For California school districts, the major cash “in-flow” is from state revenue limit sources, which are comprised of state aid and local property taxes. The major cash “out-flow” is for compensation, including salary and benefits. Payrolls for most districts start in July and increase significantly in September when teachers return to school. As a result, fluctuations in cash flow occur in November, December, March and April, due to the unequal distribution of property taxes throughout the fiscal year.

Low cash periods can be managed through cash-flow analysis and utilizing alternative cash resources. School districts in California have traditionally managed low or negative cash periods through short-term financing, such as issuing Tax Revenue Anticipation Notes (TRAN) or, where feasible, internal borrowing from other funds. The issuance of a TRAN used to be the preferred alternative because the districts can borrow at tax exempt rates and invest the proceeds in taxable investment instruments. In economically favorable conditions, this “spread” between the tax exempt cost to borrow and the return on investment from taxable securities results in net revenue to the district. However, in our current climate of extremely low interest rates, interest earnings on the TRAN barely cover the cost of issuance. Nonetheless, due to the increasing number of apportionment deferrals the state has imposed on the district along with the bulk of property taxes coming in December and April each year, we need to issue a TRAN to cover low periods of cash throughout the year.

 

The Santa Barbara Unified School District will participate in the California Education Notes Program along with many other school districts in California to issue the fiscal year 2013-14 TRAN.