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Maricopa County December 4, 2013 Public Budgeting “Best Practices” Alan E. Maguire The Maguire Company Public Budgeting • Balancing Spending and Revenues • Managing Over the Entire Economic Cycle • Using Reserves Effectively Balancing Spending and Revenues Tax Revenues Should Be Sufficient to: ü Fund Essential Service ü Provide Predictability for Taxpayers ü Match Ongoing Revenues and Ongoing Expenses ü Build Appropriate Reserves Balancing Spending and Revenues Differentiate Revenues by Character: ü Ongoing Revenues or Base Revenues ü Cyclical Revenues or Expansionary Revenues ü One-Time Revenues or Extraordinary Revenues Match Spending and Revenues By Type Balancing Spending and Revenues Fully Fund Any Tax Cuts or Spending Increases ü Match Permanent Tax Cuts with Permanent Spending Cuts ü Match Permanent Spending Increases with Permanent Tax Increases Personnel, Spending includes Service Permanent Long-term Debt Operations, Core Public Budgeting • Balancing Spending and Revenues • Managing Over the Entire Economic Cycle • Using Reserves Effectively Managing Over the Entire Cycle Total Tax Revenues should Equal Total Spending Over Entire Economic Cycle Standard of Care: Fiduciary Prudence Tax Predictability is More Important than Temporary Tax Cuts Private Benefits Predictability and Budgeting Planning Managing Over the Entire Cycle Tax Burdens Should, When Practical, Reflect Economic Conditions ü Increase Marginally With Economic Growth ü Decline Marginally With Economic Contraction Effective Budgeting & Management Tools Compensate for Economic Cycles Managing Over the Entire Cycle Build Cyclical Reserves during Expansion ü Annual Structural Surplus during Expansion Draw Cyclical Reserves during Recession ü Annual Structural Deficit during Recession Proportionate to Growth Relative to Trend Public Budgeting • Balancing Spending and Revenues • Managing Over the Entire Economic Cycle • Using Reserves Effectively Using Reserves Effectively Types of Reserves ü Basic Reserve ü Cyclical Revenue Reserve ü Dedicated Purpose Reserve(s) ü Special Reserves for High Risk Circumstances Standard of Care: Fiduciary Prudence Using Reserves Effectively Basic Reserve ü Current Reserves Based on Three Months Spending Levels ü Alternative: Stand-by Credit Lines with Associated Borrowing Cost Self-Sufficient Borrowing? or General Fund on Inter-Fund Is Dependent Standard of Care: Fiduciary Prudence Using Reserves Effectively Smoothing Revenue Cyclical Revenue Reserve Cyclical ü Cyclical Reserves Based on Economic Cycle Revenue Fluctuations ü Alternative: Episodic Budget “Crises” Standard of Care: Fiduciary Prudence Using Reserves Effectively Dedicated Purpose Reserve(s) ü Built-up Reserves Based on Dedicated Purpose ü Alternative: Long-term Financing, with Higher Permanent Spending Standard of Care: Fiduciary Prudence Using Reserves Effectively Special Reserves for High Risk Circumstances ü Risk Reserves Based on Risk Assessment Quantification ü Alternative: Stand-by Credit Lines with Associated Borrowing Cost Standard of Care: Fiduciary Prudence Using Reserves Effectively Managing Reserves ü Build Reserves during Expansion ü Draw Reserves during Recession ü Delay Reserve Draws at Start of Recession by Reducing Discretionary Spending Standard of Care: Fiduciary Prudence Public Budgeting Summary • Balancing Spending and Revenues • Managing Over the Entire Economic Cycle • Using Reserves Effectively Effective Budgeting & Management Tools Compensate for Economic Cycles Maricopa County December 4, 2013 Public Budgeting “Best Practices” Questions ?? Alan E. Maguire The Maguire Company