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
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Budgets
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Why We Budget
Preparing Your Budget
Presenting Your Budget
Operating Funds
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General Funding
Utility Funding
Capital Financing
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Revenue, Debt & Grant Financing
Public Private Partnerships
Budgets
A plan for managing your resources
Budgets
• Why We Budget
• Preparing Your Budget
• Presenting Your Budget
Why We Budget
It’s the Law!
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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
Operating funds are used for operation and
maintenance activities
Operating Funds
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The Funds
The Color of Money
Permission Slips
Generating Revenue
The Funds – Two Types
General Fund
• 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
• Parks, Police, Fire,
Planning, Finance, etc.
• Special Funds
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Transportation
Storm Drainage
Street lighting
Cemetery
Utility Funds
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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
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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
– 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
– Legal requirements
– Political considerations
– Public considerations
• Strategies
– Full cost vs. subsidized cost
– Periodic increases
– Rate comparisons
Capital Financing
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Cash
Debt
Free Money
Private Money
Cash – Current Revenue
• System Development Charges
– 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
– Eligible
– Allowable
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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
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Shareholder equity
Grant anticipation bonds
General obligation bonds
Revenue bonds
State infrastructure loans/funds
Federal grants
Direct user charges
Public Private Partnerships
Key Benefits
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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
– 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.