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Save the Date!
Ehlers School Finance Seminar
 Please mark your calendars for the 2012 Ehlers
School Finance Seminar, to be held April 13, 2012.
You'll have good luck learning strategies and tools that could help you manage your school district's finances at the annual Ehlers School Finance Seminar.
More details will follow soon, but continue to check our website for details.
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Ehlers Budget Projection Model and Comparative Analysis Service
Now is the time that many districts are beginning to work on budget projections for 2012-13 and future years. A number of districts have begun using the new Ehlers Budget Projection Model to assist in these projections.
If you are interested in learning more, we are now offering personalized, interactive online demonstrations. Many districts our also using our Comparative Analysis Service, which offers a wide variety of charts and graphs to "benchmark" your district against others on key variables. Click here to read more about these valuable services.
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IRS: Form 8038-G, Small Governmental Financing Exams, and Compliance Questionnaires
The Internal Revenue Service (IRS) has made changes to the IRS Form 8038-G. The 8038-G form is required to be filed with the IRS for every tax-exempt obligation issued by a state or local government. It is usually prepared by the bond counsel with input from your financial advisor.
The 8083 contains three new line items in Part VI.
- Line 43 asks if the issuer has established written procedures to ensure that all nonqualified bonds of this issue are remediated according to the requirements under the Code of Regulations;
- Line 44 asks if the issuer has established written procedures to monitor the requirements of section 148;
- Line 45a ask if some portion of the proceeds was used to reimburse expenditures and the amount;
- Line 45b asks to enter the date of when the official intent was adopted.
Ehlers can assist with crafting policies and procedures for the new changes to Form 8038-G.
Further, the IRS has announced it plans to conduct correspondent exams of small governmental financings of less than $15 million in fiscal year 2012.
The IRS also plans to send post-issuance compliance questionnaires to issuers of qualified school construction bonds.
For more information, check out the IRS website at
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The 12 Ways to Health Holiday Song
 The holidays are a time to celebrate, give thanks, and reflect. They are also a time to pay special attention to your health.
Learn how to stay safe and healthy with this festive song, The 12 Ways to Health, courtesy of The Centers for Disease Control and Prevention.
For more holiday health and safety tips, click here.
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Ehlers Market Commentary
Are you up to date with current market trends? If not, be sure to check out the Ehlers Market Commentary, which is released every other week.
Be sure to sign up to receive your email copy, or read past articles here.
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Are you a follower?
Being a follower isn't always a bad thing. You can get current information and network with the entire Ehlers team.
Click on the logo to follow us on LinkedIn.
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We encourage you to forward The Advisor to others who may be interested or ask them to sign up to receive their own copy.
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Ehlers
3060 Centre Pointe Drive Roseville MN 55113
(651) 697-8500
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Season's Greetings!
As 2011 draws to a close, we're already looking ahead to 2012. In this issue of The Advisor, we'll explore the brave new world school districts are entering when it comes to cash management. There's also a reminder of election time lines.
We continue to keep you informed of the Dodd-Frank Wall Street Reform and Consumer Protection Act as the roll out progresses. In this issue, we're sharing the background of the body of rules the Municipal Securities Rulemaking Board maintains to prevent fraud. These rules are to protect you and your communities, and they will impact the public finance industry. The rules will change parts of how we do business, but Ehlers remains committed to serving you and your community's best interest. So on behalf of the entire Ehlers team, we hope that you and your families enjoy the best that the season has to offer. We appreciate your relationship and interaction with Ehlers. Happy Holidays!
Steve Apfelbacher
President and CEO
sapfelbacher@ehlers-inc.com
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The Brave New World of Cash Management
Minnesota school districts have now fully entered into a brave new world of cash management. By June of 2012, you will be seeing the full impact of all the state payment shifts implemented in recent years. The combined impact of all these actions is a reduction in school district cash balances of more than $2.5 billion.
We have been working with many districts that did not borrow funds last summer, as they were projecting positive cash balances for at least the first half of fiscal year 2012. For many districts, the shift from a 70-30 to a 60-40 aid payment schedule will be the "tipping point" that will lead to significant cash deficits by the spring of 2012.
For districts in this situation, the tools that can be used to fill the cash deficits are the same ones we have talked about in previous newsletters and bulletins: Aid Anticipation Certificates (AACs), Tax Anticipation Certificates (TACs), and Lines of Credit.
Each of these tools has very specific borrowing limits and time schedules, dictated by state law and federal rules. Selecting the best tool or combination of tools for your district will depend on a variety of factors.
As we work with districts on cash flow borrowing planning, there are two relatively obscure issues which we would like to bring to your attention.
State Limit on AACs and TACs. State law (Minn. Stat. 126C.52) limits the amount of a TAC issue to 75% of the property taxes due in the calendar year, and the amount of AACs to 75% of the state aid receivable in the fiscal year. MDE interprets the latter limit to include all aids (including federal aid paid through MDE) that have not yet been paid as of the date of sale.
These limits are creating more problems for districts than we have seen in prior years. For many districts, TACs are not workable because the tax levies in the operating funds are so small that 75% of that amount is not enough to meet their cash flow needs. And in the new world of cash management, districts receive a large share of their state aid payments in the first half of the fiscal year.
If you wait until late in the fiscal year to issue AACs, the state limit of 75% of aids receivable may also not be enough to meet your cash flow needs. So even if you do not expect a cash deficit until late in the fiscal year, you may need to issue AACs relatively soon in order to borrow enough to meet your needs.
Borrowing from Debt Service Funds. Many districts keep the cash from their operating funds and their debt service funds in commingled accounts. This is permitted under state law, and many districts have used their debt service funds to avoid borrowing and essentially subsidize negative cash balances in the operating funds. There is a state law, however, which prohibits this practice in some circumstances. Minn. Stat. 123B.78, Subd. 4 provides in part that "a district must not, for the purpose of increasing the available cash balance of another fund, borrow or transfer funds from the building construction fund, debt redemption fund, trust and agency fund, or from any sinking fund for outstanding bonds issued for any purpose." What this law essentially means is that, if you have a commingled account and at any time the combined cash balances in your operating funds are negative (while the cash balance in the debt service fund is positive), then you are borrowing from the debt service fund and violating the law. At least two of our clients were cited in their 2011 audit reports for violating this law.
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Election Timelines Severely Curtailed for 2012
In a previous newsletter, we provided information regarding election timelines for 2012; however, since the New Year is quickly approaching, we thought it may be helpful to repeat this information.
Because of the redistricting process that takes place every ten years, state law will severely restrict the dates that Minnesota school districts can hold special elections in 2012. These restrictions will apply to elections for bond issues and capital projects levies, as well as to operating referendums that are conducted by mail ballot or by districts in statutory operating debt.
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MSRB Rulemaking Program
The federal government passed legislation that will affect how financial advisory firms like Ehlers provide advisory services. The legislation requires a fiduciary responsibility to you by Ehlers - which is how we have always viewed our relationship. There are certain processes Ehlers will need to follow as a regulated "municipal advisor".
One such process is the Municipal Securities Rulemaking Board (MSRB) Rulemaking Program. The following is intended to give you a high-level understanding of the Program, and we'll focus on specific rules that will have an impact on you in future newsletters.
The Municipal Securities Rulemaking Board (MSRB) is monitored by the Securities and Exchange Commission (SEC). Both are federal agencies responsible for federal securities laws and regulating the securities industry. The MSRB writes rules and operates market information systems for municipal securities dealers, banks, and municipal advisors, and regulates agents in the municipal market through an array of programs aimed at protecting issuers, investors, state and local government entities, and others whose credit stands behind municipal securities. These rules are to protect you and your communities, and they will impact the public finance industry.
MSRB Rulemaking Program
The Municipal Securities Rulemaking Board (MSRB) maintains a body of rules designed to prevent fraud and manipulation in the market, to promote the mechanisms of a free and open market, to promote just and equitable principles of trade and to serve various other specific purposes described in the Securities Exchange Act.
Timely and well-informed rulemaking and interpretive guidance responsive to changing market conditions are critical to the MSRB's mission to protect investors. The MSRB frequently publishes rule interpretations providing guidance on the application of MSRB rules in the context of typical situations that may occur in the market.
The Dodd-Frank Wall Street Reform and Consumer Protection Act granted the MSRB regulatory authority over municipal advisors. The MSRB is adopting a comprehensive set of rules for municipal advisors, click here.
General Rules
The MSRB's General, or "G", rules create a number of specific responsibilities for dealers (a person or entity who buys and sells shares, securities, or other financial assets as a principal, rather than as a broker or agent) affecting municipal securities transactions. These include requirements to ensure that the material facts about a proposed transaction are disclosed to investors, to ensure that recommended transactions are suitable for investors, and to ensure that transaction prices are fair and reasonable.
Several rules address dealer behavior with respect to potential conflicts of interest that may arise in the underwriting, sales and trading of municipal securities. These include rules relating to political contributions made to officials of issuers of municipal securities, gifts or gratuities made to persons with which the dealer is engaging in business, and dealers acting as financial advisors to municipal securities issuers. Other MSRB rules specify disclosure and other responsibilities of dealers underwriting municipal securities.
The rules will change parts of how we do business, but Ehlers remains committed to serving you and your community's best interest.
To read more about the MSRB rules, click here.
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The Ehlers Education Team
The Ehlers Education Team includes seven financial advisors - Joel Sutter, Carolyn Drude, Gary Olsen, Betsy Knoche, Tom Berge, Jeff Seeley, and Jodie Zesbaugh - who specialize in assisting Minnesota school districts. These individuals have a combined total of over 200 years experience with Minnesota school finance - including experience working for state agencies, the Legislature, Counties, and school districts. We bring the lessons learned from this experience to benefit your District. |
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