Financial Management by Jon Lang

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Financial Managementby Jon Lang
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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

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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

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Financial Management

• Who We Do It With!
• Finance Officers Qualification Test
• Add these numbers
• 1.00
• 2.00
• 3.00

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Financial Management

• Budgets
• Why We Budget
• Preparing Your Budget
• Presenting Your Budget
• Operating Funds
• General Funding
• Utility Funding
• Capital Financing
• Revenue, Debt Grant Financing
• Public Private Partnerships

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Budgets
A plan for managing your resources
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Budgets

• Why We Budget
• Preparing Your Budget
• Presenting Your Budget

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Why We Budget

• Its the Law!
• Must have a fiscal year budget
• Must be approved by June 30th
• Must be balanced
• Can be prepared biannually

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Why We Budget

• To Manage Our Resources
• People
• Money
• Time

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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

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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?

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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?

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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)

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Preparing Your Budget

• Some Strategies
• You dont get what you dont ask for
• Just in case budgeting
• A chicken in every pot

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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

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Presenting Your Budget

• The Internal Review
• Show good management
• Follow the rules and be realistic
• Dont surprise the boss!
• Make deals ahead of time
• Get budget approval
• Close the sale now!

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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

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Operating Funds
Operating funds are used for operation and
maintenance activities
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Operating Funds

• The Funds
• The Color of Money
• Permission Slips
• Generating Revenue

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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

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The Funds Their Uses

• General Fund
• Parks, Police, Fire, Planning, Finance, etc.
• Special Funds
• Transportation
• Storm Drainage
• Street lighting
• Cemetery

• Utility Funds
• Sewer
• Solid Waste
• Storm Drain?
• Transportation?

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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 funds
  money in another fund

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Permission Slips

• Overhead Allocations
• Generally paid by utilities and special funds
• Pay for general services
• General management council costs
• Finance
• Legal
• Purchasing
• Information Services
• Allocation formulas
• Based on labor or total revenue

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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

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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

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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

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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

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Capital Financing

• Cash
• Debt
• Free Money
• Private Money

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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

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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

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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

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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

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Free Money? Grants

• Strings attached
• Eligible
• Allowable
• Matching funds
• Lots of paperwork
• The public likes them
• May not be worth it

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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.

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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)

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Public Private Partnerships

• PPP Financing Methods
• Shareholder equity
• Grant anticipation bonds
• General obligation bonds
• Revenue bonds
• State infrastructure loans/funds
• Federal grants
• Direct user charges

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Public Private Partnerships

• Key Benefits
• Expedited Project Completion
• Project Cost Savings
• Innovative Materials and Techniques
• Access to Private Capital

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Public Private Partnerships

• Regional Examples
• Portland airport light rail
• Bechtel
• Portland I-5/I-405 interchange
• Peter Kiewit
• Wilsonville water treatment plant
• MWH
• CH2M

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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.