update
CASH LEGISLATIVE MANAGEMENT ISSUE ISSUE / SUMMER / FALL 2020
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INDISPENSABLE TOOL for SCHOOL BUSINESS MANAGEMENT
Going with
THE FLOW
Cash Planning to Manage Financial Risk
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Give Your Support Staff
the Support they Need to be Successful
Schools are facing new challenges daily. Make sure your front office is prepared! Connect with subject matter experts and colleagues from across the state to keep up on the latest best practices.
Friday, December 4, 2020
Get full event details at www.iasbo.org/supportcon
Location details for this event are pending further guidelines from the governor and CDC.
Illinois Association of School Business Officials UPDATE Magazine / Fall 2020 / v.28 / i.01
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INSIDE
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CASH MANAGEMENT ISSUE
THE NEXT ISSUE: HUMAN RESOURCES
Hiring for Results: Where to Put Your Human Resources to Make an Impact
Going with the Flow:
Cash Planning to Manage Financial Risk Having a tool that allows you to measure the impact of economic challenges and develop and model potential solutions can help manage risk and ease anxiety for you, your administrative team and school board. Cover Story by Stephen Miller and David Torres
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LOOKING FOR PAST ISSUES?
Visit ISSUU.com and search for Illinois ASBO.
How to Maximize Your Investments
Turning investment ideas into real income with a disciplined investment strategy, cashflow analysis and educational resources can help in offsetting some of the limited availability of funds. By Jessica Curran, Mohsin Dada and Sheetal Rai
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www.iasbo.org
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How to Build Department Budgets with Non-Financial People PERSPECTIVE
FROM-THE-PODIUM
Unmasking Your WHY. 07
Learn how to work alongside your colleagues to educate them on the annual budget process and timing so that they can take ownership of their role in financial planning. By Amy McPartlin and Brian Rominski
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FROM-THE-OFFICE
Uncharted Territories for Cash Management. 09
FROM-THE-FIELD
Navigating a New Normal Together. 11
SCHOOL BUSINESS 101
How the Pandemic Has Impacted Cash Management Strategies. 19
Operational Funding Solutions in the COVID-19 Era COVID-19 has created significant obstacles for school districts this year. Explore various sources that might be available to your district to assist in the case of a cash flow need. By Anne Noble
32 Preventing Fraud Inside & Out Payments fraud has always been prevalent, but fraudsters tend to increase their activity in times of uncertainty and change — and school districts are not immune. By Mark Bockelmann and Jim Grammas
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The Race for a Cure At the same time that the world races to develop a vaccine for the virus responsible for COVID-19, the Federal Reserve, Treasury, Congress and the White House have pumped the U.S. full of medicine to protect households and businesses and avoid a financial crisis. By Brian Hextell
RESOURCES
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STAYING
ON MISSION & ON BUDGET
As we expect budget challenges in the coming years, there is no better time to review your spending plan with an eye towards ensuring your budget and our mission are aligned. These five principles are a great place to start. By Anthony Sanders
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ON MY LIST
Learn a better approach to balance in this book review from Jacquelyn Bogan of LaGrange Area Dept. of Special Ed. 43
THE FINAL WORD Mary Kay Pawlak Comptroller, CSBO, SFO Twp. High Sch. Dist. 214 Mary Kay is responsible for investing district funds, preparing and maintaining cash flow projections, completing monthly bank reconciliations and overseeing the collection of revenues and payment of expenditures. She sees the COVID-19 pandemic as the biggest challenge currently facing school districts as it relates to cash management.
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THE INOIS ILL A
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Illinois Association of School Business Officials
CALENDAR OF
Northern Illinois University, IA-103 108 Carroll Avenue DeKalb, IL 60115-2829 P: (815) 753-1276 / F: (815) 516-0184 / www.iasbo.org
EVENTS
UPDATE Editorial Advisory Board
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Check out www.iasbo.org for the latest Calendar of Events included in the UPDATE mailing to see full seminar listings including location, PDC sponsorship and registration information.
September 2020
S 30 6 13 20 27 4
M T W T F S 31 1 2 3 4 5 7 8 9 10 11 12 14 15 16 17 18 19 21 22 23 24 25 26 28 29 30 1 2 3 5 6 7 8 9 10
Date
October 2020
S 27 4 11 18 25 1
M 28 5 12 19 26 2
T 29 6 13 20 27 3
W T F S 30 1 2 3 7 8 9 10 14 15 16 17 21 22 23 24 28 29 30 31 4 5 6 7
Time
November 2020
S 25 1 8 15 22 29
M 26 2 9 16 23 30
T 27 3 10 17 24 1
W 28 4 11 18 25 2
T 29 5 12 19 26 3
F 30 6 13 20 27 4
S 31 7 14 21 28 5
December 2020
S 29 6 13 20 27 3
Event
M T W T F S 30 1 2 3 4 5 7 8 9 10 11 12 14 15 16 17 18 19 21 22 23 24 25 26 28 29 30 31 1 2 4 5 6 7 8 10
Location
9/23/20 to 9/24/20
8:30am
Support Professionals Virtual Seminar
Online
9/30/20 to 10/1/20
8:00am
ASBO International Annual Conference & Expo
Online
ISDLAF+ School Finance Seminar
Online
10/14/20
10/28/20
TBD
10/14/20
9:00am
Delegate Advisory Assembly
Online
10/21/20
8:00am
Facilities Operations Program: Essentials of Maintenance Operations
Online
10/28/20
9:00am
Online AAC #1874 - From Words to Action: Your Response to Racism in Schools
Online
10/28/20
8:00am
Online AAC #1838 - Social Intelligence: The Swiss Army Knife of Leadership Skills
Online
11/6/20 11/13/20
8:00am
2020 Virtual Conference
Online
11/18/20
9:00am
Online AAC #1813 - Evaluating the Effectiveness of Tech Integration in Classrooms
Online
11/18/20
12:30pm
Online AAC #3741 - Achieving Personal Excellence for School Excellence
Online
11/20/20
9:00am
Learning From Lincoln: Leadership Practices Webinar AAC #3721
Online
12/2/20
9:00am
Effective Financial & Strategic Comms Among CSBOs, Supts & Admin - AAC #3663
Online
12/4/20
8:00am
SupportCon
12/11/20
TBD
LIFO Method to Grow Leadership & Communication Skills - AAC #1500
TBD Online
PDC MEMBERS Jacquelyn Bogan Special Education: Admininistration & Finance Amy Curtin Accounting Auditing & Financial Reporting Yasmine Dada Principles of School Finance Todd R. Drafall Public Policy, Advocacy & Intergovernmental Relations Todd Dugan Technology Timothy J. Gavin Budgeting & Financial Planning Raoul J. Gravel III, Ed.D. Communications Frances A. LaBella Legal Issues Daniel R. Mortensen, CPMM Planning & Construction Thomas M. Parrillo Purchasing Sherry L. Reynolds-Whitaker Ed.D. Human Resource Management Brian Rominski CPMM, CPS Maintenance & Operations Anthony Ruelli Leadership Development Lyndl A. Schuster Ed.D. Sustainability Mark E. Staehlin Cash Management, Investments & Debt Management Justin D. Veihman Risk Management Laura L. Vince Food Service BOARD & EXTERNAL RELATIONS MEMBERS Mark W. Altmayer President Lisa Yefsky SAAC Chair STAFF MEMBERS Michael Jacoby Executive Director / CEO (815) 753-9366, mjacoby@iasbo.org Susan P. Bertrand Deputy Executive Director / COO (815) 753-9368, sbertrand@iasbo.org Craig Collins Statewide Professional Development Coordinator, (630) 442-9203, ccollins@iasbo.org Rebekah L. Weidner Senior Copywriter / Content Strategist, (815) 753-9270, rweidner@iasbo.org Stacia Freeman Graphic Designer (815) 753-9393, sfreeman@iasbo.org Kevin Nelligan Graphic Designer (815) 753-7654, knelligan@iasbo.org Laura Rude Communications Coordinator (815) 753-4313, lrude@iasbo.org
Illinois ASBO Board of Directors
Mark W. Altmayer President Jan J. Bush President-Elect Eric DePorter Treasurer Dean T. Romano, Ed.D. Immediate Past President 2018–21 Board of Directors Seth Chapman, Ed.D., Angela M. Crotty, Ed.D., Adam P. Parisi 2019–22 Board of Directors Maureen A. Jones, Tamara L. Mitchell, Nicole Stuckert 2020-23 Board of Directors Anthony R. Arbogast, Edward J. Brophy, Patrick McDermott, Ed.D., SFO
Illinois ASBO Board Liaisons
Lisa Yefsky Service Associate Advisory Committee Chair Charles L. Czachor Service Associate Advisory Committee Vice Chair Deborah I. Vespa ISBE Board Liaison Perry Hill IASB Board Liaison David Wood Governmental Relations Specialist Calvin C. Jackson Legislative Liaison
Privacy Policy
All materials contained within this publication are protected by United States copyright law and may not be reproduced, distributed, displayed or published without the prior written permission of the Illinois Association of School Business Officials. You may not alter or remove any trademark, copyright or other notice from copies of the content. References, authorship or information provided by parties other than that which is owned by the Illinois Association of School Business Officials are offered as a service to readers. The editorial staff of the Illinois Association of School Business Officials was not involved in their production and is not responsible for their content.
For a Complete Listing of Fall Events Visit: www.iasbo.org/events/calendar
PERSPECTIVE / Board President
FROM–THE–PODIUM Unmasking Your WHY Welcome to the Fall 2020 UPDATE! Thank you to all the authors who have taken the time to share their expertise. As your new board president, I want to say thank you for your continued work during this tumultuous time, and that I am eager and ready for this upcoming year! Despite being president for a few months at this point, I recognize that due to COVID I have been literally and figuratively living behind a mask. It is my hope that with these few words, and more stories down the line, I am able to share why I believe we play such an important role in education and how we can grow to embody an even larger role. Before joining the field of education in 2009, I worked in the corporate world. I had grown accustomed to rivalries within companies, constant competition and an existence in a system that viewed our financial jobs as just a means to an end. Upon joining Huntley CSD 158, other than being bombarded by many new acronyms, I was also introduced to Illinois ASBO peers who showed me a new side of finance, and the role of being a CSBO/CFO, that I never could have imagined.
Mark Altmayer CFO/TREASURER HUNTLEY CSD 158
SIMPLY SAYING
I challenge each of you to come out from behind your mask, integrate yourselves into your schools and find your Why! Through strong association relationships, I’ve come to understand that our role, and the reason we do our jobs, is for so much more than just money. Because while teachers are the fuel that keeps the educational system going, giving so much valuable time and expertise to each new generation, we, as CSBO/CFOS, are the operational backbone to the system. In order for teachers to be able to change lives, we have to be present and willing to listen, learn and evolve so we can also influence positive change within the field of education. Obviously the COVID epidemic has thrown a wrench in everyone’s lives, future plans and has also affected the structure of our educational system. But one thing the quarantine did for me was remind me of how valuable our relationships can be, and that something can always be learned from every conversation. My family and I have grown closer every day, and I’ve been able to see just how hard everyone around me works and how deeply each
member of my family cares about their individual pursuits — this has been nothing short of inspiring! This carries over to Illinois ASBO because if we each begin to involve ourselves in our schools, we will all be able to see firsthand the hard work our teachers, principals and aids do on a daily basis! The same way COVID has challenged the entire world to grow closer while remaining apart, enacting positive change into society — I challenge each of you to come out from behind your mask, integrate yourselves into your schools and find your why! It is only through my classroom visits to each school and building teacher relationships that I learned why I want to do my job, and why I find it so important. So I ask each of you to begin establishing the relationships that have changed my life. I promise that by doing this, not only will your life change, but you will be able to change others. Although we may continue to be six feet apart, we will forever be together! #IASBOStrong! www.iasbo.org
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Although many things remain uncertain, there will most certainly will be new and continuing challenges for school and industry leaders as we look ahead to 2021. Plan now to build on your crisis-tested leadership skills and reach new levels of communication, trust and emotional intelligence within your teams!
SAVE THE DATE for 2021 LEADERSHIP EVENTS 2021 LEADERSHIP CONFERENCE February 18-19, 2021 2021 LEADERSHIP INSTITUTE March 2-4, 2021 September 14-15, 2021 WATCH www.iasboleadership.org for more on these opportunities!
PERSPECTIVE / Executive Director
FROM–THE–OFFICE Uncharted Territories for Cash Management The next 12 to 18 months may be the most challenging that we have ever seen when it comes to cash management in a school district! That is quite a statement because we have been through some really bad times before. In the Great Recession that began in 2008 we saw the loss of local property values exceed 30 percent in some areas of the state and then after federal stimulus ran out, Illinois cut education spending by over $3.7 billon dollars and prorated the antiquated general state aid formula. Why is this such a potentially difficult time? COVID-19 and the response to it has upended our normal structure of revenue generation. With income tax payments delayed from April 15, 2020 to August 15, 2020 our normal expectation of state income is now delayed. During that same time,
Micheal A. Jacoby, Ed.D., CAE,SFO EXECUTIVE DIRECTOR/ CEO ILLINOIS ASBO
SIMPLY SAYING
The next 12 to 18 months may be the most challenging that we have ever seen when it comes to cash management in a school district! unemployment climbed 10.5 percent to a total of 14.6 percent across Illinois. That undoubtedly will have impact on state revenues for years to come. Districts that depend on Corporate Personal Property Replacement Tax will not see their typical mid-August estimate, which is based on an accounting of corporate income tax receipts and will go into their final budget presentations pretty blind to that revenue stream. At the local level, some counties have allowed taxpayers to delay property tax payments and it is yet unknown what will happen with property values. Supply and demand drives values and the closing of businesses and corporations will make the supply outpace demand, potentially lowering those property values. But to what extent? We may not know until spring of 2021. Federal funding through the CARES Act has helped to provide limited new funding in the interim and another stimulus package is in discussion in DC. But politics are at play, and who knows if or when another stimulus will emerge and what level of new resources school districts will receive. On top of revenue uncertainty, every school district is experiencing new costs associated with PPE, additional cleaning protocols, increased costs for transportation due
to social distancing and personnel costs associated with temperature checks. Not to mention the cost to ensure remote learning can take place. These are certainly uncharted territories! For positive cash flow to be maintained, modeling is critical to understand the potential impacts of these sweeping changes. Multiple models with varying assumptions must be created and responses must be discussed now, because when reality hits there may be little time to fill the gap. This issue of UPDATE is dedicated to keeping you sharp and prepared to manage the complexities of an accurate and real cash flow. Read it and then work with your own system to ensure your district survives this pandemic and its impact. Illinois ASBO is committed to make sure you have many “channels” for engagement with experts and with each other. Use our peer2peer community to ask questions or respond to others. Watch your email for announcements about new webinars and our Illinois ASBO Insider e-newsletter. Together, we will get through these times and I am convinced that the school business community will perform at peak levels for the duration. www.iasbo.org
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In these uncharted times, the Illinois ASBO Board of Directors and Service Associate Advisory Committee have led the way in making sure Illinois ASBO members have access to crucial resources and thought leadership. New voices are needed to make sure your association remains an indispensable resource for professional development, networking and advocacy.
Board of Directors Board of Directors We are seeking three school leaders to serve as 2021-2024 Directors! Learn more at www.iasbo.org/board
Service Associate Advisory Committee Service Associate Advisory Committee
We are seeking two Service Associate members to serve as 2021-2025 SAAC Members!
Learn more and apply at www.iasbo.org/saac
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>>> APPLY BY DECEMBER 15 TO BE CONSiDERED FOR LEADERSHiP POSiTiONS!
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PERSPECTIVE / SAAC Chair
FROM–THE–FIELD Navigating a New Normal Together Life can turn on a dime. This phrase could not be more appropriate in a year which brought us a pandemic. Certainly no one could have predicted this scenario while building a short or long-term financial strategy, no matter their industry. As school districts moved their focus to either returning students safely to schools or remote learning, monies that were earmarked for other purposes are now being spent in ways that could not have been imagined at the beginning of the calendar year. Adapting your buildings, how to get children safely to school, cleaning of facilities and buying personal protective equipment were likely not in your financial planning scenarios. As you begin to build your budget and long-term forecast for the next school year, consideration needs to be given for the new immediate costs and the long-term impact on your district’s finances. The economic change brought about by the pandemic has us all examining what spending is necessary and where to deploy precious resources. This year, uncertainty has been the only certain thing and going with the flow has taken on a new meaning.
Lisa Yefsky
AREA EXECUTIVE VICE PRESIDENT ARTHUR J. GALLAGHER & CO.
SIMPLY SAYING
We are stronger together through the trusted relationships which have deepened while navigating this new normal. No matter the circumstances this new normal has brought, the bright side is you are not alone. It can be an overwhelming task to prepare for the unpredictable, create multiple potential scenarios and try to please all stakeholders, all while balancing the needs of students. This could seem staggering to some, but there is a community to support you. Collaboration is key in the work we see among SBOs and Service Associates. We are stronger together through the trusted relationships which have deepened while navigating this new normal. Service Associates have stepped up, always ready to help and provide their expertise. They have shared their knowledge this year through topical webinars, presenting best practices and offering the creative solutions they
can bring to the table. As your subject matter experts, Service Associates can offer a broad base of knowledge as they have exposure to solutions they have successfully implemented with other clients. The support available to you is evident in the collaborations and expert financial advice provided in this issue. Even with the hope for vaccines and cures on the horizon, long-term financial challenges are are inevitable. Difficult choices will need to be made as our world, how we work and how we learn have changed. Finding and allocating resources will be part of the challenge of creating your financial strategy. Making every penny count is how we will get started.
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CONTRIBUTORS
Mark Bockelmann
Jessica Curran
V.P./Government Banking Fifth Third Bank
CFO & Treasurer Comm. Cons. Sch. Dist. 181
Provides treasury management solutions and advice to current and prospective clients in both the K-12 and higher education markets. Mark joined BMO in 2003 and has held various positions within BMO commercial banking over the past 17 years.
Is a trusted partner for her clients in the government sector. Jessica brings 15 years of banking expertise and is a leader in treasury management services and elite customer service. She serves as a strategic partner to her school district clients and is devoted to building relationships in the community.
Has served Chicagoland districts for 39 years including strategic planning, longterm financial planning and investment management. An Illinois ASBO Past President and Past ISDLAF+ Chair, Mohsin was a founding member of the ASBO’s SFO Task Force and serves as Secretary of the SFO Certification Commission.
mark.bockelmann@bmo.com
jessica.curran@53.com
mohsindada@yahoo.com
Sr. Relationship Manager BMO Harris Bank N.A.
Jim Grammas
Director Government Team BMO Harris Bank N.A.
Brian Hextell
Senior Vice President, Institutional Portfolio Manager PMA Asset Management, LLC
Mohsin Dada, CFPÂŽ, SFO, RSBA
Amy McPartlin
Asst. Supt./Finance & Operations Prospect Heights School District 23
Specializes in providing financial advice and customized solutions to local governments to meet their objectives. A resident of Niles, IL, for more than 40 years, he has served as President of Niles Elementary School District 71 and currently serves on the Village of Niles Police and Fire Pension Boards.
Develops customized investment strategies for institutional client portfolios. Brian frequently speaks at city, county and school conferences and seminars on the topics of investment strategy, state statutes, investment policies, credit analysis and market updates.
Prior to Prospect Heights, Amy spent eight years at Township HSD 214 as the Purchasing, Transportation and Business Services Supervisor. With 20+ years of business office experience, Amy has served as a Past Chair of the Illinois ASBO Purchasing PDC and a key contributor to the updated Purchasing Manual.
jim.grammas@bmo.com
bhextell@pmanetwork.com
amcpartlin@d23.org
Stephen Miller
Anne Noble
Managing Director Stifel, Nicolaus & Company
Managing Director Fifth Third Securities
Is a CPA and has spent 25 years in school business roles as an auditor, CSBO and financial consultant. He is currently a Senior Product Manager for Forecast5 Analytics working with 5Sight, their comparative analytics platform.
Has served as a municipal bond underwriter to school districts for 30 years. She is an expert on all types of borrowing tools available to Illinois school districts and served as the Chair of the Illinois ASBO Service Associate Advisory Committee in 2017.
Is a registered rep with the NASD and a fully licensed investment broker with a Series 7 and 63. Sheetal has a Bachelor’s in Finance from Wittenberg University and a Master’s in Finance from Xavier University. She has been working with Illinois government/ school district entities for the past 15 years.
smiller@forecast5analytics.com
noblea@stifel.com
sheetal.rai@53.com
Brian Rominski
Tony Sanders
Superintendent/CEO School District U-46
Senior Product Manager – 5Cast Forecast5 Analytics, Inc.
Has been working in the K-12 educational market for over 20 years in multiple capacities, providing leadership in school design, construction management, facility condition assessments and all things environmental related to schools. He is currently the chair for the Illinois ASBO Maintenance & Operations PDC.
Has led School District U-46, Illinois’ second largest school system serving 38,000 students across 11 communities in the northwest suburbs, since 2014. He earned his Chief School Business Official endorsement in 2019.
Is responsible for product management, development and outreach for Forecast5’s quantitative analysis and financial projection engine. During his 33-year career as an Associate Superintendent for Business and CFO, David successfully engaged in strategic financial planning and long-term capital improvement programs.
brominski@d23.org
tonysanders@u-46.org
dtorres@forecast5analytics.com
Senior Product Manager – 5Sight Forecast5 Analytics, Inc.
Dir./Building and Grounds Prospect Heights School District 23
Sheetal Rai
David Torres
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HOW TO
As of this writing, the whole world is in the grip of the coronavirus pandemic, labeled as COVID-19, and to prevent the spread of virus, all major economies around the world are in lockdown mode. This outbreak is treated as a black swan, or a very unusual event, that has caused major turmoil in the global financial markets. In response to the global financial meltdown, central banks throughout the world have stepped in and injected several trillion dollars of liquidity in the markets. COVID-19 has brought unprecedented, sweeping change and out of the box thinking to every part of our lives. In these times of uncertainty, we have asked teachers, parents, students and most of all, school administration to make unprecedented changes to accommodate the current situation.
MAXIMIZE IN
ARTICLE
By Mohsin Dada
CFO & TREASURER COMM. CONS. SCH. DIST. 181
Jessica Curran
V.P./GOVERNMENT BANKING FIFTH THIRD BANK
Sheetal Rai
MANAGING DIRECTOR FIFTH THIRD SECURITIES
The federal government passed a stimulus package that includes $13.5 billion for K-12 schools across the country. These stimulus monies are meant to help schools cover associated costs they have incurred because of the coronavirus, not cushion the blow of an economic recession. The last economic recession (2007-2009) has given districts a preview of how to manage the possibility of shrinking budgets and spending cuts. With the dramatic changes in the market, districts are starting to look at future budget cuts such as hiring freezes, changing/cancelling contracts and adopting “efficiency” measures that could save on overall costs. These types of budget changes, many times, do not amount to much in the way of cost savings as labor makes up 80 percent of K-12 costs. If the gaps are significant, districts will ultimately have to cut personnel. Bottom line, all these cuts and changes affect the number one goal of the district: the education of the students.
BRIDGING THE GAP
Turning investment ideas into real income with a disciplined investment strategy, cashflow analysis and educational resources can help in offsetting some of the limited availability of funds (outside of state and federal dollars) available to public schools in order to accomplish the mission to provide all children with high-quality learning opportunities. Effective and efficient use of resources is crucial to the success of our school districts. Taking the time to evaluate the district’s current overall investment portfolio can add bottom line interest income within existing board-approved risk parameters. Even though current interest rates are very low, this is an important time to take a thorough look at your district’s investment policy, cashflow and investment strategy. Every basis point counts and
adds to bottom line revenue! Back in 2007, we use to hear “rates are so low that an additional 10 basis points does not matter.” Ten basis points on a 30MM budget is $30,000 in interest income (annualized). Those are funds that can hire staff, improve technology or add other resources for the children. Every basis point does matter to the overall budget of your district. As revenues from local property taxes come in (typically twice a year), school districts receive funds that will be used over time to pay district expenses. Until the money is needed, investing the excess cash in financial instruments to match liabilities and building investment reserves is very important. The plan should be to stay fully invested until the money is needed and maximize bottom line interest income.
Education… Education… Education!!
For a school business official, having a broad understanding of investments can be a vital tool not only for the district, but… life as well. The following guidelines can help you better understand the market, strategy and products available to your district. • Understand the Illinois Public Funds Act and your board-approved investment policy. The typical investment policy provides guidelines on selecting investment types, interest rate risk, maturities and credit quality, along with any collateralization requirements. • Modify cash flow projections for the district. Working in the new COVID-19 environment, the existing cash flow projection will need to be modified for possible delays as well as reduction of revenues. The cash flow projection should be based on conservative assumptions about both the cash receipts and disbursement. The cashflow projection is intended to measure and assess the district’s ability to meet its liquidity needs and identify availability of surplus funds and determine timing and duration.
NVESTMENTS www.iasbo.org
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» »
Common inflow items in cash flow forecast are property taxes, CPPRT, interest earnings, fees, state EBF grant, state categorical reimbursements and federal grants and proceeds from investments. Outflows represent anticipated expenditures for employee payroll and benefits, payments to vendors for goods and services, capital expenditures, bond payments and purchase of investment securities.
LiQUiDiTY CONTiNUUM Seeking an Increase in Potential Returns
Liquidity Objectives
Strategic Cash Enhance Cash
Operating Cash Typical Characteristics: • Cash for Primary Business Purposes • Highly Liquid • Overnight to Six Months • Examples: DDA Hybrid DDA, 1B DDA and Money Market Funds • What are the investments behind the district's bank deposit? • What are the investments in individual investments in the money market fund use by the district?
Typical Characteristics: • Cash Not Needed Immediately: Excess Liquidity • Seek Higher Yield • Overnight to One Year • Examples: MMDA, Max Saver, Money Market Funds • Commercial Paper, Certificate of Deposits Treasuries, Agencies, Municipal and Corporate Bonds
Typical Characteristics: • Cash Not Needed Immediately • Seek Higher Yield • May be Identified for Specific Use • Six Months to Five Years • Certificate of Deposits Treasuries, Agencies, Municipal and Corporate Bonds (Three Years and In)
Duration: 3-12 months
Duration: 0-3 months
Duration: 6 months - 5 years
• F orm your investment strategy. Having a disciplined investment strategy for operating, enhanced and strategic funds will help to maximize return, diversify and provide liquidity for the district’s portfolio. » Asset/liability strategy is often used for operating funds. » Barbell and laddered strategies are often used for enhanced and strategic funds.
BOND PORTFOLIO STRATEGIES
What is a Barbell Bond Strategy? A bond barbell is built by dividing the portfolio between short and long term assets to achieve the targeted maturity or duration.
Yr 5
Creating a Bond Barbell
Yr 1 50%
Yr 3
What is a Laddered Bond Strategy? A bond ladder is built by equally weighting portfolio assets around the investor’s targeted maturity or duration. Creating a Bond Ladder
Yr 1 50%
20%
Yr 2 20%
Yr 3
20%
Yr 4
20%
Yr 5
20%
• In this example, a portfolio with a three-year target maturity is equally weighted in short-term one-year maturities and long-term five-year maturities.
• In this example, a portfolio with a three-year target maturity is equally weighted in maturities between one and five years.
• The Bond Barbell Strategy requires a forward view on rates and the shape of the curve. The exact weighting of short-term and long-term assets can vary based on the level of rates and curve shape.
• The bond ladder continues to be employed as the proceeds from the one-year maturity are used to purchase new five-year bonds, while the remaining holdings all roll down the maturity spectrum.
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UPDATE Magazine / Fall 2020
•
Per the graph to the right, the additional yield pick-up by extending out the curve with either of the barbell/ laddered strategies (only if your district’s cash flow allows for it), can make a difference in your district’s interest income (please note that these spreads are just based on using treasuries as your benchmark, typically the other permitted investments have a higher yield). This is where a disciplined strategy mitigates interest rate risk.
HiSTORiCAL TREASURY SPREADS (BPS) Tenor
Last 5 Years (2015-2020)
Last 10 Years (2010-2020)
3M vs. 1Y 3M vs. 2Y 3M vs. 3Y 3M vs. 5Y
10 34 62 126
15 36 56 99
•Source: Bloomberg 05/28/2020
Understanding Your Return on Investments
• L ook at a baseline benchmark when buying an investment — The treasury is a basic benchmark to help the district know that they are getting competitive rates. Understanding the relationship between (the spread) the treasury and other investment products (CD’s, agencies, municipal, corporate etc. bonds) are very important when gauging if the district is making a good investment decision. » It is important to know what the treasury is yielding before buying an investment. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield shows the prior date yield Date
1 mo
2 mo
3 mo
6 mo
1 yr
2 yr
3 yr
5 yr
7 yr
10 yr
20 yr
30 yr
06/01/20
0.12
0.14
0.14
0.18
0.17
0.14
0.20
0.31
0.50
0.66
1.22
1.46
06/02/20
0.12
0.13
0.15
0.18
0.17
0.17
0.20
0.32
0.52
0.68
1.24
1.48
06/03/20
0.12
0.14
0.16
0.19
0.17
0.19
0.26
0.38
0.59
0.77
1.32
1.56
• .
elative vs absolute value – Market changes and periods of higher volatility can make it opportunistic for investors R including inactive “buy and hold accounts” to consider changes to their portfolios. It is important when buying securities and building a portfolio that at the time of investment that the district look at relative vs absolute value. » The below example shows that when investing it is important to look at all product opportunities and current market environments: In the current market, certificate of deposits have dropped in yield and availability because of the revival of the TALF program where other sectors that have not been actively purchased by the FED, such as short taxable municipal bonds or agency debt, seem more attractive. This strategy seeks to maximize “relative value” in the market which means that the time to reallocate holdings back into a sector that was previously underweighted (due to active FOMC buying) is after the emergency FED buying program ends. This concept has been widely used by investment guru Warren Buffet who often prefers to be “fearful when others are greedy and be greedy when others are fearful.” While this sounds like the words of an active investor, Mr. Buffet is actually an inactive long-term investor who typically holds his investment positions for several years at a time.
Where are We in the Current Monetary cycle and Why is this Important?
The Federal Reserve has indicated that they believe the economy has fallen into recession and more economic stimulus is needed in order to prevent the economy from falling into a deeper decline. Along these lines, they have indicated that they plan on keeping the Fed Funds Rate at its zero-lower bound until such time as there is clear evidence that the economy is gaining steam and inflationary pressures are returning. Based on these market assurances, it is possible that short-term interest rates will remain low in the foreseeable futures (i.e. through 2021). The Federal Reserve is also considering a new policy of trying to control the level of interest rates on the longer parts of the yield curve. www.iasbo.org
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Inflationary pressures have recently fallen sharply as the slumping economy has resulted in falling prices across a range of products including gasoline prices, airline tickets, hotel room rates and car prices. In fact, the April Core Inflation rate is expected to fall from the annualized pace of 1.7 percent in March down to 1.1 percent in May 2020. It is notable that the Federal Reserve over the past few years has largely been unable to achieve their two percent inflation goal. This is another reason why investors can feel more confident about potentially extending their portfolio durations (i.e. the lack of near-term inflation) and no near-term plans to begin to move off of their zero-interest rate policy. These monetary cycle indicators help to forecast potential future rates and CPI for budgets.
HISTORICAL MONETARY POLICY / SHORT-TERM MARKET OPERATIONS Historical Target Fed Funds Rate (Upper Bound) and One Month LIBOR
Increase of 300 bps in 12 Months
Increase of 175 bps in 10 Months
Increase of 425 bps in 24 Months
Decrease of 475 bps in 12 Months
Decrease of 500 bps in 15 Months Increase of 225 bps in 37 Months
Decrease of 225 bps in 9 Months
Source: Bloomberg as of July 23, 2020
The biggest takeaway from following the financial markets in recent years is that they are unpredictable. These lessons seem especially valid with the current bond market. This is why continued education about the markets, understanding the district’s cashflow and a disciplined investment strategy is very important. Continue to reach out to experts in the financial field to get a better understanding of the markets, products and competitive rates that are available to your district. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a wholly owned subsidiary of Fifth Third Bank, National Association, a registered broker-dealer, and a registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Securities and investments offered through Fifth Third Securities, Inc.: Are Not FDIC Insured | Offer No Bank Guarantee | May Lose Value | Are Not Insured By Any Federal Government Agency | Are Not A Deposit Contents are provided for informational purposes only and do not constitute an offer to sell nor a solicitation of an offer to buy any security The views expressed here are those of the author and do not necessarily represent or reflect the views of Fifth Third Securities.
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PERSPECTIVE / On the Profession
SCHOOL BUSINESS 101 How has the COVID-19 pandemic impacted your district’s cash management strategy?
“ Our biggest issue as it relates to cash flow is property tax appeals and refunds in the future.
With the Cook County assessor changing the way property is looked at for assessment year 2019, we saw a huge shift of the property tax burden from homeowners to businesses in our area. With 50 percent commercial property in our area, we anticipate a huge increase in businesses appealing their property taxes. That could potentially have huge implications for years as we pay refunds down the line. The other piece of this is with the Assessor announcing they will reassess all property again in 2020. After a huge shift in 2019, a reassessment in 2020 as a direct result in of COVID-19 could mean big changes again. I looked back at past collection rates and I do not anticipate collection to be that big of an issue. But I do expect there to be larger than normal refunds needing to be issued for years to come as companies appeal."
JEFF FEYERER, Asst. Supt./Finance & Operations/CSBO, Fairview South SD 72 board will be reviewing the second draft of our FY21 budget this week (July). Normally, “ Our I would have planned on a two percent increase for property tax revenue, but this time our
tax revenue will be reduced by three percent (a five percent swing). For a sanity check, I went back to 2008 to create a template of realized property tax revenue after the collapse of Bear Stearns which happened March 16, 2008. During that Great Recession, our realized property tax revenue never dipped below 95 percent. Of course, this economy could be worse, but at least I have a basis to predict the largest part of our revenue." JIM FITTON, Dir./Finance & Operations, CSBO, Riverside SD 96
Want to see what else your peers are talking about? New conversations are starting daily in Illinois ASBO peer2peer online community around hot topics for schools as everyone navigates these unprecedented time together. Log in today at www.iasbop2p.org and visit the Open Forum to join the discussion!
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How to Build Department
with Non-Financial People education ownership timing
ARTICLE
By Amy McPartlin
ASST. SUPT./FINANCE & OPERATIONS PROSPECT HEIGHTS SCHOOL DISTRICT 23
Brian Rominski
DIR./BUILDING AND GROUNDS PROSPECT HEIGHTS SCHOOL DISTRICT 23
The world of the CSBO can be a lonely one, especially as the fiscal years begin to collide in June and July. While everyone else is breathing a sigh of relief at the close of the school year, things are just starting to “heat up” in the early summer months for the business office. The development of the budget is a collaborative process that should engage key stakeholders long before the summer months. Our district budgets drive everything from our ability to hire highly qualified teachers, to professional
development, student support and curriculum, safety and cleanliness of our buildings, extracurricular offerings, technology infrastructure, food, field trips, media resources, capital projects and more. One of the toughest challenges for school business officials to navigate is communicating with the budget administrators (principals, department directors and even superintendents) in a way that allows them to understand the importance of their involvement in the overall budgetary process. The budget is more than just an explanation of revenues and expenditures. It is a living document that reflects the priorities of the district and serves as a roadmap for the fiscal year. Oftentimes, while administrators oversee a specific fund allocation, they do not understand the larger picture of how “their” dollars fit into the larger district budget. They may be intimidated by the budget and its development or they may lack the financial literacy to understand their role. Either way, it is the responsibility of the business official to reach out and engage them, share their knowledge and bring them “along for the ride!”
The budget is more than just an explanation of revenues and expenditures. It is a living document that reflects the priorities of the district and serves as a roadmap for fiscal year. www.iasbo.org
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Education: Make the Budget Approachable
As we work to engage staff in the district’s budgeting process, there are a few things that we can do to make the process a bit more “user-friendly” for non-financial staff members: » Keep it Simple! Steer clear of technical language and jargon and use images and words instead of numbers when possible. » Build trust with your stakeholders by keeping your numbers accurate and your process as transparent as possible. » Open your door and be a resource. It’s easier to answer a question right away rather than to do a journal entry or auditor explanation after the fact! » Offer “Business Office 101” training opportunities to provide non-financial staff members some basic financial understanding of revenues/expenditures, budget calendar, account codes and appropriate expenditures. » Keep it in perspective. While staff may only focus on their specific line items, it is important to also provide them with information about the entire organization’s financial situation.
Ownership: Help Staff See the Whole Picture
Ongoing collaboration is essential for educators and business managers alike, and the procurement of materials, supplies and services, helps to create “whole picture” costs which are vital to building accurate department budgets. In developing both the district’s overall budget and project-specific budgeting, priorities must be clearly and proactively communicated. The absence of such communication leads to isolated decision making. One example of this may be a principal’s building budget. There may be several items on a principal’s wish list but
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not on the radar of the operations department. Without this collaboration, these priorities can fall through the cracks or worse yet, items may be purchased without first taking all requirements into consideration. For instance, let’s say a building principal would like a new AV system for PE classes and school assemblies. Some of the essential questions should include: • Does the purchase require a bid? What vendors should be called? • What equipment is needed? • What are the power requirements? • Where will the equipment be mounted or stored? • Can installation be done in-house or through the vendor? Is a lift needed for high installation? • Do the vendor’s insurance limits match the school district’s requirements? Is everyone really looking at the whole picture? It is easy to operate in a silo and think “that’s someone else’s issue.” However, best practices would be to lay a foundation and process to: thoroughly understand the project/ scope request, investigate and obtain initial information, provide feedback on that initial information, modify the project request/scope and finally communicate the whole picture and total costs back to the building principal. This work ensures that the principal retains ownership of the project, is kept in the loop and can obtain accurate and comprehensive costs to provide a solid foundation for their budget and item procurement. In working with our building principals and other administrators we have found that early early identification of these needs and building priorities will help us budget more effectively.
Timing: Train Stakeholders on the Annual PROCESS
Budgeting is a year-long process and for some staff, it can be a daunting undertaking. Meeting with budget administrators on a regular basis can help ease their anxiety by allowing time to go over year-to-date account
ARTICLE / How to Build Department Budgets
activity and discuss the expenditure’s alignment with their overall departmental goals. These discussions, coupled with an analysis of monthly and quarterly data, can help to provide a foundation for future budgets by using actual data to verify allocations.
While food service and transportation contracts are easy, the alignment of other vendor contracts like software licenses, can take multiple years. In addition to having a basic knowledge of the revenues and expenditures, it is essential that our budget builders have a grasp of the importance of the fiscal year timing. We know that the summer months are very busy in the business office as we wrap up the current fiscal year with an eye on getting our classrooms and facilities ready for the coming school year. The annual tax revenue that comes into our districts is meant to be spent in the current year and goods and services are to be ordered, delivered and paid for in the same year. Though the majority of vendors that typically service the K-12 industry understand our fiscal guidelines, many do not. Oftentimes, vendors may have different fiscal cycles than school districts. They may have a local or even a national service office, with an accounting department located in another state, that will need to be involved in the shift of a renewal period. It can also be difficult to plan and maintain a balanced budget with service contracts that might span multiple years. While food service and transportation contracts are easy, the alignment of other vendor contracts like software licenses, can take multiple years.
The alignment of district contracts can improve your budget process by eliminating the fiscal year carryover. Several contracts that should be considered include: • Software and website services • Pest control • Waste removal and recycling services • Paper shredding • Data/phone services • Preventive maintenance services • Nurse and therapy contracted services • Copy machines and maintenance contracts • Vending machine contracts All of these are examples of service contracts that should have a single year, July-June timeframe and multi-year contracts should be paid for on an annual basis. This alignment goal requires you to have conversations prior to renewal, with vendors while developing your budget and will also allow you an opportunity to discuss potential cost increases and changes in contract terms.
Empower Your Team to Succeed
We all know the Chinese proverb “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.” When we take the initiative to work alongside our colleagues to help educate our budget administrators, we allow them to increase their confidence in the development of the budget and retain ownership of their process and the outcomes. Getting them involved early, helping them to develop a basic understanding of the expenditure and revenue activity and sharing in their departmental/building priorities are steps that can go a long way in establishing a reflective budget that accurately reflects your district’s goals, department by department!
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Going with
THE FLOW Cash Planning to Manage Financial Risk
Having a tool that allows you to measure the impact of economic challenges and develop and model potential solutions can help manage risk and ease anxiety for you, your administrative team and school board.
ARTICLE
By Stephen Miller
SENIOR PRODUCT MANAGER — 5SIGHT FORECAST5 ANALYTICS, INC.
David Torres
SENIOR PRODUCT MANAGER — 5CAST FORECAST5 ANALYTICS, INC.
When was the last loss control survey your district went through? To mitigate potential loss due to property and/ or liability claims, every district has probably engaged a risk management firm and/or insurance carrier to conduct these comprehensive surveys and assessments for the purpose of loss prevention and risk avoidance. We would all agree that 2020 was a “catastrophic” year in many ways. The impact volatility of COVID-19 was unparalleled. It shifted education and administrators into risk management mode and engaged extensive loss control measures and action plans to mitigate the potential adverse effects and “losses” to students, operations and communities. How has COVID-19 impacted your district’s financial position? In principle and practice, there is a direct correlation between risk management and cash flow planning and surveillance. Both share a key core objective: To mitigate loss and/or shortfall. At its core, a cash flow allows for the maximization of interest dollars and identification of borrowing needs, but truly it is much more than that; it is a risk management plan for your school district’s finances. ISO (International Organization for Standardization) 31,000 defines risk management as “the effect of uncertainty on objectives.” You protect your district from certain uncertainties by procuring property, casualty and liability insurance. This insurance coverage protects the district from financial loss due to unforeseen events such as accidents and natural disasters. How do you manage school district financial risks? With a cash flow and long-term financial projections.
There are many variations on the concept of a five-step risk management plan. One that works well for discussing school finance is presented by Craig Rowe: 1) Identify Risks 2) Measure Risks 3) Examine Solutions 4) Implement a Solution 5) Monitor Results
Measuring the Impact of COVID-19
Who was prepared for a complete economic shutdown, closing of school buildings and a shift to remote learning? Were you prepared? With the exception of districts in the southeast that are used to dealing with the potentially long-term impact of hurricane destruction, few would have identified the risk of shutting down schools for weeks or months and having to pivot to remote learning. The initial financial impact of the COVID-19 shutdown may have been some increased hardware costs to equip your students for remote learning and then some savings from reduced transportation, overtime and extra duty pay. What about the long-term economic impact of COVID-19 on your district’s various revenue sources? Having a tool that allows you to measure the impact of economic challenges and develop and model potential solutions can help manage risk and ease anxiety for you, your administrative team and school board. To best do this, you need a cash flow.
Components of a Cash Flow
A cash flow needs to be adaptable and constantly monitored and adjusted, even more so in times of uncertainty. The two essential components of a cash flow, in addition to your cash balance, are inflows (revenues) and outflows (expenses). This is probably obvious, but a secondary way to group each component is as a recognized variable and/or a fixed condition. Most of a district’s revenues would fall into the variable category, because while you may have some expectation for timing and amount, they are generally outside of district control, with the state and other localities (county and/or city) controlling those processes. Most of the expenditure side of the cash flow equation would fall into the fixed conditions bucket. Your payroll dates are set as are the majority of those costs as the fiscal year begins. Similarly, your accounts payable runs will be aligned well in advance with the establishment of your school board meeting calendar. Given the current economic uncertainty, more conditions than normal may appear variable, so it is would be worthwhile to explore a number of them in a bit more depth. www.iasbo.org
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Variable Conditions Corporate Personal Property Replacement Taxes (CPPRT) While considered a local source by the Illinois Program Accounting Manual, CPPRT is derived from state corporate income tax collections. As such, it is a revenue source that is directly impacted by larger economic forces. In fact, in the first two years of the Great Recession, we saw school district CPPRT dollars statewide drop by nearly 30 percent. It remains to be seen how long the economic impact of COVID-19 will last, but if you are a high-CPPRT revenue district, you need to model the impact of CPPRT decreases in your cash flow scenarios. Earnings on Investments Interest rates plummeted during the Great Recession, and so did school district interest earnings. The reduction was much more dramatic than that of CPPRT. In fact, for Illinois school districts it was a ten-fold drop from more than $550 million earned state-wide in FY2008 to $50 million in FY2013. In recent years, rates had climbed, and districts were again taking advantage of a good cash flow plan and extending out investment maturities to maximize higher rates until the first rate cuts at the end of 2019. Then with the attempts to bolster the economy against COVID-19, further rate cuts have the Fed funds rate again near zero. Low interest rates are not an excuse to not maintain a cash flow. Regardless of your interest earnings, your cash flow is part of a necessary financial risk management plan. Property Tax Billing One significant difference between the Great Recession and the economic shutdown caused by COVID-19 was the speed at which greater numbers of people were impacted economically. The Great Recession came on much more slowly, and while it did ultimately have impacts on property tax revenues for school districts, it did not ever change the Corporate Personal Property Replacement Taxes CPPRT
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timing of billings at the county level. In 2020, we quickly saw a recognition of the challenges many taxpayers would have making spring/summer tax payments and many counties waived late fees and/or delayed payment dates. In fact, the legislature in its brief special session passed SB685, allowing for delays of up to 120 days for the mailing of tax bills. Property Tax Collections Do you know your typical property tax collection rate? If not, it is time to build yourself a spreadsheet. Even if you haven’t typically had issues with uncollected taxes or prior year appeals and PTAB refunds coming out of current collections, knowing your collection rate and how much it fluctuates will be critical to modeling the potential impact of an extended economic downturn. Depending on your county’s tax remittances, hopefully you can easily build an analysis to split out each distribution into separate tax years and compare the running totals to the extensions to compute running collection rates. Even in good economic times, having this process will be helpful in monitoring how collections are trending at any given point in the fiscal year in relation to past history. Different property types bring up different considerations, so knowing the makeup of your tax base is also critical. Residential taxes are often paid from escrow accounts. Even if a homeowner becomes delinquent on their mortgage payments, the bank is responsible for paying the property taxes. Therefore, you may not see a significant drop in residential collections. Of greater concern may be collections (and in the future, appeals and PTAB filings) from commercial properties. There are many businesses that were unable to make it through the initial COVID-19 shelter in place, let alone the phased reopening. Vacant Interest Earnings
ARTICLE / Going With the Flow storefronts and decreasing occupancy rates in strip malls, traditional malls and big box stores will be impactful on overall collections for districts with concentrations of those types of properties. Longer-term this could result in an increased tax burden on your residential taxpayers. State Categorical Funding While the State of Illinois’ financial condition had improved considerably from the Great Recession and subsequently multiple years of no budget, the state still entered this economic downturn with no rainy day fund to fall back on, unlike what other states have been able to build up in recent years. This continues to put the mandated categorical (MCAT) payments at risk, as they have been perennially over the past decade or more. MCATs have still not returned to the full funding levels that districts received prior to the recession. In fact, in FY2020 Regular Transportation was only funded at 84.3 percent, Special Education Transportation at 82.8 percent and Special Education Private Facility at 79.6 percent. Increased proration of
payments is certainly possible as the State continues to experience budget challenges. Additionally, often the State has addressed its own cash flow challenges on the backs of school districts by delaying the quarterly remittances for these same less-than-fullyfunded programs. Fortunately, with the implementation of Evidence-Based Funding, less funding is distributed through the MCATs, but as we saw during the recession and again during the Rauner administration’s budget stalemates, when the State faces fiscal challenges, there can be significant delays in payment. At the peak of the recession challenges in FY2010, only one of four special education MCATs and two of four transportation MCATs were paid in their proper fiscal year. ISBE had just caught up and made all payments in the proper year in FY2014 when the budget stalemates occurred. At its worst in FY2016, the final June 30 payment for all MCATs was not made until the end of December, nearly six months late.
MCATs Paid in the Appropriation Year MCAT Payment Delay
Special Ed MCAT Payments
Transportation MCAT Payments
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Variable Expenditures While you adopt a budget as your district’s spending plan for the year, there are certain items within it that are quite variable. The weather in a given year will impact your energy usage and overtime costs for snow removal. Insurance claims or a mid-year premium renewal date can impact benefit costs. Fluctuations in energy costs will impact transportation as well as utility spending as well. All of these variable conditions need to be reevaluated; less frequently when economic times are more certain, but more frequently during challenging times like the state is currently experiencing. Fixed Conditions A cash flow needs to account for fixed conditions as well. Questions to consider include: When are your payroll dates and how many days in advance do they need to be funded? Are they all relatively similar in amount or do you have special payrolls when extra duty is paid? What times of year are overtime costs higher? How are summer payrolls for 10-month staff handled? Once these questions are answered and your budget has been adopted, you should have a pretty good plan for how to spread payroll costs throughout the fiscal year. The dates and amounts of debt service will be known and you should be able to lay out an accounts payable disbursement schedule based on your board meeting dates. The most variable part of expenditures will be the timing of expenditures, but if you are able to do some historical analysis, patterns will emerge.
Establishing a Cash Flow Process
Essentially, identifying and understanding the key financial considerations, whether variable or fixed, revenue or expenditure, is an integral stage to assessing risk on your budget and assisting with financial scenarios for gauging possible adverse impacts on your instructional and operational budgets. An analysis should: • Start with the general ledger level to set the foundation. • Integrate both a historical perspective and the current year trend analysis for scenario comparisons. • Include projected year-end position and reporting to support decision making. With each month-end closing process, key financial insights can be identified and understood to provide a truer picture of your actual transactions and revenues versus what was planned for the current budget year period. Essentially, a cash flow is a financial forecast, but it requires a different level of precision and analysis that takes advantage of the treasure trove of financial data districts have from previous years, and combines it with current information, to make timely updates to the budget forecast and better predict what is needed to support the future. Monthly Budgets Cash flow forecasting enables a district to create budgets for each month based on historical trends that incorporate actuals as a percentage of the total to produce a monthly average. It requires analyzing historical trends to uncover correlations between financial and operating data. For example, do revenues and expenditures tend to vary with the level of economic activity (CPI), or are they independent of business cycles? Five years of historic data is ideal to the recognition of anomalous events and patterns with exponential smoothing of trend percentages.
Educational Fund YTD Revenue - Actuals vs. Trend (Budget) - Varience + Favorable/(-Unfavoarble)
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ARTICLE / Going With the Flow Actuals vs. Budgets Monthly cash flow reporting shows the district’s progress in implementing the budget by evaluating the current month’s performance (MTD), the year-to-date budget (YTD) with comparisons of what was budgeted versus what actually occurred. It is also important to compare prior years’ actuals to budget and incorporate what is learned from trend analysis to make adjustments as needed to the remainder of the fiscal year.
Comparative Analysis Monthly cash flow reporting is also an opportunity to implement a best practice of comparing current data against target goals for both MTD and YTD, as well as multi-year evaluations.
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Variance Analysis It is also critical to understand why there may be variances in the actuals versus what was planned in the budget to more accurately measure financial performance and proactively identify potential future budget variances. Then you will be able to better reallocate current year’s funds to address the unexpected or fund priority initiatives. By maintaining control over expenses, you can create year-end estimates and anticipate projected year-end variances from the budget.
Projected Year-End Position By understanding the variances between planned and actual revenue/expenditures, there is an opportunity to adjust or re-forecast targets, objectives or strategies for the current fiscal year.
The Right Tool Makes a Difference
Cash flow surveillance and forecasting requires being able to model and analyze “what if?� scenarios to identify the cause of changes, the impact of the change and what action should be taken. Traditional financial systems geared for school districts often stand in the way. They are great for recording transactions. However, to enable accurate cash flow forecasting requires analysis of current and historical data, something legacy solutions are ill-equipped to handle. Extracting insights from month-end detail can be time consuming, but necessary. Maintaining comprehensive cash flow spreadsheets is a common and practical solution. However, cash flow analysis tools are available that provide online data analysis, automated insights to variances and reporting capabilities. 30 |
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ARTICLE / Going With the Flow
An Essential Part of Risk Management
Like any effective risk management plan, constant surveillance and monitoring for risk are necessary practices for “preparedness� planning. This same due diligence applies to your cash flow process. It may be too early to fully assess the ultimate financial consequences of COVID-19 on your district, as the situation is likely to continue evolving into 2021. Market volatility, restrictions and prolonged school related matters represent the current variable conditions facing every school leader. Establishing and maintaining a comprehensive monthly cash flow is critical for reconciling, monitoring and assessment for risk response. It will drive your essential financial decisions for budget planning and cash flow projections, with directed steps for policies and measures to support your loss-control efforts. Cash flow is a vital part of your district’s risk management plan!
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Operational Funding Solutions in the COVID-19 Era
COVID-19 has created significant obstacles for school districts this year. Finding ways to deliver quality education services and needed nutritional assistance while sheltering at home has occupied a significant amount of school administrators’ time, energy and efforts. While these necessities have been at the forefront of district needs, lurking in the shadows have been concerns about how COVID-19 will impact districts financially. It is a given that the State of Illinois’ financial resources are being negatively impacted. While the full extent of the impact is not yet known; one has to be concerned about how that might funnel down to local school districts. There are concerns about local revenues as well. Will property tax bills go out on time? Will there be an increase in late or unpaid property taxes due to the losses in employment and the number of business facing financial
stress? How will declines in sales tax collections impact CPPRT dollars and/or School Facility Sales Tax revenues? To add to the concerns about revenues, think about the potential increase in operating expenses to provide remote learning and the potential added costs to return to some form of classroom instruction that meets new and ever-changing guidelines. With this in mind, one can only imagine the negative impact on the sleep patterns of school business officials! While no one has the answers to these questions, many administrators are beginning to think about contingency plans to replace revenues that may be delayed or reduced. There are various sources that might be available to your district to assist with the possibility of a cash flow need in one or more of your district’s funds during the next school year.
Internal Solutions to Funding Challenges
Before looking outside the district, we should first look internally to see what we might be able to do with our existing resources to solve a cash flow need. We will examine three possible resources: 1. Interfund Loans 2. Interfund Transfers 3. Working Cash Fund Interfund loans are temporary loans made from one fund that might have a surplus of cash to another fund that might have a cash shortfall. See the table below for which funds may make and receive such loans. Interfund loans must be repaid within three years, but they can provide a bridge during a time of need for temporary cash flow such as delayed revenue collections. However, they do not provide a permanent fix to a recurrent or structural deficit. Loan from
Loan to
Education
Operations and Maintenace, Transportation or Life/Safety
Operations and Maintenance
Education, Transportation or Life/Safety
Transportation
Education, Operations and Maintenance or Life/Safety
Working Cash
Any Fund in Need
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By Anne Noble
ARTICLE
MANAGING DIRECTOR STIFEL, NICOLAUS & COMPANY
Unlike interfund loans that must be repaid within three years, interfund transfers are permanent transfers between funds that do not need to be repaid. The table below illustrates which funds can make or receive such transfers: Transfer from
Transfer to
Education Fund
Operations and Maintenace or Transportation
Operations and Maintenance
Education or Transportation
Transportation
Education or Operations and Maintenance
Tort Immunity
Operations and Maintenance
Working Cash
Any Fund in Need
Such transfers must be made by a board resolution. Prior to approving a resolution of transfer, the board must conduct a public hearing. The hearing must be noticed by publication in a newspaper of general circulation at least seven and not more than 30 days prior to the hearing and be posted at least 48 hours in advance. Currently, the transfer law is due to sunset on June 30, 2020. After that time, such transfers would be limited to only, one-time, non-recurring expenditures. However, SB 1569 which was passed this May would extend that sunset date to June 30, 2021. SB 1569 is still awaiting the governor’s signature as of this writing.
Short-Term Borrowing Solutions to Funding Needs
Ok, so maybe your internal resources are not sufficient to meet cashflow needs, what external resources might be available to help fund operations during this time? Let’s review tax anticipation warrants and lines of credit next. First let’s take a closer look at anticipating taxes. Tax anticipation warrants and lines of credit are ways of borrowing against taxes that have been levied but not yet collected. In general, a district can anticipate up to 85 percent of uncollected taxes levied, or extended, less: 1. The current balance in its working cash fund 2. The amounts of any outstanding loans from the working cash fund 3. The amounts of any outstanding tax anticipation notes/warrants or lines of credit See the example calculation below: Tax Anticipation Warrant/Line of Credit Example Amount of Ed Fund taxes extended
$ 30,000,000
Times 85%
0.85 $ 25,500,000
Less Ed Fund taxes colleted to date
$ (750,000)
Less outstanding TAWs
$ –
Less balance in the Working Cash Fund
$ (500,000)
Less Working Cash Fund loans to the Ed Fund
$ –
Maximum amount of TAW/LOC
$ 24,250,000 www.iasbo.org
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Tax anticipation warrants are borrowed in full upfront with interest accrued through the repayment date. They are repaid from the pledged property taxes when received or on a fixed repayment date. If a fixed repayment date is used, such date should not be materially later than the date by which the district expects to have received the anticipated taxes. What is the difference between a tax anticipation warrant and a line of credit? Under Section 17-7 of the School Code, a line of credit may be issued in lieu of a tax anticipation warrant. The main difference is that the interest on a line of credit does not begin to accrue until such time as funds are drawn against the line. Likewise, the interest ceases when the line is repaid. Lines of credit do not have a fixed maturity date and must be repaid within 60 days of when the taxes are collected. Lines of credit may only be issued by financial institutions. Some financial institutions will charge a fee to keep the line of credit open even if nothing is drawn or on the undrawn amount. Tax anticipation warrants and lines of credit can provide short-term solutions to temporary cash flow needs. They do not provide any “new” revenue for the district but merely advance yet to be received revenue into the present. It is strongly advised that school business officials consult a financial professional, and/or legal counsel, when securing a tax anticipation warrant or a line of credit to make sure state law is followed. Remember that banks do not have the need to follow the same legal requirements imposed on school districts.
Long-Term Borrowing Solutions to Funding Needs
What if your funding need is not just a cash flow issue but a longer-term structural imbalance or perhaps a deficit that has been accumulated over a period of time? Longer-term solutions might include new revenues brought into the district through the issuance of bonds. The most common sources of bond funding for operational deficits include working cash fund bonds and funding bonds. Bonds are retired from a separate bond and interest tax levy. They 34 |
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do not leverage existing, yet-to-be received revenues, but provide new revenues in the form of property tax levies that fund their repayment. Working cash fund bonds are subject to certain restrictions as to the amount of bonds that can be issued and the tax levy for their repayment. For districts subject to PTELL, any working cash fund bonds issued without a referendum must fit within the district’s available Debt Service Extension Base (DSEB). The discussion of DSEB is beyond the scope of this article but questions regarding it can be addressed by your underwriter, bond counsel or financial advisor. State statutes limit the amount of money that is allowed to be in a district’s working cash fund. That limit is 85 percent of its maximum Education Fund tax collection, plus 85 percent of its CPPRT and 85 percent of its evidence-based funding. From this maximum working cash fund balance, is subtracted the greater of the current working cash fund balance or the amount of any outstanding working cash fund bonds to determine the maximum size of any new working cash fund bond issue. In the example calculation to the right, $12,692,762 is the maximum amount of working cash fund bonds the district could issue. While working cash fund bonds certainly should not be considered a long-term financing strategy, they can provide a short-term answer to funding an accumulated deficit and/ or providing additional revenues during what is anticipated to be a period of temporary revenue decline. Working cash fund bonds are subject to a petition period during which 10 percent of the registered voters may sign a petition requesting the issuance of the bonds be placed on the ballot. They are also subject to a public hearing with posting and publication requirements. Funding bonds provide another bonding alternative to bring added revenues into a district and are typically only pursued if a district has no working cash borrowing capacity available. Funding bonds are issued to pay claims or obligations of the district. Examples of such claims might be technology or equipment leases, or alternate revenue
ARTICLE / Borrowing Options
Anytown Community Unit School District #000 Maximum Working Cash Fund Borrowing Calculation* 2019 Equalized Assessed Value
$ 615,544,010
Max Education Fund Rate
$ 2.75 $ 16,927,460
x85%
$ 14,388,341
Lesser of Replacement Taxes Recieved this Year or Estimated for the Following Year
$ 1,361,996
PLUS
x85%
$ 1,157,697
=
$ 15,546,038
Evidence Based Funding Fromula (Section 18–8.15)
$ 6,349,087
x85%
$ 5,396,724
=
$ 20,942,762
PLUS
LESS (the Greater of WC Funds or WC Bonds Outstanding)
Amount Presently Credited to the Working Cash Fund
$ 1,657,414
=Maximum W/C Borrowing Amount
$19,285,348
OR
Less Current Outstanding W/C Bonds Max Available with Current W/C Bonds outstanding
$8,250,000
$12,692,762
*Calculations per Illinois State statute
bonds issued to fund operations. Funding bonds are subject to the same petition period and public hearing requirements as working cash fund bonds. Their repayment is also limited by the available DSEB of districts subject to PTELL.
Plan Early to Ensure the Best Alternative is Available
There are a variety of funding alternatives available to assist districts with the financial challenges that may become more common in the coming year as the impact of COVID-19 becomes clearer. Each alternative has its own advantages and disadvantages. Understanding the nature of the challenges facing the district and the alternatives available are essential parts of developing a set of plans to respond to those challenges. Planning early on will help assure that the best plan is available if and when it becomes needed. Likewise, it is wise to have discussions with your financial professionals early on to assist you in developing a plan that will work best for your district based on the nature of the challenge and which alternatives may be the best fit for your situation.
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ARTICLE
By Mark Bockelmann
SR. RELATIONSHIP MANAGER BMO HARRIS BANK N.A.
Jim Grammas
DIRECTOR GOVERNMENT TEAM BMO HARRIS BANK N.A.
Payments fraud has always been prevalent, but fraudsters tend to increase their activity in times of uncertainty and change — and school districts are not immune. According to the Association for Financial Professionals, more than 80 percent of financial professionals reported their organizations were targets of payments fraud in 2019 and that has only increased in 2020. While organizations have never been more aware of increasing threats, the tactics fraudsters use continually evolve and are more sophisticated than ever. The pace at which we all operate and the continued demand on payment staffs leaves many organizations exposed, especially in the context of the COVID-19 pandemic. As a result, fraudsters are more successful each year. In addition to external fraud threats, school districts must remain vigilant against internal fraud. While technology and internal controls are critical components of a risk mitigation strategy, it is equally important that your district fosters a culture and environment that keeps fraud at bay.
UNDERSTANDING FRAUD
It is essential to understand the types of payment fraud your district may be exposed to. The following are some of the most common. Check Fraud Despite a steady decline in the use of checks, they remain the most popular payment method for transactions between businesses in the U.S. That is why while check fraud is declining, it remains the most prevalent type of payment fraud. Checks are more vulnerable to fraud as they contain critical information (account number, routing number, signature, address). Check fraud can include the following: Check theft. o Stolen canceled checks – Banking information from stolen canceled checks is used to order checks from a mail order check printer; blank checks can then be written on the new stock. o Stolen check stock – blank check stock already encoded with customer account information is stolen.
Check alteration. An unauthorized change made to one or more of the completed details of an originally authorized item (date, payee, amount, MICR line). Check washing is a method used to alter checks. Counterfeit checks. Checks produced without authorization from the account owner that may or may not resemble the valid check. ACH Fraud As organizations shift from checks to electronic payment methods, ACH fraud has been on the rise. ACH payment fraud can be executed in one of two ways: ACH debit fraud. The most common type of ACH fraud in which a fraudster initiates an ACH debit against your district’s account. The fraudster only needs two pieces of information, your bank routing number and bank account number. ACH credit fraud. A fraudster gets your district to initiate an ACH payment to their account. Often, a fraudster imitates an existing vendor and advises you of a change in their banking information (typically via email, fax or phone). In other cases, a fraudster hacks an employee human resources profile and updates the direct deposit bank account information to redirect funds. Wire Fraud According to the 2020 AFP survey, wire fraud remains the second most common payment method targeted for fraud. Fraudsters that compromise an organization’s email may use the information they find, such as banking credentials, to access its banking systems. Corporate Credit Cards This is commonly perpetrated via phishing and business email compromise schemes. It often occurs through bigger data breaches when card data is made available to unauthorized users. Fraudsters will often use this data to create counterfeit cards for use in card-not-present transactions (such as online or phone orders). The AFP survey cites a few other examples of credit card fraud, such as employee abuse, cash advances on purchasing cards and cards used for personal purchases.
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Business Email Compromise (BEC) While the source of the fraud may vary by payment type, business email compromise (BEC) represents the largest source of attacks. In 2019, 61 percent of organizations reported exposure to BEC attacks. While BEC fraudsters continue to improve their schemes to request seemingly legitimate payments at the financial and reputation expense of their victims, they usually involve common elements. Email impersonators. Fraudsters attempt to mimic members of your team or vendors you have a relationship with. Impersonators often assume the identity of someone with authority, such as the school business official or superintendent, to direct staff to act urgently and without question. They can also pose as a vendor and request a low-profile administrative task to update routing and account information. Lookalike email addresses. BEC fraud attempts often use email addresses that closely resemble a legitimate address. For example, they may use “cornpany.com” as a lookalike domain for “company.com”. Review every email address carefully to ensure the message is actually coming from within your district or a known vendor. In some cases, fraudsters can mask an email address to make it appear like the message is coming from within your organization. However, by hovering over the email address or hitting reply, the actual email address appears. When replying to emails, it is a best practice to delete the information in the “To” field and manually enter the contact information you have on record.
BEST PRACTICES IN FRAUD PREVENTION
In addition to being vigilant, here are a few best practices your district can follow to minimize the likelihood of fraud. 1. Review and enforce internal controls for authorizing payments, as well as changing vendor and employee payment information. This includes: Enforcing dual payment authority. Implement and enforce dual controls, which require two authorized district individuals to approve a payment before processing. 38 |
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Daily reconciliation of accounts. Best for every type of fraud, this will help you spot irregularities and suspicious items. The sooner you identify potential fraud, the better your chances of recovering the funds. Segregation of duties. As a key component of proper controls and minimizing fraud, district employees who approve vendor information should be different from those who process the payment. Customizing payment requests. Create payment templates for regular district vendors that can only be accessed by a single authorized requestor and approver. Also, any changes to banking information should require two people to authorize the change. Dual authentication and alerts. Set up dual authentication for login and utilize alerts to monitor online banking activity. Enforcing a callback process. It is important for your staff to know that leadership is available to confirm all payments requested. Speak with your vendors and set up a process that all changes need to be confirmed via face-to-face virtual meetings (ideally) or phone, and that you initiate the call to the number you have on file. 2. Educate your payment staff on payment fraud trends and ensure all district employees are following policies to protect data and minimize cybersecurity breaches with the following techniques: Limit exploitable information. Do not set up outof-office automated email replies and be aware of information shared on social media outlets. Fraudsters can exploit this information through social engineering. Consider the source. Do not click on links or open attachments from suspicious sources. It may be best to consider all unknown sources suspicious. Slow down. Fraudsters often count on their targets to move quickly. Stop to think about the request. Does it make sense, or does it seem unusual?
ARTICLE / Preventing Article Name Fraud
3. Manage internal threats. In addition to implementing and enforcing internal controls, it is critical to create a fraudprevention culture within your district. Make sure your employees feel valued and connected. Communicate regularly with employees. Reiterate their value and the critical role they play in the district’s vision. Educate employees on how to respond. Has your district established a protocol to report suspicious activity? Are employees trained on what steps to take if things do not seem right? Nurture a climate of trust. Employees must trust that if they raise a concern, proper action will be taken to investigate their claims. Employees cannot fear for their jobs if they raise a red flag. 4. Leverage your bank’s recommended solutions for authentication and fraud-mitigation. Positive pay. This tool lets your district monitor and control the checks that are presented against your account so that only authorized items are paid. Payee name verification. This solution helps you identify potentially fraudulent checks where the payee name has been changed. If a check presented for payment does not match the issue information, it will result in an exception. The district can either elect to accept or reject the payment upon review of the exception. Check debit block. This service prevents check debits from positing against your district account. ACH fraud prevention. This tool enables your district to specify which vendors can post ACH debits to your accounts while blocking others that are not authorized. The district can also establish limits on the amount of money that can be debited. If your district does not allow vendors to debit payments from its accounts, you can place a full block on all ACH debits.
A COMPREHENSIVE STRATEGY
There is no single action a district can take to prevent fraud. Given the financial and reputational damage at stake, it is imperative to establish a comprehensive fraud-mitigation strategy, if your district has not already. Doing so will reduce the likelihood of an event, as well as minimize the damage should one occur.
Note: The opinions, estimates and projections, if any, contained in this article are those of the authors. BMO Harris Bank endeavors to ensure that the contents have been compiled or derived from sources that it believes to be reliable and which it believes contain information and opinions which are
accurate and complete. However, the authors and BMO Harris Bank take no responsibility for any errors or omissions and accepts no liability whatsoever for any loss (whether direct or consequential) arising from any use of or reliance on this article or its contents. This article is for informational purposes only.
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The Race for a Cure Coronavirus Vaccine and Market Medicine At the same time that the world races to develop a vaccine for the virus responsible for COVID-19, the Federal Reserve, Treasury, Congress and the White House have pumped the U.S. full of medicine to protect households and businesses and avoid a financial crisis. When financial markets nearly came to a halt in mid-March, as investors and the world realized that the global response to the coronavirus pandemic would lead to tremendous strains on businesses and consumers, governments around the world responded with a heavy dose of aggressive actions to relieve some of the pain. For investors, this medicine has worked well as stock and bond prices rose quickly in April and May and credit market functioning improved. As governments are addressing financial hardships, doctors and scientists are searching for a COVID-19 vaccine and treatments. More than 120 drug and vaccine research programs aimed at the coronavirus are under way according to the Wall Street Journal. Progress on vaccine testing has grabbed headlines in recent months as several potential coronavirus vaccines have entered human testing. The U.S. government funded a large study this summer and supported the expansion of manufacturing capacity to make at least 300 million doses. With respect to potential treatments, a study published in the New England Journal of Medicine revealed that Gilead’s antiviral drug Remdesivir showed some early signs of promise in treating coronavirus patients. White House health advisor Dr. Anthony Fauci said the data was “highly significant” and showed “quite good news.” Developments regarding a possible vaccine also supported improving market trends in April and May. Markets were also buoyed by signs that social distancing and other initiatives aimed at containing the virus had succeeded in flattening the curve in the U.S. and much of Europe. 40 |
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Daily Change in Globally Confirmed Covid-19 Cases 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1-Feb
1-Mar Daily Change
1-Apr
1-May
7-day Average
However, spiking cases in May in countries such as Brazil and India were bending the curve back up globally. The reopening of nearly every U.S. state, to varying degrees, provided further support to markets in May. Related to these easing restrictions, some high frequency economic data such as unemployment claims, restaurant bookings and mortgage applications have spurred optimism. First quarter corporate earnings season also provided good news for industries such as technology and pharmaceuticals. While markets seem focused on these positive developments, a steady stream of deeply troubling economic news continues. Most significantly, more than 40 million Americans have lost their jobs as “non-essential” businesses were closed. Despite this moniker, we know that every job is essential to provide families with food and other necessities. The unprecedented speed and breadth of the job losses has already resulted in late mortgage, credit card and other loan payments. Consumer spending dropped by a record amount in April despite a 10.5 percent monthly increase in income driven by government stimulus.
By Brian Hextell
ARTICLE
Business Impact
Businesses are also struggling to survive and every industry has been impacted. With revenues down, large, investment grade companies have been issuing debt at record levels to boost cash reserves. New debt issued by investment grade corporations surged to over $200 billion each month in March through May to support liquidity. Companies have also been drawing on bank lines of credit, but many businesses are falling behind on loan payments such as commercial mortgages. The most directly impacted industries such as airlines, cruise companies and hotels have received support from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) as well as Federal Reserve initiatives. Small businesses and service industry companies may have suffered the deepest wounds and are now scrambling for cash to pay their bills. The CARES Act and a subsequent stimulus package provided $660 billion to support small businesses through the Paycheck Protection Program (PPP). Despite the immense relief already delivered, Congress is considering additional rescue efforts as it becomes apparent that support will be needed over a longer period of time. Any new aid packages have become more politically contentious as states and local governments are seeking aid to help manage higher costs and lower and delayed revenues.
Economic Impact
The economic impact of the coronavirus can be summarized by U.S. Gross Domestic Product (GDP). Though the U.S. responses to the pandemic only started in the final weeks of the first quarter, first quarter GDP shrank 5.0 percent. Personal consumption, the primary driver of U.S. growth, fell at a 6.8 percent rate, the steepest quarterly drop since 1980. The impact to services was higher as growth in this sector fell 9.7 percent, the largest decline since the agency began compiling quarterly statistics in 1947. Second quarter annualized GDP growth was a record low 32.9 percent.
SENIOR VICE PRESIDENT, INSTITUTIONAL PORTFOLIO MANAGER PMA ASSET MANAGEMENT, LLC
The response to the pandemic has been enormous and has helped financial markets recover and grow; it is additionally clear that the economic and human toll has been massive. The result is a giant gap between economic conditions and stock prices, which appear to be pricing in a strong and swift recovery. The S&P 500 posted its biggest monthly gain in April since January 1987. As of July 31, the index has fully recovered from the March sell-off as the S&P 500 was up 1.25 percent year-to-date.
S&P 500 Index 3,500 3,000 2,500 2,000 Jan-20
Feb-20
Mar-20
Apr-20
May-20
Our belief is the stock rally is not driven by fundamentals, but rather by inflated optimism created by government support.
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Looking Forward
We remain skeptical that the economy will be able to rebound as quickly as market valuations suggest. One concern is that reopening the economy too soon might lead to another wave of infections. This could result in a startstop cycle and a future drop in stock prices. We also worry that behavioral changes may result in even lower growth rates than the modest levels we have experienced since the Great Recession. Consumers, businesses and regulators could all make changes and we have many questions about the repercussions: • How long will fears over the coronavirus or other diseases slow travel? • Will employees in certain sectors demand higher pay, thereby reducing corporate profits? • How might profit margins be impacted by potential changes to global supply chains? • Will companies pay down debt with revenues or raising equity, or maintain higher leverage? • What impact will higher government debt and growing central bank balance sheets have on markets? • Will regulators impose new rules on the healthcare or financial sectors?
To us, all of the market medicine is hiding the symptoms. No doubt, both the body and the markets need medicine from time to time and we hope that scientists will find a safe and effective vaccine for the coronavirus very soon. We also recognize that medicine can suppress or even hide the symptoms. The Federal Reserve and central banks globally have been pumping liquidity into the financial system since the Financial Crisis of 2008-2009. This has distorted markets and made it more difficult to determine appropriate security prices. Based on the economic and virus-related risks we see, we expect market volatility to remain elevated in the months ahead. Our recommendation to investors is to remain high quality and to focus on research and security selection as we navigate these uncertain times.
Based on the economic and virus-related risks we see, we expect market volatility to remain elevated in the months ahead. Sources: Bloomberg, FactSet, Wall Street Journal, www.nbcnews.com, www.bea.gov, www.sifma.org This document was prepared by PMA Asset Management, LLC, an SEC registered investment advisor. It is being provided for informational and/or educational purposes only without regard to any particular user’s investment objectives, financial situation or means. The content of this document is not to be construed as a recommendation, solicitation or offer to buy or sell any security, financial product or instrument, or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation, or trading strategy would be illegal. Nor does it constitute any legal, tax, accounting or investment advice of services regarding the suitability or profitability of any security or investment. Although the information contained in this document has been obtained from third-party sources believed to be reliable, PMA cannot guarantee the accuracy or completeness of such information. It is understood that PMA is not responsible for any errors or omissions in the content in this document and the information is being provided to you on an “as is” basis without warranties or representations of any kind. ©2020 PMA Asset Management, LLC
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RESOURCES A Better Approach to Balance I always feel I am the happiest and produce the best work when I have just a slight overabundance on my schedule. I like to be busy, to have lots of ongoing projects and to make detailed plans whether it is in my personal or professional life. Well, at least I thought that was true until about five years ago when I was recently married, decided it was time to switch careers, go back to school and start a family. My path to becoming a CSBO proved to be a whole new set of challenges along with a wide range of new roles in my personal life. For the first time, I actually started to feel overwhelmed. I found myself in a place of self-doubt and anxiety that there were not enough hours in the day to be successful in my career, as a student, a wife or a mother. A friend suggested I read Balance is B.S. by Tamara Loehr. I was hesitant at best and it took her finally giving me the book and weeks
of persistent questions as to whether or not I had read it yet before I actually picked it up.
Blending Work & Personal Life
Tamara Loehr offers a unique perspective in that she is a well-todo entrepreneur, wellness expert, life coach, wife and mother, but do not let that scare you off. While her perspective is singular and her anecdotes can come across as a little too ultra-positive, even for my taste, the message of the book is well worth your time. Her focus is on getting people to look at blending work life and personal life instead of trying to find balance. The idea is to stop juggling and find a better way through combining aspects of both so that you are not constantly choosing between two or more aspects of your life. She insists that we should “categorize not compartmentalize.” Is the book directed towards women? Yes, yes it is. Should that scare you off? Absolutely not. The author breaks her book down into three sections with multiple chapters in each. She also provides some thoughtful life coaching exercises.
On Their List Book reviews from your peers on relevant career topics Jacquelyn Bogan Interim Director of Business Services LaGrange Area Dept. of Spc.Ed. Before becoming a CSBO, Jackie worked in the hospitality industry, giving her a great deal of experience in finance, budgeting, operations and HR, and above all building relationships. She carries the values from her hospitality career into her approach to projects, and more importantly the people she serves at the LADSE office in her career today. • Part I: Balance is BS • Part II: A Workbook for Rising Women • Part III: Self Some important ideas in the book include the importance of understanding and defining your values, making choices that are aligned with those values and ways to create your own work life blend. If you can get past some asthetics and writing style in this book, it offers valid concepts to consider implementing in your own day to day.
“Know your value, define your values and navigate your life according to your values, not your plan.” www.iasbo.org
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STAYING
ON MISSION & ON BUDGET
In the midst of the COVID-19 pandemic, the consulting firm Deloitte published The Heart of Resilient Leadership. In it, they define five characteristics of successful leaders in leading through times of crisis.
1
PUTTING THE MISSION FIRST
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AIMING FOR SPEED OVER ELEGANCE
DESIGNING FROM THE HEART AND THE HEAD
By Tony Sanders
ARTICLE
4
SUPERINTENDENT/CEO SCHOOL DISTRICT U-46
OWNING THE NARRATIVE
5 As we expect budget challenges in the coming years, there is no better time to review your spending plan with an eye towards ensuring your budget and your mission are aligned. Being the financial leaders in our districts, the five characteristics noted by Deloitte can help us as we strive to both stay on mission and on budget.
Put Mission, Vision and Values First
It is not just the mission that must be considered as we try to stay on budget. I believe it is the organization’s mission, vision and values that we must consider. In the wake of the disparate impacts of COVID-19 on communities of color, and after the tragic killing of George Floyd, I held a Zoom meeting open to all administrators in U-46. I shared with the team that we must work differently to ensure we are truly meeting the needs of all kids. I then simply listened and I stayed on the meeting until everyone had an opportunity to be heard. Dr. Gregory Baker, one of our Associate Principals in U-46, stayed until the very end of the Zoom meeting. He eloquently reminded me that others can tell what we value by where we spend our time and our resources. He said if we truly believed, for example, that we should recruit and
EMBRACING THE LONG VIEW
retain a workforce that reflects the diversity of our district… then where in either the budget, or in my calendar, could I demonstrate that value? While I know our district’s spending plan aligns to our organizational values, and our board of education’s vision and mission, I had to reflect and recognize that we have work to do. As we near the impending economic downturn as a state and nation, now is the time to be reflecting on how well your budget truly aligns to you district’s mission, vision and values.
Design from the Heart and the Head
Remember that budget plans are not just about numbers, they are about people. Everything that we adjust in a budget affects some person within the organization – our employees, our employees’ benefits, the programs provided to our students and the resources we provide to our community. I am not suggesting that we do not make difficult decisions that we know will impact people; rather, that we consider how we demonstrate empathy and compassion for those affected by our decisions.
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Involving others in the planning is a good method of soliciting feedback and allows for added voices to ensure hard, rational financial projections are crafted and communicated in an empathetic manner.
Aim for Speed Over Elegance
When facing a pandemic, historic unemployment and rapidly dropping revenues, we must sometimes be forced to aim for speed over elegance. On March 13, upon Governor Pritzker’s order to close schools effective March 17, we began to triage. We made emergency purchases of personal protective equipment. We ordered technology to support remote learning. We adjusted to a rapid drop in income from investments for our districts. Our reality is that speed is more important than elegance in times of crisis. We must make the best decision based on the information we have at that moment. However, be cautious in making decisions quickly that actually require more elegance. For example, accepting offers for “free” remote learning resources that vendors offer for an introductory period may solve a very short-term need, but will become an added budgetary drain quickly when the introductory period ends.
Own the Narrative
Your board, your administrative team, your teachers and your community needs to understand your budget. Your budget is more than just numbers. Your spending plan is a policy document that demonstrates how your board of education is investing resources and providing a good return on those investments. 1) Communicate Early – Especially in times of crisis, communicating early is essential. Your community needs to know you are thinking through pending fiscal challenges thoughtfully and expediently.
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2) Communicate Frequently – The board of education certainly needs to be regularly updated on the budget; however, so do employees, parents and community members. One strategy I have used is writing a weekly message for all staff and community in which I regularly communicate any challenges we are facing as an organization, including budgetary challenges. 3) Know Your Audience – Your board will have a depth of understanding regarding school finance, the tax levy and so forth. Community members may not. As you communicate your budget messages, including your annual budget book, keep in mind all audiences.
Embrace the Long View
We are in unprecedented times. When the work of school districts across our nation shifted rapidly in March 2020, we were sprinting to react. We cannot sustain a sprint. In these months following, we must take the long view, a marathon approach. How will we work together – boards, superintendents, chief school business officials, teachers, support staff – to develop new models for public education in our districts? What did we learn in our sprint to remote learning that should be replicated and fostered? What are the equity investments we need to make to ensure that we appropriately serve all our students? As leaders in our districts, embracing the long view also means we must collaborate, share our best practices and push each other’s thinking, so that collectively we are serving all students at the highest level.
THE FINAL WORD SPEAKING UP ON CASH MANAGEMENT MARY KAY PAWLAK Comptroller, CSBO, SFO Twp. High Sch. Dist. 214
My Role in Cash Management
As a comptroller, I am responsible for investing district funds, preparing and maintaining cash flow projections, completing monthly bank reconciliations and overseeing the collection of revenues and payment of expenditures. In addition, I direct and supervise the treasury services our district provides to members of the Wheeling Township Schools Intergovernmental Agreement.
The Biggest Cash Challenge for Districts
The COVID-19 pandemic has been the biggest challenge facing school districts as it relates to cash management. School districts have had increased expenditures in some areas: purchase of personal protective equipment, alternative graduation ceremonies and technology upgrades for remote learning and working. At the same time, districts have experienced decreased expenditures for utilities, transportation and supplies. In addition, revenue has been impacted by delayed due dates for real estate tax payments, fee waivers and near zero perfect interest rates on investments all of which affect budgets and cash flow.
Looking at the Next Five Years‌
One of my primary roles is the investment of funds for the district and treasury members. The current economic climate makes investing a challenge. With the uncertain future, I will be looking for short-term investment opportunities and monitoring future interest rate predictions. Cash flow projections will need to be continually monitored and adjusted.
One Thing Districts Can Do Now
Prepare a cash flow forecast that adjusts and potentially re-adjusts the timing of property tax revenue receipts. Counties are allowing payment extensions and districts need to ensure cash is available for payment of payroll and expenditures. This cash flow forecast will allow SBOs to determine if shortterm borrowing is necessary to cover expenditures and maximize the potential for investment capacity.
for Being an Indispensable Resource Illinois ASBO would like to thank each and every member who has contributed their knowledge, resources and questions to benefit fellow members during this unprecedented COVID-19 crisis. Since March, more than 25 timely webinars have been presented, along with the countless resources and insights shared by Illinois ASBO members in the peer2peer community.
A special thank you to the Illinois ASBO Board of Directors, under the leadership of Past President Dean Romano, Ed.D., who gathered as a task force this summer to deliver thought leadership through the COVID-19 Conversations webinar series!
To access the latest online learning, conversations and resources visit www.iasbo.org/COVID19