1. Utility Financial Management
AWWA Intermountain Section Leadership Forum Session Two
November 12, 2013
Welcome as Clint and Andrea have indicated.
I participated in the Leadership Forum two years ago and found it to be very beneficial.

2. BUDGET PROCESS I will be discussing the Budget Process
Some general information…some specific to KID point of view / processes.
Please feel free to ask any questions or interject any comments as they come up.

3. Outline Who is Involved in Budget Preparation
Main Components to a Budget
Strategic Plan (Master Plan)
Annual Operating Budget
Annual Capital Budget
Approaches to Budget Preparation
Example of Budget Steps / Budget Process

4. Who Are the Players City Council/Board of Trustees Managers Accounting
Department Heads
Employee input
as appropriate

5. Strategic Plan Strategic Plan Video
Video that describes the benefit and necessity of an effective strategic plan
(Please excuse the sales pitch part of it)

6. Strategic Plan 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
This presentation is from the perspective of KID. Process will vary depending on size and unique situations of various entities.
Mission Statement: To provide quality service to the people of Kearns Improvement District, while supplying safe drinking water and sanitary sewer service.
Take Rate Study, Water Master Plan, Sewer Master Plan
Jordan Valley – 39% of operating expenses
Central Valley – 15% of operating expenses

7. Strategic Plan 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?”
Long term budget planning may ‘not look like work’, but it is much better than working with aggressive randomness. 

8. Strategic Plan
I thought this was appropriate as a sewer collection district. It is important to have a strategic plan with unintended consequences.

9. Strategic Plan A strategic plan provides the framework to prepare:
Annual Operating Budget
Annual Capital Budget

10. Operating Versus Capital
Operating Budget
Day to Day Revenues & Expenses
Payroll, Supplies, Legal & Professional
Capital Budget
Anticipated Useful Life of More Than 1 Year
Significant Value (Determined by Policy)
Equipment, Vehicles, Land Acquisition, Infrastructure Projects
This presentation is from the perspective of KID. Process will vary depending on size and unique situations of various entities.
Jordan Valley – 39% of operating expenses
Central Valley – 15% of operating expenses

11. Annual Operating Budget
Refinement & expansion of the strategic plan in the short term
Internal financial plan for a one-year period
Identifies operating requirements for that one-year period
Serves multiple purposes
Aids in making short range plans
Mechanism to achieve goals
Answers “Spend how much for what?”

12. Capital Budget 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

13. Operating Budget
Operating Budget:
Revenue
Expenses

14. Revenue First step in budget process
Can be influenced by external factors
Political - Considerable impact through rates
Physical - Weather
Other factors
Business cycles
Economic conditions
New development
Conservation
Tonight – Rate Hearing
Sometimes hard to follow strategic plan due to political impact – Two Board Members Up For Election
Weather – Revenue Fluctuates up to based on weather (hot summer versus wet summer) wet summer / spring compared to 2011…very hot…19% increase in water sales
New Development
Impact Fees – $427,000 / $99,000
Conservation
Effective = Less Water Sales = Less Revenue

15. Revenue Operating Revenue (Normal Course of Business): Water Sales
Basic service fees
Engineering review and inspection fees
Misc. fees:
Penalties, reconnection fees, sign-up fees, other income, etc.

16. Non-Operating Revenue
Property taxes
Interest income
Impact fees (be careful here)
Grant Proceeds

17. Operating Expenses Second step in budget process Expenses Include:
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.

18. Non-Operating Expenses
Debt service
Other

19. Capital Budget Break down into departments
Usually larger items requested by department heads
Items over a specified amount include:
Projects identified in strategic (master) plan
Line replacement
New reservoir
Meter replacement, reading hardware
Equipment, vehicle purchases
Computer hardware, software

20. Approach to Budget Preparation
Two processes: Top down or bottom up
Top Down:
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

21. Approach to Budget Preparation
Bottom up:
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

22. Approach to Budget Preparation
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

23. Budget Steps / Process
Provide Historical Information & Budget Sheets to Managers (Early August)
Manager’s Budget Requests Due (Early September)
Preliminary (September)
Tentative (October)
Proposed (November)
Public Input
Rate Hearing
Final (December)

24. Preliminary Budget
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, inform council/board
Accurate as possible to mitigate future changes and confusion.

25. Tentative Budget
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
Set a public hearing date for approval of budget
Set a public hearing date for rate & tax increase (if applicable)
Advertise budget hearing & increases in newspaper
Post hearing information on public notice website
Display tentative budget for seven days before budget hearing date

26. Proposed Budget
Make adjustments to tentative budget based on council/board input
Update revenues and expenses (same as tentative process)
Prepare proposed budget
Present at budget hearing

27. Proposed Budget Presentation
Summarize operating, non-operating revenue and expenses
Include capital expenses
Determine budget surplus or deficit
If deficit, present how will it be covered
Rates (advertise and hold public hearing)
Property Taxes (Truth in taxation process)
Reserves

28. Proposed Budget Presentation
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

29. Final Approval Board meeting following proposed budget
Can have hearing before final approval if needed
Take public comments into consideration
Board/council approve budget
Send adopted budget to state auditor
Video - Objective