Presented to the Finance Committee, Staff and the Town Council
We think that it is important to discuss the differences we have with the staff as to what constitutes a budget that the Town Council can use to manage the Los Gatos town government. Earlier this year we gave you one tool, the Financial Scoreboard, to measure historical trends that measured how the town performed over a period of five years. We feel that the Scoreboard, or something similar, will become a norm for town governments in the future. They have been in use in the private sector for decades. We strongly feel that the town should more effectively use the Statement of Net Position and Statement of Activities that will give them the ability to consistently measure annual performance. Complete, transparent, easy to read and understand information is what the Council needs to perform their responsibilities.
Additionally, the information below will show you how the town could enhance their management information to Council by comparing the budget to the actuals rather than comparing current budget to the past budget.
WHY IS THIS IMPORTANT TO A COUNCIL PERSON? First and foremost – the council is the ultimate responsible party. They cannot delegate responsibility to Staff. Using the Budget to Actual will give you real, consistent management information year after year. The Council will be able to see at a glance what is happening and consequently, be able to ask more intelligent questions. That has not been happening for years.
We stipulate that using the current budget numbers and comparing those to the actual numbers produced during the current time period provides better management data. A budget is generally put together using past data information and combining that data with future expectations. Comparing this year’s budget performance to last year’s budget will only tell you how the budget estimates and projections differ, but they leave out how the town actually performed when comparing the current budget to current actual performance numbers.
We do think there can be value looking at how one has previously budgeted by comparing one year to the next. Variances between the two may help improve budgeting practices, but that will not help active financial management of the budget. That will be better served by comparing the current budgeted numbers to current actual numbers.
In an effort to better understand why staff does not compare budgeted numbers to actual data, we searched on line to find the value of budget to budget data comparisons – but found none! It might be possible that we put in the wrong search terms, but when we looked, all we could find were recommendations to review the current budget to current actual numbers.
We were unable to find any information whereby they recommended comparing a past year’s budget to the current year’s budget as a management tool anywhere in the recommendations. We are perplexed as to why the staff only compares budgets and does not compare budget to actual. An explanation of the reasoning might help us understand Staff’s position, but it certainly should be questioned by the Finance Committee as well as by the Town Council.
Some recommendations in addition to changing the way the town manage’s financial performance:
The Finance Committee is advisory to the council. Currently, the FC consists of two non-financially trained council-members, and advised by 3 financially trained Los Gatos citizens with no voting priviledges. We have seen split votes passed onto Council from the two council members. Why not give the 3 citizens the right to vote also so that Council can better understand the recommendation from the entire FC, including those who have spent the better part of their lives in financial management?
The Finance Committee should be involved in the budget. As it is, the budget process is a very opaque process and presented much too late to Council to take action or object. Witness this year when very important questions and issues were brought up, but staff insisted that the budget had to be passed to meet the 6/30/18 deadline, so the council passed it, leaving major questions unanswered. Making decisions when your back is against the wall is not the right way to make decisions. Making the decisions in October or November for the current year’s budget is poor budget practice.
The staff needs to become much more transparent. As you have seen in our other presentation for this meeting, there are too many items not brought forth to the Council. As an example, Ms. Jensen asked why the town could not spend $700,000 to bring the PCI up to a 70 level but was told that all money has been allocated. There were no further questions from Ms. Jenkins and there was not enough background given by Staff. It sounded like an open and shut case to those of us in the audience.
That it was allocated was probably true. That it was necessary to allocate it where it was, was questionable. The Council does not get all the information they need to manage the town, and the Council has for years, not asked the right questions, or at times, none at all. The Council needs to have a reliable resource such as the Finance Committee with whom they can seek the right questions to ask. Our staff works hard with a small crew. But the (overly) conservative philosophy is costing this town a lot of money and only financially adept people can recognize when the Council is going in the wrong direction.
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