cash flow counts

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Cash Flow CountsA Planning Tool Often Overlooked

in a Building Program

Lettie Boggs, Colbi [email protected]

Cynthia Martin, Alhambra Unified School [email protected]

Steven McGuckin, Capital Program [email protected]

● Budget vs. Cash Flow● Cash Flow Basics● Budgeting 101● Forecasting when Costs will be spent

● Forecasting when Funding will be available

● Putting it All Together – Cash Flow Tool

● Scenario Based Cash Flow Analysis

Avoiding Common Pitfalls

Talking Points

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Budget vs. Cash Flow

Budget – How MuchHow much funding do I have

How much will it costs

Cash Flow - WhenWhen will funding be available to spend?

When will costs be spent?

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NeedFunding

Availability

Cash Flow Basics

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BudgetFunding

Cash Flow

Cash Flow Basics

Cash Flow BasicsCash Flow Examples

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Cash Flow BasicsCash Flow Examples

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Cash Flow Basics

Reasons For Cash Flow Analysis• Determine best time to issue Bonds• Aide in prioritizing projects• Identify funding shortfall – need for bridge

financing• Progress Check – analysis of project pacing• Bond spend down plan analysis• Estimate interest earnings• Determine escalation costs

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Cash Flow BasicsFactors That Affect Cash Flow

When funding will be Available• Availability of State Funding

• Ability to pass new GO bonds

• Assessed valuation (AV) of real property in the District – Ability of the District to issue on its existing voter approved bonds

• Interest rate earned on facility fund balances

• Availability and terms of Bridge Financing

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Cash Flow BasicsFactors That Affect Cash Flow

When costs will be spent• Project Schedules

• Escalation (inflation) rates

• Accuracy of Budgets (both Projects and Program)

• Unforeseen conditions and availability of Project/Program reserves to cover them

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According to FCMAT, two reasons (out of 11) why schools fail are related to budgets*

Inadequate Budget Development–Failure to recognize year-to-year trends–Failure to maintain reserves–Flawed multi-year projections

Limited Budget Monitoring–Failure to reconcile ledgers–Poor cash flow analysis and reconciliation–Inadequate business systems and controls–Inattention to County Office of Education data–Failure to review management control reports

*FCMAT’s reasons referred to the general fund, but are applicable to facilities budgets, as well.

Budgeting 101

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Budgeting 101 – The Big PictureMASTER

PROGRAM BUDGET

ProgramLoss ReserveProject

Budgets

ProgramEscalation

Program-Wide Expenses

ProgramBalance

Project C, D, E...Project BProject A

FUNDING

A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support Costs

G Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs




Program Escalation

Program Loss Reserve

Program Balance

MASTER PROGRAM BUDGET

FUNDING

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Budgeting 101 – The Big PictureMASTER

PROGRAM BUDGET

ProgramLoss ReserveProject

Budgets

ProgramEscalation


ProgramBalance

Project C, D, E...Project BProject A

FUNDING





Project Budgets

A Site CostsB District and Agency CostsC Consultant CostsD Bid CostsE Construction CostsF Construction Support CostsG Furniture & Equipment CostsH Miscellaneous Project CostsI Contingency Costs

Project Budget: Approaches

• Begin with need or eligibility & establish the funding estimate

• Or, start with funding and define scope• Then, establish broad estimates for expenditures

through the use of a detailed Chart of Accounts

Common Pitfall: A detailed Chart of Accounts is not always used, so many important costs are missed

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Budgeting 101

Click to See Sample Detail List

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Hard Costs vs. Soft Costs

• A budget has three types of costs:

–Land Costs (site acquisition)–Hard Costs–Soft Costs

Land

Soft

Hard

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Budgeting 101

• What are hard costs?

They are the construction costs, usually 65 - 70% of the non-land funding

– Common Pitfall: This number is easily confused with 65 - 70% of the ENTIRE project funding

– The architect designs to the construction costs, not the entire project cost

• The other 30 - 35% are the soft costs & contingencies

– Common Pitfall: Not everyone budgets enough for soft costs

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Budgeting 101Hard Costs vs. Soft Costs

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Common Pitfalls

Budget Development• Don’t budget enough for soft costs• Don’t set aside a Program level reserve for

catastrophic events• Underestimate the need for project

contingencies• Don’t consider inflation – that projects will be

constructed over a period of time and there’s an associated cost with that time

• Underestimate project scope28

Budgeting 101

Budget Maintenance• Fail to gather information often and fail to

update budgets, so timely course corrections can be made

• Fail to have an accounting system that spans multiple years and multiple projects.

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Common PitfallsBudgeting 101

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Budget Big Picture• Fail to look at the big picture – the entire

program financial position (Master Program Budget)

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Common PitfallsBudgeting 101

• Project Schedule – Planning vs. Construction• Project Type influences timing of costs

- Typical ??? - 20% planning / 80% construction- Long Beach USD

• Major Construction: 8% / 92%• Portable Removal: 16% / 84%• Technology: 0% / 100%

• Escalation- Entire project, or not- Construction only- Escalate from date of last estimate to mid-point of construction

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Forecasting Costs

Single Phase 1

Multiple Phase

Small Project

Single Phase 2

Project Pacing - # Invoices

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• State Funding – Forecast or not to Forecast• Other guaranteed funding

- E-RATE- Prior Bond- Developer Fees- Other

• Interest earnings- Use County Rate- Be Conservative

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Forecasting Funding

The Cash Flow ToolPutting It All Together

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Cash Flow ToolPutting It All Together

Project Budgets and Expenditures


Project Schedules

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Cost Allocation


Escalation

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Escalation

Program Escalation


Funding (other than current Bond Measure)

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Funding – Bond Issuance Schedule

Determined by property values and ability to issue


Fund Balances (Reconciled)

Important to reconcile fund balances to expenditures and funds received as of the “Expenditure Through Date”

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Cash Flow ToolScenario 1 – Cash Flow Report

Cash Flow Report

Balanced Program – Positive Cash Flow

Cash Flow ToolScenario 1 - Master Program Budget

Master Program Budget


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Cash Flow ToolScenario 1 – Project Schedule

Cash Flow ToolScenario 1 – Bond Issuance Schedule

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Cash Flow BasicsScenario 1 – Cash Flow

Cash Flow ToolScenario 2 – Bond Issuance Changes

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Negative Program BalanceNegative Cash Flow

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Cash Flow ToolScenario 2 – Change Project Schedule


Fixed This

Quarter

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Negative Program BalanceNegative Cash Flow

Cash Flow ToolScenario 2 – Reduce Future Projects


Need to Reduce Budget ForFuture Projects To Bring

Program Back In Balance



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Questions?

Thank you for attending.

C.A.S.H.34th Annual ConferenceSacramento, California

February 27, 2013

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cash flow counts

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