Plan now for cash flow relief with CSBA Cash Reserve Program
Published: July 10, 2012
With cash flow a critical issue for California schools, solutions like the California Cash Reserve Program are essential resources for governance teams.
The program is a service provided by CSBA and Piper Jaffray & Co. The program issues tax and revenue anticipation notes, or TRANs, to help school districts supplement their general fund cash reserves and cushion their cash flow when regular apportionments are delayed or deferred.
Many districts are finding themselves short of cash since schools have had to cope with cross-year deferrals that will total from $8 billion to $10 billion through the 2013 budget year, depending on the success of Gov. Jerry Brown’s revenue initiative.
CSBA’s Cash Reserve Program, the largest pool in the state, has issued more than 5,900 TRANs over the past 24 years, with the latest issue in July totaling $802 million for 105 notes, or participants.
Though there are costs to financing the notes, more than two-thirds of participants in this sale of TRAN obtained interest rates of about one-quarter percent, making TRANs a cost-effective short-term financing solution. Participants are grouped based on their credit characteristics to ensure every issuer obtains the lowest possible interest rate.
Financing needs grow; now go beyond fiscal years
It’s significant that the total value of CSBA’s July TRAN issue was higher than in recent years; fewer districts participated, meaning that each participant needed to raise more cash.
“Years ago a pool this size would have three times the participants,” said Vina Guzman, director of CSBA’s District and Financial Services.
But today‘s fiscal realities call for new strategies.
“The years of state budget cuts and apportionment deferrals have made cash management very challenging for many districts,” Guzman said. “Districts whose funding is heavily weighted towards state apportionment versus local property taxes have larger borrowing needs.”
Historically TRANs issued in July were used to cover shortfalls through April when the second installment of property taxes is received. But when the state began deferring apportionments at the end of the fiscal year, CSBA responded by offering a Cross Fiscal Year TRAN to help districts with deficits in the second half and across the end of the fiscal year. Many districts issue the notes in both the Cross Fiscal Year TRAN Program and Fiscal Year TRAN Program.
Districts with negative or qualified budget certifications may still issue a TRAN, although it must be approved by their county office of education and the process is somewhat different. Notes for negative districts are issued separately.
California can have confidence in CSBA’s Cash Reserve Program. The program’s successful track record, ease of use and extensive expertise are some of the factors that distinguish CSBA’s program with Piper Jaffray.
“We assist all districts, regardless of district size or financial strength, and work hard to help districts project their cash flow needs based on the latest information available from Sacramento,” Mark Farrell of Piper Jaffray explained.
Key Dates for TRANs
Traditional TRANs
February - April: Adopt issuance resolution at board meeting
March - April: Provide financial data for TRAN sizing
May: Finalize cash flow projections for TRAN sizing
June: Sell TRAN to investors
July: Deliver TRAN proceeds for general fund cash flow use
Cross Fiscal Year TRANs
November - January: Adopt issuance resolution at board meeting
December: Provide financial data for TRAN sizing
January: Finalize cash flow projections for TRAN sizing
Early February: Sell TRAN to investors
Late February: Deliver TRAN proceeds for general fund cash flow use