Panning for Gold in the Municipal Budget
Similar to a prospector sifting through the dirt and mud, many local managers and elected officials are carefully reviewing budgets for any opportunity to save money or increase revenues. Every now and then, a nugget is found buried in a budget line item, resulting in cost savings or some additional revenue.
I once read of a citizen in Florida who discovered he was being billed for solid waste services he was not receiving. He decided to review the city’s trash hauling contract to get a better understanding of fees. Through his review, he discovered the city had been overpaying the trash hauler, and the waste management company had underpaid its franchise fees to the city. An initial review of the contract and payments suggested the city was owed several hundred thousand dollars. This is just one example of budget mining that resulted in true savings.
Reviewing external contracts on a regular basis can help ensure compliance and avoid overpayment or insufficient collection of fees.
Another revenue source that is often overlooked is internal administrative charges. Most governments operate a multitude of budget funds, including internal service funds, enterprise funds, grant funds and others, which rely on a number of central services funded through the general fund. These often include:
• Human resources • Payroll • Finance • Legal affairs • Maintenance • Insurance • Recordkeeping • Information technology • Communications • Audit fees
Private businesses have long utilized cost accounting to assign specific costs to all operating departments. Governments have slowly been adopting this approach, because it allows them to identify and recoup the costs of supporting non-general fund operations. It is appropriate for the water and sewer funds, as well as special revenue funds, grant funds and others, to pay the cost of administrative services. Without the support of the general fund, each of these funds would have to have their own staff and space to perform HR, payroll, finance, and other administrative functions. Clearly, it is more cost effective to centralize these services, and it makes better business sense to share the costs of these services.
Properly designed cost allocation plans often result in significant cost recovery in the general fund. Based on plans I’ve developed, most governments might expect to recover between 5% and 10% of total general fund expenditures through cost allocation.
I’m not sure if saving 5%-10% of general fund costs year after year is important to your community. Most people panning for gold, though, would recognize this as a claim worth staking.