Evansville Administrator Overview; "Budget Starts with Revenue"

Much of the early stages of developing the city’s annual budget can take on a parochial  outlook. Each department or committee focuses on its piece of the budget in isolation;  the big picture comes later on when the Finance Committee and Common Council take a  comprehensive look at the budget as a whole.  Last week at Finance Committee and this week for Department Heads and for Common  Council, I presented a fiscal overview to give some of the broader context. This column  covers the highlights of my fiscal overview presentation. Budget as a Plan for Action I think it can be too easy to fall into a routine of viewing the budget as a once a year  exercise in number crunching. Maintaining financial control is an important function of the budget. We are required by state statute to have a balanced budget, and more  importantly we have a fiduciary responsibility to our taxpayers and customers. But we also use the budget to shape policy: for example, setting expectations for maintaining infrastructure or for hiring staff. We use the budget to set priorities. For example, the importance of quality of life and top notch services have been central  themes during recent Committee of the Whole meetings; these should be reflected in the  budget. We use the budget to improve organizational performance. The best example is our monitoring budget­to­actual variances throughout the entire year. And we use the  budget to provide long­term stability for the city’s finances. The budget is much more  than just a short­term, annual exercise. Budget Policies To ensure that long­term focus, we follow several policies when developing the budget. First and foremost: the budget starts with revenues. This message is so important that it  is in the Finance Committee and Department Head reference books, in fiscal  presentations, in newspaper columns, and I will keep repeating it to make sure it sinks in. The budget starts with revenues. This is the key to making sure we spend within our means. We maintain a structural balance in the budget. Although we are required to have a  balanced annual budget, we go beyond that with an eye toward being able to sustain the  budget in the long­term. The obvious example is to match one­time sources of money  with one­time uses. Grants or other donations are better used for individual projects or purchases rather than operations or staff which would continue to cost money every year after the grant. Another example is maintaining our assets, in particular infrastructure. In  a tight economy, we may be able to defer maintenance for a year or two, but it cannot  become a long­term approach. We also use the budget as a management tool. As mentioned earlier, we monitor variances throughout the year. We also allow Department Heads the flexibility to  combine or adjust individual line­items in their budgets so long as they stay within the  department’s overall budget and do not cause ongoing expenses or commitments. And  we formally consider budget amendments in the middle of the year and at the end of theyear. Our Department Heads are frugal in their own right, but I think these flexibility  features help to discourage spending to the budget – a problem common in some  municipalities. Financial Information My presentation provides some background information on historic tax rates, revenues and expenditures, and comparisons to other jurisdictions. I’m not going to repeat dry  statistics here today (maybe in a future column). However on an average property of $150,000, the city’s portion of the property tax bill would be $1,023. When looking at  what property taxes pay for police, fire, streets, library, parks, and other services, I think  we provide our taxpayers with a very good deal. Revenue Limits Our major sources of intergovernmental revenues are the shared revenue program, general transportation aid, and connecting streets program. These comprise a significant  portion of the general fund budget: close to $800,000. They have been prone to frequent  cuts over the last decade, including an $86,000 cut just last year. For much of the last decade we used growth in the tax base for a steady reduction in our tax rate. We operate under a very tight levy limit set by state law at zero percent or net  new construction. Zero is zero. And the net new construction would allow about $8,300  in new property tax levy for next year. This is a very small amount when compared to  the over $1.6 million levied for general operations. The state’s expenditure restraint program (ERP) is meant to encourage limiting increases in general fund operations regardless of the revenue source. By participating in ERP and  controlling our expenses, we receive a very helpful grant: just over $50,000 this year. It  is important for the city management to understand this program in an environment  where it can be easy to propose raising fees or fundraising. Fees and fundraising do play  important roles in portions of our budget, but we don’t want to jeopardize our ERP funds. Recommendations In preparation for the upcoming 2013 budget, I reviewed major cost drivers, particularly  where tax levy supported. We provide services, so personnel comprise a major portion of our operating expenses. There are wage increases in our union contracts, adjustments for staffing changes, health insurance premiums are anticipated to go up considerably, and  the formula for retirement contributions will have a significant increase for next year. In  the general fund alone, these personnel costs will exceed $55,000, varying across the  different departments. These added costs are offset by anticipated cost savings. Most notable is about $45,000  in reduced general obligation debt payments. Some projected savings in reduced  maintenance, energy, and computer expenses cover the balance. It is not an exact match, but I think close enough to call it a wash. We can afford the anticipated personnel  expenses without drastic cuts in operations. With the major expenses over which we  have limited control covered, I recommended Department Heads and committees use a“hold steady” budget target. Any increased operating expense should be matched with a  corresponding decreased expenses or new revenue source to keep in balance. We had a bit of a pause in major capital projects in 2011­2012. I recommended we  reinvigorate the city’s capital improvements plan (CIP) for systematic repair and upgrade of infrastructure. Having infrastructure projects identified in a five­year plan allows time  for planning, engineering, scheduling, and financing well in advance of potential capital  projects. With financing, it is particularly important to also consider cash on hand and to  balance debt payments with existing debt service projections. The Water & Light and  Public Works Superintendents and City Engineer have had a series of discussions to  evaluate potential projects. It is vital that we be both effective and efficient from the customer’s point of view, and I again recommended looking beyond the status quo. With a drive for excellence, we need  to be committed to continuous improvement. Recent examples of improved service  include the Public Works Department applying a salt brine prior to snowstorms in order  to reduce the time it takes to clear the streets; the Finance Department now accepting on­ line and by­phone payment of utility bills for better customer ease and convenience; and  paying bills on a weekly rather than monthly basis, consolidating our general and utility  accounts, and upgrading the accounting software to streamline processes and to eliminate  duplication of back office work. At the moment, we are waiting on a proposal to conduct revaluation of properties in the  city. By state law, each major class of property must be within ten percent of the full  value determined by the state Department of Revenue in a four year period. Our  commercial values are out of compliance at 86% of value. Furthermore, the assessor has commented that residential land values are off. Although awaiting the proposal, this cost  will likely be in the range of $40,000 to $80,000 (and need to be accomplished without  exceeding our budget limits). When the details are known, I expect to recommend this in  an amendment to the current 2012 budget. Conclusion We are listening. For your convenience, we’ve set an email address specifically for public budget suggestions: budget@ci.evansville.wi.gov. All suggestions will be  forwarded to the appropriate department, the Finance Committee, and the Common  Council. Department budget requests will be presented to the Common Council on Wednesday, September 26. Then the Finance Committee, Mayor, and I will recommend adjustments. The Common Council will hold a public hearing on Tuesday, November 13, to consider  the recommended budget. Although we are looking at a tight budget, it is doable. And we are in very sound  financial shape and positioned well for the future.