. .

0 ALLAN HANCOCK COLLEGE

MEMORANDUM

DATE: October 9, 2013

TO: Kevin G. Walthers

FROM: Elizabeth A. Miller

SUBJECT: Cash Flow

It is important to note that the district' s unrestricted eight percent reserve is approximately $3.9 million. With an anticipated $5.4 million withheld from current year revenue and average monthly expenses of approximately $4 million, it is clear that the district will continue to be challenged to meet cash flow demands.

In response to previous year cash flow shortfalls, the college developed, and updated throughout the year, a cash management plan. The last tax revenue anticipation note (TRAN) issued by the district was a mid-year issuance in the amount of $2,145,000 in April2010. These actions were taken to ensure the district's ability to meet its payroll and vendor payment obligations and to ensure a positive cash balance on the fiscal year end. The TRAN was repaid in February 2011.

Following an analysis of the costs associated with a TRAN issuance and the eligibility calculation, the district chose not to issue a traditional fiscal year TRAN in 2011-12 and subsequent years. The eligibility calculation is based on projected income, expenditures, and cash balances for the upcoming year, and the district would only have been able to issue approximately $1 million.

Several options have been identified to address what could potentially be a deficit cash balance:

Cash balances held in the county treasury for restricted funds have typically been identified in the amount of $8,650,000. These balances include amounts held for the GASB 45 liability, liability fund reserves, capital outlay projects, student center fees, and bookstore investments. These balances would be used first to meet a cash shortfall.

Additional cash balances held in bank accounts have been identified in the amount of $1,050,000. These balances include amounts held as part of reserves for dental self­insurance, bookstore, student representation fees, trust accounts, and ASB. These balances would be used next to help meet a cash shortfall.

The district participates in a self-insurance joint powers authority for workers' compensation (SIPE). SIPE's bylaws permit member districts to borrow up to 60 percent

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of their shareholder's equity for a period not to exceed 60 days at a rate equal to the amount that would have been earned through the county treasurer. The bylaws permit retaining borrowed funds beyond June 30. Allan Hancock College would be eligible to borrow $925,016 in 2013-14. This amount could also be utilized to help meet a cash shortfall.

Foundation assets of approximately $500,000 could also be utilized to help meet a cash shortfall.

These steps would only be taken should any month end in a deficit cash position.

I have also engaged in discussions with staff at the county treasurer's office. They have confirmed that their office will provide assistance to the district in getting through what is hopefully a short-term cash flow problem. In the event that we have exhausted all of our cash resources and are still unable to meet our cash obligations, the county treasurer has indicated that they would be able to advance us up to 85 percent of the district's anticipated tax revenues. The 2013-14 budget projects $12.4 million in tax proceeds which could provide the district with an advance of up to $10.5 million. The expectation is that we would have repaid any amounts advanced to us by April 30. With June 30 being one of our more vulnerable timeframes, this solution would not be much help at year end.

All of the preceding steps are temporary solutions, and the amounts are based on information available at this time. Projected revenues and expenditures are based on prior year experience. Cash amounts used for this purpose will need to be repaid once state revenues have been restored. Clearly, the stronger the cash reserves are in various restricted and reserve accounts, the better positioned the district would be in meeting the requirement to have a positive cash balance on June 30 of any fiscal year.

~NAN~cx \.~~~COLLEGE ME MORANDUM

DATE: November 11 , 2014

TO:

FROM:

Kevin G. Wa~~jj~' Elizabeth A.rl~t-·

SUBJECT: Cash Flow

It is important to note that the district's unrestricted eight percent reserve is approximately $3.9 million. With an anticipated $969,279 withheld from current year revenue and average monthly expenses of approximately $4 million, it is clear that the district will continue to be challenged to meet cash flow demands.

In response to previous year cash flow shortfalls, the college developed, and updated throughout the year, a cash management plan. The last tax revenue anticipation note (TRAN) issued by the district was a mid-year issuance in the amount of$2,145,000 in April2010. These actions were taken to ensure the district's ability to meet its payroll and vendor payment obligations and to ensure a positive cash balance on the fiscal year end. The TRAN was repaid in February 2011.

Following an analysis of the costs associated with a TRAN issuance and the eligibility calculation, the district chose not to issue a traditional fiscal year TRAN in 20 11-12 and subsequent years. The eligibility calculation is based on projected income, expenditures, and cash balances for the upcoming year, and the district would only have been able to issue approximately $1 million.

Several options have been identified to address what could potentially be a deficit cash balance:

Cash balances held in the county treasury for restricted funds have typically been identified in the amount of$10,708,000. These balances include amounts held for the GASB 45 liability, liability fund reserves, capital outlay projects, student center fees, and bookstore investments. These balances would be used first to meet a cash shortfall. Once invested in an irrevocable trust approximately $6 million of this total will no longer be available for cash flow purposes.

Additional cash balances held in bank accounts have been identified in the amount of $1 ,350,000. These balances include amounts held as part of reserves for dental self­insurance, bookstore, student representation fees, trust accounts, and AS B. These balances would be used next to help meet a cash shortfall.

t 'I • •

The district participates in a self-insurance joint powers authority for workers' compensation (SIPE). SIPE's bylaws permit member districts to borrow up to 60 percent of their shareholder' s equity for a period not to exceed 60 days at a rate equal to the amount that would have been earned through the county treasurer. The bylaws permit retaining borrowed funds beyond June 30. Allan Hancock College would be eligible to borrow $665,872 in 2014-15. This amount could also be utilized to help meet a cash shortfall. At their October 21,2014 meeting the AHC Board ofTrustees authorized the district to borrow these funds if needed for cash flow purposes.

Foundation assets of approximately $500,000 could also be utilized to help meet a cash shortfall.

These steps would only be taken should any month end in a deficit cash position.

I have also engaged in discussions with staff at the county treasurer' s office. They have confirmed that their office will provide assistance to the district in getting through what is hopefully a short-term cash flow problem. In the event that we have exhausted all of our cash resources and are still unable to meet our cash obligations, the county treasurer has indicated that they would be able to advance us up to 85 percent of the district's anticipated tax revenues. The 2014-15 budget projects $12.7 million in tax proceeds which could provide the district with an advance of up to $10.8 million. The expectation is that we would have repaid any amounts advanced to us by April 30. With June 30 being one of our more vulnerable timeframes, this solution would not be much help at year end.

All of the preceding steps are temporary solutions, and the amounts are based on information available at this time. Projected revenues and expenditures are based on prior year experience. Cash amounts used for this purpose will need to be repaid once state revenues have been restored. Clearly, the stronger the cash reserves are in various restricted and reserve accounts, the better positioned the district would be in meeting the requirement to have a positive cash balance on June 30 of any fiscal year.