Bringing It All Together - Financial and Management Documents and Process

Program/Performance Budget (PPB - Form, Substance and Process) Part 3

The prior two sections dealt with the various management documents and reports that keep score of financial performance during the year, allowing for constant adjustments in projections, and the Program Budget itself, the forms requirement and the communication aspects of setting goals and objectives which then become an unambiguous guideline to form the basis of performance evaluations. We have also noted that the PPB process, by necessity and purpose, becomes a “living” document, a reflection of a communities values and desires in relation to time, and ever changing due to measurement updates.

Now it becomes important to briefly discuss what is in place to this point:
· PPB forms, calling for
- Clear Goals for each department which are
“SMART” goals (i.e. goals that are: Specific, Measurable,Achievable, Relevant and Time bound)
-Objectives defined necessary to reach stated goals
-Objectives which are measurable with numerical indicia

· Financial Reports to build the PPB budget
-Monthly estimated vs. actual revenues, by month, 5 year period
-Detailed Operating Cash Flow, breakout by source
-Debt Service Chart, inclusive of Rans and Tans, all future years
-Fixed Cost Chart, 5 prior years data
-Schedule of Contract Payments and Items requiring Public Bid process
-YTD actual vs. estimated expenses, by line item

-DETAILED REVENUE AND EXPENDITURE FORECAST – 5 YEARS INTO THE FUTURE, ORIGINAL ESTIMATE VS. ACTUAL DATA FOR THE PAST 5 YEARS.*

· This last report bears special attention. The accuracy of the ability to estimate future budget revenues and expenses are paramount. Revenue and expenditure forecasting is art, not science. It depends on the skill and experience of the forecaster. It also depends on circumstances that occur during any given fiscal year, and the ability to adjust quickly to those changes in a responsible and timely manner. The forecaster has to know the history of the flow of revenues, the trends over time, the factors requiring increases and decreases, and information of a programmatic basis often times discovered through professional financial organizations and various state sources. Also, with the advent of the internet, there is simply no excuse for lack of access to critical information about interest and debt markets critical to all banking and investment related decisions. There is now virtually no lag time between market fluctuation and investing decisions today. This should also be the case for municipalities.

Almost every financial reporting mechanism described above is in place to do one thing – provide better, more accurate data to decision makers in a timely fashion. It is designed to maximize options and decrease uncertainty. These become even more important when financial troubles hit a municipality. This is precisely when you need more and better options than when resources are abundant. WHEN THE REVENUE LINE CROSSES (RUNS BELOW) THE EXPENDITURE LINE, IT DOES SO WITH A VENGEANCE. This is the reality in Massachusetts municipal finance and management today. This is clearly seen in Fall River.

But there is something missing so far which is critical. That is the official “scorecard”of actual financial and management municipal performance, the annual audit. In this area, Fall River has serious problems. Due to an inexcusable situation with regard to timely audits, Fall River decision makers lack a true reflection of the City’s financial position. This is absolutely critical for access to debt markets without paying premium costs for lack of up to date information. Whatever factors are contributing to the lack of timely audits, all necessary resources must be directed to solve this major problem.
NO WELL RUN COMMUNITY IS TWO FULL FISCAL YEARS BEHIND IN ITS AUDITS BEING COMPLETED. THIS IS UNHEARD OF AND MUST BEE SEEN AS UNACCEPTABLE.
The next mayor must make it a top priority to end this issue during their first year in office. No fiscal certainty is possible without a timely and certain audit and associated management letter. This is a major issue that needs quick attention on Day 1 of the next administration.

Capital Improvement Plan

The only critical document and process not discussed to this point is the Capital Improvement Plan (CIP) and process. Typically, a formal process is devised for a committee of relevant department heads, City Council members and other Mayoral appointed representatives meet to consider all capital purchases brought forth by City departments for consideration and approval. All projects typically receive a grade based on factors of emergency need downward to wish list, and whether the item is subject to long term debt or operating budget source financing. Specific policies dealing with types and length of financing are typically approved by this committee, in conjunction with the Mayor’s finance people and in compliance with applicable state statutes defining types of items financed and associated maximum lengths of financing, based on the expected useful life of the items. Also, policies related to amounts and timing of debt, its reduction and “available” budget to fund further purchases based on percentage of overall budget are typically set by the CIP Committee, and approved by the Mayor and City Council. Obviously, the CIP process and summary document provides essential information to make up the operating budget request each year and limits uncertainty while making it possible to manage fiscal impact of even the most expensive and needed long term capital items.

The Budget Process – Timeline

It should never be the case that the Fall River City Council is presented with a Budget without maximum relevant explanations, supporting data, or the time to adequately review the Mayors Budget recommendations. Currently, the law provides for a 45 day period for review of the Mayoral Budget. Because the City Council members are not full time employees of the City, this maximum time should be utilized, especially during a time of fiscal stress. This would allow for questions to department heads and a public view of the process that needs to be presented to Fall River citizens to foster a real feeling of participation in the allocation of resources by their elected leaders. The more time devoted to public review of the budget, the more public support is likely to be achieved.

Most Massachusetts municipalities have already begun serious FY11 budget preparation and review, at least at the department level. The first realistic revenue forecast has also already begun. This is fairly easy to do, even with the uncertainty of additional 9C cuts looming for FY 10 because most well run communities have the full array of financial management reports and summary documents already discussed. They are at a stage where monthly updates are made and used to continuously adjust projections as the budget process moves forward. Once the PPB documents have been used for the first time, in conjunction with all supporting financial management documents, yearly filing becomes much easier and provides extremely reliable and useful information. And as stated in part 2, Communication between managers is improved because the attainment of goals and objectives renders hard number results as a starting point for performance reviews all along the information pyramid. Remember, policy flows down the pyramid from the Mayor, to department heads, to managers, to line employees, and performance and financial information flows upwards on that pyramid continuously until it reaches the Mayor’s Office.


Example of Budget Timeline:

July 1 - Beginning of Fiscal Year
July 15 - Final date for accruing revenue for previous FY
- Formal Closing in City Auditors Office begins
Aug. 1 - Initial revenue estimate for next FY
Sept. 1 - Mayoral Budget Message and PPB Forms sent to Dept’s
-CIP process for next FY begins
-Books closed for previous FY, ready for audit
Nov. 1 -Depart. submission of budget to Mayor
Jan. 15 -Mayoral review of budget submissions w/ Dept heads
Feb. 15 - CIP final recommendations
April 15 -Final Mayoral budget
May 1 - City Auditor notice to finalize PO’s
May 1 - Mayoral Budget to City Council
June 1 - All department spending stops, only salary and
special purchaeses
June 15 - Cutoff for all PO’s
- City Council passes budget
June 30 - FY ends