Publications

Making Sense of Budgets (1998)

An employer asserting an "inability to pay" often accompanies this claim with an armload of mystifying financial documents intended to prove its fiscal hardship.

To many non-accountants, these documents are bewildering. Each employer may use a slightly different format. Sometimes a budget may be 20 pages; at other times, a jurisdiction may hand over a foot-high sheaf of computer printouts.

While the array of numbers the employer can produce may be daunting, in truth there are several important criteria that basically tell the whole story. These can be found in a few documents: the current fiscal year budget, the previous fiscal year budget, the next year’s budget when possible, and the most recent Certified Audited Financial Report (CAFR).

What to look for


While jurisdictions typically have several budget funds (e.g., special reserve funds, enterprise funds and the general fund), our members’ salaries and benefits are typically paid out of the general fund.

Budget and actual figures


Comparing a jurisdiction’s actual revenues and expenditures to its original budget in the general fund (or another fund, if that is where members’ payroll costs are budgeted) enables you to ascertain whether a jurisdiction’s projections tend to be accurate or whether they typically are too high or too low.

Transfers


Jurisdictions often transfer money between funds. The net effect of the transfers, combined with the revenues and expenditures for the year, represents the year-end surplus or shortfall.

Fund balance


A fund balance comprises the end result of a series of year-end surpluses or shortfalls. A positive fund balance represents a cushion for a jurisdiction against unexpectedly low revenues or high expenditures. Fund balances can be either reserved (earmarked for specific purposes), or unreserved (available to be spent as needed). The Government Finance Officers Association (GFOA) recommends the unreserved portion of the general fund balance divided by the same year’s annual operating expenditures should be close to 5 percent to provide an adequate cushion.

Trends


Most jurisdictions are required to authorize a balanced budget. During the year, the budget may be modified in light of unforeseen revenues or expenditures. In fact, since any budget is, at best, an educated guess, actual revenues and spending will likely be somewhat different than projected. Actual spending can be estimated during the course of a year by "annualizing" — that is, divide the actual current fiscal year expenditures by the number of months they represent, and then multiply that figure by 12 to obtain the projected year-end expenditure estimate. For example, if a jurisdiction has spent $270,000 in 9 months, divide $270,000 by 9 ($30,000 average monthly expenditures) and multiply that number by 12, resulting in an estimated annual expenditure total of $360,000. Annualizing does not consider seasonal fluctuations, but it does provide a broad estimate. When examining the current budget, or next year’s budget, substantial increases or decreases from the previous year — not only in total but also in specific items — should raise questions. Are costs for contracted services, for example, going up?

Flexibility


A contingency fund or line item can be a sign of fiscal flexibility representing money that can be used to provide wage or benefit increases for our members.

It's E-Z


While employers may hope that the union will be dazed and confused by its barrage of figures, the employer’s basic ability to pay comes down to a few key criteria, then it’s easy. These major criteria are included on the sample budget worksheet inserted into this issue. This form can be a useful tool to quickly gain an understanding of the employer’s overall financial picture.

Related Materials


Print Version