1. These materials have been prepared by the CASBO Financial Services Professional Council, Sacramento Section. They have not been reviewed by State CASBO for approval, so therefore are not an official statement of CASBO. APRIL 3-6, 2013, LONG BEACH, CA FIN21 CASH FLOW PROJECTIONS

2. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO CASH FLOW PROJECTIONS Session ID FIN21 Financial Services Professional Council Sacramento Section Friday April 5, 2013 11:00 a.m. – 12:00 p.m. Presented by Diane Lacombe El Dorado County Office of Education 2

3. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Agenda Cash Concepts and Challenges Building Cash Flow Projections Review and Analysis 3

4. CASH CONCEPTS & CHALLENGES 4

5. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Cash Management is Vital One of the 15 conditions that most frequently indicates fiscal distress is poor cash flow analysis and reconciliation All districts that have been taken over by the state ran out of cash Cost of running low on cash is high 5

6. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Cash ≠ Fund Balance Example: Cash is 10% of Fund Balance 6 714,636.96 7,716,085.10 Example: Cash is 10% of Fund Balance

7. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Cash vs. Fund Balance Fund balance does not reveal what the cash level will be 7

8. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Cash vs. Fund Balance High fund balance does not necessarily mean high cash levels It is possible to have greater than minimum reserve levels, yet be out of cash 8

9. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Importance of Cash Flow Projections has grown Funding reductions –22% revenue limit (RL) deficit –Funded RL per ADA $1,500 less in 12-13 than in 07-08 for average unified school district Deficit spending - less reserves, less cash State has increased deferrals – One deferral for a few days June to July in 02-03 – Now, multiple deferrals over several months 9

10. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Delayed Apportionment Funding 10 2013-142012-13 Feb to Jul $700M Jul to Sep $500M Jul to Dec Aug to Dec $600M $800M Oct to Dec Mar to Apr $900M End of Fiscal Year Apr to Jul $419M $679M now $176M Apr to Aug / July May to Jul $800M May to Aug / July $1.0B now $1.18B 100% Jun to Jul Mar to Aug $764M Within year deferrals Cross-year deferrals Since Proposition 30 tax initiative passed, cross year deferrals are reduced by $2.1 billion $2.0B now $532M $1.3B now $1.029B Apr to Aug

11. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Revenue Limit – Deferrals Districts that receive a higher percentage of RL as state aid are hit hardest 11 Revenue Limit ExampleDistrict ADistrict BDistrict C Revenue Limit$10,000,000 Property Taxes$ 9,000,000$ 5,000,000$ 1,000,000 Education Protection Account$ 1,000,000$ 2,000,000 State Aid$ 3,000,000$ 7,000,000 Cross Year Deferrals @30%$ -0-$ 900,000$ 2,100,000

12. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Cash Flows Need to be accurate List assumptions If borrowing will be needed –When & how much to borrow Analyze, monitor, update monthly –After cash is reconciled, update cash flow for the new month’s actuals and re-project the rest of the year –Based on the latest version of the budget All funds At least current year and subsequent year 12

13. BUILDING CASH FLOW PROJECTIONS 13

14. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Cash Flow Format 14

15. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Revised SACS Form CASH Revised format began in SACS2012 budget software Section Changes –Receipts Revenue Limit Principal Apportionment and Property Taxes in object code order –Disbursements 4000’s and 5000’s in two lines –Balance Sheet Transactions Renamed from “Prior Year Transactions” Subsections for Assets, Liabilities, Non-operating with more rows of detailed balance sheet accounts 15

16. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO New SACS Form CASH New columns –Beginning Balances (Balance Sheet Transactions) Allows entry of beginning balances as reference Example – enter beginning Accounts Receivable balance, can compare to total ARs projected to be received during months of cash flow projections –Adjustments Noncash differences (not accruals) between cash transactions and amounts budgeted Example -carryover that is budgeted but will not be spent this year –Budget Facilitates comparison of cash flow totals to budget Subsequent year cash flow tab available 16

17. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Building a Cash Flow Projection Projected budget/interim –Best if it is done before starting cash flow projection Columns –Completed months = actual amounts –Upcoming months = projected amounts –Accruals for cash in/out that will occur after June 30 –Adjustments column – noncash adjustments Example: carryover that is budgeted but will not be spent this year Estimating cash inflows and outflows –Dividing the budgeted amount by 12 months is not a good strategy 17

18. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Templates Can use a template to help prepare cash flow –Create your own, modify an existing one –FCMAT Budget Explorer Cash Flow tool –EDCOE Cash Flow Template http://edcoe.org/departments/business_services/CFO_Corner.html EDCOE template tips –Start on “Welcome” and “Instructions” tab –Go slowly, step-by-step 18

19. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Templates Template ideas –Format to make it easier Match your financial system reports Final result that matches SACS format –Make template do the math Input budget and actuals to date, template calculates balance Calculate % expected each month, monthly % x balance –Have detailed schedule that feeds into summary schedule Break out elements in more detail – revenues, balance sheet, etc. 19

20. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Revenue Limit – State Aid Some ways to project month by month: 1.Spread remaining budget over upcoming months using estimated apportionment schedule percentages 2.Use Payment Schedule Summary Excel spreadsheet provided by CDE  In Principal Apportionment http://www.cde.ca.gov/fg/aa/pa/http://www.cde.ca.gov/fg/aa/pa/  See applicable fiscal year / certification period  Look in Funding Excel Files 20

21. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Estimated Principal Apportionment Schedule Month Education Code Section (E.C.) 14041(a)(2) Education Code Section (E.C.) 14041(a)(7) Education Code Section (E.C.) 14041(a)(8) Jul 2012--- Aug 20122.02%6.06%12.12% Sep 201212.73%26.19%41.19% Oct 20124.86%8.11% Nov 20129.00%-- Dec 201217.39%19.64%28.58% Jan 20139.00%6.00% Feb 20135.62%4.24%- Mar 20132.45%1.85%- Apr 20130.36%0.27%- May 20130.00% - Jun 20130.00% Jul 201325.16%19.01%4.00% Aug 201311.41%8.62%- Total100.00% 21 *Source – 12/21/12 SSC article

22. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO CDE Principal Apportionment Summary Summary of certification by LEA 22 Other RL TOTAL

23. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO CDE Payment Schedule Schedule of Principal Apportionment payments –Includes RL State Aid + others (Adult, GATE, etc.) 23 TOTAL Oct payment

24. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Revenue Limit – Education Protection Account (EPA) 2012-13, all EPA will be received in June After 2012-13, EPA to be received quarterly 24

25. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Revenue Limit – Property Taxes Paid based on actual collections –Main tax receipt months are December and April –Does your county auditor-controller have an estimated property tax schedule? Education Revenue Augmentation Fund (ERAF) apportionments Redevelopment Funds Charter School In-Lieu Transfers 25

26. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Charter School In-Lieu Transfers Education Code 47635 describes transfers in lieu of property taxes to charter schools from the sponsoring LEA –Annual amount Property Tax per ADA* x Charter ADA * Total District + Charter ADA –Schedule of transfers 26

27. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Charter School In-Lieu Transfers EC schedule does not correspond to actual property tax collections EC schedule was not affected by changes to RL State Aid schedule (5-5-9, deferrals) –Charter and District could agree upon alternate schedule of transfers 27

28. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Federal Revenues SACS object codes 8100-8299 Title I, Title II, etc Special Education When do you expect to receive these revenues? –May depend on when you spend them and when you report that you’ve spent them –Quarterly federal cash management reporting 28

29. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO State Revenues Some programs paid in Principal Apportionment Tier 3 programs - 5-5-9 schedule Economic Impact Aid - 20% x 5 Lottery - quarterly Class Size Reduction –Partly deferred across fiscal years CDE provides an estimated cash flow schedule for select categorical programs –CDE  Finance & Grants  Allocations & Apportionments  Categorical Programs  Estimated Cash Flow Schedule –http://www.cde.ca.gov/fg/aa/ca/estcashflow.asphttp://www.cde.ca.gov/fg/aa/ca/estcashflow.asp –Can use to calculate percent by month 29

30. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Local Revenues SELPA apportionment transfers Interagency revenues Transportation Fees Other local revenue Consortium revenue When do you expect to receive these revenues? 30

31. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Salaries Historical percentage outflow by month is a reliable indicator –Will include periodic payments e.g. longevity, stipends –Takes into account salary roll backs or other % changes 31

32. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Salaries Certificated and classified monthly patterns differ Recent changes may not be reflected in prior year trends and should be addressed –Furlough days when not converted to a salary decrease –10 paychecks to 12 paychecks –Program redesign, e.g. summer school –School year changes, e.g. instructional days, staff development days –One time restoration payments 32

33. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Benefits Mostly driven by payroll Prior year trends or consistent with salaries Some independent of payroll –Retiree benefits –Golden handshake payments 33

34. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Supplies & Services Prior year trends are more erratic but still better than dividing by 12 –Less working days in December to issue warrants –June crush to pay invoices instead of accruing –School year start-up ordering in early summer with payments coming due in August or September Best to analyze big outflows separately –Utilities & phones…seasonal fluctuations, two payments in a month –Pass-thru/subagreement outflows link to inflow 34

35. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Capital Outlay Capital expenditures in the general fund –Few –Infrequent –One-time –Some leases…recurring and predictable 35

36. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Other Outflows Interfund transfers out –Should be in the budget –Some funds regularly receive annual transfers from the general fund, e.g. food services Debt payments –Be sure to include these …make a big difference in cash balance 36

37. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Balance Sheet Accounts Assets –Accounts Receivable When will you receive them? If cleared to revenue before receipt, consider tracking separately in revenue section of cash flow projection –Due from Other Funds When will the other fund pay this fund? –Prepaid expenditures When you clear, hits the expenditure and the balance sheet account (object 9330) – net $0 cash 37

38. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Balance Sheet Accounts Liabilities –Accounts Payable from prior year When will you pay them? –Use Tax Liability Accumulates during the year, paid quarterly or yearly –Workers Compensation Liability Accumulates when payroll is processed Paid periodically, such as twice a year –Health & Welfare Liability Accumulates when payroll is processed –May be higher in some months than others due to 10, 11, 12 month employees, etc Paid to vendor monthly Plans may not align with July to June fiscal year 38

39. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Balance Sheet Accounts Liabilities (cont.) –Dues Liability –Voluntary Deductions –Summer Set Aside 10 or 11 month employees paid in 12 months Set aside amounts during the year from payroll Paid out at the end in the summer –Due to Other Funds When will this fund pay to the other fund? –Current Loans (TRANs) When will you receive TRAN proceeds? When will you have TRAN repayments? –Deferred Revenue When you clear, hits revenue and deferred revenue (object 9650) – net $0 cash 39

40. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Balance Sheet Accounts – Example The cash flow report from your financial system shows the following for Liability accounts 9500-9630 Does this makes sense? 40

41. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Balance Sheet Accounts - Example Here’s the detailed breakdown you didn’t see 41 Timing of H/W payments Timing of WC payments

42. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Multiyear Cash Flow Use current year cash flow and multiyear projection to build a multiyear cash flow projection –Projected ending cash for current year is beginning cash for subsequent year –Similar trends but adjust for changes For example, EPA arrives in June in 2012-13 but quarterly in 2013-14 42

43. REVIEW AND ANALYSIS 43

44. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Review the Cash Flow Projection Totals column sums the cash in/out, accruals and adjustments for each type of category (revenues, expenditures, etc) –Do amounts match totals in budget? Revenues Expenditures Net Increase/Decrease 44

45. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Is the Cash Flow Projection Reasonable? Comparison to Fund Balance –Is the total ending cash plus accruals and adjustments shown in the cash flow projection reasonably close to the ending fund balance shown in the budget? Example In the spring, district prepared cash flow projection to look at potential cash borrowing needs for the following fiscal year 45

46. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Comparison to Fund Balance District’s initial cash flow –Negative balances in Oct, Nov, Feb, Mar, May, Jun –June ending cash $(113,335) –Accruals $ 366,699 –Total $ 253,363 Looked like district would need some in-year and cross year borrowing Looked like once all accruals received, the district would have $253,363 fund balance 46

47. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Comparison to Fund Balance However… –Budget ending fund balance$521,792 –Cash flow total$253,363 Why the difference? After research, found –July 1 beginning balance was entered incorrectly –Estimated payables of $45,000 were not listed 47

48. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Comparison to Fund Balance Revised projection showed ◦ Negative balances only in Nov, Mar ◦ June ending cash $ 200,094 ◦ Accruals $ 321,699 ◦ Total $ 521,792 No cross year borrowing needed Some in-year borrowing needed, able to borrow from other funds 48

49. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Negative Balances? Look to see if there are projected negative cash balances If so, what borrowing options are being considered? –Inter-fund borrowing Need to know cash availability May need separate cash flow projections for other funds –Borrowing from COE / County –TRANs 49

50. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Borrowing Options Internal borrowing –From other funds of the LEA – EC 42603 –Up to 75% of the cash in the lending fund –Borrowing fund must earn enough to repay –Paid back generally within a year External borrowing –From COE - EC 42621, 42622 and 47603 (thru 7/1/17) Up to 85% of anticipated revenues If COE is willing and able –From County Treasurer – EC 42620, CA Const. Art. XVI, § 6 No loans after last Monday in April Up to 85% of anticipated revenues –Tax and Revenue Anticipation Notes (TRANs) – GC 53852 50

51. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Multiyear Cash Flow Analysis Use cash flow, MYP, and information about other funds to build a multiyear view of cash –This sample shows the district will be using inter-fund borrowing to cover cash shortfalls in the General Fund 51

52. 2013 CASBO ANNUAL CONFERENCE & SCHOOL BUSINESS EXPO Questions? Thank you for providing feedback by completing an evaluation 52