1. 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

2. Overview What’s the big deal about Cash? Finding Cash when you need it The consequences of running out of cash Recognizing trouble

3. 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!

4. 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

5. 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.

6. 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?

7. So, What’s the Big Deal? 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

8. Finding Cash When You Need It 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)

9. 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

10. Common Causes of Financial Problems 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

11. 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!

12. FCMAT/SSC Half Day Cash Workshop Cash Flow Concepts 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

13. Summary 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!

14. Questions?