17999_Authority_December

6 The Authority | December 2024 b udgetIng – t he d evIl Is In the d etaIls By Shannon Drosnock, Executive Director, Montgomery Township Municipal Sewer Authority a budget helPs In PlannIng and allocatIng resources eFFectIvely . Before we can delve into the analytics of authority budgets, we need to define a few parameters. What is a budget and why develop and adopt one? An authority budget is a public government document which details sources of revenues and how they are allocated across the expenditures of the authority. It demonstrates the financial position of the organization. A budget helps in planning and allocating resources effectively. Budgets allow for better management ensuring that costs are controlled, and resources are used efficiently. It provides a structure for deciding between wants and needs and helps to prepare the organization for unforeseen emergency expenses. The most important features of an authority public budget are: 1. to create and ensure an accurate rate/fee structure for the responsible assessment of fees to customers 2. to provide transparency of the authority to the public and the incorporating municipality(s) and lastly 3. to protect the board by ensuring they have sound information upon which to make decisions. What is the goal? A structurally sound budget is one that supports financial sustainability for future years. To achieve this, it is important to understand and differentiate between recurring and non-recurring items, both for the sources of revenues and for the expenditures. Non-recurring items should be considered separately from the regular operations of the authority. Remember, the ultimate goal of a budget is an accurate depiction of the financial position of the authority to allow the board to make informed decisions about the future of the organization. A solid guideline for defining an accuracy goal for a budget is a 5% window of accuracy. The actual revenues received should be between 100 - 105% of budgeted revenues and actual expenditures should be approximately 95% of budgeted expenditures. This allows for financial elasticity in the event there are unforeseen circumstances for that year. While on the surface, it may seem that less is better, for example, 90% of budgeted expenditures is better budgeting than 95%, this is actually not the case. Remember, the purpose of budgeting is most importantly, to create a fair and accurate rate structure . This would not be the case if expenditures were consistently =>10% below budget. How to measure performance and success? It is absolutely critical to the process, that each and every year, the budget-to-actuals are documented and analyzed for each and every individual line item. An analysis should be performed for any budget items not within the 5% accuracy window. There are of course, always acceptable and reasonable explanations for why something could be askew, but that needs to be reviewed. For example, an incredible storm could cause major tree damage, wind damage or water damage that requires increased rental of equipment, overtime hours, and/or additional supplies. These are reasonable answers to a budget variance. But let’s take a minute and elaborate that example; if year after year, there is an increase in rental equipment due to storms, then a budget adjustment needs to happen going forward. The authority needs to recognize that there is a regular expectation of weather events causing an increased demand in rental equipment. Another area of consideration for the budget is looking into the future based on the current environment of the market and economy. In the water