Financial Management By Jon Lang

1. Financial Management
by Jon Lang

2. 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

3. 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

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

5. 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

6. Budgets
A plan for managing your resources

7. Budgets
• Why We Budget
• Preparing Your Budget
• Presenting Your Budget

8. Why We Budget
It’s the Law!
• Must have a fiscal year budget
• Must be approved by June 30th
• Must be balanced
• Can be prepared biannually

9. Why We Budget
To Manage Our Resources
 People
• Money
• Time

10. 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

11. 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?

12. 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?

13. 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)

14. Preparing Your Budget
Some Strategies
• You don’t get what you don’t ask for
• Just in case budgeting
• A chicken in every pot

15. 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

16. Presenting Your Budget
The Internal Review
• Show “good management”
– Follow the rules and be realistic
• Don’t surprise the boss!
– Make deals ahead of time
• Get budget approval
– Close the sale now!

17. 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

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

19. Operating Funds
• The Funds
• The Color of Money
• Permission Slips
• Generating Revenue

20. 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

21. 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?

22. 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
fund’s money in another fund

23. 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

24. 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

25. 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

26. 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

27. 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

28. Capital Financing
• Cash
• Debt
• Free Money
• Private Money

29. 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

30. 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

31. 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

32. 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

33. Free Money? – Grants
• Strings attached
– Eligible
– Allowable
• Matching funds
• Lots of paperwork
• The “public” likes them
• May not be worth it

34. 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.

35. 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)

36. 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

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

38. Public Private Partnerships
Regional Examples
• Portland airport light rail
– Bechtel
• Portland I-5/I-405 interchange
– Peter Kiewit
• Wilsonville water treatment plant
– MWH
– CH2M

39. 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.