PUBLIC FUND INVESTING MAKING THE CITY’S MONEY GROW - SAFELY July 2015 Cindy Kendall, Extension Specialist Iowa State University/Iowa League of Cities 515-290-1811 ckendall@iastate.edu Cash Flow--Who Cares? • What happens if I do nothing? – Safe when at the bank due to FDIC and State pooling requirements – Advantage to using Purchase or credit cards? – So what if I don’t get around to doing today’s deposit? – What’s the big deal if I don’t get the water shut off today? Don’t play Tug of War With ARs Cash Flow--Who Cares? (CON’T) • What are idle Funds? – Cash on hand (in checking or savings account) not currently needed for expenses. • What is Cash Float? – The balance in an account which has been pledged (a check written) but not yet needed (the check has not been presented to a bank for payment. • What is Cash Flow? And what is the purpose of using it? – Cash flow is the activity of revenues and expenditures though out any given period. Cash Flow Methods • By Fund • By Date • By Type – Revenue • Taxes vs fees vs state payments – Expenditures • By Program • By Department • By Cycle • By Bank Account – Electronic Banking – ACH-Automated Clearing House used for debits and credits against another account. – Wires-same day debits or credits on another bank – Sweep Accounts-account which is cleaned out at 2:30 and returned the next day in order to earn one day’s interest • All of the Above Cash vs. Investments • Liquidity – The availability of funds from an account or conversion of an investment to secure cash. • What kind of money are you investing? – Co-mingled Funds: A mixture of fund balances used to create a larger balance without loosing identity of ownership. – Pro Rated Interest: The allocation interest earned on an investment or interest bearing account which is made up of various funds. This allocation is usually based upon ownership of balance. Pro Rating Interest Fund General Road Use Tax Water Sewer Total Amount 2,000 5,000 10,000 3,000 20,000 % of Ownership 0.10 0.25 0.50 0.15 1.00 Interest 54.96 137.41 274.82 82.45 549.64 549.64 Investment Accounting Pitfalls Investments are not expenses • When you make an investment (like a CD) – Debit : Investment Account – Credit : Cash • When you cash an investment (to spend) – Debit : Cash (principal and interest) – Credit: Interest earned account – Credit: Investment Account Savings Accounts Accrue Interest • Putting money from checking into a savings account is NOT a transfer – Debit: Savings Account (an investment) – Credit: Checking • At end of month the interest should be recorded as: – Debit: Savings Account – Credit: Interest earned account An Investment is not necessarily a reserve • Council should designate reserves by resolution (ie: equipment reserve) • Both operating and reserve funds can be invested- know what you are investing • ALWAYS include all investments, savings and checking accounts on reports to the Council Cash vs. Investments • What kind of money are you investing? – Operating vs Reserves – watch length – Bond funds-watch those IRS regulations • • • • Arbitrage Penalties Bond Covenants Iowa Code limitations – State Treasurer’s Website Tools for Investing – Interest on Checking • Negotiate banking services – Timing the length of your investment • Banking Calendars • Cash flow charts • Discussions with Departments/Contractors – Gantt Chart: A chart to show a schedule for a project. – Other information-electronic banking and Treasurer of State Web Site – Flexible CDs Charts and Graphs Date Description Revenues Investments Expenses Balance 1-Jul 213,028.00 July 19,449.00 (43,687.00) 188,790.00 Aug 19,074.00 1,000.00 (22,453.00) 186,411.00 Sept 21,083.00 (1,000.00) (47,453.00) 159,041.00 Oct 297,414.00 (22,453.00) 434,002.00 Nov 20,283.00 (22,453.00) 431,832.00 Dec 20,483.00 (35,416.00) 416,899.00 Jan 21,458.00 (22,403.00) 415,954.00 Feb 20,158.00 (23,403.00) 412,709.00 March 277,914.00 (22,403.00) 668,220.00 April 40,695.00 (23,403.00) 685,512.00 May 20,233.00 5,000.00 (22,403.00) 688,342.00 June 19,908.00 (55,617.00) 652,633.00 Totals 798,152.00 (363,547.00) Cash Flow Charts and Graphs (cont) Cash Flow Chart 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Investment Charts Value in 1,000s Types of Investments as of _______ 180 160 140 120 100 80 60 40 20 Checking @interest Time Certificates of Deposit T-Bills Type Pooled Investments Investment Charts by Location IPAIT 23% WellsFargo 5% USBank 72% One Magic Formula How to determine liquidity (over the last two/three years is a good idea): Look at the lowest cash balance + Add the smallest amount of monthly revenue – Subtract the highest monthly expense Presto: $159,041. + 19,074. – 55,617. = $122,498. Where does one start??? • Historical information-Get the big picture before you look at the pieces • Magic formula for liquidity: – 2 yr history • Find lowest balance over the last 2 yrs • +(add) the smallest monthly revenue amount in 2 yrs • -(subtract) the highest monthly expense in last 2 yrs • Discussions with Departments/Contractors • Discussions with Banker/Treasurer/IPAIT Other Software Options • Other forms of spreadsheets • Software as simple as MS Money or Quicken • IPAIT http://www.ipait.org • Complex packages – Trace your cash and investments – Help you forecast cash needs • Patterns – Know when you get what and when you’ll spend $$ DANGER!!! BEWARE!!!