Financial Management

1
Chapter 4

• Financial Management

2
Understanding Budgets

• Budget documents
• Link resources to expenditures
• Translate financial resources into services
• Provide accountability
• It is up to the administrator to understand the
  budget process.
• Reports designed by accountants are not designed
  to measure success or outcomes.

3
Line-Item Budgets

• Easiest to understand and analyze
• Reported on a monthly basis
• Very good at controlling expenditures and
  tracking financial accounts
• Not very good at measuring real results or
  outcomes

4
Methods of Increasing Revenues (Page 1 of 3)

• Property tax
• Most common source for funding local governments
• Relatively easy to collect
• Flat rate as opposed to a progressive tax
• Reacts slowly to any changes in the value of
  existing properties

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Methods of Increasing Revenues (Page 2 of 3)

• Income tax
• Federal governments primary source of funds
• Progressive tax that is characterized by some as
  being more fair than a flat tax.
• Tax evasion
• Sales tax
• Common source of revenue at both the state and
  federal levels
• Will suffer the greatest immediate negative
  impact during poor economic times

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Methods of Increasing Revenues (Page 3 of 3)

• Fire service tax
• Can be calculated by using a fire flow formula
  and applied to commercial structures
• A standard fee per dwelling unit independent of
  size or value
• Fees
• Road tolls, drivers license fees, professional
  licenses, and ambulance transport fees

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Borrowing

• Municipal bondsshort and long term
• Used for purchasing
• Fire stations
• Apparatus for small departments
• Most have either an official or recommended debt
  ceiling
• If improperly used, can result in major financial
  crises

8
Basic Government Finance

• Gross national product (GNP) is the total output
  of the nations economy.
• Over 30 of the GNP is created from spending by
  government.
• The greatest majority, 70, is done by the
  federal government.
• Sixty-one percent of the federal budget is for
  entitlements such as Social Security, welfare,
  and Medicare/Medicaid.
• Only a very small portion of this spending goes
  to fire and emergency services.

9
Tax Expenditures

• The theory is that when someone does not pay,
  others will have to make up the difference.
• At the local level, exemptions are granted to the
  property tax for
• State and federal government
• Nonprofit organizations

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Budget Process Planning

• Planning
• Done at the agency level in most cases.
• Budget preparation
• Requests are prepared on standard forms provided
  by the finance agency.
• Budget justification and adoption
• Proposed budget receives a preliminary
  confidential review by the budget director and
  city manager.
• Budget administration
• Expenses and revenues are monitored in the budget
  and revised, if needed.

11
Role of the FES Financial Manager

• Review any proposed legislation.
• Determine fiscal impact.
• Set up an automatic referral system.
• Instruct staff to report the existence of any
  proposed legislation. to communicate with
  citizens groups, the press, and elected
  officials.
• Monitor the community for demographic changes.

12
Voting and Public Choice

• Governments must choose between many conflicting
  interests.
• Governments do not always know or do what is
  right, efficient, and in the best interest of the
  citizens.
• It is assumed that when all else is equal, voters
  will vote according to their pocketbooks.
• The chief must convince elected and appointed
  officials to spend taxpayers money on the
  department needs.

13
Bureaucrats and Other Agency Managers

• Most government agencies have few standards for
  public services.
• Fire service national standards
• Training
• Safety of personnel
• Deployment and staffing
• The administration of an FES organization is part
  of the government bureaucracy.
• Bureaucrats from other agencies are in
  competition for tax revenues.

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Cost-Benefit Analysis

• Difficult to measure benefits or outcomes from
  FES programs
• Can a dollar value be assigned to a persons
  life?
• Saving lives and property is the result of a
  complex set of circumstances, making cost-benefit
  analysis difficult.

15
Funding

• Advise staff not to bring any problems to the
  chief unless they also bring several possible
  solutions.
• Be prepared to recommend a funding source.
• If the proposed solution is a tax or fee, ask
  staff to generate a report detailing the impact
  on the person(s) paying.
• Ask for an analysis of the probability of
  convincing the public that it will be money well
  spent.

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Taxes

• Two primary reasons
• To bring revenue and to influence behavior
• Economic impact on market
• Every product and service has a price-demand
  curve.
• The effect at the local level of new regulations
  may be the loss of potential tax revenues.

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Who Bears the Tax Burden?

• When a tax is being judged for its equity, the
  ability to pay is a common measure of fairness.
• Progressive (federal income tax)
• Regressive (real estate tax)
• Businesses and corporations do not actually pay
  taxes, but pass the payment to stockholders,
  owners, employees, and customers.

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Fairness

• Once the person who pays the tax is identified,
  determine the fiscal impact.
• The ultimate test for fairness is whether the
  public benefits.
• Is the cost worth the improvement?
• The public and officials will support increased
  funding when improvement is measurable.

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Tax Avoidance and Evasion

• Numerous opportunities exist to avoid paying
  federal income taxlegal and not legal.
• There is a significant loss of tax revenues due
  to tax evasion.
• Real estate tax is nearly impossible to avoid.

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Economic Impact of Taxes on the FES Organization

• Most FES organizations are funded at the city or
  county level.
• Some of the most costly federal programs are not
  funded.
• Costs are driven by reduction in work hours and
  increases in salaries and benefits.
• Many FES organizations have improved productivity
  by offering expanded services
• EMS, hazardous materials mitigation

21
Alternative Funding Sources in FES

• USFA report Guide to Funding Alternatives for
  Fire and EMS Departments
• Provides information on locating and implementing
  both traditional and nontraditional methods of
  funding
• Discusses government sources for financial aid
• FEMA and the USFA awarded more than 495 million
  to over 6,600 fire departments throughout the
  United States.

22
Purchasing and Procurement Processes

• Chief must become very familiar with local
  policies.
• Identify any lines that are below or above
  expectations.
• It is a good idea to keep a separate personal
  record of the budget.

23
Accountability and the Audit Process (Page 1 of 3)

• Financial audits
• To ensure that the financial records are accurate
  and complete
• Fairly common
• Usually done on a yearly basis

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Accountability and Audit Process (Page 2 of 3)

• Performance audits
• Compliancemay check adherence to a legal or
  policy mandate
• Procedural, internal, or externalattempt to
  measure management policies and procedures

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Accountability and Audit Process (Page 3 of 3)

• Check for misuse of public funds
• Embezzlement
• Double payments
• Failure to follow procurement policy
• Padding of expense statements
• Misappropriation of funds

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Strategies to Counteract Adverse Economic Impacts

• Stay in close touch with elected and appointed
  senior officials and their staffs.
• Have current justifications and data to back up
  every item in the budget.
• Identify and eliminate unjustified expenditures
  in the budget.