How much money do you make? How much money do you get to keep? How much money do you need? How much money do you want? These are all the kinds of questions that you, as an individual, must cope with when it comes to running your life. If you're like most normal people, you have expectations, and you have resources that allow you to establish a quality of life consistent with where you want to find yourself as a human being.

It should come as no surprise then that the very same process you're using to run your personal finances is very similar to what goes on in the development of a fire department budget. Not unlike you as an individual, a firefighting agency must have a balanced checkbook at the end of every year. It must also have a line of logic to how it budgets its funds, or it could find itself in financial difficulty.

Moreover, it isn't unreasonable for a person to have debt; therefore, it isn't unreasonable for an organization to have debt. The key is whether the debt is so burdensome that it destroys your ability to have the quality of life that you have chosen. In the context of a fire department, if revenues aren't adequate and resources are limited, then the level of service the community wants — or needs — may not be satisfied.

This is one of the reasons why firefighting agencies all over the United States are experiencing various financial challenges. Simply stated, when costs exceed income, something has to give. When the supply side of the revenue stream dries up, the demand side suffers consequences.

You can hardly open up a magazine anywhere these days without reading that the fire service is suffering from financial woes. In addition, when you're at conferences, workshops, seminars and even small gatherings of fire chiefs, financial crisis is a major topic of conversation. When is it all going to get better?

Chances are it's never going to get any better. The real issue is pretty simple: If our fire departments are like our personal checkbooks, then we can't allow our expenditures to exceed our revenue. And if our fire departments are like our personal lifestyles, the preservation of our credit rating is important, and the repayment rate has to be within reason or we could be bankrupt soon. The challenge for a contemporary fire officer is to keep the big picture of these issues in place while simultaneously taking care of the small details that make a difference as to whether your budget is going to remained balance.

First things first. Most people look at a fire department budget as a checking account. In fact, the real issue with any expenditure program is whether it's consistent with the established plan of operation while simultaneously not exceeding revenue sources. Therefore, it's incumbent upon fire officials to become extremely knowledgeable about where the money is coming from.

This need creates a moderate dilemma in many fire agencies because, frankly, fire officials have two separate and distinct perspectives on funding sources. The first of these are those organizations that are general fund — based versus those that have dedicated revenue bases. A classic example of the former would be a municipal fire department. An example of the second would be a fire protection district. A thorough understanding of the economic stability of a community is as much a fire chief's issue as it is the finance director's. Knowing how property and sales taxes and other fees for service are incorporated into the revenue stream allows for intelligent decisions regarding the redistribution for expenditures of that same money through the budgeting process.

Yet in conversation with chief officers I have often discovered that they look at the revenue side as being someone else's problem. It isn't. It's just as important to the decision-making process as putting your money in the bank is to keeping yourself out of debt. From a planning perspective, fire departments need to become much more sophisticated in understanding revenue streams. Regardless of how you're funded, you can't expect your expenditures to exceed your revenue.

Some of the real challenges that fire agencies are facing here have to do with understanding how fire is seen as a priority within the context of government, as opposed to our own perceptions of how important we think we are. If you're a general fund — based organization, you're in competition with every other organization that has to obtain revenues from that source. A fire department that understands its community's economics and can relate it to the cost and benefits of its operation is going to be better off. If you're a fire protection district funded by property taxes, you have to become extremely knowledgeable as to what's happening on the ground. Information on such things as property values and in-fill growth processes is especially meaningful.

Unfortunately, many fire agencies go throughout the entire year assuming that their budget for next year will have an automatic increase from their existing revenue sources. That might have been a successful strategy in the past, but it's a formula for disaster today. Consider those fire departments that have assumed, based on their annual budget increase, that their revenue sources were growing by double-digit percentages when in fact their revenues are based on factors that aren't clearly identified.

Let me give you a specific example. Since Proposition 13 was passed California, it has been possible for the state to assess the property tax in only 1% increases per year. However, many fire departments have been receiving revenue streams from their community's property taxes that have grown by 5-, 6- and 7%. That growth is an anomaly that should not be counted on for planning. For example, in the Proposition 13 era, homes are reassessed upon sale and owners are required to pay taxes on the new valuation. Those properties that have not been purchased are still paying the 1%. If a California community has an extremely high real-estate turnover rate, it's possible that its fire chief will believe that fire department revenues are much higher than the property tax increase would have allowed if it were not being adjusted for increases in the reassessed evaluation.

Moreover, there are communities that have seen a significant increase in their revenue stream because of large amounts of in-fill, where a piece of vacant land is converted into a piece of property that puts money into the coffers. The net result is a revenue increase that allows for fire department budgets that exceed the true trajectory of property taxes.

One of the ways that a fire department can become more expert on revenue sources is to spend some time looking at the fire problem through the looking glass of economics. For example, I always suggest that chiefs try and identify the top 25 sales tax generators in their community as well as the top 25 employers in their community. Both of these are economic engines. If you don't know, then there's a strong possibility that you won't understand just how badly your organization will suffer if something happens to any of them — like a major fire loss.

The next step in the budget process is to avoid spiking. Very simply, spiking is a budgeting practice of holding back major capital improvements from a revenue standpoint until such time as they're demanded and then creating a lump sum expenditure in a very short time. When it comes to looking at fire stations, for example, the construction cost needs to be amortized over a 50-year period. Yet very few fire departments have established long-range financial plans that develop dedicated reserve funds for capital improvements.

Another example has to do with fire apparatus. Whenever a vehicle is purchased and put it into fleet, it eventually will have to be replaced. The questions are how far into the future and how much it will cost. The acquisition of a single engine company, for example, should impose a requirement on the department to set aside a portion of money each and every year in a vehicle depreciation account. That's good planning.

Unfortunately, the development of dedicated reserve funds has been under attack by state legislatures and, in some cases, members of the fire department itself. There's a tendency for the state, in its quest to “protect the taxpayers,” to look at money that's being saved as being underused. In fact, reserved money is absolutely something that taxpayers would request of their fire department. The average citizen probably understands the need for having a little bit in reserve more than the government does.

As for firefighters themselves, many look at reserve funds as something they should have given to them in the way of salaries and benefits. In numerous negotiations, I have dealt with individuals who saw that money as being denied them, when in fact the development of an appropriate vehicle amortization account is a long-range safety benefit. There are fire departments that have spent these dedicated funds and found themselves years later dealing with inadequate, insufficient and inappropriate fire apparatus.

The last section of the budget process is prioritization. With your checking account, you pay your bills in accordance with those things that are very critical to you. Paying the rent and buying groceries often take precedence over attending the theater or taking an expensive vacation. Fire departments, on the other hand, sometimes spend money because they have it. However, for the department to survive tough times, it needs to carefully monitor cash flow and prioritize expenditures in accordance with specific needs. In other words, the budget is being managed with the future in mind rather than the past.

Now, budget priorities also are affected by cost consequences out of the fire chief's control, yet the chief still is held personally accountable for them. I'm referring to state and federal mandates that have imposed requirements on departments with no subsequent funding, as well as the management of benefits that are granted to firefighters without someone accounting for the cost consequence.

I don't want to start a big debate over the desirability of any specific mandates because most of them primarily have to do with safety. Nor do I want to take on the issue of what's an appropriate benefit to be given to a firefighter — or for that matter the fire chief. Instead, what I'd like to focus on is that regardless of how these things are imposed on a fire department, the budgeting process must have data incorporated as part of ongoing monitoring for these numbers to be meaningful.

A classic example of this today is the increased cost of providing benefits to firefighters under the umbrella of state and federal guidelines on how it has to be done. Again, the intent is to not to argue whether these are good or bad, but rather to focus on the fact that if the fire chief doesn't have a records-management system that tracks the cost consequences, it's highly likely that at some point in the future some politician will set up a meeting to criticize the fire department for not controlling its budget.

The dilemmas that we're talking about in this column are very real. There are fire departments that are wealthy, and there are fire departments that are poor — just as there are people who fit into these two categories. There are fire departments that have experienced almost bankruptcy in rollbacks they weren't prepared for, which is a shock to both the department and the personnel within it.

As I was writing this column, I was reminded of the saying that it's really easy to spend other people's money. As fire departments, we are spending other people's money all the time. In many ways we should be treating that money as if it was actually in our personal checkbooks. In that manner, we will be more successful in being appropriately funded to do our jobs.

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A 40-year veteran of the fire service, Ronny J. Coleman is the president of the Fire & Emergency Television Network, which features career development and succession planning in its Command Transfer series. He has served as fire chief in Fullerton and San Clemente, Calif., and was the fire marshal of the State of California from 1992 to 1999. He is a certified fire chief and a master instructor in the California Fire Service Training and Education System. A Fellow of the Institution of Fire Engineers, he has an associate's degree in fire science, a bachelor's degree in political science and a master's degree in vocational education.