The Benefits and How-To of Multiple Year Budgeting Laurie Van Pelt, Director Department of Management and Budget & Tim Soave, Manager Fiscal Services Division

Multiple Year Budgeting Presentation Overview Benefits of a Multiple Year Budget Benefits from Working as a Team Incentives With Early Reductions Communication and Transparency

Multiple Year Budgeting Background Information Oakland Countys first Biennial Budget was developed in 1987 for the 1988/89 period. Just this year, the line-item budget was expanded to a Triennial Budget for FY 2010 through FY –The budget message also includes a summarized long-term financial projection through FY 2015.

Benefits of Multiple Year Budgeting Ability to Identify Long-term Trends Ability to Develop Long-term Financial Goals and Strategies Major Long-term Issues are Addressed –Goals and strategies for the next several years drive the resulting line item details. –As opposed to traditional incremental line item budgets that simply build on the prior years annual budget.

Benefits of Multiple Year Budgeting A Multiple Year Rolling Budget Ensures Current, Relevant Long-term Outlook –Timely and frequent budget amendments …Adjusts current and subsequent years budget. Rather than being an annual event, a rolling multiple-year budget evolves year-round, is a more dynamic process, and helps to avoid last-minute discovery of a financial crisis.

Developing Budget Strategies through a Team Effort A Budget Task Force provides input to the County Executive for development of the Recommended Budget. –The Budget Task Force is comprised of the Deputy County Executives. –Support to the Budget Task Force is provided by the Departments of Management & Budget and Human Resources.

Incentives for Early Reductions Elected Officials and Department Heads are credited for early reductions. Credits are one-time in nature and can be used to offset future years tasks if needed. This approach has resulted in implementing structural reductions sooner rather than later. An appropriate approach considering that the current downturn and its effects will impact local governments for many years to come.

Implementing Multi-Year Budgeting Focus on long-term Financial Stability Three steps –Understanding financial position Revenue and cost drivers Hidden liabilities Political and economic realities –Developing a strategic response to financial reality –Implementing the multi-year budget process to reflect strategic response On-going activities Monitoring, evaluation, adjustments Specific Options

Foundation of Stability

Financial Position Realistic beginning point –Fund balance –Sustainable revenue considerations Economic realities (property taxes) Legal/Political realities (Bolt decision) –Cost drivers Personnel (largest cost, all forms of compensation) Hidden liabilities (retiree health care)

Develop Strategic Response Focus on goals and priorities of organization; Consider current organizational capacity and necessary steps to increase capacity; Define vision for short- and long-term; Concentrate on how we do business rather than how to change the size of how we have always done it; Define options in terms of revenues and expenditures as well as efficiencies and cuts.

Developing a Strategic Response Ask questions to learn more about every aspect: scope, basis, process…. Look at little things as well as big ticket items. WHY!!! Communicate goals, plans, and changes from status quo. MANAGE EXPECTATIONS! Think long-term, at least 3 years. Take action now!

Responsive Budget Process On – going activities Monitoring, evaluation, adjustments –Monthly reports –Transparency –Multi-Year Amendments –Quarterly Forecasting –Beyond the Budget Specific Options –Program Reductions –Use of Credits

Budget/Finance Timetable Oct.Nov.Dec.Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept. Prelim. Property Tax estimates Year –End Report and Amendments 1st Qrt. Forecast and Amendments 2nd Qrt. Forecast and Amendments 3rd Ort.. Forecast and Amendments 1st State Revenue Conference 2nd State Revenue Conference Governors Budget Proposal Equalization Report Revenue Projections and Budget Parameters Rebase Property Taxes Submit Budget Recommendation Adopt Triennial Budget Amendments to all three years – as required (typically every two weeks) Receive Actuary ReportBoard Budget Hearings

Budgeting Timetable (10/1 – 9/30 Fiscal Year) REVENUE ESTIMATES –November (11 months before FY begins)– Preliminary Property Tax revenue estimates Based upon sales data as of September 30 Includes estimates for next three years –January / February (9 months before FY begins) Estimates of State revenues –January Revenue Estimating Conference –Governors Budget Proposal –Analyze any statutory changes –Estimate of Charges for Services and other Revenues Historical analysis Economic analysis Statutory analysis

Budgeting Timetable (continued) January – First Quarter Financial Forecast –Verify estimated revenues and expenditures –Amend the budget as appropriate –Add new information to estimates for the next three fiscal years March (6 months before FY begins) –Finalize all revenue estimates –Issue budget parameters based upon revenue projections April (5 months before FY begins) –Obtain actuary report for pension and OPEB –Submit Equalization report

Budgeting Timetable (continued) May (4 months before FY begins) –Revise revenue estimates 2 nd State revenue estimating conference Rebase property tax estimates –Off new Equalization report –Six (6) months of sales data June (3 months before FY begins) –Finalize budget recommendation Based upon revised revenue estimates Second quarter financial forecast Department input

Control System – Monthly Monitoring Monthly monitoring of budgeted revenues and expenditures –Financial system distributes monthly reports automatically –Managers and financial staff talk monthly regarding issues and concerns –Key administrative team reviews specific problem areas on a monthly basis Reports automatically posted on website: Managers expected to Manage

Multi-year Amendments Multi-Year Rolling Budget AND Amendments –At least biennial –Budget amended when required, not limited to specific time period (e.g. quarterly) –Budget amendments cover current fiscal year AND the remaining years of the plan –Allows us to maintain a clear picture of the planned use of resources for a multi-year period

Quarterly Forecasting –Includes YTD results + estimated projections for remainder of year, by control objective –Operating results shared with department directors, corrections addressed quarterly, including budget amendments –This allows for advance notice of potential problem areas with enough time for the administration and policy board to make adjustments

Focus Beyond the Budget To obtain more effective control over the units true fiscal condition, the balance sheet should also be monitored –Simply meeting budget to actual goals will not help staying off fiscal disaster if the balance sheet is a mess to begin with Cash flow forecasting Inadequate cash flow will lead to reduced investment income, but could lead to higher cost should a unit be required to issue debt to meet daily demands

Summary – Shortfall/Action Steps (in thousands) FY 2010FY 2011FY2012 Shortfall Estimates September 2008 $(34,200)$( 7,500) $( 15,100) January 2009 ( ) (33,800) ( 43,600) June 2009 ( 14,300) (29,900) ( 26,900) Total $(65,600)$(71,200)$( 85,600) Actions Steps Eliminate Planned 2.0% Raise $ 4,500$ 4,500$ 4,500 FY % Salary Reduction 5,823 5,823 5,823 FY % Salary Reduction 0 5,713 5,713 Sub-Total Personnel $ 10,323$ 16,036$ 16,036 CCIRF Appropriation $ 7,600$ 11,500 $ 13,000 Property Tax Forfeiture Payment 2, Suspend Tri-Party Allocation 2,250 2,250 2,250 Reduce Capital Improve. Transfer 2,000 2,000 2,000 Reduce Building/Liability Charges 1,000 1,000 1,000 Jail Population Fund Appropriation Sub-Total County-Wide Reductions $16,295$ 17,395$ 18,895 Budget Tasks $10,000$ 20,000$ 30,000 Task accomplished with 09/10 budget 34, Structural Reductions – FY 2011* 0 5,000* 5,000* Structural Reductions – FY 2012* 0 0 5,000* Sub-Total Elected Officials Efforts $44,200$ 25,000$ 40,000 DTRF Equity $ 7,300$ 7,300$ 7,200 CCIRF Equity 7,100 7,100 7,100 Delinquent Persn. Prop. Equity 1,766 1,766 1,766 Jail Population Fund Equity 1,300 1,300 0 Property Tax Forfeit. Equity. 1,000 1,000 1,000 Sub-Total Non-GF Equity $18,466$ 18,466$ 17,066 Short Fall Before Transfers $ 23,684$ 5,697$ 6,397 On-time Accelerations from 2010 (23,684) 23,684 On-time Accelerations from 2011 (29,381) 29,381 On-time Accelerations from 2012 (35,778) Remaining Shortfall $ 0$ 0$ 0 * Specific budget tasks and action steps yet to be determined

Laurie Van Pelt, Director Department of Management and Budget Tim Soave, Manager Fiscal Services Division

Additional Resources Example of Fiscal Note Extraction from Quarterly Forecasting Report