11

Why Budgeting MattersWhy Budgeting Matters

NC Local Government Budget NC Local Government Budget ConferenceConference

Wilmington, NCWilmington, NC

July 2007July 2007

22

OutlineOutline

• Rationale for Why Budgeting MattersRationale for Why Budgeting Matters

• Illustrate Rationale Using Examples Illustrate Rationale Using Examples from Charlotte-Mecklenburg Utilities from Charlotte-Mecklenburg Utilities DepartmentDepartment

33

Why Budgeting MattersWhy Budgeting Matters

1.1. Numbers help us evaluate policy choicesNumbers help us evaluate policy choices– Without numbers, planning is fantasyWithout numbers, planning is fantasy

2.2. Numbers make planning realNumbers make planning real– It quantifies the options and informs It quantifies the options and informs

decision-makingdecision-making

3.3. Numbers help us manage the enterpriseNumbers help us manage the enterprise

44

1. Numbers Help Evaluate 1. Numbers Help Evaluate Choices Choices

• Without numbers, planning is fantasyWithout numbers, planning is fantasy– How do we know to do X vs. Y?How do we know to do X vs. Y?

• Help evaluate and determine public Help evaluate and determine public policypolicy– Quantifies optionsQuantifies options

• Without numbers, analysis is not Without numbers, analysis is not possiblepossible

55

Charlotte City Council Charlotte City Council PoliciesPolicies

• Average residential rate increase Average residential rate increase must be 8% or lessmust be 8% or less

• Fund balance must be maintained at Fund balance must be maintained at 35% of next year’s operating budget35% of next year’s operating budget

We could not evaluate policies if not for the numbers.

66

2. Numbers Help With 2. Numbers Help With PlanningPlanning

• Control spendingControl spending– NC General StatuteNC General Statute

• Make possible financial Make possible financial planning/analysis for a planning/analysis for a community/organizationcommunity/organization

77

Why is Financial Planning Why is Financial Planning Important?Important?

• Resources must be adequate to meet Resources must be adequate to meet needs (cash flow)needs (cash flow)

• Cost savings (competition and Cost savings (competition and optimization)optimization)

• Credit RatingCredit Rating

88

CMUD Financial modelCMUD Financial model

• Update yearly for 7 year periodUpdate yearly for 7 year period• Projects a level of spending for Projects a level of spending for

capital programcapital program• Projects operating budgetProjects operating budget• Projects revenuesProjects revenues

99

Fund BalanceFund Balance

ModelModel

20122012201120112010201020092009

Revenue bond Revenue bond issues issues $441,700$441,700$372,980$372,980

Bonds testBonds test

% of expense% of expense

RatesRates

Total ExpenseTotal Expense

Debt ServiceDebt Service

PAYGPAYG

OperatingOperating

1.27 1.27 1.30 1.30

38%38%39%39%

$ 105,763$ 105,763 $99,825 $99,825

7.69%7.69%5.94%5.94%

$318,979$318,979 $298,717$298,717

165,073 165,073 146,188146,188

38,950 38,950 42,45042,450

$114,956 $114,956 $110,079 $110,079

1.18 1.18

39%39%

$98,731 $98,731

7.99%7.99%

$276,562$276,562

150,199150,199

20,950 20,950

$105,413 $105,413

1.20 1.20

40%40%

$93,371 $93,371

5.77%5.77%

$258,728 $258,728

133,729133,729

24,050 24,050

$100,949 $100,949

1.161.16

40%40%

$90,193 $90,193

6.74%6.74%

$255,741$255,741

130,212 130,212

28,850 28,850

$96,679 $96,679

20082008

51%51%49%49%53%53%51%51%53%53%Debt Service %Debt Service %

Commercial paper Commercial paper $165,974$165,974$185,400$185,400$211,900$211,900$229,800$229,800

$211,000$211,000

1010

CIP NeedsCIP Needs

• 10 year needs10 year needs

• 5 year CIP5 year CIP

• 1 year budget1 year budget

1111

Identifying ProjectsIdentifying Projects

• Land useLand use

• Council prioritiesCouncil priorities

• Advisory inputAdvisory input

• Special needsSpecial needs

• Public-neighborhoods & developersPublic-neighborhoods & developers

1212

Prioritization of projectsPrioritization of projects

• CityCity

• InternalInternal

1313

Program Category: SewerProject Title: Street and Minor Sewer Main Extension

Project provides for sewer service extensions to residential customers 1,000 feet or less from an existing sewer line per Council approved policy.Project also provides for extensions when health hazards are created in association with septic tank deterioration, sewage demand beyond capacity, or when on-site disposal systems are constructed in unsuitable soil conditions.Need is based on customer requests and on the presence of sewer health hazards. Project Description:

NotesCMU CIP Project Number: 99S04Account Number: 633.79Appropriations to Date: $98,700,000Estimated Balance June 30, 2005: $9,644,706

$31,500,000$5,800,000$5,800,000$5,800,000$5,800,000$8,300,000Total

$31,500,000$5,800,000$5,800,000$5,800,000$5,800,000$8,300,000Sewer Revenue Bonds

Revenues

$31,500,000$5,800,000$5,800,000$5,800,000$5,800,000$8,300,000Total

$0$0$0$0$0$0Equipment

$23,500,000$4,200,000$4,200,000$4,200,000$4,200,000$6,700,000Construction

$500,000$100,000$100,000$100,000$100,000$100,000Acquisition

$7,500,000$1,500,000$1,500,000$1,500,000$1,500,000$1,500,000Planning/ Design

Total 2008-092007-082006-072005-062004-05Costs

1414

FY 06-10 Capital Investment Projects/Water

Project TitlePrior

Appro Est. Bal FY06 FY07 FY08 FY09 FY10 5 Year Totals

Franklin to Vest- Raw/Finished WM ROW $300,000 $290,000 $0 $60,000 $0 $60,000 $0 $120,000

Fire Hydrant Installation/Replacement $415,000 $212,000 $0 $50,000 $0 $50,000 $0 $100,000

2007 Annex. Area Water Mains $0 $0 $0 $0 $44,000,000 $0 $0 $44,000,000

GIS Facilities Mapping $3,000,000 $2,450,00

0 $0 $0 $400,000 $400,000 $400,000 $1,200,000

Sam Furr Rd $0 $0 $0 $0 $0 $1,000,000 $0 $1,000,000

Northeast Water Transmission Main $3,600,000 $410,000 $0 $0 $0 $0 $8,000,000 $8,000,000

N Meck WTP Expansion 25 to 50 MGD $0 $0 $0 $0 $0 $0 $3,500,000 $3,500,000

2009 Annexation Areas Water $0 $0 $0 $0 $0 $0 $4,000,000 $4,000,000

WM Relocated Wallace Neal Rd. $0 $0 $0 $0 $0 $0 $1,500,000 $1,500,000

East Transit Corridor Improvements $0 $0 $0 $0 $0 $0 $1,000,000 $1,000,000

North Transit Corridor Improvements $0 $0 $0 $0 $0 $0 $1,000,000 $1,000,000

Water CIP Total     $44,781,000 $14,960,000 $69,250,000 $16,360,000 $34,250,000 $179,601,000

1515

Sources of Capital FundsSources of Capital FundsG.O. Revenue Commercia

l Paper

Credit TaxTax RatesRates RatesRates

Vote YesYes NoNo NoNo

Term Long Long (20+yrs)(20+yrs) Long Long (20+yrs)(20+yrs) Short Short (8+-mths)(8+-mths)

Issue 100%100% Cash Flow YearCash Flow Year Cash Flow YearCash Flow Year

Risk LowLow Low/ModerateLow/Moderate ModerateModerate

Rates 4.15%4.15% 4.53%4.53% 3.55%3.55%

Example $3M$3M

/36 month /36 month constructionconstruction

$1M/year$1M/year

/36 month /36 month constructionconstruction

$83,000/$83,000/monthmonth

/36 month /36 month constructionconstruction

1616

Cash FlowCash FlowTime Period Total Bond Sale

Bond Funds Available Projected 

Balance Forward     2,992,245  

May-05 $11,368,030   31,477,142 $19,852,786

June-05 $25,297,488 200,000,000 206,179,654 $23,125,690

July-05 $ 8,881,082   197,298,572 $22,178,205

August-05 $23,373,222   173,925,350 $25,378,038

September-05 $15,037,758   158,887,592 $22,427,867

October-05 $15,215,100   143,672,492 $24,860,380

November-05 $21,682,618   121,989,874 $21,682,618

December-05 $18,922,645   103,067,229 $18,922,645

January-06 $21,110,933   81,956,296 $21,110,933

February-06 $18,752,597   63,203,698 $18,752,597

March-06 $16,993,287   46,210,411 $16,993,287

April-06 $18,004,243   28,206,169 $18,004,243

May-06 $16,599,651   11,606,518 $16,599,651

June-06 $15,016,028 200,000,000 196,590,490 $15,016,028

July-06 $15,854,665   180,735,825 $15,854,665

August-06 $18,069,140   162,666,686 $18,069,140

September-06 $17,986,393   144,680,293 $17,986,393

October-06 $20,863,043   123,817,250 $20,863,043

November-06 $18,799,733   105,017,518 $18,799,733

December-06 $17,692,733   87,324,785 $17,692,733

January-07 $16,877,233   70,447,552 $16,877,233

February-07 $15,075,900   55,371,653 $15,075,900

March-07 $14,896,400   40,475,253 $14,896,400

April-07 $13,996,338   26,478,915 $13,996,338

May-07 $15,034,251   11,444,664 $15,034,251

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Allocating Capital Costs to Allocating Capital Costs to CustomersCustomers

• Today’s customers (rates/paygo)Today’s customers (rates/paygo)

• New customers (capacity fees)New customers (capacity fees)

• Today’s and future customers Today’s and future customers (rates/debt service)(rates/debt service)

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Conservation RatesConservation Rates

WaterWater

3.223.22Variable Charge (per Ccf)Variable Charge (per Ccf)

1.801.80Fixed Charge (per account)Fixed Charge (per account)

SewerSewer

1.731.73 Non-ResidentialNon-Residential

4.314.31 - Block 3- Block 3

2.182.18 - Block 2- Block 2

1.331.33 - Block 1- Block 1

ResidentialResidential

Variable Charge (per Ccf)Variable Charge (per Ccf)

$1.80$1.80Fixed Charge (per account)Fixed Charge (per account)

FY 2008Charge Type

1919

Capacity FeesCapacity Fees

$1,295$1,295SewerSewer

$408$408WaterWater

FY 2008¾” Line

Capacity Fee Formula:

Net book value of asset

# of units of plant capacity

X Average daily consumption

2020

3. Numbers Help Us 3. Numbers Help Us ManageManage

• ResourcesResources

• ProjectsProjects

• Operations of the OrganizationOperations of the Organization

We Do This Through a Number of Methods.

2121

OperationsOperations

• Increase expenditures – 4%Increase expenditures – 4%

• Growth in accountsGrowth in accounts

• Water billedWater billed

• Rate impacts on different capital Rate impacts on different capital spending scenariosspending scenarios

2222

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2008 2009 2010 2011 2012 2013 2014

4.56% average base increase

6.69% average increase with annexations and wastewater capacity additions

Rate ImpactRate Impact

2323

0%

1%

2%

3%

4%

5%

6%

7%

8%

2008 2009 2010 2011 2012 2013 2014

4.56% average base increase 5.87% average increase with annexations

Rate ImpactRate Impact

($277 M)

2424

Water BilledWater Billed(FISCAL YEAR)

Projected Budget

34.2

35.8

33.2 33.3

30.4

34.6

32.8

33.5

30

31

32

33

34

35

36

37

38

39

40

2001 2002 2003 2004 2005 2006 2007 2008

Bill

ion

s o

f G

all

on

s

2525

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

July Aug Sept Oct Nov Dec Jan Feb March April May June

2007

Average 1,274 733 150 (1,673) (2,175) (2,188) (2,396)

(In thousands) 1,258 574

Cumulative 1,258 1,832

(558) (541) (583) (1,823) (502) (13) (208)

Water Revenue as a Percentage of Water Revenue as a Percentage of Total Annual RevenueTotal Annual Revenue

2626

Average Monthly ConsumptionAverage Monthly Consumption

Residential Usage per 100 Cubic Feet

8.28.258.348.83

11.4411.88

10.9

5

6

7

8

9

10

11

12

13

2000 2001 2002 2003 2004 2005 2006

2727

ConclusionConclusion

• Planning (front end) and Evaluation (back end) Planning (front end) and Evaluation (back end) are necessary activitiesare necessary activities

• However….However….

• Budget is what keeps organizations grounded in Budget is what keeps organizations grounded in the reality of:the reality of:– What’s possible given resourcesWhat’s possible given resources– What the consequence of choices areWhat the consequence of choices are– Managing the organizationManaging the organization

• Without Budget, Planning and Evaluation wouldn’t Without Budget, Planning and Evaluation wouldn’t be possiblebe possible