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Home My WebLink AboutPresentation Town Workshop (ICMA detail)Budget Workshop Town of Westlake Proposed 2009-2010 Budget “Critical Challenges, Critical Choices” Proposed FY 09/10 Budget •Presented at 8/31 workshop •Held advertised public hearing at 8/31 regular meeting •Today: Second Budget workshop •Adoption: On tonight’s regular meeting agenda 4/15/2013 2 Key Thoughts •Problem or opportunity? •Opportunity to take a Strategic Approach •Confront the “brutal facts, yet never lose faith” •What is our “critical challenge and critical choice?” •Realigning our business model 4/15/2013 3 What We Need… •To realign our Business Model, we need a framework for analysis and how we think about Town services/finances •Strategic Plan Page 14 4/15/2013 4 What We Need…(cont) •What is that framework? •Achieving Fiscal Health & Wellness (Prioritization) 4/15/2013 5 ICMA Annual Conference Managing Your Budget During Turbulent Times: Achieving Fiscal Health & Wellness (Prioritization) Fiscal Health “Spend Within Our Means” Understand Variances (Budget vs. Actual) Incorporate Economic Analysis and Long-term Planning into Decision- Making Establish and Maintain Reserves Transparent About the “True Cost of Doing Business” ACHIEVING FISCAL HEALTH ICMA Senior Advisors: Jon Johnson and Chris Fabian September 2009 Montreal, Quebec Fiscal Wellness Achieve Fiscal Health Value Programs Based on Evidence of their Influence on Results Support Resource Allocation Decision Making with Prioritization of Programs Identify, Define and Value the Results of Government Identify Programs and Services ACHIEVING LONG-TERM FISCAL WELLNESS 7 Does This Look Familiar? $(150,000,000) $(100,000,000) $(50,000,000) $- $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fund Balance Uses of Funding Sources of Funding 20 0 9 - 2 0 1 0 P r o j e c t e d B u d g e t 20 1 0 - 2 0 1 1 B u d g e t F o r e c a s t 4/15/2013 Financial Forecast Illustrates the Challenge - 2.0 4.0 6.0 8.0 10.0 12.0 14.0 FY 08/09 Estimated FY 09/10 Proposed FY 10/11 Projected FY 11/12 Projected FY 12/13 Projected FY 13/14 Projected Mi l l i o n s Revenues Expenditures General Fund and Visitor Fund Balance Depleted 4/15/2013 8 9 Role of Diagnostician 4/15/2013 10 “Over the Counter” Treatment Treatment Options: •Fees for Service = Cost of Delivery •Freeze Vacant Positions (Temporaries?) •Across the Board “Cuts” •Defer/Delay Capital Projects •“Sharpen” Revenue Billing/Collection •Consolidated Purchasing/Contracting •Sell Underutilized Assets •Cost Allocation/Overhead Transfers •Freeze Salaries/Overtime Treatment Considerations: •Only a Short-Term “Fix” to Relieve Pain •Safe to apply with minimal diagnosis •Must have follow up diagnosis 4/15/2013 11 “Emergency-Room” Treatment Treatment Options: •Across the Board Budget “Amputation” •Hiring Freeze/Furloughs •Reduction in Workforce •4-Day work weeks •Reduce Services •Spend “Savings” Reserves •Early Retirement Incentives •Outsourcing/Shared Services •Resize or Restructure Treatment Considerations: •Don’t apply without diagnosis •Don’t be guilty of malpractice •Only to “Stop the Bleeding” 4/15/2013 12 Cosmetic Surgery Not a Solution •Accounting Gimmicks •Shifting Operational Costs to Capital Budgets •Deferring Compensations •Under fund Accrued Liabilities 4/15/2013 13 Achieving Fiscal Health & Wellness 2 Strategic Initiatives Fiscal Health Long-term Fiscal Wellness Fiscal Health “Spend Within Our Means” Understand Variances (Budget vs. Actual) Incorporate Economic Analysis and Long-term Planning into Decision- Making Establish and Maintain Reserves Transparent About the “True Cost of Doing Business” CG SC Fiscal Wellness Achieve Fiscal Health Value Programs Based on Evidence of their Influence on Results Support Resource Allocation Decision Making with Prioritization of Programs Identify, Define and Value the Results of Government Identify Programs and Services CG OG SC SS 4/15/2013 14 Fiscal Health “Spend Within Our Means” Understand Variances (Budget vs. Actual) Incorporate Economic Analysis and Long-term Planning into Decision- Making Establish and Maintain Reserves Transparent About the “True Cost of Doing Business” ACHIEVING FISCAL HEALTH 4/15/2013 15 Approach to Fiscal Health #1: Spend Within Your Means •Symptoms of Good Fiscal Health –Start with Revenues –One-time and Ongoing Alignment –Differentiate Program Revenues from General Government Revenues –Budget Allocations Responsive to Changes in Program Revenues •Spend Within Your Means in order to: –Base budgets on reliable sources of funding –Perform analysis to ensure reserves aren’t used for ongoing expenses –Prevent reliance on volatile revenues (that might not come in) –Promote revenue diversification –Engage departments in enhancing revenue sources –Provide for flexibility and promote collaboration when responding to program revenue shortfalls 4/15/2013 Town of Westlake $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 Mi l l i o n s Sales Tax Analysis Base Sales Tax Economic Development Agreements Audit Payments Average Annual Base Sales Tax = $1,867,897 Standard Deviation Base Sales Tax = $633,440 4/15/2013 16 17 Approach to Fiscal Health #2: Establish and Maintain Reserves •Symptoms of Good Fiscal Health –Establish Working Capital Reserve Policy –Indentify, Document and Understand All Reserves –Review Adequacy of Fund Balance Levels – too Little or too Much •Establish and Maintain Reserves in order to: –Provide a back-up plan for emergencies, revenue shortfalls, or other unforeseen changes –Set aside funding for long-range plans –Hold only the appropriate amount of reserves establishes credibility with internal and external stakeholders 4/15/2013 18 Approach to Fiscal Health #3: Understand Variances •Symptoms of Good Fiscal Health –Identify ongoing resources devoted to one-time or cyclical (“seemingly ongoing”) expenditures –Eliminate unnecessary contingencies maintained in department budgets –Analyze and understand revenue variances –Don’t overlook thorough analysis of budget-to-actual variances –Promote multi-year budgeting for capital projects –Refine salary and benefit projections, to align with actual costs incurred –Effectively monitor revenue billing and collection •Understand Variances in order to: –Promote collaborative engagement of organization in understanding variances –Allow for more effective budget monitoring and management –Provide source of “hidden treasure” when looking for budget reductions –Help identify the “fluff” –Uncover “shadow” / “decentralized” support functions hidden in department budgets 4/15/2013 19 Approach to Fiscal Health #4: Transparent About “True Cost of Doing Business” •Symptoms of Good Fiscal Health –Align supply/cost of internal services with customer demand –Appropriately allocate overhead and administrative costs to funds or departments who benefit –Identify total cost (direct and indirect) for all programs –Establish fees that recapture appropriate level of total costs of service delivery •Be Transparent About the True Cost of Doing Business in order to: –Engage departments in assessing demands for internal services –Promote enhancement of program revenues –Provide collaborative discussion of the total cost to provide services –Diversify burden from General Fund by appropriately sharing costs among other dedicated revenue streams –Establish cost parameters for assessing “centralization” vs. “decentralization” 4/15/2013 20 Fiscal Health “Spend Within Our Means” Understand Variances (Budget vs. Actual) Incorporate Economic Analysis and Long-term Planning into Decision- Making Establish and Maintain Reserves Transparent About the “True Cost of Doing Business” DIAGNOSTICS TREATMENTS ü Start with Revenues?: Do we begin fiscal discussions with available revenues, rather than expenses? ü Distinguish Between Ongoing vs. One-time Revenues / Expenses? DIAGNOSTICS TREATMENTS ü Appropriate Program Costs Shouldered by Users?: Do we know what overhead, administrative and internal services we provide, how much they cost, and how each customer influences the demand for service? ü Implement Internal Service Funds: Appropriately align supply/cost of service with customer demand ü Utilize Full-Cost Plan: Appropriately align cost/ supply of service with demand for all overhead and admin programs DIAGNOSTICS TREATMENTS DIAGNOSTICS TREATMENTS ü Reserve Requirements?: Are we clear about the reserves we must set aside (policy or mandate)? ü Reserves We Keep?: Do we know of every reserve we maintain, how much we maintain, and why we maintain them? ü Establish Reserve Policy: Establish clear policy to guide how much money to reserve, across the organization. ü Inventory Reserves and Keep What’s Needed: Reserve only what is necessary, and eliminate resource- allocations where possible. ü Distinguish Between General Gov’t and Program Revenues? ü Achieve Ongoing Alignment: Ongoing costs can only be funded with ongoing revenue. ü Achieve One-time Alignment: Fund one-time costs with unreserved fund balance, one-time sources (ex. Grants), dedicated ongoing revenue. ü Incentivize Self-Sustaining Programs: Allow programs to keep 100% of program revenue generated. ü Account for Impact of External/Economic Influences?: Do we incorporate economic trends into our forecasts? Are we accurate? ü Incorporate/Consolidate Long-term Plans into Forecasts? ü Plan for Ongoing Replacement/ Maintenance Costs? ü Trend Analysis and Forecasting: Identify and assess key influences on our revenue sources and expenses ü Decision Making Tool, Incorporating and Communicating Long- term Impacts: Model impacts of decisions with interactive decision- support tools DIAGNOSTICS TREATMENTS ü Budgeting For too Many Contingencies?: Does every dept / division budget for the unforeseen? ü Ongoing Operational Budgets Include Cyclical (one-time) Costs? ü Consistent Variances (Budget v. Actual) Year-to-Year? ü Consolidate Contingency Funding for Acceptable Level of Unforeseen ü Hone Salary/Benefit Forecasting Tools: Costs saved and unplanned due to vacancies/turnover can be significant.ü Ensure Variances Are Minimal and Explainable ü Know the Programs Offered, and How Much they Cost?: Do we know what programs we offer, how much they cost (direct and indirect)? ü Program Inventory: Identify each program offered by organization ü Program Costing: Price each program (direct and indirect costs) ACHIEVING FISCAL HEALTH Economic Analysis and Long-term Planning DIAGNOSTICS TREATMENTS ü Account for Impact of External/Economic Influences?: Do we incorporate economic trends into our forecasts? Are we accurate? ü Incorporate/Consolidate Long-term Plans into Forecasts? ü Plan for Ongoing Replacement/ Maintenance Costs? ü Trend Analysis and Forecasting: Identify and assess key influences on our revenue sources and expenses ü Decision Making Tool, Incorporating and Communicating Long- term Impacts: Model impacts of decisions with interactive decision- support tools •Does your Five-Year forecast incorporate other long-term plans developed by your organization? •Does your organization prepare a Capital Improvement Plan? If yes, what information is included and how is it utilized in your budget process and your financial forecasts? •What tools does your organization use to communicate financial information to its elected decision-makers? 4/15/2013 Labor and Employment Co n s u m e r S p e n d i n g Be h a v i o r Na t i o n a l a n d L o c a l Ec o n o m i c I n d i c a t o r s Housing and Commercial Growth Forecast Impact: - Wages up 3.7% - Unemployment down - Health care costs surging (12.6% increase) Forecast Impact: - Retail sales up 2.8% compared with 7.7% across metro region - Consumer spending cut backs expected Forecast Impact: - Interest rates up to 5-year high - GDP growth steady, but slow Forecast Impact: - Building permits down 9.2% - Home values increases 3.3%, compared with 12.6% nationally Treatment: Incorporated Economic Trend Analysis into Revenue and Expense Projections 4/15/2013 21 22 Economic Impact Analysis Determine What Really Matters Sales Tax Revenue Amount of Tourist Consumer Purchases Proclivity for Spending Job/Income Growth Consumer Confidence Number of Potential Consumers Conventions Attendees Strength of Tourist Season Spending Ability Spending on Taxable Goods and Services in Virginia Beach Debt/ Savings Spending on Non-Taxable e-Commerce National Macroeconomic Causal Factors Inflation Interest Rates Fiscal Policy Stock Market Housing Values Shopping Trends & Preferences Local Economic Forces Household Formation Local Shopping Environment Military Deployments Local Consumer Spending Amount of Area Resident Consumer Purchases Number of Tourists Spending on Taxable Goods and Services in Neighboring Communities Spending on Non-Taxable Goods & Services Leakages City of Virginia Beach, VA 4/15/2013 23 Approach to Fiscal Health #5: Economic Analysis and Long-term Planning •Symptoms of Good Fiscal Health –Incorporate all long-term plans in forecasting –Prepare comprehensive, multi-year Capital Improvement Plan, and clearly identify associated ongoing operating costs –Utilize simple, graphic communication tool to illustrate fiscal health position to all stakeholders •Focus on Economic Analysis and Long-term Planning in order to: –Use key indicators to forecast trends which frames and influences better decision making –Use of single graphic tool ensures shared understanding of long-term fiscal position –Promote accuracy and understanding of financial forecasting –Keep decision makers focused on high-level stewardship role –Identify potential points of failure and allows foresight in response –Provide for improved long-term planning and financial modeling –Allow scenario-planning which encourages flexible and adaptive decision-making 4/15/2013 From Health to Wellness 4/15/2013 24 25 Fiscal Wellness Achieve Fiscal Health Value Programs Based on Evidence of their Influence on Results Support Resource Allocation Decision Making with Prioritization of Programs Identify, Define and Value the Results of Government Identify Programs and Services ACHIEVING LONG-TERM FISCAL WELLNESS 4/15/2013 26 Across the Board Cuts Address $14.5 Billion Shortfall •California Governor’s Office: “Across-the-board approach spreads reductions as evenly as possible so no single program gets singled out.” •Reaction: “the governor’s approach would be like a family deciding to cuts its monthly mortgage payment, dining-out tab and Netflix subscription each by 10%, rather than eliminating the restaurant and DVD spending in order to keep up the house payments.” 2007 4/15/2013 27 Key Objectives of Prioritization •Evaluate the services we provide, one versus another. •Better understand our services in the context of the cause-and-effect relationship they have on the organization’s priorities. •Provide a higher degree of understanding among decision-makers as they engage in a process to rank services based on priorities. •Articulate to people in the organization and to the public how we value our services, how we invest in our priorities, and how we divest ourselves of lower-priority services. 4/15/2013 Differentiating Prioritization from other Approaches 29 •Objectives of Prioritization Re-define and Reach Beyond Traditional Conversations: –“Core vs. Non-core” –“Essential vs. Non-essential” –“Mandated vs. Non-mandated” “Trimming the Fat” “Separating the Wheat from the Chaff” “Cutting to the Core” Differentiating Prioritization from other Approaches 4/15/2013 Vision (3 Points) Key Result Areas (KRA’s) Strategic Goals Programs (Services) 4/15/2013 30 31 Steps to Successful Prioritization •1.) Determine Results –Accurate prioritization of programs, reflecting the City’s stated objectives, depends on the comprehensive identification of the Results we are in business to achieve •2.) Clarify Result Definitions –Precision in prioritization results from the articulation of the cause and effect relationship between a program and a Result –With clearly defined Result Maps, detailing the factors that influence the Results we are in business to achieve, we can seek to minimize subjectivity in the process of linking programs with Results •3.) Identify Programs and Services –Differentiating programs and services we offer, as opposed to comparing the departments who provide those services allows for better Prioritization •4.) Value Programs Based on Results –With the right Results, and with clear definitions of those Results, we can more accurately place a value on a program relative to its influence on achieving Results •5.) Allocate Resources Based on Priorities 4/15/2013 32 Developing a Program Inventory •Departments develop their own program inventories •When defining programs, be clear on the objectives of what inventory will be used for •Not too big, not too small, just right! –Measure relative size based on costs, people associated with program –Departments and Divisions = too big –Tasks = too small 4/15/2013 Vision (3 Points) Key Result Areas (KRA’s) Strategic Goals Programs (Services) We are Leaders High Quality Service Delivery Coupled with Financial Stewardship Establish a Strategy for Achieving Long- Term Financial Sustainability for the Town, including Westlake Academy Council to prioritize service options and provide staff direction on future budgeting and resource allocation 4/15/2013 33 Key Questions: •Why are we here? –i.e. – why does the Town exist as an incorporated municipality? •Answers: –Local control –Provide services •Our challenge – make sure Westlake residents have confidence in us, are getting value, so they are willing to invest in Town services. 4/15/2013 34