Budget Transparency

(from Maine Townsman, January 2008)
Douglas Rooks, Freelance Writer

       The never-ending quest to help the public understand the town or city budget continues to take new turns, spurred by the continuing debate over property taxes, and by new initiatives to reform school budgeting and standardize municipal accounts.

       Most larger communities now make budget information available on their websites, which unquestionably improves citizen access. But municipal finance directors also consider the search for budget transparency to be an important part of their work. “We’ve done what we can to make the information more available,” said John Eldridge, Brunswick's finance director. “Now we’re working to make it more understandable.”

       Lisa Parker, finance director in Saco, has led a statewide project, initiated by a legislative resolve, to create a standardized chart of accounts that can be used by all municipalities; a shorter form is also available for smaller communities. Now, Saco and seven larger municipalities of York County are seeking a state regionalization grant that would help them implement the chart of accounts into their financial statements; they should know by March whether they'll receive funding. The group includes Saco, Biddeford, Wells, Kennebunk, Sanford, Old Orchard Beach, and, in Cumberland County, Scarborough.

       Transparency is important to municipalities of every size. Oakfield (pop. 725) and Sebago (pop. 1,529) have made strenuous efforts to better inform voters following periods of financial difficulties.

       “We all budget a little differently,” said Eldridge, commenting on the state's effort to provide uniform data about school budgets.

       But that doesn't mean it isn't worth making the effort, Parker said. "The more consistency and transparency we can provide, the better the public will understand what we're doing."

       School budgets are generally separate from municipal finance, even in communities that operate municipal school departments. As a result of a process that began with passage of the 2004 referendum guaranteeing 55 percent state school funding, and enactment of the LD 1 system the following the year, the state is pushing ahead with a standardized presentation to the voters in each school system. Under the terms of the school consolidation law that was part of the state budget, LD 499, last year, school districts will present budgets for the 2008-09 year with 11 local "cost centers" that will be compared with the same components of the Essential Programs and Services (EPS) calculation prepared for each district by the Department of Education. Approval of the budget by the local legislative body will be followed by an up-or-down referendum vote on a single budget question. An attempt to delay implementation of the system is being made as part of pending legislation, LD 1932, but as of this writing the outcome is unclear.

A new statewide model

       Lisa Parker said the standardized chart of accounts comes from a different direction - not the state trying to better monitor and influence how state dollars are being spent, but a more general notion that municipal budgets ought to be comparable. "Most taxpayers would like to know how the fire department in their towns stacks up against departments in other towns," she said.

       At the moment, that's hard to do. In the most obvious example, some municipalities include benefits in the salary figures for individual departments, while others group them together as a separate administrative cost. Given the soaring price of health insurance, that can make a big difference in figuring out what a full-time firefighter costs in one town vs. another.

       Unlike the school format, Parker isn't optimistic about how fast the model municipal chart of accounts will be adopted. The pilot project in York County, if funded, could be one impetus. "It shouldn't be that difficult for the larger communities to do it if they make it a project," she said. The main reason why conversion will take some time is that the financial history represented by the old system needs to be preserved. "It's not easy to find software programs that will enable us to make the switch. Ideally, you should be able to go back and forth easily."

       Smaller communities, she said, may not see the advantages as clearly, and may also be less prepared to adopt a new method of financial reporting. "It may be that when a new manager or finance director comes in, they'll want to do this. It may be more difficult to convince someone who's operated a local system for years to make the change."

       John Eldridge said that, despite differences in the way budgets are done from town to town, a lot of transparency can be provided through better explanations of what's involved in a particular line item. "We're talking about more than figures," he said. "In many cases, a narrative that explains what a department does, and how spending changes from year to year, is helpful."

       While Brunswick doesn't specifically monitor use of the budget information contained on its website, Eldridge says that there are indications that citizens are becoming more sophisticated about municipal finance. "People do ask more questions about what the numbers mean, and what they're derived from." Budget meetings are also televised, he said. "Anyone who wants to know what's in it, can easily find out."

       Parker says that Saco also takes a comprehensive approach to informing the public. The city prepares a relatively brief four-page summary of the budget, including "aesthetically pleasing" charts and graphs showing the major areas of spending, and posts it on the website as well as distributing it in newspapers, grocery stores and other public places. The summaries also include links to the entire 600-page budget document for those who are more than merely curious. "It allows the individual citizen to drill down deeper, to see all the details of what's being done," she said.

       Parker said the city's aggressive effort to provide transparency has been appreciated. "We've gotten a lot of nice comments from people who might not have read the budget before," she said. "They can see how all the pieces fit together."

Transparency with a vengeance

       Robert Nicholson, town manager of Sebago, believes his small town doesn't take a back seat to anyone is providing budget transparency. The town has adopted a budget process that invites public participation from the first time the budget committee meets.

       He's been directing the process for two years, and credits his predecessors for their response seven years ago when Sebago had reached a financial impasse. "Basically, the town had run out of money," Nicholson said. "Now, we're rebuilt our reserves to $1.8 million, so we're in a position to stabilize our tax rate every year."

       Sebago got there in part by revamping its budget process from top to bottom.
It begins with a rigorous review of town accounts by the six-member budget committee. This committee doesn't simply take a look at last year's budget and hear about what the selectmen are proposing. Instead, there is a nine-week series of public meetings, each of which focuses on a particular department or line item. "We have everything broken down, so you can see exactly where spending is occurring, and what's different from year to year," Nicholson said.

       For instance, a clerk who does work for the code enforcement office, the planning board, and the appeals board would have hours broken down according to each budget item. "You can see what it costs for the planning board, down to the penny," he said. "We don't lump things together."

       The level of detail does seem extraordinary for a town small even by Maine standards. For the highway department, overtime is calculated for summer and winter crews, representing seasonal fluctuations for each individual positions. "The benefits are included," Nicholson said. "We think everything should be available to townspeople."

       The overall purpose is to allow people to understand what drives changes in the budget from year to year. "Our labor costs represent a smaller portion of the budget than they did even a few years ago," he said. "Commodity prices -  sand, salt and asphalt - have been rising, and that's reflected in our budget numbers." When voters understand the financial choices, they're more likely to be supportive of decisions the selectmen make, he said.

       Although many communities much larger than Sebago lump capital spending into the regular budget, the town now keeps it separate and has a five-member committee that deals exclusively with the Capital Improvement Plan.

       The CIP committee is an important element in what Nicholson terms "levelizing the tax rate." Each year, the committee ranks the selectmen's proposed capital improvements by priority, and the town designates a certain figure for spending, with a separate accounting for vehicles reflecting a standard depreciation schedule. Although recommendations of both the CIP and regular budget committee are advisory, the selectmen take them seriously, Nicholson said. "They might compromise with what they originally wanted, because it's great to have supporters at town meeting who can explain and justify what's being proposed," he said.

       The CIP helps the town guard against deferred maintenance building up, while the reserve funds earn considerable interest -- $86,000 this year. This year, the town will designate $100,000 to reduce the municipal tax rate from its previous level. "Now if only we could do that for the schools," Nicholson said.

Opportunity for change

       Oakfield had a different problem to deal with two years ago. The departure of a long-time manager, and the lack of an immediate successor, had left the town without the expertise to even prepare a budget, and town meeting was postponed.

       Part of the changes made by James Smith, when he came aboard later, was to change the "net" budgeting approach the town had traditionally used to a "gross" budget that accounts for all the revenues the town receives and the spending it commits, not just those represented by the property tax.

       Dale Morris, the former Clinton town manager who then took over from Smith, said that there has been continuing discussion of the budget method. The gross format has been standard in most larger municipalities for years, reflecting the impact of state and federal funding, but not every town has changed over.

       "Some people were happier with the old system, because they felt they understood it better," Morris said. The new budget wasn't a problem for him because he'd used it in other towns,  but there was lingering concern and even discussion of going back to the net system.

       Morris decided to prepare a much more detailed summary of town accounts than voters were used to, and used the new information to explain what was happening in each line item. When the budget was presented, "We could see that people liked it. When I talked to people who had preferred the old system, they discovered things they hadn't seen before."

       Like many changes, the budget shift "depended on people getting a certain comfort level." Getting more information, he said, "helped people get used to the new system."

       When the selectmen considered whether to continue the new budget system for 2008, they voted unanimously in favor. And town meeting, which had occurred as late as October during the manager-less period, has returned to its traditional March date. "It will be in March as long as I'm here," Morris said.

A really big committee

       Bristol has had an unusual budget committee for a long time. This coastal town of 2,800 people included 25 citizens to review the budget, all chosen at town meeting the previous year.

       Kristine Poland, who hails from California and was serving in her first town manager position here, said it was tough to deal with. "Some of the people selected weren't really that interested, so we had a problem with attendance at meetings. The meetings weren't very organized, so it was difficult to get through the budget in any detail." Questions from budget committee members, she said, were often the kind of off-the-cuff remarks more typical of town meeting itself.

       About two more years of navigating the 25-member committee process, the selectmen agreed to propose a change. At the 2007 town meeting, the voters agreed on a 12-member committee, with half elected directly and the others chosen by the moderator.

       Poland expects the new process to be far more focused and productive, and will have its first full test at this year's town meeting. The budget committee has always had a lot of turnover, but this year's members "are extremely interested in the process." When the change was debated last year, "some eyebrows were raised," she said, but once the proposal was explained, there was little dissent.

       No one seems to know how Bristol acquired its unusually large budget committee, Poland said. "We don't have a charter, and there's nothing in the minutes of town meeting that explains how it happened."

       The budget process will now be more orderly and businesslike, she believes, but town meeting itself is an occasion she always looks forward to. She said that "my parents [from California] don't really understand what I do," but she wouldn't have it any other way.

Worth the cost?

       The finance directors and managers say that providing more detailed financial information and narrative summaries does require a lot of work. "I'm pretty tired by the end of town meeting season," Robert Nicholson observed. But they say that it's worth the trouble because the public has a better appreciation of why budget decisions are made, and the choices facing their elected officials.

       "We're trying to include performance measures to help people learn about what their tax dollars do," Lisa Parker said. "They should be able to see the benefits that result from the dollars the city spends."

       In Brunswick, John Eldridge led an earlier effort to coordinate the reporting of budgets with neighboring towns so that voters could make meaningful comparisons across municipal boundaries. But the amount of work entailed proved discouraging, which is why he hopes the new effort Saco is leading will be successful. "There's no question that it will improve accountability if we can pull it off," he said.

       "We sometimes hear a lot about arrogant public officials," Nicholson said. "But when you can see the process at this level of detail, it's a lot easier to understand the hard choices."