LETTER: Enough is enough: City must improve its budget process

From LaVonne Hansen
Hutchinson

Mayor Cook definitely did bring in improvements to Hutchinson’s 2009 budget process, such as using business consultants in the process, but it is hard to budget if you don’t have some basics. The good budget process is part of the closed loop strategic planning/budgeting system. Our city’s budgeting process has gaps that make effective cost cutting harder. There are many, many opportunities in this area. I had to pick just a few.

First, the budget used the 2008 budget as a base. This is unusual. Usually actual expenses are used (called the “run rate”). There should be quarterly budget to actual reviews with trending charts with moving averages for the more volatile areas of the budgets. From this you should be able to forecast the estimated year end for the next year’s budget. Also, if funds come in on an irregular basis, look at two budget cycles a year. Nothing is sacred about a yearly calendar — a business is ongoing.

The revenue side (money coming in)

The issues: Remember, the state limited tax increases to 3.3 percent; with adders it’s 4.2 percent. Taxes only pay 36 percent of the city costs. Other sources include state (19 percent) and fees (16 percent).

Let’s look at the city businesses, which provide 17 percent. These businesses need to be as effective as for-profit because the more they contribute, the less the taxpayer kicks in. As a plus, Creekside will be expected to make a small profit next year. For the others, the city asked for around a 4.5 percent to 4.9 percent revenue increase. This is a low margin.

The fix: This is where planning/analysis comes in. Rather than nickel-and-dime us with “mosquito programs” taxes, the city should focus on the opportunities with the enterprises and state and federal programs. Are our businesses competitive with like businesses? Are the rates competitive or are the taxpayers subsidizing rates? This is why business experience is so critical for the City Council. The city is running profit-and-loss businesses, not just managing services. The planning and oversight approaches are different.

I don’t have space for state programs — that will have to be another letter someday.

The expense side (money going out)

The issues: The 2009 expense budget was essentially a flat budget because of revenue limits. Departments have to come in at expense levels of 2008. Here are a few ideas:

A. After all the adders on the 2008 budget, every department was asked to reduce by 8 percent or come in at last year’s number. This is pretty normal. Businesses usually look for a 5-plus percent from each department each year. But, if reducing, they don’t apply the same reduction percentage to every group. Why?

1. Not all services are equal and even within a critical department not all functions are important.
2. It encourages departments to spend every budget dime whether they need to or not because they know next year will be a percentage cut.
3. It rewards departments that are not run effectively.
The fix: Part of the strategic planning process would be setting priorities. There should be divisions of essential and discretionary service categories at the department and sub-department level. This can be used for reductions based on need and priorities. This way we would know what was less important than mosquitoes.

B. The departments have no cost-based productivity goals or internal cost reduction programs. How do you know if the department is managing its money well if you don’t measure it?

The fixes: This is a much broader topic than goals and cost reduction programs. The suggested “managing for outcomes” can get complex. We need to walk before we run. Just start with some basic, horse-sense productivity measures that can be used in budget reviews.

In these times, every organization needs a sponsored cost reduction program. No one knows better how to save money than the guys doing the job — empower and reward them. Again, avoid complex programs with consultants. In this, the people are important not the process.

C. There was no line item review of the budget. This is not micro-managing. It is “trust but verify.” (Ronald Reagan)

The fix: The City Council is the executive review team. They need to understand what you are overseeing to see opportunities and make the hard decisions. This means understanding the details and knowing the priorities. This should be paired with the quarterly review mentioned at the top
I have so much more to say but out of space. Just a caution to the taxpayer and voter. You are a big part of the problem, too. As long as you treat an election like you are voting for prom king where popularity is more important than capability, there will not be the changes there need to be for the city. Just don’t make my taxes go up by your choice.