PUBLIC FUND INVESTING Making the City’s Money Grow - Safely

Making the City’s Money Grow - Safely
Iowa Municipal Professionals Institute- July 2015
Cindy Kendall, Extension Specialist
Iowa State University Extension and Outreach
Office of State and Local Government Programs/Iowa League of Cities
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 – The money belongs to the city.
Cash Flow (CON’T)
What are idle Funds?
o Cash on hand (in checking or savings account) not currently needed for expenses.
What is Cash Float?
o 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?
o 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 (expensive so plan ahead and
 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
 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.
Cash vs. Investments
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
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
Cash Flow Chart
Investments by
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: $__________. + ___________. – ________. = $__________.
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
Complex packages
 Trace your cash and investments
 Help you forecast cash needs
o Patterns
Know when you get what and when you’ll spend $$