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Focus on Cash Flow Forecasting
School district funds should be invested to meet cash flow needs. However, in a declining rate environment it is extremely important to invest as far out as is reasonable to hold on to the prevailing rates while meeting the cash needs of the district.

Sometimes it is hard to invest at a rate that could be comparable or lower than what an investment pool is paying at that time. But when rates are falling, the fixed rate investment could be quite attractive after that time period has been reached and the prevailing rates are substantially lower than they were at the time of the initial investment. For example, several years ago interest rates fell to 3 percent and stayed there for two years! Those who elected to keep all of their funds in an investment pool or stay short with fixed rate maturities were stuck with low rates of return for some time.

The length of investment of funds depends upon the amount of excess funds a school district has historically had access to. If a school district has had a fund balance of $4 million for 3 or 4 years, then it would be prudent to take some of that excess and invest in 13 month, 16 month, 18 month, and 22-24 month securities. By laddering out the investments, funds would be coming in during regular intervals as well as providing a good interest income for the district. The amount to be invested would depend upon the amount of excess funds available.

Conservatism is of utmost importance when investing a school district’s funds. However, a school finance director should put together a cash flow projection and invest accordingly!


This article is reprinted with the permission of:
AJ Capital Corporation
24915 Baywick
Spring, Texas 77389
(281)351-5334