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91-406 : Week 5. Financial Management of the Fire Service. Revenue forecasts. Steps in revenue estimating (keep it simple!) Last year’s budget + % increases + inflation Issues: Understanding tax forecasts What State will pass back to local governments problematic
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91-406 : Week 5 Financial Management of the Fire Service
Revenue forecasts • Steps in revenue estimating (keep it simple!) • Last year’s budget + % increases + inflation • Issues: • Understanding tax forecasts • What State will pass back to local governments problematic • What grant monies will be garnered in the coming FY • How new user fees may change the forecast • How can FD budget mgr. help? • Advise City budget mgr. of any new strategies being implemented at FD • Be aware of possible changes in last year’s budget that could affect the forecast – communicate those to the City budget mgr.
Revenue forecasts • Forecasts don’t affect fire department operations until… • Revenue shortfall creates budget cuts • Budget cuts create loss of services, or… • Conflict occurs over which services should be cut • Personnel loss: layoffs, furloughs, open positions • Equipment replacement: equipment ages, money for replacement is cut • Training: lost training time, lost access to particular training (out of town training, specialty training) • Prevention programs: fewer inspections, less public education
The meaning of budget cuts… • Loss of a Chicago fire station: • 24 personnel cut = $820,000.00 • Savings on fringe benefits (@25%) = $205,000.00 • Ongoing expenses cut (heat, power, supplies, training, etc.) = $154,000.00 • Sale of building & equipment = $2,680,000.00 • Total savings = $3.9 million
Why revenue forecasts affect operations • Overstated revenue at beginning of budget year creates false assumptions and poor decisions • More personnel hired than affordable • Supplies purchased upfront because of “rich” budget • Overtime expenditures may be increased as supervisors lose some control of OT dollars • Mid-year adjustments based on unforeseen, lower revenues • Overtime cuts • Training cuts • Delayed expenditures for new equipment • That apparatus that was scheduled to be purchased in the 2nd half of the year – now it may be delayed!
References • Mikesell, J. L. (2011). Fiscal Administration: Analysis & Applications for the Public Sector. (8th ed,). Wadsworth. • Chen, G.C; Forsythe, D.W.; Weikart, L.A.; Williams, D.W. (2009). Budget Tools: Financial Methods in the Public Sector. CQ Press.