With budget season in full swing, July through October is often a busy time for clerk-treasurers and financial staff. However, municipalities in Indiana are not required to prepare or adopt formal utilities budgets, so they are often overlooked in the rush to adopt civil budgets. This can become a serious problem: Without a budget, how can decision makers know how much they should spend or if they are overspending?
Having a utility budget in place can help alleviate many issues. A best-practices budgeting process for utilities begins with a review of two to three years of historical financial information. Those numbers will provide a gauge of reasonable expectations for expense accounts. With that gauge in place, utility management should be asked to provide input about any upcoming utility needs that differ from prior years. For utility revenues, use the most recent 12 months of collections as a starting point and adjust those revenues for any rate increases in place. The process is no different than talking with department heads during budget season to prepare Form 1s.
Once a utility’s revenues and expenses have been estimated, the estimates should be compared with the utility’s anticipated cash flow for the budget year. If revenues are greater than or equal to anticipated expenses, the utility’s budget is balanced. However, if anticipated expenses exceed revenues, the utility’s expenses may have to be re-evaluated to see whether any budget cuts can be made. If budgeted expenses still exceed budgeted revenues after that, it may be time to consider looking at adjusting rates.
Utility budgets are a great tool to help decision makers track spending and allow them to have a greater understanding of the current health of their utilities. With budget season approaching, now is the perfect time to consider preparing utility budgets alongside civil budgets.
If you need any assistance in preparing your utility budget or are interested in learning more, contact our team.