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~hlcrs Advisor ~ March 2009
<br />School District Cash Flow Shortfalls on the Horizon
<br />By Kristin Hanson, Financiar Advisor
<br />The Governor has proposes[ to change
<br />the payment sched~~Ie for state aids and
<br />property tax credits paid to school
<br />districts in fiscal year 2010 and his
<br />proposals could have a big impact on the
<br />cash flow of school districts.
<br />It seems lil~ely that .some version of the
<br />Gove~•nor's proposals will be a pact of the
<br />State's budget balancing measures. If floe
<br />Governor's proposals are implemented,
<br />the cumulative cash balances of all school
<br />districts at t11e end of fiscal yea~• 2010 will
<br />be reduced by a wlaoppi~g ~ 1.25 billion,
<br />or an average of ove~• $1,300 per pupil
<br />unit, This will c~•eate cash flow deficits
<br />for many districts not currently
<br />experiencing them, and increase the sire
<br />of deficits far othe~• districts,
<br />one of the best long. term solutions for
<br />most districts facing cash flow deficits is
<br />to issue aid or tax anticipation
<br />certificates. Some of the key benefits are;
<br />Districts only have to borrow one
<br />time, for up to 13 months, and have
<br />sufficient cash for the whole year;
<br />• Districts cata bof'row enough to
<br />cover their projected cash deficits
<br />plus a reasonable reserve
<br />znterest rates are very low; and,,
<br />In some years, unused proceeds can
<br />be invested at highe~• rates than the
<br />borrowing rate to help offset the
<br />cost of borrowing.
<br />So how does a school dist~•ict determine
<br />if they need to o~• even can borrow? First,
<br />floe district needs to prepare a monthly
<br />cash flow schedule of some combination
<br />of Funds 1 tla~•ougla 4. Debt service and
<br />const~l~ction finds cannot be included in
<br />the cash flow as the dist~•ict would be
<br />borrowing in anticipation of state aid to
<br />be received in Funds 1-4, The beginning
<br />balance needs to include both cash and
<br />investments and any date of the month
<br />can be used as the measuring point,
<br />If the cash flow schedule does not show
<br />any negative balances in any month, the
<br />dist~•ict legally camaot borrow. However,
<br />if the cash flow schedule shaves a
<br />negative balance at any time during the
<br />year, the district can bo~•row within the
<br />' 'ts of Federal and State laws, Ehlers
<br />works with districts to help determine
<br />the borrowing amount and loops at how
<br />floe financing fits ill with other fia~ancial
<br />plans and needs of floe dist~~ct,
<br />Tlae typical process of aid anticipation
<br />borrowing begins as early as April,
<br />However, dist~•icts can issue aid oz• tax
<br />anticipation certificates at any tune of the
<br />year; The timeli~~e for borrowing, from
<br />when a dist~xct prepa~•es a cash flow
<br />schedule to the trine the dist~•ict receives
<br />the proceeds, takes about two months,
<br />As we all await the outcome of the 2009
<br />legislative session, please contact Ehlers if
<br />you have any questions about cash flow
<br />borrowing o~• other ways to address cash
<br />flow issues,
<br />~: ~ ; ~ ~ E ~oL E~R,S
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<br />I ~ ABOItTFHIERS
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<br />tOHTACT (15 silents a
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<br />I Minnesota 2~G4 School Finance InteCest,
<br />seminar (March 27}.
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<br />~~ Conserv or Water Utilities • SC
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<br />1RS Camotiance Ouestlonnalre
<br />I Sam le ~ Stl
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<br />Managing Your Aebitrage Federal Stimulus Bill
<br />Is Increasingly Important ~°°^"^0e°~~°mPa9e„
<br />Five I~~nnesota and Wisoonsr"n L Deal
<br />Governments Recer'ue Random tRS Suruey
<br />We a~•e aware of tluee Wisconsin cities, one Minnesota
<br />city and one Minnesota school district that have received
<br />an IRS survey regarditlgpDst-issuance compliance with
<br />tax-exempt bond regulations. The distribution of
<br />t11e survey is random for any entity that issued debt in
<br />2005. The IRS is not targeting larger entities -the one
<br />Minnesota city on the list. has a population. of less
<br />than 1,000.
<br />The IRS did publicly announce the purpose and scope of
<br />the survey in a January 27, 2009, a~•ticle in The Bond
<br />Buyer, The IRS sent 200 surveys out nationwide from a pool of 16,600 issuers. The IRS
<br />has indicated the main purpose of floe survey was to educate issuers about the need for
<br />post-issuance compliance and allow the IRS to gather data about the degree of
<br />compliance. The IRS also left open the possibility of an audit of those issuers who were
<br />sent a survey,
<br />Post-issuance compliance includes questions about policies and procedures for arbitrage
<br />monito~•ing, proper use of proceeds, and records retention.
<br />If you have received a survey,. we reconamend you contact Ehlers and your bond counsel
<br />immediately. The responses to the survey are due by Ap~~l 2G, 2009.
<br />A sample questionnaie can be found on our website at www,ehlers-ins,com
<br />be provided to the issuer
<br />tthrough an incentive payment}
<br />or the bondholders (through a
<br />tax credit}, We have learned
<br />that the payment can't go
<br />partially to bath..
<br />Recovery Zone Economic
<br />Development Bonds. -- These are
<br />similar to Build. America. Bonds,
<br />but with a larger incentive
<br />payment to the issuer, Funds
<br />must be used for economic
<br />development projects in areas
<br />that have been hit by large job
<br />losses.
<br />We are just beginning to learn
<br />about many of these provisions,
<br />and there are many details about
<br />them which have. not yet been
<br />disclosed. If you have questions
<br />about if or how any of these
<br />provisions may affect your
<br />financing plans, please contact us,
<br />E H L E R 5 Ehlers is committed to Roseville, MN Dlfice, 3060 Centre Poir1#e Drive ~ ROSe~ille; MiV 55113-1105 ~ 651-691.8500
<br />designl~g customized financial.solutions Brookfield, Wl Oifice~ 375 Bishops Way, Suite 225 ~ Brookfisld, WI 53005-6202.262-785-1520
<br />LEApE:RS IN PUBLIC FINANCE for outstacding cammunikles 1,i51e, IL Ulfice: 550 WarrenVille Road, Suite 220 ~ lisle, IL 60532.4311 ~ 630-211-3330
<br />www,ehlers-inc.cnm
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