2017 Institute of School Business Management CASH MANAGEMENT & INVESTING. Cash Management. Cash Management Advantages. Knowing your cash flows

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1 2017 Institute of School Business Management CASH MANAGEMENT & INVESTING Presenters: Michelle Evenson Benton Stearns Education District Carole Loehr - PFM Asset Management LLC March 7, Cash Management Knowing your cash flows Understanding your cash flow liquidity needs Analyzing your cash flows for a future borrowing need or opportunity for investment 2 Cash Management Advantages Good fiscal management (best practice) Fulfill responsibility to: School Board keeps them informed Taxpayers maximizes interest income and minimizes borrowing Students maximizes potential educational opportunities 3 1

2 Cash Management Basics Overnight Liquidity Liquidity Surplus Core Reserves GOAL: meet daily operating expenses GOAL: match assets to future liabilities GOAL: actively manage reserve funds to provide long-term growth Key Components: Safety and 100% liquidity Low cost banking relationship Online banking Transaction functionality ACH/wire capability Daily fund balances and monthly statements Key Components: Safety and liquidity Understanding of known cash flow dates Ladder investments with maturities aligned to known future payment dates Enhance earnings potential Key Components: Safety, liquidity, and return Prudent reserve balance should not be anticipated to withdrawn on for at least 1 5 years Total return strategy Understanding of historical cash needs and month-end balances 2014 PFM Asset Management LLC 4 Ideal Cash Flow Ideal Cash Flow 5 Deficit Cash Flow Deficit Cash Flow Forecast 6 2

3 Cash Flow Forecast Benefits Establish and maintain an adequate liquidity level Maximize investment income Extend length (duration) of investments Realize the benefits of longer-term investing of core balances in a normal yield curve environment 7 Authorized Investment Considerations Operating Funds Short-term horizon Uncertain cash flows 1 st priority = protect investment principal Limited by M.S. 118A LGIPs (local government investment pools) Bank deposits Certificates of deposit Commercial paper Municipal bonds OPEB Trusts Long-term horizon Predictable cash flows 1 st priority = achieve long term growth Limited by M.S. 356A All provisions of M.S.118A Equity exposure permitted 8 Cash Flow Forecast Benefits Provide that all expenditures are properly funded Identify all material expenditures Project cash flow timing and amount Avoid over-funding of expenditures Utilize JIT (Just-in-Time) funding of payments/expenditures 9 3

4 Cash Flow Forecast Benefits Identify near-term cash short falls Amount Timing Clarify short-term borrowings 10 Cash Flow Borrowing Certificates of Indebtedness Aid anticipation certificates Tax anticipation certificates Agreement with Bank / Financial Institution Line of credit Warrant Tax Settlement Advance Emergency State Aid Reverse Repurchase Agreements 11 Certificates of Indebtedness Minnesota Statute 126C C.56 Aid and Tax Anticipation Certificates 75% limitation Determining issue size Sale of certificates Proceeds from sale Investment of proceeds Repayment of certificates 12 4

5 Agreement with Bank / Financial Institution Minnesota Statute 123B.12 Line of Credit Limitation 95% of average expenditures Repayment 45 days Warrants Orders not paid for want of funds Restriction current lawful obligations 13 Cash Flow Borrowing Tax Settlement Advance Written request Next settlement and distribution Emergency State Aid Appeal to commissioner Reverse Repurchase Agreements Repurchase at a fixed future date and price Payments based upon annual expenditure appropriation 14 Cash Flow Forecast Benefits Summary Identify macro fiscal trends Administrative tool Provide continuity and safeguards through changes in staff 15 5

6 Cash Flow Forecast Methodology Two forecasting methods: Historical analysis If the District is relatively stable (finances, enrollment) If historical data is reliable and in a consistent format 16 Cash Flow Forecast Methodology Two forecasting methods: Projection based Enrollment growth/decline Material changes to educational programs New outsourcing effect on bill timing Payroll cycle changes Revenue stream adjustments 17 Cash Flow Forecast Goals Be conservative Keep cash flow materials updated Be aware of your school board investment policy statement Have written assumptions Liquid balance % increase for estimates 18 6

7 Cash Flow Forecast Documents Needed Historical monthly receipts and disbursements Historical cash flow borrowing Current budget Payroll schedule Board meeting schedule Bond and interest payment schedules Capital expenditure schedules School calendar Current investment schedule 19 Cash Flow Sample Spreadsheet 20 Cash Flow Forecast Data Funds to be included General (Transportation, Capital Service, etc.) Food Service Community Service Debt Funds usually kept separate Building Student Activity 21 7

8 Cash Flow Forecast Data The accuracy of any cash flow forecast is dependent upon the accuracy of the input data used in the spreadsheet All bank accounts All current investments noting final stated maturity dates 22 Cash Flow Forecast Data Receipts State IDEAS Federal through the State Other Finance Department County Tax settlements School tax report Levy certification 23 Cash Flow Forecast Data Receipts Other Federal direct Food services - local Gate receipts Community services Donations Debt Aid anticipation certificates Interest 24 8

9 Cash Flow Forecast Data Disbursements Payroll Pay dates 12 months of net or gross payroll history Extraordinary payroll Accounts Payable Other Capital Projects 25 Cash Flow Forecast Data Disbursements Debt Aid anticipation certificates Bonds 26 Cash Flow Forecast Assumptions Payroll timing and amount (any variations) Accounts payable timing Minimum liquidity level Revenue receipts Non-recurring receipts and disbursements Budgets (current and future years) Assumptions unique to each District 27 9

10 Cash Flow Forecast Summary a quality cash flow forecast will Project timing and amount of all receipts and disbursements Maximize investment earnings Identify cash flow shortages Establish and maintain comfortable liquidity Identify fiscal trends Provide administrative efficiency Provide continuity in the business office Be a communication tool 28 Resources MN State Statute 118A Deposit And Investment of Local Public Funds - MSBA Sample Investment Policy UFARS Manual Chapter 12 - Authorized Borrowing For School Districts 29 Contact Information Michelle Evenson Business Manager Benton Stearns Education District Phone: mevenson@bentonstearns.k12.mn.us Carole Loehr Senior Managing Consultant PFM Asset Management LLC Phone: loehrc@pfm.com 30 10

11 Appendix 31 Cash Flow Sample Spreadsheet (1 of 6) 32 Cash Flow Sample Spreadsheet (2 of 6) 33 11

12 Cash Flow Sample Spreadsheet (3 of 6) 34 Cash Flow Sample Spreadsheet (4 of 6) 35 Cash Flow Sample Spreadsheet (5 of 6) 36 12

13 Cash Flow Sample Spreadsheet (6 of 6) 37 Budget Comparison Sample 38 Expenditure Summary Sample 39 13

14 Treasurer Report Sample 40 14