A pilot would never fly a passenger plane from John Wayne Airport to Sacramento without a flight plan that explains how to get there. Yet all too often, the city government people develop their annual budgets without clear plans of where the Costa Mesa citizens at large want them to go. Thus, to best achieve results, the city of Costa Mesa needs to develop a reliable budget and revenue forecast.
A budget doesn't have to be a constrained plan that deprives what the citizens want and need. In fact, a budget should be a guide, not a constraint. A reasonable and reliable budget should allow the city to serve the residents. By applying forecasting strategies, the city can direct resources where they are most needed, ensuring that Costa Mesa will move forward in the right direction. Creating a financial reality lets the City Council direct the city's cash flow, instead of it controlling the city.
Developing a budget doesn't have to be a complicated phenomena. The common citizen should be able to figure out the overall financial picture of the city. It is best to keep things simple. The approach is to determine how much the city spent in the last year, and then use that data to project how the city needs to provide for services in upcoming years.
Any given forecast should start by reviewing the past financial records thus verifying where the money was spent, and then deciding where the city actually needs to achieve. The council needs to do its homework and make realistic assumptions about the must-have city services. The budget is simply a tool that ensures where the money can best be used.
The council needs to answer the following questions:
•How much revenue the city realistically will get by next year?
How much the city charges for city services?
How much will it cost to provide a given service?
How much are the city operating expenses?
Do you need to lay off employees? How many and will the city pay them for severance?
How much do we need to cut? What are the outstanding obligations?
How much in pension costs will the city pay?
How much money does the city actually need?
Also, the city should have already written a business plan that should reveal the answers to many of these questions. If not, then this is a lot of homework that needs to be completed before the financial forecast.
Good management should answer these questions to help determine two essential things — projected revenue and operating expenses.
In the revenue category, conservatively estimate how much revenue the city can have in the next years. Verify what revenue was generated by last year, and extrapolate and forecast from that. The council needs to remember to be realistic.
If they paint too bright a picture, they can easily get in over their head and spend money that never materializes. If the city generates more revenue than the projected income, great. But if they make less, be careful!
As far as expenses go, consider legal costs, insurance, equipment etc. In other words, any and all city expenses, whether they pay for them now or incur them in the future.
Once the council can provide a written report regarding the projected income and expenses, then it can know exactly how much money is needed to keep things afloat and how much it has left over for extra projects and expenses.
It will be far less tempting to spend money on city expenses that are not part of financial plan. The budget is to ensure that the city expenses are not more than revenues, so the council can keep the city afloat. Work smarter, not harder.
AL MORELLI is a Costa Mesa resident.