18843_Authority_Dec

22 The Authority │ December For many authorities, their 2026 Budget has been adopted or will be in the next couple of weeks. This is usually accompanied by a discussion of rates and charges for the upcoming year and any projected system upgrades, equipment replacements, or major maintenance. In other words, the budget process involves discussions of all the important factors that affect the authority’s operational and financial performance. In addition to the annual budget, forward-looking, three-to-five-year projections of revenue and expenditures are often prepared or updated to estimate the timing of future rate increases financing needs for major capital projects . Understanding the timing of these events permits better communication, better short-term decisions, and better project planning. This article looks at some of the ways you can use current and historical data to estimate future revenues and expenditures to generate more accurate and more useful projections that help: • avoid crisis-driven repairs (which are often more costly); • provide better rate stability for your customers, phasing in necessary increases gradually; • improve your financing position with lenders and grant agencies; • improve operational efficiency by linking capital improvements to system performance, growth projections, and regulatory timelines; and • build trust with ratepayers by showing how today’s revenues support tomorrow’s improvements. All projections rely on the assumptions. Predicting key economic and financial factors and the authority’s own key performance metrics are essential for making good estimates. There are external sources for estimating things like interest rates and inflation but much of the relevant data is historical and based on internal and local information. By adding key pieces of information each year as supplemental budget information, a historical record is created that can be used to make better forecasts and provide a basis for current decision making. Forecasting Revenue In a typical revenue forecast, municipal authorities would rely on generic formulas and assumptions. They’d start with last year’s revenue and adjust it expected growth or rate increase. Changes are often applied to all users regardless of class or user type of usage. This approach can miss early warning signs of declining usage, shifting demographics, or cumulative financial pressures that could significantly impact revenue over time. Break rate revenue down by components to clearly identify the major revenue sources and the factors that generate them. The easiest way to organize this information is to create notes for major budget sections or line items. For example, revenue from rates is a basic but an important item and something that deserves a lot of attention since rates are directly B udgeting n ext S tepS : te S hifting to C apital p lanning & d eveloping M ore a CCurate l ong -r ange f oreCaStS on By Russell F. McIntosh, HRG. Continued on page 52.