The Benefits and HowTo of Multiple Year Budgeting

1
The Benefits and How-To of Multiple Year
Budgeting

• Laurie Van Pelt, Director
• Department of Management and Budget
• Tim Soave, Manager Fiscal Services Division

2
Multiple Year Budgeting

• Presentation Overview
• Benefits of a Multiple Year Budget
• Benefits from Working as a Team
• Incentives With Early Reductions
• Communication and Transparency

3
Multiple Year Budgeting

• Background Information
• Oakland Countys first Biennial Budget was
  developed in 1987 for the 1988/89 period.
• Just this year, the line-item budget was expanded
  to a Triennial Budget for FY 2010 through FY
  2012.
• The budget message also includes a summarized
  long-term financial projection through FY 2015.

4
Benefits of Multiple Year Budgeting

• Ability to Identify Long-term Trends
• Ability to Develop Long-term Financial Goals and
  Strategies
• Major Long-term Issues are Addressed
• Goals and strategies for the next several years
  drive the resulting line item details.
• As opposed to traditional incremental line item
  budgets that simply build on the prior years
  annual budget.

5
Benefits of Multiple Year Budgeting

• A Multiple Year Rolling Budget Ensures Current,
  Relevant Long-term Outlook
• Timely and frequent budget amendments
• Adjusts current and subsequent years budget.
• Rather than being an annual event, a rolling
  multiple-year budget evolves year-round, is a
  more dynamic process, and helps to avoid
  last-minute discovery of a financial crisis.

6
Developing Budget Strategies through a Team Effort

• A Budget Task Force provides input to the County
  Executive for development of the Recommended
  Budget.
• The Budget Task Force is comprised of the Deputy
  County Executives.
• Support to the Budget Task Force is provided by
  the Departments of Management Budget and Human
  Resources.

7
Incentives for Early Reductions

• Elected Officials and Department Heads are
  credited for early reductions.
• Credits are one-time in nature and can be used to
  offset future years tasks if needed.
• This approach has resulted in implementing
  structural reductions sooner rather than later.
• An appropriate approach considering that the
  current downturn and its effects will impact
  local governments for many years to come.

8
Implementing Multi-Year Budgeting

• Focus on long-term Financial Stability
• Three steps
• Understanding financial position
• Revenue and cost drivers
• Hidden liabilities
• Political and economic realities
• Developing a strategic response to financial
  reality
• Implementing the multi-year budget process to
  reflect strategic response
• On-going activities
• Monitoring, evaluation, adjustments
• Specific Options

9
Foundation of Stability
10
Financial Position

• Realistic beginning point
• Fund balance
• Sustainable revenue considerations
• Economic realities (property taxes)
• Legal/Political realities (Bolt decision)
• Cost drivers
• Personnel (largest cost, all forms of
  compensation)
• Hidden liabilities (retiree health care)

11
Develop Strategic Response

• Focus on goals and priorities of organization
• Consider current organizational capacity and
  necessary steps to increase capacity
• Define vision for short- and long-term
• Concentrate on how we do business rather than
  how to change the size of how we have always
  done it
• Define options in terms of revenues and
  expenditures as well as efficiencies and cuts.

12
Developing a Strategic Response

• Ask questions to learn more about every aspect
  scope, basis, process. Look at little things as
  well as big ticket items. WHY!!!
• Communicate goals, plans, and changes from status
  quo.
• MANAGE EXPECTATIONS!
• Think long-term, at least 3 years.
• Take action now!

13
Responsive Budget Process

• On going activities
• Monitoring, evaluation, adjustments
• Monthly reports
• Transparency
• Multi-Year Amendments
• Quarterly Forecasting
• Beyond the Budget
• Specific Options
• Program Reductions
• Use of Credits

14
Budget/Finance Timetable
Receive Actuary Report
Board Budget Hearings
Submit Budget Recommendation
Prelim. Property Tax estimates
2nd State Revenue Conference
Governors Budget Proposal
Revenue Projections and Budget Parameters
Rebase Property Taxes
Adopt Triennial Budget
1st State Revenue Conference
Equalization Report
2nd Qrt. Forecast and Amendments
Year End Report and Amendments
3rd Ort.. Forecast and Amendments
1st Qrt. Forecast and Amendments
Amendments to all three years as required
(typically every two weeks)
15
Budgeting Timetable (10/1 9/30 Fiscal Year)

• REVENUE ESTIMATES
• November (11 months before FY begins)
  Preliminary Property Tax revenue estimates
• Based upon sales data as of September 30
• Includes estimates for next three years
• January / February (9 months before FY begins)
• Estimates of State revenues
• January Revenue Estimating Conference
• Governors Budget Proposal
• Analyze any statutory changes
• Estimate of Charges for Services and other
  Revenues
• Historical analysis
• Economic analysis
• Statutory analysis

16
Budgeting Timetable (continued)

• January First Quarter Financial Forecast
• Verify estimated revenues and expenditures
• Amend the budget as appropriate
• Add new information to estimates for the next
  three fiscal years
• March (6 months before FY begins)
• Finalize all revenue estimates
• Issue budget parameters based upon revenue
  projections
• April (5 months before FY begins)
• Obtain actuary report for pension and OPEB
• Submit Equalization report

17
Budgeting Timetable (continued)

• May (4 months before FY begins)
• Revise revenue estimates
• 2nd State revenue estimating conference
• Rebase property tax estimates
• Off new Equalization report
• Six (6) months of sales data
• June (3 months before FY begins)
• Finalize budget recommendation
• Based upon revised revenue estimates
• Second quarter financial forecast
• Department input

18
Control System Monthly Monitoring

• Monthly monitoring of budgeted revenues and
  expenditures
• Financial system distributes monthly reports
  automatically
• Managers and financial staff talk monthly
  regarding issues and concerns
• Key administrative team reviews specific
  problem areas on a monthly basis
• Reports automatically posted on website
  http//www.oakgov.com/fiscal/info_pub/monthlyrepor
  ts.html
• Managers expected to Manage

19
Multi-year Amendments

• Multi-Year Rolling Budget AND Amendments
• At least biennial
• Budget amended when required, not limited to
  specific time period (e.g. quarterly)
• Budget amendments cover current fiscal year AND
  the remaining years of the plan
• Allows us to maintain a clear picture of the
  planned use of resources for a multi-year period

20
Quarterly Forecasting

• Includes YTD results estimated projections for
  remainder of year, by control objective
• Operating results shared with department
  directors, corrections addressed quarterly,
  including budget amendments
• This allows for advance notice of potential
  problem areas with enough time for the
  administration and policy board to make
  adjustments

21
Focus Beyond the Budget

• To obtain more effective control over the units
  true fiscal condition, the balance sheet should
  also be monitored
• Simply meeting budget to actual goals will not
  help staying off fiscal disaster if the balance
  sheet is a mess to begin with
• Cash flow forecasting
• Inadequate cash flow will lead to reduced
  investment income, but could lead to higher cost
  should a unit be required to issue debt to meet
  daily demands

22
Summary Shortfall/Action Steps (in thousands)
FY 2010 FY 2011 FY2012 Shortfall
Estimates September 2008 (34,200) (
7,500) ( 15,100) January 2009 (
17 100) (33,800) ( 43,600) June 2009
( 14,300) (29,900) ( 26,900) Total
(65,600) (71,200) ( 85,600) Actions
Steps Eliminate Planned 2.0 Raise
4,500 4,500 4,500 FY 2010 2.5 Salary
Reduction 5,823 5,823
5,823 FY 2011 2.5 Salary Reduction
0 5,713 5,713
Sub-Total Personnel 10,323 16,036
16,036 CCIRF Appropriation 7,600
11,500 13,000 Property Tax Forfeiture
Payment 2,800 0
0 Suspend Tri-Party Allocation
2,250 2,250 2,250 Reduce Capital
Improve. Transfer 2,000
2,000 2,000 Reduce Building/Liability
Charges 1,000 1,000
1,000 Jail Population Fund Appropriation
645 645 645 Sub-Total
County-Wide Reductions 16,295 17,395
18,895 Budget Tasks 10,000 20,000
30,000 Task accomplished with 09/10 budget
34,200 0
0 Structural Reductions FY 2011
0 5,000 5,000 Structural
Reductions FY 2012 0
0 5,000 Sub-Total Elected
Officials Efforts 44,200 25,000
40,000 DTRF Equity 7,300 7,300
7,200 CCIRF Equity 7,100
7,100 7,100 Delinquent Persn. Prop.
Equity 1,766 1,766
1,766 Jail Population Fund Equity
1,300 1,300 0 Property Tax
Forfeit. Equity . 1,000 1,000
1,000 Sub-Total Non-GF Equity 18,466
18,466 17,066 Short Fall Before Transfers
23,684 5,697 6,397 On-time
Accelerations from 2010 (23,684)
23,684 On-time Accelerations from 2011
(29,381) 29,381 On-time Accelerations from
2012 (35,778) Remaining Shortfall
0 0 0
Specific budget tasks and action steps yet to be
determined
23
(No Transcript)
24
(No Transcript)
25

• Laurie Van Pelt, Director
• Department of Management and Budget
• vanpeltl_at_oakgov.com
• Tim Soave, Manager Fiscal Services Division
• soavet_at_oakgov.com

26
Additional Resources

• Example of Fiscal Note
• Extraction from Quarterly Forecasting Report