Preparing Budgets and Budget Decisions

Chapter Three Lecture

In this module we will be learning about the personnel services and operating expense portions of a budget. Regardless if the budget follows the line item, performance, or program format the personnel services portion of the budget will always be the largest, around 80 to 85 percent of the total budget. It is this section of the budget where all related salary costs for personnel is found.

Before this area of the budget can be prepared the agency’s chief executive officer must decide how many personnel will be funded by the budget. This includes current personnel and any new personnel that have been determined to be necessary in meetings concerning the budget preparation. Some legislative bodies require the chief executive officer of the organization to justify the continued funding of current positions (a good example of zero based budgeting) and almost all legislative bodies require the justification for the addition of new personnel.

In addition to the salary for each position, matching funds must also be added. The funds include retirement benefits, the FICA employer match, medical insurance premiums (if paid by the employer), unemployment insurance, etc. As a general rule, in Florida these costs usually total 41% of the salary. So, if the salary to be paid is $50,000 the budget must show an additional $20,500 for matching funds resulting in a total personnel service cost for this position at $70,500.

Let’s say this agency has 100 positions at an average salary of $50,000 for a total of $5,000,000. The additional matching funds would be 100 x $20,500 or $2,050,000. This brings the total personnel services portion of the budget to $7,050,000. Since we already know this is going to be 80 to 85 percent of the total budget, the total agency budget in this case will be between $8,294,117 and $8,812,500.

We now move to operating expenses. These are the expenses necessary to operate the agency for the fiscal year, minus personnel services and equipment (capital expenditure items). As the power point shows, these expenses would include items such as travel, telephone services, gas for patrol cars, toilet paper for the jail, etc. Since we know this portion of the budget should represent between 15 and 20 percent of the total budget, the amount for operating expenses for this particular budget would be between $1,244,118 and $1,762,500.

In our next module we will be discussing capital expenditures, the last major portion of a budget.

Chapter Three Overview

Organizations generally do not operate without people. In public budgeting it is the people of the organization that make up the largest portion of the agency’s budget. As a general rule this is usually between 75 to 80 percent of the overall budget. Another 15 percent is placed in the budget for services, those “things” needed to support the people who work in the organization or fulfill legislated duties. For example, a support item could be uniforms for the personnel, while a legislated duty could be food for the feeding of prisoners under the agency’s control. Accountability and efficiency are very important aspects of the public safety administrator’s role for these two major areas of the budget. It becomes the agency administrator’s responsibility to determine salary amounts, staffing levels, and organizational structure for the personnel services portion of the budget. How the agency gives support to its personnel and carries out it legislated duties also reflects on the agency’s chief executive officer accountability and efficiency.

Chapter 3 Salary Projections

Instructions 

Complete the salary projection report using the corresponding Excel spreadsheet form attached

Assignment

Prepare a salary projection report for the Jefferson City Fire Department for FY 2015 using the actual budget for FY 2014 as a model along with a budget request for two new fire fighter (2a) positions. Use the following information in your FY 2015 Salary Projections and budget requests (see Appendix 3B in the book). Note that the budget has the number of employees in each position grade rather than listing each employee. Also, you should calculate the total cost of employment for each staff person.

· The salary of the chief increased 7% while everyone else received a 5% increase.

·  FICA is 12.4% and Medicare is 2.9% for all employees. Only consider employer contributions to FICA and Medicare.

· The cost of health insurance increased 5%.

· The cost of uniforms increased 2%.

· The fire fighter’s pay range is $30,000.00-$40,000.00. You will pay the new fire fighters (2a) $35,000.00

· The new fire fighters (2a) will receive the same benefits package as the other FY 2014 employees.

· The cost of training the new fire fighters is $2,000.00 per employee.

·  The pension rate in FY 2014 is the same as it was in FY 2013.

· The clerical staff member works a half day schedule 12 months per year (.5 FTE).

· Complete the FTE column.

Chapter Three Pension Payments

Directions

For this assignment use the corresponding Excel spreadsheet attached labelled pension payments

Assignment

Three employees are retiring from the city of Miller. Your job as the human resource officer is to calculate their pension payments using the following information. Use the model in Exhibit 3.1 to assist you in completing this problem. Calculate: Total % value PP, Average Final Compensation, Annual Benefit, and Monthly Benefit.  Use the Pension Payment Short Form to complete this assignment (See Appendix 3C in the book).  

· Employee 1:  Eboni Harris

· Has 31 years of service and is 63 years of age.

· 5 highest years of salary are: $18,904; $19,398; $20,198; $22,239; & $24,908.

· Employee 2:  Cortney Richardson

· Has 32 years of service and is 64 years of age.

·  Five highest years of salary are: $28,504; $29,698; $30,798; $32,839; & $34,508.

· Employee 3:  Jordan Moore

· Has 34 years of service and is 69 years of age

· Five highest years of salary are: $47,904; $49,899; $53,678; $55,742; & $57,108.

Chapter Three Personnel Budget

Directions

Complete this assignment using the corresponding Excel spreadsheet labelled personnel budget form

Assignment

The city council of Charleston decided to create a new Tourism Department in FY 2015. The department has a director, secretary, marketing director, two van drivers, and three tourism officers. As the budget officer for the city, your job is to create a personnel budget for the department using the information listed below. Only consider the items that are listed. Read each bullet prior to beginning the assignment (See Appendix 3A).

· Complete the FTE column

· The department director has a salary of $85,000 and is a FTE.

· The secretary has a salary of $38,000 and is a FTE.

· The marketing director has a salary of $60,500 and is a FTE.

· Each driver has a salary of $40,000 and is a FTE.

· Each tourism officer has a salary of $20,000 and works part time (PTE). Although they each work 6 months out of the year, they are paid over a 12-month period.

· FICA is 12.4% and Medicare is 2.9% for all employees. Only consider employer contributions to FICA and Medicare. Health insurance costs are $3,000.00 per year for each FTE. Each tourism officer has a clothing budget of $500.

·  Each driver has a clothing budget of $750.

·  Each tourism officer is eligible for 50% of the fringe benefits (health insurance premium, life insurance and pension).

· Training costs associated with each tourism officer is $500.

· Training costs associated with each driver is $800.

· Life insurance premiums are $25.00 per month for each FTE.

· Pensions are 9.5% of salary for each FTE. The city pays the full amount