Cash Flow Counts A Planning Tool Often Overlooked in a Building Program

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1 Cash Flow Counts A Planning Tool Often Overlooked in a Building Program Lettie Boggs, Colbi Technologies leboggs@colbitech.com Cynthia Martin, Alhambra Unified School District martin_cynthia@ausd.us Steven McGuckin, Capital Program Management stevenm@capitalpm.com Talking Points 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 22 1

2 Budget vs. Cash Flow Budget How Much How much funding do I have How much will it costs Cash Flow - When When will funding be available to spend? When will costs be spent? 34 Cash Flow Basics Availability Funding Need 20 2

3 Cash Flow Basics Cash Flow Funding Budget 20 Cash Flow Basics Cash Flow Examples 3

4 Cash Flow Basics Cash Flow Examples 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 35 4

5 Cash Flow Basics Factors 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 36 Cash Flow Basics Factors 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 37 5

6 Budgeting 101 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. 22 Budgeting 101 The Big Picture MASTER PROGRAM BUDGET PROGRAM BUDGET FUNDING Program-Wide Expenses Program-Wide Expenses Program Escalation Escalation Project Budgets Program Loss Reserve Program Balance Loss Reserve Balance Project A Project B Project C, D, E... A Site Costs B District and Agency Costs C Consultant Costs D Bid Costs E Construction Costs F Construction Support Costs G Furniture & Equipment Costs H Miscellaneous Project Costs I Contingency Costs A Site Costs B District and Agency Costs C Consultant Costs D Bid Costs E Construction Costs F Construction Support Costs G Furniture & Equipment Costs H Miscellaneous Project Costs I Contingency Costs 23 6

7 Budgeting 101 The Big Picture MASTER PROGRAM BUDGET FUNDING Program-Wide Expenses Program Escalation Project Budgets Program Loss Reserve Program Balance Project A A Site Costs B District and Agency Costs C Consultant Costs D Bid Costs E Construction Costs F Construction Support Costs G Furniture & Equipment Costs H Miscellaneous Project Costs I Contingency Costs Project B A Site Costs B District and Agency Costs C Consultant Costs A Site Costs B District and Agency Costs C Consultant Costs D Bid Costs E Construction Costs F Construction Support Costs G Furniture & Equipment Costs H Miscellaneous Project Costs I Contingency Costs D Bid Costs E Construction Costs F Construction Support Costs G Furniture & Equipment Costs H Miscellaneous Project Costs I Contingency Costs Project C, D, E Budgeting 101 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 Click to See Sample Detail List Common Pitfall: A detailed Chart of Accounts is not always used, so many important costs are missed 25 7

8 Budgeting 101 Hard Costs vs. Soft Costs Land Soft Hard A budget has three types of costs: Land Costs (site acquisition) Hard Costs Soft Costs 26 Budgeting 101 Hard Costs vs. Soft Costs 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 27 8

9 Budgeting 101 Common Pitfalls 28 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 scope Budgeting 101 Common Pitfalls 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. 29 9

10 Budgeting 101 Common Pitfalls Budget Big Picture Fail to look at the big picture the entire program financial position (Master Program Budget) 30 Forecasting Costs 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 Project Pacing - # Invoices Single Phase 1 Single Phase 2 Multiple Phase Small Project - Escalate from date of last estimate to mid-point of construction 30 10

11 Forecasting Funding State Funding Forecast or not to Forecast Other guaranteed funding -E-RATE -Prior Bond - Developer Fees -Other Interest earnings - Use County Rate - Be Conservative 30 The Cash Flow Tool Putting It All Together 11

12 Cash Flow Tool Putting It All Together Project Budgets and Expenditures Project Schedules Cash Flow Tool Putting It All Together 12

13 Cash Flow Tool Putting It All Together Cost Allocation Escalation Cash Flow Tool Putting It All Together 13

14 Escalation Cash Flow Tool Putting It All Together Program Escalation Cash Flow Tool Putting It All Together Funding (other than current Bond Measure) 14

15 Cash Flow Tool Putting It All Together Funding Bond Issuance Schedule Determined by property values and ability to issue Cash Flow Tool Putting It All Together Fund Balances (Reconciled) Important to reconcile fund balances to expenditures and funds received as of the Expenditure Through Date 15

16 Cash Flow Tool Scenario 1 Cash Flow Report Cash Flow Report Balanced Program Positive Cash Flow Cash Flow Tool Scenario 1 - Master Program Budget Master Program Budget Balanced Program Positive Cash Flow 16

17 Cash Flow Tool Scenario 1 Project Schedule Cash Flow Tool Scenario 1 Bond Issuance Schedule 17

18 Cash Flow Basics Scenario 1 Cash Flow Cash Flow Tool Scenario 2 Bond Issuance Changes 18

19 Cash Flow Basics Scenario 2 Cash Flow Cash Flow Tool Scenario 2 - Master Program Budget Master Program Budget Negative Program Balance Negative Cash Flow 19

20 Cash Flow Tool Scenario 2 Change Project Schedule Cash Flow Basics Scenario 2 Cash Flow Fixed This Quarter 20

21 Cash Flow Tool Scenario 2 - Master Program Budget Master Program Budget Negative Program Balance Negative Cash Flow Cash Flow Tool Scenario 2 Reduce Future Projects Master Program Budget Need to Reduce Budget For Future Projects To Bring Program Back In Balance Master Program Budget Balanced Program Positive Cash Flow 21

22 Cash Flow Basics Scenario 2 Cash Flow Questions? Thank you for attending. C.A.S.H. 34 th Annual Conference Sacramento, California February 27,

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