The Pillars of the Budgeting Process

The Pillars of the Budgeting Process

I hope everyone enjoyed their Halloween and the fun (and calories) that come with it!  This past weekend, I had the pleasure of attending the Massachusetts Selectmen Association's fall conference and participating on a panel along with Zack Blake, Chief of our Technical Assistance Bureau (TAB). The subject matter was best practices and I'd like to share with you some of the points we offered to the group.

While there are numerous best practices in key areas such as monthly cash reconciliations, investment policies, and use of one-time funds including Free Cash, I focused primarily on the three high-level best practices of financial policies, long-range forecasting, and capital planning. As depicted in the diagram below, these three best practices are interconnected. Not only do they drive the budget process, but they also play a critical role in creating an environment of long-term financial sustainability.
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Done correctly, these serve as the pillars of the budgeting process and include:
A set of prudent financial policies that guide the community in core areas such reserve levels, use of Free Cash, and levels of debt.

A Capital Improvement Plan (CIP) that identifies capital projects, provides a schedule for implementation, and identifies financing options. These projects address the needs of the many assets in the municipality, including schools, libraries, city/town halls, streets, water/sewer infrastructure, public safety facilities, senior centers, and parks and playgrounds.

A financial forecast that helps a municipality assess long-term financial implications of both current and proposed policies and programs. It also acts as a bridge between the operating budget and the CIP, merging fiscal policy and economic variables to establish a coordinated managerial direction.

The annual budget document coalesces all of these components into a quantified financial plan that also serves as a policy document, an operations guide, and a communications device.

Financial policies, long-range financial forecasts and Capital Improvement Plans are all included in the Community Compact Cabinet's (CCC) best practice program. To date, nearly 100 municipalities have chosen at least one of these best practices, helping them improve their overall financial management.

At the conference, Zack Blake shared his "observations from the field," including some favorable and unfavorable trends.

Favorable trends include:
Town administrators/managers increasingly given the authority to orchestrate the budget process

A shift away from elected finance officials toward appointed finance officials

More municipalities adopting financial policies, developing capital plans, and using long-range forecasting

Unfavorable trends include:

Cash reconciliations not performed monthly in all communities

Critical data not backed-up regularly

Siloed approaches to financial management rather than a team approach or formal finance department

We also discussed the loss of talented and seasoned municipal officials to retirement.  As these retirements increase in the coming years, both the town manager/administrator field and the world of municipal financial officials will be directly impacted. Succession planning and talent development play a critical role in addressing this ongoing issue. Municipal officials facing this challenge should give serious consideration to sharing or regionalizing services, an option presented through one of the CCC's best practices.

DLS is currently working with communities as they explore the potential to share a town administrator or form a joint finance team. If there ever was a time to consider sharing services across boundaries, now is that time. With the advent of cloud-based financial systems, multiple municipalities can participate in a collaborative finance team designed to carry out core accounting, collection, treasury, and assessing roles.

Attracting and retaining qualified municipal finance employees remains another challenge as more and more long-term employees retire. At the conference, we stressed the importance of offering competitive salaries in order to ensure potential candidates don't pursue other, more lucrative offers. It's becoming more challenging than ever to find highly qualified candidates, and you need to position your community to get those candidates. While this approach may cost you more than you were paying for the previous employee, it's an investment in the long-term fiscal health of your community.

Finally, I'd like to congratulate our DLS Municipal Finance Law Bureau Chief Kathleen Colleary for receiving a 2016 Manuel Carballo Governor's Award for Excellence in Public Service. Governor Baker, Lieutenant Governor Polito, and Secretary Lepore presented this prestigious award to Kathleen last Friday at the State House.

For 36 years, Kathleen's profound understanding of Massachusetts General Laws, statutes, and regulations, have only been matched by her keen insight and indefatigable work ethic. Her attention to detail and deep subject matter knowledge played a major role in the development and passage of "An Act to Modernize Municipal Finance and Government." She continues to diligently ensure proper implementation of this legislation through the information and direction provided both in this edition's Ask DLS and in the Informational Guideline Releases slated for the coming weeks and months. I'm grateful and fortunate to work with Kathleen and I congratulate her on this well-deserved honor.


Sean Cronin
Senior Deputy Commissioner of Local Services