MRSC has joined with Toni Nelson, Small Cities Specialist, State Auditor's Office, Gayla Gjertsen, Finance Director, City of Tumwater, and Mike Bailey, Administrator of Finance and Information Services, City of Renton, to bring you the "Finance Advisor" column. The "Finance Advisor" will feature a new article each month with timely local government finance information and advice you can use.*

Monitoring the Budget

January 2006

Gayla Gjertsen, Finance Director, City of Tumwater

Right about now you might be saying, "Whew, the budget is done and we can get on with other things!" WRONG! Now the real work begins--monitoring the budget. This is as important a function as the creation of the budget itself. In a nutshell, without this the budget means nothing. This is where you evaluate your results.

Shortly after the budget is adopted, sometime during February, it is prudent to stop for a moment, and review the previous year's budget. Familiarize yourself with what it was you hoped to accomplish, how the revenue projections actually ended up, how your expenditures ended relative to your projections, and whether or not you accomplished those capital projects as expected.

This process is both the beginning and ending of the budget cycle--it closes the circle that starts over and over again each year. Why is this important? One of the bigger problems we have been encountering over the past several years is, for lack of a better word, anger, from our citizens over the amount they pay for the services they get. The budget monitoring process gets right at this issue. This is where we can self-evaluate and provide accountability for our "bottom line." We can also measure our effectiveness and efficiency in meeting the goals we have set for ourselves. So it is important to take the time, right now, to ask these questions:

1. How have your revenue forecast assumptions been playing out? Have you under-forecast, or over-forecast, and why? This tells you whether you need to make adjustments to the budget you just adopted and will inform future forecasts. In other words, in light of the actual results from the year just ended, do you need to change any of the assumptions you have made about the current budget?
2. How did each department’s budget come out at the end of the year? Did they under-spend or over-spend? One of the major "budget myths" is that under-spending is inherently good; and over-spending is inherently bad. Not true. For example, "business" may have been very good for your police department this year, resulting in the arrests of far more "customers" than expected. However, as a consequence, their jail budget has also gone through the roof. In another department, several planned projects, for one reason or another, were not completed. So one department has over-spent, while the other has under-spent, its budget. Neither is good, and neither is necessarily bad. It is just important to understand the reasons for these outcomes. The real question is--are you satisfied with their performance?
3. As a follow-on to the previous question, did any of your departments make requests for supplemental funding during the year? If so, you need to determine whether this is an indication of an on-going problem or just a fluke. If they are always asking for more it may be that you are just not adequately funding the department. Or you may have another problem altogether. You need to find out which one it is.
4. Did the capital projects you budgeted for get completed? If yes, were they fully or just partially completed? If they were not completed, then why not? How did the actual project costs compare with the budgeted costs? Do you need to adjust the current year’s budget now to accommodate what did or did not happen in the previous year's budget? Again, are you satisfied with the performance?
5. If you established goals for the year, review each of them to see where you are. You may need to amend your current year's budget to carry some of them over, or you may need to adjust your goals.

The budget monitoring process provides you with information for policy-makers on which to base future improvements as well as accountability for citizens. Interestingly enough, it will also assist you with the very first step required for next year's budget--deciding what you want to eliminate, enhance or create.

Although this initial review is the most important, monitoring the budget should ideally be done on a quarterly basis. It should also be in written form so you can review and share the information with others.

Do you need to change course or are things progressing as you thought they would? Has something happened either internally or externally, perhaps as a consequence of some regional or national event, which will require you to change your course? The best way to answer these and other related questions is to implement an on-going budget monitoring process.

If you want more information on budget monitoring, go to the Government Finance Officer’s Association’s "Budget Practices" Web page.

Gayla L. Gjertsen has been the Finance Director for the City of Tumwater for over 15 years and was previously the Director of Administration for the City of Milton for13 years. She has also served as president of the Washington Finance Officer’s Association. Gayla has been a presenter at the annual Budget and Fiscal Management Workshops held each summer for many years, and periodically conducts other workshops and writes about local government finance issues.

*The Articles appearing in the "Finance Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.