Utility Financial
Management
AWWA
Intermountain Section
Leadership Forum Session Two
November 10, 2015
BUDGET PROCESS
Outline
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Who is Involved in Budget Preparation
Main Components to a Budget
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Strategic Plan (Master Plan)
Annual Operating Budget
Annual Capital Budget
Approaches to Budget Preparation
Example of Budget Steps / Budget Process
Who Are the Players
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City Council/Board of Trustees
Managers
Department Heads
Accounting
Employee input
as appropriate
Strategic Plan
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Strategic Planning Video
Strategic Plan
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Strategic plan is critical to budget process
Defines long-range goals and objectives
Starts and evolves around utility mission
Provides parameters for short range goals
Takes into account other partner entities
Top management identifies, implements, and
monitors long range goals in plan
Strategic Plan
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Importance of Effective Strategic Plan
Dilbert – “Do you prefer that I spend my day
planning which doesn’t look like work or should I
plunge in to my work with aggressive randomness?”
Strategic Plan
Strategic Plan
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A strategic plan provides the framework to prepare:
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Annual Operating Budget
Annual Capital Budget
Operating Versus Capital
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Operating Budget
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Day to Day Revenues & Expenses
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Payroll, Supplies, Legal & Professional
Capital Budget
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Anticipated Useful Life of More Than 1 Year
Significant Value (Determined by Policy)
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Equipment, Vehicles, Land Acquisition, Infrastructure Projects
Capital Budget
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Expansion of the strategic plan
Implementation of specific and prioritized projects
Move organization towards its goals
Schedule of large expenditures / projects
Planned several years in advance
May involve additional public
hearings, review meetings
Operating Budget
Operating Budget:
 Revenue
 Expenses
Revenue
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First step in budget process
Can be influenced by external factors
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Political - Considerable impact through rates
Physical - Weather
Other factors
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Business cycles
Economic conditions
New development
Conservation
Revenue
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Operating Revenue (Normal Course of
Business):
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Water Sales
Basic service fees
Engineering review and inspection fees
Misc. fees:
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Penalties, reconnection fees, sign-up fees, other income,
etc.
Non-Operating Revenue
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Non-Operating Revenue:
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Property taxes
Interest income
Impact fees
Grant Proceeds
Operating Expenses
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Second step in budget process
Expenses Include:
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Payroll, Payroll Taxes, EE Benefits
Water purchases, production, treatment
Utilities
Maintenance, materials, supplies
Contract / professional services
Training, travel
Legal & accounting fees
Vehicle repair and maintenance, etc.
Non-Operating Expenses
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Debt service
Other
Capital Budget
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Break down into departments
Usually larger items requested by department
heads
Items over a specified amount include:
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Projects identified in strategic (master) plan
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Line replacement
New reservoir
Meter replacement, reading hardware
Equipment, vehicle purchases
Computer hardware, software
Approach to Budget Preparation
Two processes: Top down or bottom up
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Top Down:
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Top Management decides the level of expenses
Divides them among department as needed
Budget developers follow management directives
Can be unrealistic, does not incorporate input of those who
implement it
Approach to Budget Preparation
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Bottom up:
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Department heads submit estimated expenses with
justification
Budgets are reviewed to eliminate unnecessary spending
and spending that can be delayed (let departments know)
Helps ensure spending is well-managed and not wasteful
Pushes decision making process down through organization
freeing senior management resources
Department heads can measure own performance and take
corrective action as required
Can lead to over budgeting causing issues in overall budget
Approach to Budget Preparation
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Can use a combination of both
Department heads submit expenses
Top management decides level of expenses
based on department estimations and historical
information, such as past actuals and YTD
projections
Budget is developed based on the above steps
Department budgets are managed by
department heads
Budget Management & Tracking
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Budget Management Video
Budget Steps / Process
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Provide Historical Information & Budget Sheets to
Managers (Early August)
Manager’s Budget Requests Due (Early September)
Preliminary (September)
Tentative (October)
Proposed (November)
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Public Input
Rate Hearing
Final (December)
Preliminary Budget
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Incorporate department estimates into
operating budget and capital budget
Review 2-3 years actuals, YTD actuals, and
projected
Estimate revenue, expenses and capital
Prepare preliminary budget for council/board
review (not required by law but is a good tool)
If recommending rate increase or tax increase,
inform council/board
Tentative Budget
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Make adjustments to preliminary budget based on
council/board input (show adjustments)
Update YTD numbers
Update revenues, expenses, and capital budget
Prepare tentative budget, present for adoption
After adoption
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Set a public hearing date for approval of budget
Set a public hearing date for rate & tax increase (if
applicable)
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Advertise budget hearing & increases in newspaper
Post hearing information on public notice website
Display tentative budget for seven days before budget hearing date
Proposed Budget
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Make adjustments to tentative budget based on
council/board input or public input
Update revenues and expenses (same as tentative
process)
Prepare proposed budget
Present at budget hearing
Proposed Budget Presentation
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Summarize operating, non-operating revenue and
expenses
Include capital expenses
Determine budget surplus or deficit
If deficit, present how will it be covered
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Rates (advertise and hold public hearing)
Property Taxes (Truth in taxation process)
Reserves
Proposed Budget Presentation
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From rate increase and/or property taxes:
 Present proposed increases
 Present amount of revenue derived from increases
From reserves:
 Acts as a storage reservoir
 Part of an overall long-term financial plan (strategic plan)
 Specific goals should be established
 Emergency fund
 Debt service fund
 Anticipated capital project funds
 Operating reserves based on xxx days (determined by management in
strategic plan)
 Replace what is taken
 Cities have different reserves requirements and constraints
Final Approval
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Board meeting following
proposed budget
Can have hearing before final
approval if needed
Take public comments into
consideration
Board/council approve budget
Submit adopted budget to state
auditor
What Budget Cuts Are Like
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Budget Cut Video