Municipal Budgeting: Popular MMA workshop focuses on basics

(from Maine Townsman, January 2005)
By Douglas Rooks, Freelance Writer

For the past 11 years, John Eldridge and Jim Bennett have been offering an MMA workshop on “Basic Municipal Budgeting.” While the two veteran municipal officials have contrasting approaches to some of the fine points of town finance, they both agree on a somewhat surprising proposition — that municipal budgeting, in Bennett’s words, “is more of an art than a science.”

Describing budgeting as an art might seem odd to a first-time participant in the town meeting system — with its lengthy lists of debits and credits, and warrant lists sometimes totaling 60 articles or more — but there are sound reasons why it is far from an exact science.

One reason is that, as Eldridge observes, there are no generally agreed upon rules for budgeting comparable to the principles of accounting, so the budget pages of town reports vary considerably more than the financial statements. And state law is fairly non-specific about town budget practices, although it is certainly not — as workshop participant are reminded — a case of “anything goes.”

The other reason for the “art” of budgeting lies deeper — the more than 200-year traditions of the town meeting itself, extending back even before Maine became a state. “What might work in another community may not fit your town at all,” Eldridge said. While changes to make a budget clearer and more functional are important, he said, “You shouldn’t make changes without some good explanations, and some thought about whether they’re worth it.”

Jim Bennett has been town manager in Dixfield, New Gloucester, and Old Orchard Beach, and then administrative assistant to the mayor in Westbrook and now city administrator in Lewiston — a municipal career spanning more than two decades. He considers himself a budget pragmatist, interested in assembling the information, explaining it to elected officials and the public, and getting the budget adopted.

John Eldridge was town manager in Bradley and South Berwick, and, for the last 16 years, has been finance director for Brunswick. In the workshop, he spends more time on the technical side of budgeting, although he finds himself adopting Bennett’s approach at times. “Perhaps after so many years teaching together, we’ve begun to wear off on each other,” he said.

The Municipal Budget Workshop is among MMA’s most durable and popular courses, despite being held, this time, during the week between Christmas and New Year’s. With 50-60 participants annually, Bennett calculates that nearly 700 municipal officials have taken the course, and there appears to be no shortage of new students.

At the workshops, there is a mixture of elected officials — selectmen and town councilors — and appointed officials, such as tax collectors, treasurers and finance directors. Many of them have previous municipal experience, but may be new to their current post. In the most recent session, selectmen and councilors weren’t the most numerous, but they tended to have more questions about town meeting procedures, dealing with the budget committee, and communicating information to the public at large.

The major exercise of the morning and afternoon session is an analysis of the (thankfully imaginary) town of Misery Gore. Bennett got that particular name from a seminar he attended some 25 years ago, which featured a long shaggy-dog story about a group of a selectmen and a town manager taking a trip by car, getting a flat tire, and then trying to delegate responsibility for changing the tire.

Bennett appreciated the tongue-and-cheek style of the exercise, and employs it himself in working on Misery Gore affairs, as a way to lighten up an occasionally dry subject, and to promote discussion.

Transparency Works

As part of the work on the Misery Gore warrant and budget, general themes begin to emerge. One is that openness in budgeting is not just a good idea — it would be hard to find a town official who would argue explicitly in favor of secrecy — but is also a useful tool in getting things done.

Bennett relates a story about a previous manager in a town where he served who was getting a grilling over the police budget. A group of townspeople were unhappy over the amount being spent, and began focusing on a particular item, an office account that contained $2,000. While there was a perfectly acceptable justification for the item, the town manager was getting no help from the selectmen, who didn’t know how to answer the question. And when the manager finally did come up with an answer to what the account was spent for — “bullets” — it did not lead to a successful conclusion for the warrant article.

The lesson, Bennett said, is to adopt a thoroughly inclusive and transparent process, not just involving a manager and first selectman, but the entire board, the budget committee, and any department heads who are involved in preparing the budget.

“The key is that everyone has the same information, and that the information can be readily shared with townspeople,” Bennett said. “At the beginning, it seems like a lot of work, but afterwards people wouldn’t have it any other way. I’ve heard from department heads that it actually makes their jobs a lot easier.”

With everyone on board, the process of defending the budget at public hearings and town meetings goes more smoothly, and presentations of the budget are more effective. Eldridge observes that, “It’s a good idea not to have one official, appointed or elected, trying to answer all the questions from the floor.” If the whole group on stage is knowledgeable, it builds confidence among the townspeople, and “You’re also much more likely to come up with the right answer” and avoid critical misunderstanding — such as the $2,000 “bullet” account.

“It’s always the small things that tend to get the most discussion,” Eldridge said. “That’s why you all have to be prepared.” The technique holds true, he said, whether it’s a small town meeting or a large town holding a budget hearing. “It’s all about what they’re likely to be talking about down at the coffee shop,” he said. “It’s probably not going to be a question on the entire school budget, but about the way the town plows the roads.”

Budget transparency can help improve the process before town meeting takes place, Bennett said. In some towns, a lack of agreement about their roles can make for frequent battles between selectmen and the budget committee.

“Part of the reason is information, or the lack of it,” he said. “By providing budget information to everyone, you’re more likely to have a common sense of purpose — to try to figure out how the town can most effectively provide services within the revenues that are likely to be available. If you have a budget committee that sees its job just as cutting the budget, you’re going to have problems.”

When Not to Dedicate

Another strong emphasis of the workshop is, wherever possible, to present both revenues and expenditures as gross figures, rather than net amounts that reflect dedicated revenues.

“Every budget tends to have dedicated items — the fund used to maintain the cemetery, for instance,” said Bennett. “It’s an unavoidable part to running a town.” But he urges towns to minimize such set-asides, particularly where they are not required either by town traditions or by state law. Pitfalls can occur in both large and small matters.

When Bennett became town manager in New Gloucester, the town had traditionally devoted its excise tax revenues from car and truck registrations to its road budget, summer and winter. The policy, he said, made sense, and mirrors the state’s Highway Fund, which has received dedicated fuel tax revenues since the 1930s.

At a time when a large amount of effort and expense was being devoted to the initial paving and upgrading of roads, the dedicated approach was effective. “At one time, at least 80 percent of town roads were gravel. The road budget definitely needed a boost,” he said.

But by the 1980s, with most roads paved, the need for the continued dedication of excise revenues to roadwork was less clear — particularly when state law allows towns to use the money for any purpose they want. “It doesn’t mean you can’t use it for roads, just that you don’t have to,” said Bennett. The New Gloucester selectmen decided to undedicate excise tax revenues in their budgeting process.

Bennett encountered a smaller example in a different town. The town office account listed $4,000 in revenue from routine transactions, such as fees for mailing and photocopying. “The warrant article provided for that amount, plus whatever else came in during the year,” he said. While additional sums were usually small, Bennett pointed out to selectmen that, under the warrant description, any amount of money that came in during the year could be reallocated in-house. “You could have had the town manager driving a Porsche,” he said. The selectmen decided to change the wording of the article.

One of the key concepts of town meeting proceedings is that the warrant articles always take precedence over the printed budget, Eldridge said. “So you have to spell out everything that will be expended in the warrant. If it isn’t there, you have no authority to spend, even for something listed in the budget.”

He recommends a warrant reconciliation process, where each line in the budget is marked to refer to the particular warrant article that provides spending authorization. While relatively simple, this is a vital step in town meeting preparation.

“While many budget lines are similar from year to year, you have to be careful,” Eldridge said. “Some towns just take the old warrant and write in new amounts for each article. If there’s anything new in the budget, you may miss it.”

Another annual exercise should be a review of state statutes that have an impact on towns. One example is the allowable interest rate on unpaid taxes. Where a municipality has a major commercial or industrial taxpayer, interest costs can run to hundreds of dollars a day if taxes are not paid on time.

Some compromises with the idea of clarity and simplicity are inevitable, workshop participants are told. While it’s desirable for the full cost of a service to appear under the applicable department, that can sometimes be difficult.

One example is the cost of fringe benefits, such as retirement and health insurance — the latter, one of the least predictable and fast-rising parts of recent budgets. While some towns attempt to budget these costs for each department, a case can be made for a separate item covering all departments, Eldridge said.

At times, leaving out information can be justified. Schools are the biggest budget item in most small towns, and Bennett thought it would be a good idea to list the tax impact of schools in the information he distributed about town meeting.

“I can tell you that the school superintendent was not very pleased,” he said. He decided that in future years, schools could communicate that information to taxpayers themselves. His rationale is simple enough: town meetings should stick to town business.

A political process

While the town meeting form of government has declined in some New England states, in Maine it remains reasonably strong. While towns can’t do anything about the suburban sprawl and widespread commuting that have weakened communities ties elsewhere — and in some parts of Maine — they can try to make the budget process, still the primary business of town meetings, as simple and user-friendly as possible.

Eldridge says town officials should always use common sense in making budget decisions. “You need to be concerned about credibility, and not just about whether something is legal. You need to ask yourself about what you’d say if a reporter asked about what you’re doing.”

The test of how good a budget is can only be answered within the context of each town. “We have to recognize that budgeting is in some ways a political process,” Eldridge said. While a certain amount of conflict is inevitable, he said, it’s important that unnecessary conflicts be avoided, and a good budget process can definitely help.