Rain falling on a roof

2022 Water Finance Conference

Join Baker Tilly Municipal Advisors at the 2022 Water Finance Conference to learn more about how to create a water financing program that works, set affordable rates that fund your projects, do more with your water revenue and help you plan for tomorrow. Be a part of discussions led by our municipal utility specialists:

Cash Reserve Strategies and Policies
Wednesday, Aug. 17
1 - 1:30 p.m. ET

Presented by:
Doug Baldessari, CPA, Partner, Baker Tilly Municipal Advisors
Nick Dragisich, PE, Managing Director, Baker Tilly

Baker Tilly’s clients often ask about the amount of cash that should be available in their utility funds. Utility funds need sufficient cash to pay current expenses together with principal and interest on outstanding bonds. Cash reserves should be established at a level that will provide for fluctuations in revenues that can result from variable seasonal demands, unforeseen revenue losses, unforeseen expenses, timing differences between receipt of revenues and timing of expenses, emergencies or to cover any shortfalls in the budget. The amount of cash reserves that each fund should have depends on several factors, including:

 − Reserves that are legally required
 − Variability of the annual revenue stream
 − Variability in annual expenses
 − Variability in rainfall
 − Age and condition of fixed assets
 − Anticipated future capital needs
 − Capital improvement plan
 − Asset renewal and replacement
 − Regulatory compliance
 − Tolerance for risk
 − Number of relatively large customers
 − Bond rating agency metrics

There are few prescribed formulas, and the level of cash reserves varies considerably between utilities. The level of cash reserves should be established based on a careful analysis of the factors above. At a minimum, a utility should have cash reserves to provide 90 days of operating expenses and the next year’s debt service.

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