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Rogue Valley Council of Governments

Cash Reserve Update

February, 2002

BACKGROUND

On January 26, 2001 RVCOG held a strategic planning / problem solving session with Board members and partners. Principle among the items decided upon was the need to arrive at a solution to the COG's chronic cash flow difficulties.

The final strategy decided upon called for a one-time contribution by member jurisdictions to total $200,000, spread out over a period of up to three years. The amount from each jurisdiction was to be proportional to the annual dues amounts each member jurisdiction pays.

The schedule of contributions was as follows:

Because the decision by the RVCOG Board to proceed with the establishment of a cash reserve was only advisory to members, each jurisdiction was asked to consider the proposal within their individual budget processes for FY 01/02 budget. Information conceming the need for a cash reserve fund for RVCOG was distributed to member jurisdictions in early spring of 2001, and presentations were made to those city councils and county commissioners that requested them. The results were as follows:

• One jurisdiction (Josephine County), citing severe budget constraints, declined t  participate.
• Two jurisdictions (Medford and Grants Pass) elected to provide a 3-year interest-free loan instead of an outright contribution.
• All other jurisdictions did participate as originally proposed.

The result to date is an initial cash reserve of $80,540. Still pending is Jackson County's full contribution of $48,740, which is tied to the adoption of certain RVCOG charter amendments addressing potential member financial liabilities. These charter amendments should be completed and presented for adoption at our February 27 Board meeting.

As one of the conditions of funding the cash reserve, members requested pedodic updates on the effec{ the cash reserve fund was having on RVCOG's cash flow situation, as well as an indication of whether the organization's general financial situation was continuing to improve.

OVERALL FINANCIAL SITUATION

The COG's financial situation continues to improve, reversing a trend during the majority of the decade of the 1990s in which a positive fund equity was gradually turned into deficits in both the general (administration) and special revenue (project) funds. Through policies that oversee budgeting, project design, implementation, and personnel best practices, the COG is now several years into a steady improvement in all aspects of operations.

The change in fund equity, also known as results of operations, was very positive for FY 00101, coming in at $168,128 for the year (adjusted for the distortion of the transfer of the SDSD advance and revenue bond from short term to long term debt). For the first six months of FY 01/02 the figure is $106,344. If the remainder of the fiscal year goes well, the COG will have its third year out of four of positive changes in fund equity.

We have also been successful in reducing our non-current debt recently, from $799,445 as of June 30, 2001, to $723,203 as of December 31, 2002, a reduction of over $76,000. Non-current debt consists of the lease/purchase of our building, as well as an old SDSD advance we are paying back (details below) and our revenue bond (the former line of credit, also explained more fully below).

As one more general indicator of the COG's overall financial health, both the Total (longer term) Assets and the Current (shorter term) Assets have exceeded Total and Current Liabilities for several years, with steadily increasing ratios. As of December 31,2001, Current Assets were at a ratio of $2.78 to $1 of Current Liabilities, and Total Assets were at $1.98 to $1 of Total Liabilities.

CASH FLOW SPECIFICS

One major contributory factor to RVCOG's cash flow problems was the considerable delays in reimbursements for work performed. In FY 00/01 for example, an average of 76% of receivables in a given month were unpaid after 30, 60, 90, and even 120 days, amounting to approximately $250,000 at any given time that the COG had tied up in late state and federal payments. While it was understood that the COG would never be able to totally avoid delays in reimbursements, it was considered reasonable to expect a significant decrease in the amount of receivables in excess of 30 days, thereby also decreasing the total receivables.

By employing a number of strategies, RVCOG has managed to make considerable progress in decreasing the amount of receivables exceeding 30 days. For example, during the first six months of FY 01/02, the present fiscal year, a total of 54% of all receivables were current (under 30 days), as compared to the 24% average during the preceding fiscal year. This average reduction of over 100% in receivables over 30 days has made a difference in the total amount of COG funds that are in receivables at any one time. As of the end of December 2001 for instance, there were only $153,000 in receivables, the majodty of which were current. While receivables could possibly, and often do, vary substantially from month to month, approximately $150,000 in receivables at any one time is a reasonable target for the COG over the long term.

As stated above, COG now has just over $80,000 in its cash reserve, which has already played a crucial role in improving our payables situation. In the past the RVCOG was routinely forced to delay payments to vendors for 60 to 90 days at a time, yet at the same time would more often than not barely make payroll (for example, at the end of FY 00/01, the COG registered $88,234 as "cash in bank" against current liabilities of $746,667). The pattern of late payments resulting from this imbalance created a host of problems for the organization, as well as for the individuals awaiting payment. This has now undergone a dramatic shift. In the first six months of this fiscal year, the COG has not once taken more than 30 days to meet any payable. In fact, as of December 31, 2001, cash in bank was almost $388,000, whereas current liabilities were only $302,500.

The improvement in cash flow is even more noteworthy considering that itis coinciding with the repayment of two large debts - the 15-year old $159,000 Department of Human Services (DHS/SDSD) advance, and the COG's former $200,000 line of credit. The advance from DHS/SDSD was simultaneously called in from all Area Agencies on Aging in Oregon at the beginning of FY 01/02, with full payment due by June, 2003. The line of credit, which out of necessity had been maintained at its maximum of $200,000 during most of FY 00/01, was payed down by $50,000 over the first three months of this fiscal year, and converted to a revenue bond in November. The bond will be repaid over three years at 6.17% interest.

SUMMARY

The financial and operational policies put into place in the last several years have produced the important changes in RVCOG's financial situation that are crucial to the organization being able to continue to provide worthwhile services to its members. The specific strategies devised by the Board to address the issue of cash fiow appear also to have been successful so far, dramatically reducing a number of issues around the COG's chronic lack of cash flow. By the time the full cash reserve is assembled in two years, issues with cash on hand, receivables, and payables will cease to be limiting factors on RVCOG's operations.

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Cash Reserve Graph

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