Johnson: Beyond the numbers, why good budgeting matters

Have you ever wondered why local government budgeting seems so complicated?

Every summer, the Town Council begins work on one of its most important responsibilities, preparing the annual budget. During that process you hear terms like fund balance, capital improvement plan, financial forecast, and Governmental Accounting Standards Board (GASB). To many citizens, those terms sound like something only accountants understand.

The truth is much simpler. These concepts exist for one purpose to ensure your tax dollars are managed responsibly today while protecting the financial future of our community.

Having spent more than 40 years in business before serving in local government, I’ve learned that successful organizations share one common characteristic. They don’t simply manage this year’s budget, they plan for the future. Whether it’s a Fortune 500 company or a small Texas town like Double Oak, sound financial management is built on planning, discipline, transparency, and accountability.

Unlike a private business, the Town of Double Oak doesn’t exist to generate profits. Our responsibility is to provide dependable public services by maintaining roads, improving drainage, supporting public safety, maintaining Town facilities, and preserving the quality of life that makes Double Oak such a special place to live.

Every dollar collected belongs to the citizens, and every dollar should be managed wisely. That is why local governments follow accounting standards established by the Governmental Accounting Standards Board, commonly known as GASB. Think of GASB as the rulebook for governmental accounting. These standards ensure that cities report their finances consistently, transparently, and in a way that allows citizens to better understand how public funds are being managed.

One area that often creates confusion is fund balance. People sometimes hear that a town has millions of dollars in fund balance and assume that money is simply sitting in the bank waiting to be spent. That isn’t how municipal finance works.

Think about your own household. Most families don’t keep all of their money in one checking account. You may have savings set aside for replacing the roof, buying a vehicle, preparing for retirement, or simply handling an unexpected emergency. While all of those dollars belong to your family, each serves a different purpose.

The Town operates much the same way. Recently, the Town Council updated Double Oak’s Fund Balance Policy to comply with current governmental accounting standards. As part of that policy, approximately $1.2 million has been committed for future community needs, including major street improvements, drainage improvements, County Road Bond projects, street repair contingencies, Town Hall technology improvements, and general contingencies. These dollars are not “extra money.” They have been intentionally designated for known community priorities. 

The policy also establishes another important financial objective. Double Oak should maintain assigned and unassigned General Fund balances equal to approximately four to six months of operating expenditures. 

Using the Town’s current operating budget of approximately $2.7 million, that reserve represents roughly $900,000 to $1.36 million. Like a family’s emergency savings account, those funds provide financial stability when unexpected events occur.

Today, Double Oak’s total fund balance is just over $2.5 million. At first glance, that may sound like a substantial amount of money. However, one of the biggest misconceptions in municipal finance is assuming every dollar of fund balance is available for new spending. 

It isn’t. Some of those funds have already been committed by Town Council for specific purposes. Another portion is maintained to satisfy the Town’s reserve policy. In addition, the Town is currently seeking competitive bids for planned mill and overlay street improvements and two known cross-culvert drainage projects. Those projects will require a meaningful investment from the Town’s existing fund balance over the coming months.

That is exactly how fund balance is intended to work. Communities accumulate reserves so they can invest in infrastructure before roads fail, drainage problems worsen, or facilities deteriorate.

This also illustrates an important distinction between the annual operating budget and fund balance. 

The operating budget answers one question: “How much revenue is needed to operate the Town this year?”

Fund balance answers another: “What financial resources should be preserved to address future needs and unexpected events?”

Those are two different questions, and they deserve two different answers.

As citizens, it is easy to look at today’s fund balance and conclude the Town is financially strong. That may be true. But good financial stewardship requires us to ask a more important question: What will our financial position look like after we complete the projects we already know need to be done? That is where long-range financial planning becomes essential.

Throughout my business career, we never made important financial decisions by looking at only one year’s budget. We looked three years ahead, five years ahead, and sometimes even longer. Local government should operate with that same mindset.

As the Town invests in streets, drainage improvements, and other capital projects, fund balance naturally declines. That doesn’t mean something is wrong. In fact, those are exactly the types of investments those funds were intended to support.

However, one of the most important lessons in municipal finance is understanding that fund balance is a strategic financial resource not a recurring source of revenue. No community can rely on its savings forever.

Roads eventually need to be resurfaced again. Drainage systems require additional improvements. Equipment reaches the end of its useful life. Construction costs increase. Inflation affects everything from insurance premiums to maintenance costs. These are recurring obligations that continue year after year.

Because of that, every community must eventually rely on recurring revenues to support recurring services while preserving its ability to invest in future infrastructure.

That is why three-year and five-year financial forecasts are so valuable. They help answer important questions before they become financial problems. Will projected revenues keep pace with inflation? How much fund balance will remain after planned infrastructure investments are completed? Will future revenues be sufficient to maintain roads, drainage systems, equipment, and Town facilities? Will future Town Councils have the financial flexibility to respond to new challenges?

Long-range forecasting doesn’t predict the future with certainty. Instead, it identifies financial trends early enough that elected officials have time to make thoughtful decisions rather than reacting to a crisis.

Those decisions may include improving operational efficiency, pursuing grants, carefully prioritizing capital projects, or diversifying the Town’s recurring revenue sources. No single revenue source can be expected to meet every future need, and communities that maintain a balanced, diversified revenue base are generally better positioned to weather economic changes while continuing to provide quality public services.

This is one reason communities thoughtfully evaluate opportunities that broaden their tax base over time. A healthy mix of property tax, sales tax, permit fees, franchise fees, and other recurring revenues can reduce reliance on any single source while providing greater long-term financial stability.

Good planning creates options. Poor planning eventually limits them.

Finally, it is important to remember that the annual budget is much more than a collection of numbers. It is one of the most important policy documents a Town Council adopts each year because every appropriation reflects a priority and every financial decision shapes the future of our community.

As citizens, we should certainly pay attention to whether taxes increase or decrease. But we should also ask broader questions.

Is the budget balanced? Are financial reserves healthy? Is the Town planning for future infrastructure rather than waiting for something to fail? Are projected revenues sufficient to support future obligations? Is the Town diversifying its recurring revenue sources? Will today’s decisions leave Double Oak financially stronger five years from now? 

Those questions tell us far more about the Town’s financial health than any single line item in the budget.

Good budgeting isn’t about spending more or spending less. It isn’t about accumulating the largest possible fund balance. It is about spending wisely, planning ahead, maintaining transparency, and ensuring the Town has the financial capacity to serve today’s residents while preparing for tomorrow’s challenges.

A well-managed town doesn’t measure its success by the size of its fund balance. It measures success by its ability to maintain quality services, invest in infrastructure, plan for the future, and do so without placing unnecessary financial burdens on future generations.

That is the essence of financial stewardship, and it is the standard every citizen should expect from their local government.

To stay up to date with all the exciting news and updates, please visit the Double Oak Town website at doubleoak.texas.gov. In addition to contacting Town Hall at 972-539-9464, Double Oak citizens may reach me at [email protected].