Sustaining a Positive Cash Balance Or

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Sustaining a Positive Cash BalanceOr

• Cash Shows No Mercy
• CCSESA Business Officials Conference
• February 17, 2010

Presented by Joel Montero Chief Executive
Officer Fiscal Crisis and Management Assistance
Team
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Overview

• Whats the big deal about Cash?
• Finding Cash when you need it
• The consequences of running out of cash
• Recognizing trouble

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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 its all done.
• The budget may represent the policy and
  conceptual priorities of the organization.
• There is really no cash in the budget!

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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

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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.

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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?

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So, Whats 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

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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 termgenerally within
  the fiscal year
• Proceeds from borrowing can be used for any
  operational purpose
• Internal borrowingEC 42603
• Termwithin 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 COEEC 42621, EC 42622
• From your County TreasurerEC 42620 (last Monday
  in April)

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The Consequences of Cash Insolvency

• If you run out of cash, its game over
• You can receive an authorization for an emergency
  appropriation, but..
• The local governance options is lost
• The superintendent loses their job
• Its expensive!
• AB 1200/2756

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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

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What Can Districts Do Now in Anticipation of an
Uncertain Cash Environment

• Have a system in place to analyze and monitor
  cash flowall funds
• Report cash flow status and projection to the
  board on a regular basis
• Conserve cash when possibleall funds
• Build Reserves/Fund Balanceall funds
• Consider creating spending plans to manage
  available cash
• Consider options for dry period financing
  (borrowing)
• Dont run out!

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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

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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!

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Questions?