It’s Budget Time
Last year’s audit is in the wrap-up stages. It appears your PORAC financial team was able to gauge our income and expenses fairly well. At the end of the day, when you deduct our unrealized gains and losses on our investments, we ended up with a surplus.
By the time you read this article, the Budget Committee will have met and be well on the way toward presenting the 2016 proposed budget to the Board of Directors. As has been our past practice, our accountant has done some extensive reviewing of the past three to five years’ income and expenses to create a better prediction of the 2016 budget. We continue to see some certainties on increases, and that is as it pertains to travel and lodging expenses.
When preparing your association’s budget for the coming year, you may want to consider using the three- to five-year-average method. Budget preparation calls for a bit of a paradigm shift in your thought process. You need to shift your thought process from government budgeting to business budgeting. There are a few considerations during your paradigm shift in preparing your association’s budget. In the first phase, you need to determine what items you are looking at maintaining at status quo and which ones will require an increase or decrease. It is in this phase that the three- to five-year average comes in handy in providing justification for the amounts that you have decided to place under each category. Second, it’s important to remember in business budgeting that a surplus in last year’s budget shows that you have done a great job in the budgeting process, as well as keeping your fiduciary responsibility to your members. Conversely, the surplus does not mean that you need to go and spend the money before the end of the budget cycle, fearing that item will not be fully funded for the following year. Remember that as association leaders, you make the decisions on what will or will not be funded for the following year.
Finally, do not set your budget in stone. You are not required to have your members formally adopt the budget. That does not preclude your members from reviewing it and making recommendations. If it’s your association’s practice to formally adopt your yearly budget, you may want to reconsider the practice — especially when it comes time to modifying your budget by making significant increases to a specific line item. If your members formally adopted the budget, you will be looking at having to get your entire membership to meet and adopt the change. Now, if you are a part of a small association, this may not be a problem; however, for the large associations, this could be a costly process. Notwithstanding either approach, keep your members involved and informed during the budget process by giving them the opportunity to review it along the way, and provide them with guidance through the fiscal roadmap that your board has decided to take for the following year.
As an association member, by not setting your budget in stone, you are not automatically giving your board carte blanche to do as they please with your money. This is why it is imperative that the bylaws and standing rules that govern your board, president and vice president’s actions when spending your money are up to date. Your bylaws and standing rules should clearly delineate how much authority you are willing to give the aforementioned executive officers when it comes to making financial decisions, and when they need to seek input from the members.
Please don’t forget to attend your local chapter meetings and keep yourself informed as to what is occurring within your city, county and state. Pension reform will be on the 2016 ballot; therefore, it’s imperative to keep your members involved. The Public Employees’ Pension Reform Act (PEPRA) made significant changes in reducing future costs of public employee pensions, including safety employee pensions. In addition, it increased the contributions for current or legacy employees. However, the folks behind the proposed 2016 pension reform initiative believe PEPRA did not do enough for current or legacy employees. Ultimately, Kim Busman and I are available to assist you, should you need help with your association’s budgeting needs. I look forward to seeing you at Conference in Monterey and providing you with the opportunity to review your 2016 PORAC budget. By the way, don’t forget to register early for this year’s conference. You can do so at www.porac.org.
Be safe and have fun.