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The Official Blog of Forecast5 Analytics

Mike English
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Mike English

Forecasting, 5Cast, Monthly Budgeting, 5Cast-Plus, COVID-19

Monitoring Cash Flow During Times of Tax Payment Uncertainty

Posted on Apr 17, 2020 2:38:36 PM

When the federal government moved the personal tax filing due date from April 15 to July, a series of cascading discussions followed from state and local governments, prompting this important question... "Would other tax collecting bodies follow suit and delay their collection of income and property tax?" I believe most people would agree that given the extraordinary economic strain the COVID-19 virus has placed on Main Street, USA, this short-term forbearance is both appropriate and justified.

However, at the local level, what if that delay of tax receipts disrupts the normal cash flow cycle to a level where critical services, or even debt payments, are at risk? Drilling in a little deeper into the debt question, municipal bond issuers are subject to payment covenants for principal and interest (P&I) payments.

In many cases, P&I payments on General Obligation (GO) bonds are secured with a first lien on tax collections. As these cash flow ideas collide - delayed tax receipts vs. current payment obligations - it places a lot of pressure on the public sector CFO to monitor bank balances and understand if there are sufficient reserves to cover all of the obligations in the event tax payments are delayed.

Knowing that tax-anticipation financing can take one to two months to put into place, it becomes critical to monitor cash flow and reserves, especially if your organization is traditionally dependent on large tax receipts in the spring and summer.

Zach Stokes, a Senior Analytics Advisor at Forecast5, does a great job outlining this type of situation and demonstrating cash flow surveillance tools that can be connected directly to your financial accounting system. In the attached video, Zach walks through the logic of establishing multiple COVID-19 financial scenarios, including delayed tax receipts, in order to examine cash flow and reserve levels. His comments and demonstration of a school district scenario begins at the 48:10-minute mark in the video.

 

Katie Henry, Municipal Services Director for Forecast5, demonstrates a similar approach for municipalities, highlighting other revenue sources that may be delayed or constrained by the shut-down in the economy. Her comments begin at the 43:50-minute mark of this video.

 

If you have questions or concerns about your cash flow situation as you navigate the COVID-19 crisis, please reach out to us.

 

Mike English is a founder and the CEO/President of Forecast5 Analytics, Inc. – a technology company focused on software development and data analytics for the public sector. Mike has spent his entire career concentrating on the development of financial and strategic solutions for schools and municipalities. Forecast5 is headquartered in Naperville, Illinois – a suburb 30 miles west of Chicago.

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