of the current year s operation. should provide enough information for users to assess the ability of the municipality to meet future commitments. This should include information about the financial position and condition of the municipal government, about the physical and non-financial resources that have useful lives that extend beyond the current fiscal year. 22