Before exploring the compelling Lenny Landau-Phil Younger approach to the town of Longboat Key’s budget process, let’s be clear at the outset that we are talking about a philosophical issue here, not the competence of our town financial planners.
Town Manager Bruce St Denis and Finance Director Tom Kelley are capable in dealing with financial information. Landau and Younger have not suddenly uncovered financial incompetence, carelessness or even an overlooked pool of money. What Landau and Younger have done is reintroduce the perennial hot topic of budget contingencies in a new, more quantified format that is easier to review and analyze. Their approach is also new because their data is based more on actual expenditures than past budget levels.
Some may question why the commission has interrupted the budget-planning process to entertain their suggestions. Hasn’t the town managed pretty well over the years without any special outside budget input?
And can you effectively run a government if every Tom, Dick and Harry comes in off the street to suggest how the town should be run?
Others will say Longboat is blessed with having uniquely qualified and experienced retired executives who can add a valuable dimension to town operations. The commission wisely has decided that Landau and Younger are in the latter group and endorsed the use of their approach as part of this year’s budgeting process.
Both of these men have been responsible for establishing and managing multimillion-dollar budgets at their respective companies. Landau, a 39-year veteran of GE Aviation, spent a major portion of his career focusing on cost and cost attainment. For more than 20 years, he was involved with the CFM-56 jet engine which is designed and produced by a 50/50 joint venture of GE, the United States and Snecma, a French jet-engine manufacturer. The CFM-56 engine powers all Boeing 737s and most Airbus A320s. It is the largest-selling aircraft engine in the world. Landau continues to consult with GE.
Younger, an engineer who also holds a law degree, worked for Delta Airlines for almost 30 years and was in charge of maintenance for Delta’s fleet of aircraft. He was so good at budget forecasting that one year he brought the year-end maintenance expenditures within .003% of the number forecasted at the beginning of the year.
It’s obvious their extensive budget experience makes it prudent for the Town Commission to listen to their suggestions.
Actual vs. budget
Every year at budget-planning time, the finance director prints out a pile of green-striped paper affectionately known as the Green Bar Report.
It’s a department-by-department, line-item listing of every revenue and expense down the left side of the page, with six columns across the top. The headings on the six columns are: Prior Year Actual, Current Year to Date, Amended Budget for Current Year, Initial Budget for Current Year, Proposed Budget for Next Year and a final column for any budgeted Special or Capital Expenditures.
The data is difficult to analyze. First, only two headings deal with actual expense figures. This limits the informational input for reviewers and tends to confine comparisons to budget to budget rather than proposed budget to recent actual. In addition, because it is only formatted by department, it is difficult to follow the total costs of many items, such as electricity, fuel and oil, office supplies or travel/conference/training.
The limited actual expenditure data and the lack of cost-code visibility led Landau to ask the Finance Department to provide an electronic printout showing the data in a different way — by item (i.e. electricity) and two years of actual expenses.
Re-designing the data into a new Excel spreadsheet, he came up with the simplified five-column format shown in the table, using electricity as an example.
The same data was also produced by department.
The commission and the town staff now have a three-year history of actual expenditures, as well as all cost-code expenditures to help them understand recent cost trends and to decide if there are any further cost savings in the proposed budget.
Looking just at the Green Bar Report, you’d be more influenced by the fact that next year’s proposed electricity budget is $2,500 less than this year’s budget. You would have no insight into the total cost of electricity.
The Landau-Younger Report, however, clearly shows that electricity is an area of potential cost savings when you see that the actual three-year average expenditure is only $121,028. That’s a saving of $34,192 or 22% off the proposed budget figure of $155,220.
Applying this same process to every budget category, Landau and Younger came up with suggested cost savings totaling $592,000 from the general fund and another $330,000 from the Enterprise Fund (or rate and fee fund).
These suggested savings do not involve staff layoffs or a lower level of service to our citizens.
The contingency issue
These potential cost-saving figures also represent something else. A strict finance executive would call it “fat.” Around here, we more politely call it “contingency.” Call it what you will, it always becomes the key arguing point in the commission’s budget deliberations.
The town manager, the financial staff and most government people in general tend to favor larger contingencies as insurance against budget shortfalls.
So far in this planning season, Commissioners George Spoll, Peter O’Connor, Gene Jaleski and Jim Brown have leaned toward looking for more budget cuts and keeping the millage rate as low as possible.
This same group of commissioners endorsed the idea of looking at the Landau-Younger approach that introduced us to a valuable new budget-planning tool. Landau and Younger’s hard work has been a great service to the town, and their approach should become an integral part of our accepted budget-planning process.
Sandy Gilbert is a former chairman of the Longboat Key Planning and Zoning Board and currently is chairman of START (Solutions To Avoid Red Tide).