1. 1 Why Budgeting Matters NC Local Government Budget Conference Wilmington, NC July 2007

2. 2 Outline Rationale for Why Budgeting Matters Rationale for Why Budgeting Matters Illustrate Rationale Using Examples from Charlotte-Mecklenburg Utilities Department Illustrate Rationale Using Examples from Charlotte-Mecklenburg Utilities Department

3. 3 Why Budgeting Matters 1. Numbers help us evaluate policy choices –Without numbers, planning is fantasy 2. Numbers make planning real –It quantifies the options and informs decision-making 3. Numbers help us manage the enterprise

4. 4 1. Numbers Help Evaluate Choices Without numbers, planning is fantasy Without numbers, planning is fantasy –How do we know to do X vs. Y? Help evaluate and determine public policy Help evaluate and determine public policy –Quantifies options Without numbers, analysis is not possible Without numbers, analysis is not possible

5. 5 Charlotte City Council Policies Average residential rate increase must be 8% or less Average residential rate increase must be 8% or less Fund balance must be maintained at 35% of next year’s operating budget Fund balance must be maintained at 35% of next year’s operating budget We could not evaluate policies if not for the numbers.

6. 6 2. Numbers Help With Planning Control spending Control spending –NC General Statute Make possible financial planning/analysis for a community/organization Make possible financial planning/analysis for a community/organization

7. 7 Why is Financial Planning Important? Resources must be adequate to meet needs (cash flow) Resources must be adequate to meet needs (cash flow) Cost savings (competition and optimization) Cost savings (competition and optimization) Credit Rating Credit Rating

8. 8 CMUD Financial model Update yearly for 7 year period Update yearly for 7 year period Projects a level of spending for capital program Projects a level of spending for capital program Projects operating budget Projects operating budget Projects revenues Projects revenues

9. 9 Fund Balance Model 20122011 2010 2009 Revenue bond issues $441,700$372,980 Bonds test % of expense Rates Total Expense Debt Service PAYG Operating 1.27 1.27 1.30 1.30 38%39% $ 105,763 $99,825 $99,825 7.69%5.94% $318,979 $318,979 $298,717 $298,717 165,073 165,073 146,188 146,188 38,950 38,950 42,450 42,450 $114,956 $114,956 $110,079 $110,079 1.18 1.18 39% $98,731 $98,731 7.99% $276,562 $276,562 150,199 150,199 20,950 20,950 $105,413 $105,413 1.20 1.20 40% $93,371 $93,371 5.77% $258,728 $258,728 133,729 133,729 24,050 24,050 $100,949 $100,949 1.16 1.16 40% $90,193 6.74% $255,741 $255,741 130,212 130,212 28,850 $96,679 $96,679 2008 51%49%53%51% 53% Debt Service % Commercial paper $165,974$185,400$211,900$229,800 $211,000 $211,000

10. 10 CIP Needs 10 year needs 10 year needs 5 year CIP 5 year CIP 1 year budget 1 year budget

11. 11 Identifying Projects Land use Land use Council priorities Council priorities Advisory input Advisory input Special needs Special needs Public-neighborhoods & developers Public-neighborhoods & developers

12. 12 Prioritization of projects City City Internal Internal

13. 13 Program Category: Sewer Project Title: Street and Minor Sewer Main Extension Funding Status: First Year  Project provides for sewer service extensions to residential customers 1,000 feet or less from an existing sewer line per Council approved policy.  Project also provides for extensions when health hazards are created in association with septic tank deterioration, sewage demand beyond capacity, or when on-site disposal systems are constructed in unsuitable soil conditions.  Need is based on customer requests and on the presence of sewer health hazards. Project Description: Notes CMU CIP Project Number: 99S04 Account Number: 633.79 Appropriations to Date: $98,700,000 Estimated Balance June 30, 2005: $9,644,706 $31,500,000$5,800,000 $8,300,000Total $31,500,000$5,800,000 $8,300,000Sewer Revenue Bonds Revenues $31,500,000$5,800,000 $8,300,000Total $0 Equipment $23,500,000$4,200,000 $6,700,000Construction $500,000$100,000 Acquisition $7,500,000$1,500,000 Planning/ Design Total2008-092007-082006-072005-062004-05Costs Operating Budget Impact: Additional costs are anticipated for labor, service call response and routine maintenance.

14. 14 FY 06-10 Capital Investment Projects/Water Project Title Prior ApproEst. BalFY06FY07FY08FY09FY105 Year Totals Franklin to Vest- Raw/Finished WM ROW$300,000$290,000$0$60,000$0$60,000$0$120,000 Fire Hydrant Installation/Replacement$415,000$212,000$0$50,000$0$50,000$0$100,000 2007 Annex. Area Water Mains$0 $44,000,000$0 $44,000,000 GIS Facilities Mapping$3,000,000 $2,450,00 0$0 $400,000 $1,200,000 Sam Furr Rd$0 $1,000,000$0$1,000,000 Northeast Water Transmission Main$3,600,000$410,000$0 $8,000,000 N Meck WTP Expansion 25 to 50 MGD$0 $3,500,000 2009 Annexation Areas Water$0 $4,000,000 WM Relocated Wallace Neal Rd.$0 $1,500,000 East Transit Corridor Improvements$0 $1,000,000 North Transit Corridor Improvements$0 $1,000,000 Water CIP Total $44,781,000$14,960,000$69,250,000$16,360,000$34,250,000$179,601,000

15. 15 Sources of Capital Funds G.O.RevenueCommercial Paper CreditTaxRatesRates VoteYesNoNo Term Long (20+yrs) Short (8+-mths) Issue100% Cash Flow Year RiskLowLow/ModerateModerate Rates4.15%4.53%3.55% Example$3M /36 month construction $1M/year $83,000/month

16. 16 Cash Flow Time PeriodTotalBond SaleBond Funds AvailableProjected Balance Forward 2,992,245 May-05 $11,368,030 31,477,142 $19,852,786 June-05 $25,297,488 200,000,000206,179,654 $23,125,690 July-05 $ 8,881,082 197,298,572 $22,178,205 August-05 $23,373,222 173,925,350 $25,378,038 September-05 $15,037,758 158,887,592 $22,427,867 October-05 $15,215,100 143,672,492 $24,860,380 November-05 $21,682,618 121,989,874 $21,682,618 December-05 $18,922,645 103,067,229 $18,922,645 January-06 $21,110,933 81,956,296 $21,110,933 February-06 $18,752,597 63,203,698 $18,752,597 March-06 $16,993,287 46,210,411 $16,993,287 April-06 $18,004,243 28,206,169 $18,004,243 May-06 $16,599,651 11,606,518 $16,599,651 June-06 $15,016,028 200,000,000196,590,490 $15,016,028 July-06 $15,854,665 180,735,825 $15,854,665 August-06 $18,069,140 162,666,686 $18,069,140 September-06 $17,986,393 144,680,293 $17,986,393 October-06 $20,863,043 123,817,250 $20,863,043 November-06 $18,799,733 105,017,518 $18,799,733 December-06 $17,692,733 87,324,785 $17,692,733 January-07 $16,877,233 70,447,552 $16,877,233 February-07 $15,075,900 55,371,653 $15,075,900 March-07 $14,896,400 40,475,253 $14,896,400 April-07 $13,996,338 26,478,915 $13,996,338 May-07 $15,034,251 11,444,664 $15,034,251

17. 17 Allocating Capital Costs to Customers Today’s customers (rates/paygo) Today’s customers (rates/paygo) New customers (capacity fees) New customers (capacity fees) Today’s and future customers (rates/debt service) Today’s and future customers (rates/debt service)

18. 18 Conservation Rates Water 3.22 Variable Charge (per Ccf) 1.80 Fixed Charge (per account) Sewer 1.73 Non-Residential Non-Residential 4.31 - Block 3 - Block 3 2.18 - Block 2 - Block 2 1.33 - Block 1 - Block 1 Residential Residential Variable Charge (per Ccf) $1.80 Fixed Charge (per account) FY 2008Charge Type

19. 19 Capacity Fees $1,295Sewer $408Water FY 2008 ¾” Line Capacity Fee Formula: Net book value of asset # of units of plant capacity X Average daily consumption

20. 20 3. Numbers Help Us Manage Resources Resources Projects Projects Operations of the Organization Operations of the Organization We Do This Through a Number of Methods.

21. 21 Operations Increase expenditures – 4% Increase expenditures – 4% Growth in accounts Growth in accounts Water billed Water billed Rate impacts on different capital spending scenarios Rate impacts on different capital spending scenarios

22. 22 Rate Impact

23. 23 Rate Impact ($277 M)

24. 24 Water Billed (FISCAL YEAR) Projected Budget 34.2 35.8 33.2 33.3 30.4 34.6 32.8 33.5 30 31 32 33 34 35 36 37 38 39 40 20012002200320042005200620072008 Billions of Gallons

25. 25 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% JulyAugSeptOctNovDecJanFebMarchAprilMayJune 2007 Average 1,274 733 150 (1,673) (2,175) (2,188) (2,396) (In thousands) 1,258 574 Cumulative 1,258 1,832 (558) (541) (583) (1,823) (502) (13) (208) Water Revenue as a Percentage of Total Annual Revenue

26. 26 Average Monthly Consumption Residential Usage per 100 Cubic Feet 8.2 8.25 8.34 8.83 11.44 11.88 10.9 5 6 7 8 9 10 11 12 13 2000200120022003200420052006

27. 27 Conclusion Planning (front end) and Evaluation (back end) are necessary activities Planning (front end) and Evaluation (back end) are necessary activities However…. However…. Budget is what keeps organizations grounded in the reality of: Budget is what keeps organizations grounded in the reality of: –What’s possible given resources –What the consequence of choices are –Managing the organization Without Budget, Planning and Evaluation wouldn’t be possible Without Budget, Planning and Evaluation wouldn’t be possible