THE AIKIDO BUDGET METHOD

PA 583, Advanced Budgeting

Budget Process ProblemsGoverning Board Perspective

• Process too time-consuming• No time for long-range issues• Number crunching and budget details

obscure the “big picture”

Budget Process Problems Governing Board Perspective

• Most budget processes build in inflationary increases, so…

• ….Process focuses on difficult “cuts” even when overall revenues increase.

Budget Process ProblemsCEO Perspective

• Built-in rules for bad budget behavior:–Spend it or lose it–Line item padding–Fictional revenue

Budget Process Problems CEO Perspective

• Budget-balancing waits for departments’ budget requests

• Departments look to general fund contingency for unanticipated needs

The Aikido Method of Budgeting

"Aikido focuses not on punching or kicking opponents, but rather on using their own energy to gain control of them or to throw them away from you. It is not a static art, but places great emphasis on motion and the dynamics of movement."

Source: What is Aikido? From www.aikidofaq.com

The Aikido Method of Budgeting

Features:

• Two-Year Budget• Spending Targets• Bottom-Line Results• Carryover Savings Program• Departmental BWC, Contingency

The Aikido Method of Budgeting

Other Budget Policies:• Continuing expenses should be

covered by continuing revenues.• Cash balances in the general fund

should be sufficient to cover expenses until property tax is received in November.

• New development should pay for itself.

The Aikido Method of Budgeting

CEO Perspective

• Starting the budget cycle--Net Budget Targets:–Same $$ (net) as past year, except…–…allowance for pay & benefit increase–Some tweaking (rare)

The Aikido Method of Budgeting

CEO Perspective

• Departments can ADD:–Carryover savings from current year–Departmental revenues

• Departments have full flexibility on line items

CURRENT BUDGET

YEAR-END ESTIMATE

NEXT YEAR

EXPENSESalaries & Benefits 600,000$ 610,000$ 635,000$ Supplies 20,000$ 15,000$ 20,000$ Training 15,000$ 10,000$ 15,000$ Dispatch 40,000$ 40,000$ 45,000$ Vehicles 80,000$ 85,000$ 90,000$ Other Expenses 60,000$ 65,000$ 70,000$ Contingency 15,000$ -$ -$

TOTAL EXPENSE 830,000$ 825,000$ 875,000$

REVENUEBeginning Balance 15,000$ 10,000$ 10,000$ Grants 35,000$ 40,000$ 35,000$ Traffic Fines 150,000$ 160,000$ 170,000$ Miscellaneous 25,000$ 20,000$ 20,000$

TOTAL REVENUE 225,000$ 230,000$ 235,000$

NET 605,000$ 595,000$ 640,000$

CARRYOVER 10,000$

POLICE DEPARTMENT

Net Budget = Expenses - RevenuesNet Budget = Expenses - Revenues

CURRENT BUDGET

YEAR-END ESTIMATE

NEXT YEAR

EXPENSESalaries & Benefits 600,000$ 610,000$ 635,000$ Supplies 20,000$ 15,000$ 20,000$ Training 15,000$ 10,000$ 15,000$ Dispatch 40,000$ 40,000$ 45,000$ Vehicles 80,000$ 85,000$ 90,000$ Other Expenses 60,000$ 65,000$ 70,000$ Contingency 15,000$ -$ -$

TOTAL EXPENSE 830,000$ 825,000$ 875,000$

REVENUEBeginning Balance 15,000$ 10,000$ 10,000$ Grants 35,000$ 40,000$ 35,000$ Traffic Fines 150,000$ 160,000$ 170,000$ Miscellaneous 25,000$ 20,000$ 20,000$

TOTAL REVENUE 225,000$ 230,000$ 235,000$

NET 605,000$ 595,000$ 640,000$

CARRYOVER 10,000$

POLICE DEPARTMENT

TARGET = Current year net budget + Salary/Benefit increase

TARGET = Current year net budget + Salary/Benefit increase

CURRENT BUDGET

YEAR-END ESTIMATE

NEXT YEAR

EXPENSESalaries & Benefits 600,000$ 610,000$ 635,000$ Supplies 20,000$ 15,000$ 20,000$ Training 15,000$ 10,000$ 15,000$ Dispatch 40,000$ 40,000$ 45,000$ Vehicles 80,000$ 85,000$ 90,000$ Other Expenses 60,000$ 65,000$ 70,000$ Contingency 15,000$ -$ -$

TOTAL EXPENSE 830,000$ 825,000$ 875,000$

REVENUEBeginning Balance 15,000$ 10,000$ 10,000$ Grants 35,000$ 40,000$ 35,000$ Traffic Fines 150,000$ 160,000$ 170,000$ Miscellaneous 25,000$ 20,000$ 20,000$

TOTAL REVENUE 225,000$ 230,000$ 235,000$

NET 605,000$ 595,000$ 640,000$

CARRYOVER 10,000$

POLICE DEPARTMENT

CARRYOVER SAVINGS = Next year’s beginning balance

CARRYOVER SAVINGS = Next year’s beginning balance

The Aikido Method of Budgeting

Results• “Big Picture” budget balancing while

departments work on the details• Incentive for finding new or expanded

revenues• Eliminates almost all budget tricks

The Aikido Method of Budgeting

After Budget Adoption• Strong incentive for savings• Revenue doesn’t get lost in “general

fund black hole”• Departments watch the bottom line• Departmental contingency accounts for

emergencies, one-time needs

The Aikido Method of Budgeting

Governing Board Perspective• Cycle linked to Board elections• Board goal-setting session at front-end

of process

The Aikido Method of Budgeting

Governing Board Perspective• Time free for policy issues during “off

year”–Forecasts–Capital Improvement Planning–Program Priorities & Effectiveness

Diminishing Returns:Oregon Cities’ Struggle to Afford Basic

ServicesProperty Tax – Shrinking Share of City Revenues

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1990 1995 2000

The Aikido Method of Budgeting

Governing Board Perspective• Departments manage their own budgets

—no need to grovel for unanticipated needs

• Typically some discretionary $$ left for allocation by Board (especially one-time revenue)

The Aikido Method of Budgeting

Governing Board Perspective• Two-year budget forces the agency to

match ongoing costs with ongoing revenues: cash carryover is not available to offset the second year costs.

The Aikido Method of Budgeting

Results for City of Sandy• PERS, medical insurance costs dealt

with up-front• Building department fully self-

supporting…and with a $300,000 contingency account

The Aikido Method of Budgeting

Results for Sandy (continued)• Strong growth in non-tax revenues:

(user fees, permit fees, and grants)• No layoffs• Healthy general fund cash balance

The Aikido Method of Budgeting

Results for Sandy (continued)• No easy solutions for general fund

programs that don’t have revenue:–Park maintenance–Finance, administration

• See www.ci.sandy.or.us for the on-line budget “document”

AIKIDO BUDGETING THE END