Financial Management

by Jon Lang

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

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

Financial Management
Who We Do It With!
Finance Officers Qualification Test:
Add these numbers:
$1.00
2.00
3.00

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

Budgets

A plan for managing your resources

Budgets
Why We Budget
Preparing Your Budget
Presenting Your Budget

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

Why We Budget
To Manage Our Resources
People
Money
Time

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

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?

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?

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)

Preparing Your Budget

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

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

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!

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

Operating Funds

Operating funds are used for operation and

maintenance activities

Operating Funds

The Funds
The Color of Money
Permission Slips
Generating Revenue

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

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?

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

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

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

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

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

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

Capital Financing

Cash
Debt
Free Money
Private Money

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

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

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

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

Free Money? Grants

Strings attached
Eligible
Allowable

Matching funds
Lots of paperwork
The public likes them
May not be worth it

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.

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)

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

Public Private Partnerships

Key Benefits

Expedited Project Completion

Project Cost Savings
Innovative Materials and Techniques
Access to Private Capital

Public Private Partnerships

Regional Examples
Portland airport light rail
Bechtel

Portland I-5/I-405 interchange

Peter Kiewit

Wilsonville water treatment plant

MWH
CH2M

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.