Part 3 of 67: Getting to Know (and Love) Your Budget

Posted on June 2, 2015

Getting to Know (And Love) Your Budget

By: Matt Monedero, Garland, TX – LinkedIn and Twitter
Welcome to the third installment in a 67-part series. Today we discuss the expense breakdown of an operational budget, the inherent problem of salaries and benefits, and the harsh reality of maintaining current service levels while battling inflation.
So let’s channel some of that local government angst and fury, pop in Alanis Morissette’s “You Oughta Know”, and prep ourselves for another lesson in municipal budgeting.
alanis M
There are countless ways to break down the operational outflow of a budget: Salaries, Benefits, Maintenance, Utility Charges, Rental Fees, and the list can go on and on. However, most budgets can be broken down into four simple expenditure categories:

  • Personnel,
  • Operations,
  • Fuel & Fleet, and
  • Capital Expenses.

Each of these categories (referred to as appropriation levels) captures the full range of costs that occur within a local government’s day-to-day tasks. Accounts typically lumped into Personnel are Salaries, Overtime, Temporary Wages, Federal Insurance Contribution Act (FICA), Retirement, and Health Insurance. The below spreadsheet turns all the technical jargon into something comprehensible.


From this snapshot, we see account 5004 (FICA) is budgeted at $300, and that the Personnel appropriation level is budgeted at $2,500. It can also be noted that whoever chooses to work for this municipality will be severely underpaid with terrible health insurance and awful retirement options.
If I were to ask you what makes up the largest appropriation level in an operational budget, what would you answer? When I entered the weird, wild world of budgeting, I thought Capital Expenses, hands down, made up the largest portion of the budget. Oh, how wrong I was! Look at the graph below from the City of Plano and tell me if you can make a better guess that I did.

 pie chart

A majority of funding is allocated in Salaries and Wages. And it’s obvious where a majority of municipal funding will continue to be in the near and distant future: Salaries and Wages. Employee salaries and benefits, much like every day operational costs, aren’t likely to be reduced anytime soon due in large part to the multifaceted issue of inflation.
GoT little finger
Take this example:

  • In 2015, the City of Westeros pays $400 to its workforce, $300 for its daily operations, and $200 for fuel. Total expenses for the year are $900, and the current tax rate brings in $1,000, leaving Westeros with an additional $100 in fund balance.
  • In 2016, the Finance Department has planned a 10% Cost of Living Adjustment (COLA) for all city employees. The City’s operational costs are projected to increase by 10%, as is the price of fuel. From one year to the next, excluding any new employees or operations, maintaining the exact same level of service now costs $100 more.
  • The dilemma for Westeros is real: unless the City has plans for new development, improving their neighborhoods and housing stock, or a strategy for diverse new revenue streams, they are stuck with the option of cutting services. Or, the more unpopular option (albeit the one that significantly reduces expenditures), decreasing the size of the workforce. Winter is coming indeed.

walking dead

Next month we kick off a multiple part discussion related to debt service feature of a budget, namely the Capital Improvement Program (CIP). We’ll cover the nuts and bolts of a CIP, assembling a five year program, impact of the Great Recession on capital projects, fundamentals of debt funding, and potential for a capital budget to withstand a catastrophic zombie apocalypse (thrown in for good measure).

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