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Messaging Forecast Changes and Cash Balance Impact

By Ernie Strawser posted 08-31-2022 12:52 PM


The current economic news may point to more downside (inflation, recession) than upside, but the prior two to three years have seen a combination of favorable influences on many school district cash balance reserves. This partial list (below) helps the treasurer/CFO to identify some of the favorable variances that might exist in a financial forecast prepared in May 2020 versus May 2022. 

  • New State Funding Impact on Revenue and Tuition Transfers
  • ESSER/COVID Stimulus
  • Rising Property Values
  • Robust Local Income Tax Performance
  • Reduced Operating Cost (COVID closures, Less Health Insurance Inflation)

The graph below depicts the forecasts filed by a district in May 2020 and May 2022. In its May 2020 forecast, the district projected it would end FY 2024 with a negative cash balance of -$901,368. In its May 2022 forecast, the district projected it would end FY 2024 with a cash balance of $33,728,845. What happened in two years? Today’s treasurer/CFO needs to be able to explain the two financial worlds which contributed to the difference, as well as the potentially unsustainable cliff that exists starting in FY 2025.

A comparison of the two financial worlds - at the start of the national health crisis and today - includes many of the variables listed above. For example, increased state funding and reduced tuition costs associated with the new Fair School Funding Plan (FSFP) contributed $21,000,000 to the improved cash balance. ESSER Stimulus funding contributed another $12,000,000. A treasurer/CFO, in preparing the May 2020 forecast, could not have known the full impact of FSFP and ESSER funding. Subsequent forecasts, as evidenced two years later, incorporated these favorable factors. To maintain credibility, the treasurer/CFO will do well to help stakeholders understand the changes in assumptions that have caused, in some cases, substantial improvement in the financial forecast over the last two years.  

But as important as achieving and maintaining credibility is to the treasurer/CFO and the financial forecast, so is the understanding of financial sustainability. While this district has an improved financial cash balance, the underlying sustainability remains the same – just delayed by a few years. But overall, the district cannot afford its ongoing forecasted costs relative to forecasted revenue. Its current property tax levy structure is ‘lifed-out’ by FY 2025 after the ESSER funding support ends. And then what? Job cuts? Additional levy? With the ESSER funds masking the underlying revenue shortfall, the potential millage needed to replace ESSER funds and address increased inflation can easily result in double-digit property tax rate (millage) requests of voters. No one wants to ask voters for a 26.94 mill levy and that is why it is so very important for the treasurer/CFO to:

  • nurture the credibility of the financial forecast by explaining recent changes and their impact
  • effectively message and teach the district’s financial condition.


Ernie Strawser is Senior Advisor, Analytics for Frontline Education, an OASBO Platinum Sponsor.