Transcript Communicating Bad News

Sustaining a Positive Cash Balance
Or
Cash Shows No Mercy
CCSESA Business Officials Conference
February 17, 2010
Presented by:
Joel Montero
Chief Executive Officer
Fiscal Crisis and Management Assistance Team
Overview
• What’s the big deal about Cash?
• Finding Cash when you need it
• The consequences of running out of cash
• Recognizing trouble
Budget
• The budget is a stack of papers with numbers that are
a virtual representation of how much you will earn
(income/revenue), how much you plan to spend
(expenditures), and the balance (negative or positive)
when it’s all done.
• The budget may represent the policy and conceptual
priorities of the organization.
• There is “really” no cash in the budget!
What is Simple Cash Flow?
• The difference between the available cash
balance at the beginning of an accounting
period compared to the available cash balance
at the end of the accounting period.
• Cash flow is the actual inflow and outflow of
funds.
• Negative cash flow can be mitigated by
borrowing
What is Cash Insolvency?
• Generally speaking Cash Insolvency occurs when the
cash in payroll exceeds the cash available in the
county treasury (or other possible sources of cash)
and all options for borrowing have been exhausted.
• Cash insolvency is a limited function of deficit
spending, erosion of fund balance, and sustained
negative cash flow over time.
What is Cash?
• Cash is what you have liquid or available on demand
• Funds in the County Treasury
• Funds in banks
• Funds in revolving accounts
• Funds with fiscal agents
• Funds in funds?
So, What’s the Big Deal?
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The old days…..
Loss of revenue and cuts
Cash deferrals
Changes in apportionment schedules
Erosion of fund balance and reserves in all funds
Limited borrowing options
Finding Cash When You Need It
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LEAs can borrow to meet cash flow demands both internally and externally
There are rules!
• Cash flow loans are short term—generally within the fiscal year
• Proceeds from borrowing can be used for any operational purpose
Internal borrowing—EC 42603
• Term—within the fiscal year, or……
• Only 75% of the cash in the “donor” fund
• The receiving fund must earn enough to pay back the loan?
• But what about Fund 21??
External borrowing
• Tax and Revenue Anticipation Notes (TRANs) GC 53852
• From your COE—EC 42621, EC 42622
• From your County Treasurer—EC 42620 (last Monday in April)
The Consequences of Cash Insolvency
• If you run out of cash, it’s “game over”
• You can receive an authorization for an emergency
appropriation, but…..
• The local governance options is lost
• The superintendent loses their job
• It’s expensive!
• AB 1200/2756
Common Causes of Financial Problems
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Overly optimistic estimates of state economics
Declining enrollment or unstable enrollment/ADA
Failure to document or change budget assumptions
Loss of control of staffing levels and costs
Underestimating “automatic” cost growth
Use of one-time money for ongoing expenses
Poor decisions at the negotiating table
Failure to consider the multiyear impact of budget decisions
Poor budget monitoring by the Superintendent and Board
Chronic deficit spending
Inadequate reserves
Debt issues
Not understanding all issues related to cash, cash flow and cash insolvency
What Can Districts Do Now in Anticipation of an
Uncertain Cash Environment
• Have a system in place to analyze and monitor cash flow—all funds
• Report cash flow status and projection to the board on a regular basis
• Conserve cash when possible—all funds
• Build Reserves/Fund Balance—all funds
• Consider creating spending plans to manage available cash
• Consider options for dry period financing (borrowing)
• Don’t run out!
FCMAT/SSC Half Day Cash Workshop
• Cash Flow Concepts
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How to prepare an adequate and realistic Cash Flow document
Hands on Cash Flow exercise
Cash borrowing in detail
Cash insolvency and recognizing trouble
• Ann Hern, School Services of California
• Debi Deal, FCMAT
Summary
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Cash is King
Not only must you understand the difference between budget, cash flow and
cash insolvency so must your superintendent and board
The game related to cash management has changed significantly with cash
deferrals and changes to the apportionment schedules
You can mitigate simple negative cash flow by using a variety of borrowing
methodologies
Running out of cash is an ugly business
There is no such thing as an emergency loan in California
Regardless of the economic situation, the same old things create a cash
crisis
Budget Explorer has a pretty fancy cash flow module!
Questions?