Developing the Proposed 2012 Budget

Given the challenge, the Mayor asked each department to identify potential reductions of increased costs and reduced revenue.  In the summer of 2011 he met with department directors to discuss their ideas.  Some of the proposals impacted the level of service that would be delivered to citizens.  As an alternative, the Mayor asked OMB to “scrub” current year spending to identify other potential savings.

OMB examined each department’s actual level of expenditure in prior years as compared to the amount that was budgeted.  This quickly identified several areas that had been budgeted too high, which helped target areas for further analysis.  This effort resulted in substantial savings as discussed below.

Scrubbing the Numbers:  Budgeting for Leave

One area in which departments consistently came in lower than the amount budgeted was leave cash-out.  While leave taken is included in the amount budgeted for salaries, employees may also cash out accrued leave.  As a result, an additional percentage of salary cost is budgeted to cover the cost of the additional leave cashed out.

In 2010 a total of $10 million was budgeted for leave cash-out—but only $4.3 million was spent (unspent funds go into the treasury at the end of the year and are available to help pay for the following year’s budget).  The same situation—departments coming in under-budget in leave cash-out accounts—was true in prior years.

To correct this, a new formula is being used in 2012 based on each department’s prior year actual experience.  For 2012, this resulted in a $6.5 million savings—with no impact on services to citizens.

This lower rate of spending also meant that leave cash-out was over-budgeted in 2011 too.  Current year expenditures were analyzed and $4.1 million in savings for the current year was identified.  As part of the 2012 proposed budget, this savings is pledged as revenue to support the 2012 budget.  (Using fund balance in this way typically is a process each April during first quarter budget revisions when unspent funds such as these are applied as a revenue to the budget.)

Scrubbing the Numbers:  Non-Labor Costs

Departments also closely examined historical spending in non-labor expenditures, such asspending on  utilities, travel, and contracts, to identify accounts that might historically be under-spent.  OMB used a 3-year average historical spend rate to identify such savings for 2012.  This process resulted in a $1.2 million savings—with no impact on services to citizens.

Other Savings

While substantial savings were realized by adjusting leave cash-out and scrubbing non-labor costs, more reductions were still necessary to balance the budget.  As a result, some department programs will need to be realigned and staff reductions made and every effort is being made to minimize the impact on the level of direct services to citizens.