Municipalities' Annual Budget Process

1. Problem Statement

Most municipalities' aging public facilities and infrastructure have been allowed to deteriorate, and now, this neglect is becoming more-and-more prominent as the media is regularly displaying pictures of situation relating to our infrastructure in the newspaper articles and on television programmes.

Even during times of fiscal health, councillors and municipal management have not provided adequate annual funding for routine maintenance, repair and replacement and capital improvements.

When maintenance is deferred, the infrastructure is allowed to deteriorate, and this deterioration accelerates over time, increasing the amount of money the municipality must spend to restlore the infrastructure to its original condition. As deferred maintenance grows, the infrastructure prematurely reaches a condition where it is cheaper to rebuild entirely than to catch up on maintenance. At that point, the municipality must find additional funding, either issue bonds or negotiate debt financing to pay for rebuilding the infrastructure. If debt financing was secured, the municipality must also pay interest on the debt. This means the municipality must invest more frequently in its prematurely deteriorated infrastructure assets and commit to new interest payments. Much of this spending could be avoided and the life of their infrastructure assets extended by committing to an adequate level of annual maintenance.

1. The Budget Process

While the municipalities' budget year begins on 1 July of each year, they usually begin to develop the budget onwards from November the following year. The Council then adopts the finalised Financial Plan and Annual Budget in early June.

1. Financial Planning and Process

Each year, the municipality adopts Financial Policies to guide development of the annual Financial Plan - review and approval of a Financial Plan is one of the Municipal Council's most important roles. This Financial Plan must include only essential operational and maintenance tasks to maintain asset functions at required performance levels. A budget, based on such a plan, will optimise output (revenue) and minimise costs and risk over the life of the assets. Commonly, municipal officials do not have a comprehensive plan and they barely cover the 20% of assets that cause 80 percent of problem costs. If that is the basis of their budget request, they leave themselves open to budget cuts as they cannot justify their budget needs.

1. Approval Process

Most maintenance managers have a good grasp of what they want to do in the next financial year, especially if this view fits well in a picture of the longer term. However, in most organisations, this plan does not cover all assets or it is an evolution of plans from past years. In both cases, the plan cannot withstand scrutiny and probing by finance managers to find a foothold for budget cuts.

Finance manager believes that maintenance managers are not in control, spend money on different things than planned and spend more than their allocated budgets.

The maintenance manager therefore produces a plan that includes some 'essential' jobs that are not essential and inflates each budget item by, say 15%. The finance manager knows that and will immediately reduce the request by a percentage that he estimated that the maintenance manager has added. If it is 15%, the maintenance manager is lucky, if it is more, he or she have their first cut.

During this 'shuffling for positions' a considerable amount valuable time is lost, during which, both the finance and maintenance managers could be doing things that are more important. In any case, the yearly period of budget development and negotiations, which could take up many resources for up to two months, is totally wasted, compared to developing a proper life cycle plan, once and for all. This in itself would give them the opportunity to spend a larger proportion of your budget on assets, rather than 'administration'.

1. Solution

Subscribe to our Collaborative Asset Management service and we will deliver you a properly motivated Annual Infrastructure Asset Management Budget with all resources, money, material and manpower allocated to the respective months.

1. How Do We Justify the Budget You Need?

We develop an Infrastructure Asset Maintenance Management Plan containing all necessary operational and maintenance tasks to keep your assets in the best condition. Furthermore, we load your Capital Investment Plan and incorporate them into an Integrated Infrastructure Asset Management Plan. As part of our service, we continuously improve standard task instructions, frequencies, etc.

The process that we follow is one of logic to guide the planning, acquisition, operation and maintenance, renewal and disposal of assets. Its objective is to maximise asset service delivery potential and manage related risks and costs over the entire live of the infrastructure assets. This process is aimed at ensuring that the municipality's assets are capable of providing services of an agreed quality, in a sustainable manner, for present and future generations.

Our key objectives are to: 1) establish best practices in infrastructure asset management and 2) think creatively to find the most efficient ways to meet the needs of the community. For this reason, we would continually revise and improve the maintenance practices.

1. How to Sell This to the Finance Manager and Council?

We highlight the increased risk and lost production linked to a reduction of budgets. Furthermore, our input would also highlight the risks associated with shortages of skills, material and special tools.