Day's Cash

“Day’s Cash”

The Credit Community’s Standard for Evaluating the “Reserves” Position of Enterprise Funds

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General governments – cities and counties, for example – measure their reserve cash positions by the percentage of fund balance in the General Fund. A reserve level of 25% is common. This reserve level equates with 3 months of expenditure coverage.

Just a few years ago, the Government Finance Officers’ Association (GFOA) suggested fixed ratios for General Funds in its Best Practices/Advisories. The Great Recession changed the rules. Today the advice is vague. GFOA suggests that “the adequacy of unrestricted fund balance should take into account each government’s own unique circumstances.”

Water districts like Central Basin are not general governments. Each was created for a “special” purpose: hence the name “special district.” The accounting model adhered to in Central Basin is the enterprise accounting model. Cities and counties often have enterprise funds for water, sewer and electrical services, as well as for other narrowly‐defined purposes having a “business‐type activities” character. Central Basin manages all its activities within one enterprise fund.

The dividing line between general government and “business-type” enterprise government, from a very practical standpoint, is the responsibility of the officials elected to represent the enterprise fund to periodically authorize rates and charges for service. City councilmembers, by contrast, exercise almost no authority over changes in General Fund revenue.

Moreover, because Central Basin has issued marketplace debt, it is subject to the financial measurement criteria of credit rating agencies like Standard & Poor’s and Moody’s. The debt coverage ratio is one measurement.  It is discussed in depth in other published District documents.

Another primary tool for financial performance measurement is day’s cash. This is a measurement of “reserves” (or, liquidity) applied to enterprise funds. Broadly defined, days cash on hand is the number of days that an organization can continue to pay its operating expenses given the amount of cash available.

Day’s cash is determined by dividing operating expenses into unrestricted net position. The result is multiplied by 365. The GFOA recommends that an enterprise develop day’s cash policies established from a 90‐day baseline starting point.

In its most recent credit opinion, that published 29 September 2016, Moody’s observed of Central Basin: “We anticipate that reserve levels will be close to $15.6 million in fiscal 2016. The District’s day’s cash on hand was an average 103 days in Fiscal 2015 and should be relatively stable in Fiscal 2016 and Fiscal 2017.”

The District’s day’s cash for Fiscal Year 2016 is measured by District management to be 103 days.