As the new controller for the city of Cashton, you are concerned about this year’s budget (2015). Specifically, you’re concerned that you may not have enough cash to cover all of your expenses each month (cash flow problems). As a result, you’ve decided to create a monthly cash budget for each of the four major funds of the city. Use the following data to create a monthly cash budget for each fund.
Fund Balance for January 1:
General Fund $6,80,350
Parks General $74,892
Motor Vehicle $1,56,547
Cumulative Capital $9,64,601
Revenue Estimates:All estimates are taken from the budget approved by the City Council last year.
Property Tax: Collections are received by the city on May 1 and November 1. Cashton gives a discount for early payment to encouraged citizens to pay their bill early. As a result, five-eighths of the total levy is received in the first payment. Cashton has experienced a 2% delinquency rate in the past. The total property tax levy for each fund is:
General Fund $28,94,200
Parks General $6,85,300
Cumulate Capital $2,28,400
Parking Meters (general fund): Revenues run about $9,000 per month. In warmer months (May, June, July and August) collections are typically 20% lower due to less people driving. Collections are generally 15% higher in December due to holiday shopping downtown.
Permits (general fund): The county engineering department collects permit fees for Cashton throughout the year and remits them to you at the end of each quarter. The total collections are estimated at $360,000 with 20% coming in Q1 and Q4, 25% in Q2, and 35% in Q3.
Traffic Fines (half to general fund, half to motor vehicle): Estimated at $8,500 per month.
Swimming Pool Admissions (parks general): Estimates are based on prior years.
Parks Concessions (parks general): estimates are based on prior years.
Gasoline Taxes (motor vehicle): The state collects gasoline and excise taxes on vehicles operated within the state and shares those revenues with local governments to help maintain their vehicles and equipment. Payments are remitted to local governments at the end of each quarter. Last year Cashton received a total of $440,000. The state estimates 2015 collections to be roughly 3% higher.
Expenditure Estimates:All estimates are based on currently approved appropriations by the City Council.
Payroll:Paydays are every other Friday. The first payday is January 2nd.
General Fund $93,000 biweekly
Parks General $17,500 biweekly
Motor Vehicle $2,500 biweekly
Seasonal Employees: Cashton hires additional temporary help in summer months (May thru September). These paychecks are issued on the same day as the regular payroll.
Parks General $6,000 biweekly
Motor Vehicle $1,700 biweekly
Other Regular Expenditures: Checks to suppliers are issued every other Wednesday starting January 7th. The following amounts represent the average amount per disbursement based on the previous year’s expenditure patterns.
General Fund $29,000 /disbursement
Parks General $4,500 /disbursement
Motor Vehicle $1,450 /disbursement
Other Seasonal Expenditures: Cashton generally experience higher costs in the summer months (May thru September). These disbursements occur on the same days as the other regular expenditures.
Parks General $2,300 /disbursement
Motor Vehicle $5,800 /disbursement
Debt Service: Cashton issued a bond four years ago for general infrastructure improvements. Payments are due semiannually on January 30th($162,000) and August 30th ($128,000). Debt service is paid from the cumulative capital fund.
Capital Expenditures: Cashton has planned the following capital expenditures for 2015. Payment is due on the date listed.
General Fund – Three new police cars valued at $18,000 each (April 15th)
Motor Vehicle –One dump truck valued at $67,500 (September 30th)
Motor Vehicle – One snowplow valued at $34,000 (September 30th)
Part Two – The Questions (40 Points)
1) Is the budget in balance as it is proposed? How large is the annual deficit or surplus for each fund? If you combine all four funds, what is the total net income and ending balance for the year? Note, I’m asking for six numbers here.
2) Will Cashton experience cash flow problems throughout the year? If so, which funds will have problems? When will the problems occur?
3) What could Cashton do to avoid the cash flow problems that you found in the previous question? There are many valid answers. Don’t simply say “cut expenses or raise revenue”. Be specific. Please list at least three actions they could take.
4) What is the total ending balance for all four funds as of December 31st? We refer to this amount as a cash reserve. Is it appropriate for a public agency to hold that much cash in reserve? Explain your answer.