Financial Management by Jon Lang

Financial Management Why we do it! “The difference between financial management in the public and private sectors is that in public agencies you get a bag full of money at the beginning of the year and are told to spend it. In private enterprise you get an empty money bag at the beginning of the year and are told to fill it!” Michael Read

Financial Management How we do it! “Public works departments are not financed by waving a magic wand. They are created with the money that government is able to take away from its citizens.” Ludwig Von Ostrowski

Financial Management Who We Do It With! Finance Officers Qualification Test: Add these numbers: $1.00 2.00 3.00

Financial Management Budgets Operating Funds Capital Financing Why We Budget Preparing Your Budget Presenting Your Budget Operating Funds General Funding Utility Funding Capital Financing Revenue, Debt & Grant Financing Public Private Partnerships

A plan for managing your resources Budgets A plan for managing your resources

Budgets Why We Budget Preparing Your Budget Presenting Your Budget

Why We Budget It’s the Law! Must have a fiscal year budget Must be approved by June 30th Must be balanced Can be prepared biannually

Why We Budget To Manage Our Resources People Money Time

Why We Budget Local Policy Policy Influences Budgets Tax Levy Limits Utility Rates Franchise Fees Policy Gets Established Public Safety vs. Public Works Street Cleaning vs. Street Resurfacing

Preparing Your Budget Establish Your Mission What is your PW Mission? Do you have a Strategic Plan to accomplish it? Have you prepared Goals and Objectives? Has your governing body approved these items?

Preparing Your Budget Measure Your Mission Asset management How many assets do you have? What condition are they in? Benchmarking What should your activities cost? How many people do you need?

Preparing Your Budget Put It In Writing Incremental Budgeting (Selective increases or cuts from the current year) Program Budgeting (A budget for your objectives) Zero Based Budget (Establishes your mission, goals and objectives)

Preparing Your Budget Some Strategies You don’t get what you don’t ask for Just in case budgeting A chicken in every pot

Presenting Your Budget Know Your Audiences Elected Officials Short-term view and public desires Public Works Director Long-term view and infrastructure needs City Manager and/or Finance Director Policy and Legal view and an adopted budget Taxpayers Personal view and what I want

Presenting Your Budget The Internal Review Show “good management” Follow the rules and be realistic Don’t surprise the boss! Make deals ahead of time Get budget approval Close the sale now!

Presenting Your Budget The Public Presentation Have your supporters present Use charts and graphs Focus on: Meeting needs (The Mission) Cost-efficiency Political and public benefits

Operating funds are used for operation and maintenance activities

Operating Funds The Funds The Color of Money Permission Slips Generating Revenue

The Funds – Two Types General Fund Utility Funds Relies on property & business taxes Legal limitations on tax amount Competition for funds among agency departments Limited relationship to cost of service Utility Funds Relies on fees charged for a service Practical limitations on fee amount Limited competition for funds from other departments Usually based on cost for service

The Funds – Their Uses General Fund Utility Funds Parks, Police, Fire, Planning, Finance, etc. Special Funds Transportation Storm Drainage Street lighting Cemetery Utility Funds Sewer Solid Waste Storm Drain? Transportation?

The Color of Money Each fund is a different kind (color) of money Fund monies can only be used within that fund But, there are permission slips to use one fund’s money in another fund

Permission Slips Overhead Allocations Generally paid by utilities and special funds Pay for general services General management & council costs Finance Legal Purchasing Information Services Allocation formulas Based on labor or total revenue

Permission Slips Interagency Services Paid by one fund to another fund for providing services Why pay another fund for services? Policy Efficiency Politics The issues Loss of control Quality of work Scheduling

Permission Slips Franchise Fees Paid by enterprise funds to the general fund for the “right to operate” in the public right-of-way Cities can charge franchise fees Public and private utilities pay Funds go to general fund

Generating Revenue Utility Rates Permit Fees Providing Services Customer service fees Permit Fees Non-service fees Providing Services Interagency agreements Intergovernmental agreements Selling Products Sale of service by-products or unneeded items

Generating Revenue The Art of Setting Utility Rates Factors Strategies Legal requirements Political considerations Public considerations Strategies Full cost vs. subsidized cost Periodic increases Rate comparisons

Capital Financing Cash Debt Free Money Private Money

Cash – Current Revenue System Development Charges Utility Rates Taxes Paid by new development for capacity Reimbursement Fees Based on prior investment Improvement Fees Based on proposed improvements Utility Rates Taxes

Debt General Obligation Bonds Used for “public” capital improvements Require voter approval Backed by the taxing power and full faith and credit of the municipality Usually paid from property tax revenue Require time to plan, approve, and implement, so funds are not available on short notice

Debt Revenue Bonds Used to finance improvements for which fees are charged Backed only by the dedicated revenue source Higher interest rates because of less guarantee Usually no vote is required Funds can be obtained in a shorter time

Debt Assessment Bonds Finance local capital improvements through an LID or Assessment District Property owners pay assessments in cash or payments over 10+ years Used for water, sewer, streets, stormwater

Free Money? – Grants Strings attached Matching funds Lots of paperwork Eligible Allowable Matching funds Lots of paperwork The “public” likes them May not be worth it

Private Money – PPP Public Private Partnerships (PPP) are any scenario in which the private sector assumes a role greater than the traditional planning, design and construction for a fee in a public project.

Public Private Partnerships Typical Procurement Packages O & M on a performance basis Program management with cost and schedule incentives Design-build for fixed fee in fixed time Project build-operate-transfer (BOT) Design-build finance-operate transfer (DBFO) Build-own-operate (BOO)

Public Private Partnerships PPP Financing Methods Shareholder equity Grant anticipation bonds General obligation bonds Revenue bonds State infrastructure loans/funds Federal grants Direct user charges

Public Private Partnerships Key Benefits Expedited Project Completion Project Cost Savings Innovative Materials and Techniques Access to Private Capital

Public Private Partnerships Regional Examples Portland airport light rail Bechtel Portland I-5/I-405 interchange Peter Kiewit Wilsonville water treatment plant MWH CH2M

Final Thoughts Budgeting Operating Funds Capital Financing Getting your budget approved is an exercise in understanding people. Operating Funds Be creative but realistic in the use of these funds. Capital Financing Keep the tax and utility rates within acceptable limits.