fire & emergency services administration chapter 4 financial management

Fire & Emergency Services Administration

Chapter 4

Financial Management


Understanding Budgets

• Budget documents– Link resources to expenditures– Translate financial resources into services– Provide accountability

• It is up to the administrator to understand the budget process.

• Reports designed by accountants are not designed to measure success or outcomes.


Line-Item Budgets

• Easiest to understand and analyze• Reported on a monthly basis• Very good at controlling

expenditures and tracking financial accounts

• Not very good at measuring real results or outcomes


Methods of Increasing Revenues (Page 1 of 3)

• Property tax– Most common source for funding local

governments– Relatively easy to collect– Flat rate as opposed to a progressive

tax– Reacts slowly to any changes in the

value of existing properties



• Income tax– Federal government’s primary source of

funds– Progressive tax that is characterized by some

as being more fair than a flat tax.– Tax evasion

• Sales tax– Common source of revenue at both the state

and federal levels– Will suffer the greatest immediate negative

impact during poor economic times



• Fire service tax– Can be calculated by using a fire flow

formula and applied to commercial structures

– A standard fee per dwelling unit independent of size or value

• Fees – Road tolls, driver’s license fees,

professional licenses, and ambulance transport fees


Borrowing• Municipal bonds—short and long

term– Used for purchasing

• Fire stations• Apparatus for small departments

– Most have either an official or recommended debt ceiling

– If improperly used, can result in major financial crises


Basic Government Finance

• Gross national product (GNP) is the total output of the nation’s economy.

• Over 30% of the GNP is created from spending by government.

• The greatest majority, 70%, is done by the federal government.

• Sixty-one percent of the federal budget is for entitlements such as Social Security, welfare, and Medicare/Medicaid.

• Only a very small portion of this spending goes to fire and emergency services.


Tax Expenditures

• The theory is that when someone does not pay, others will have to make up the difference.

• At the local level, exemptions are granted to the property tax for– State and federal government– Nonprofit organizations


Budget Process & Planning• Planning

– Done at the agency level in most cases.

• Budget preparation– Requests are prepared on standard forms provided

by the finance agency.

• Budget justification and adoption– Proposed budget receives a preliminary confidential

review by the budget director and city manager.

• Budget administration– Expenses and revenues are monitored in the budget

and revised, if needed.


Role of the FES Financial Manager

• Review any proposed legislation.• Determine fiscal impact.• Set up an automatic referral system.• Instruct staff to report the existence of

any proposed legislation. to communicate with citizens’ groups, the press, and elected officials.

• Monitor the community for demographic changes.


Voting and Public Choice

• Governments must choose between many conflicting interests.

• Governments do not always know or do what is right, efficient, and in the best interest of the citizens.

• It is assumed that when all else is equal, voters will vote according to their pocketbooks.

• The chief must convince elected and appointed officials to spend taxpayers’ money on the department needs.


Bureaucrats and Other Agency Managers

• Most government agencies have few standards for public services.

• Fire service national standards– Training– Safety of personnel– Deployment and staffing

• The administration of an FES organization is part of the government bureaucracy.

• Bureaucrats from other agencies are in competition for tax revenues.


Cost-Benefit Analysis

• Difficult to measure benefits or outcomes from FES programs– Can a dollar value be assigned to a

person’s life?– Saving lives and property is the result

of a complex set of circumstances, making cost-benefit analysis difficult.


Funding

• Advise staff not to bring any problems to the chief unless they also bring several possible solutions.

• Be prepared to recommend a funding source.

• If the proposed solution is a tax or fee, ask staff to generate a report detailing the impact on the person(s) paying.

• Ask for an analysis of the probability of convincing the public that it will be money well spent.


Taxes

• Two primary reasons– To bring revenue and to influence

behavior

• Economic impact on market– Every product and service has a price-

demand curve.– The effect at the local level of new

regulations may be the loss of potential tax revenues.


Who Bears the Tax Burden?

• When a tax is being judged for its equity, the ability to pay is a common measure of fairness.– Progressive (federal income tax)– Regressive (real estate tax)

• Businesses and corporations do not actually pay taxes, but pass the payment to stockholders, owners, employees, and customers.


Fairness

• Once the person who pays the tax is identified, determine the fiscal impact.

• The ultimate test for fairness is whether the public benefits.– Is the cost worth the improvement?

• The public and officials will support increased funding when improvement is measurable.


Tax Avoidance and Evasion

• Numerous opportunities exist to avoid paying federal income tax—legal and not legal.

• There is a significant loss of tax revenues due to tax evasion.

• Real estate tax is nearly impossible to avoid.


Economic Impact of Taxes on the FES Organization

• Most FES organizations are funded at the city or county level.

• Some of the most costly federal programs are not funded.

• Costs are driven by reduction in work hours and increases in salaries and benefits.

• Many FES organizations have improved productivity by offering expanded services– EMS, hazardous materials mitigation


Alternative Funding Sources in FES

• USFA report Guide to Funding Alternatives for Fire and EMS Departments– Provides information on locating and

implementing both traditional and nontraditional methods of funding

– Discusses government sources for financial aid

• FEMA and the USFA awarded more than $495 million to over 6,600 fire departments throughout the United States.


Purchasing and Procurement Processes

• Chief must become very familiar with local policies.– Identify any lines that are below or

above expectations.– It is a good idea to keep a separate

personal record of the budget.


Accountability and the Audit Process (Page 1 of 3)

• Financial audits– To ensure that the financial records

are accurate and complete– Fairly common– Usually done on a yearly basis


Accountability and Audit Process (Page 2 of 3)

• Performance audits– Compliance—may check adherence to

a legal or policy mandate– Procedural, internal, or external—

attempt to measure management policies and procedures


Accountability and Audit Process (Page 3 of 3)

• Check for misuse of public funds– Embezzlement– Double payments– Failure to follow procurement policy– Padding of expense statements– Misappropriation of funds


Strategies to Counteract Adverse Economic Impacts

• Stay in close touch with elected and appointed senior officials and their staffs.

• Have current justifications and data to back up every item in the budget.

• Identify and eliminate unjustified expenditures in the budget.

fire & emergency services administration chapter 4 financial management

Documents

federal budget

budget director

adoptionproposed budget

budget justification

budget administrationexpenses

budget preparationrequests

financial accountsnot

flat tax