Minnesota Department of Transportation

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Cash Balance

MnDOT Policy FM005
View/print signed policy (PDF)

Policy statement

The projected cash balance in the Trunk Highway Fund should not be less than the cash needs for any upcoming 15-day period of time.

Reason for policy

Financial practices whereby encumbrances are required, based on available funding, prior to incurring expenditures would normally be expected to provide cash resources to make payments. However, available funding is always based on a mixture of estimated and actual revenue for a given accounting period. Although unlikely, events could occur to substantially impact the receipt of actual revenue, such as major disruption of petroleum supplies, substantial economic recession, and unexpected unavailability of federal reimbursement. Therefore, policy is needed to allow spending patterns to be coordinated or changed to mitigate potential shortfalls.

In addition the potential exists to commit to use of federal advance construction funding in excess of what can be supported by the cash resources of the Trunk Highway Fund. Under this practice, normal reimbursement from the Federal Highway Administration is delayed until future federal funding is authorized.
Delays in authorization of federal funding by the U.S. Congress could also affect the timing of federal reimbursement.

Good business practices require making payments from either of these two funds on a timely basis. Inability to make timely payments would affect business relationships with various suppliers as well as potentially employees paid from these two funds. In addition the state has a prompt payment law Minnesota Statutes, section 16A.124 that requires payments within 30 days of receipts of an invoice.

Who needs to know this policy

The commissioner and deputy commissioner need to be aware of this policy, because actions that may be required by it could significantly affect relationships with external partners. The Chief Financial Officer, and the Director of the Office of Finance, along with staff, needs to fully understand the policy and the potential actions that might result.

Procedures

  • Cash balances in these two funds are monitored on a daily basis by staff in the Office of Finance.
  • Monthly reports are produced that depict the cash balances; this information is also included on the web site of the Office of Finance.
  • The Office of Finance maintains a computer system that tracks estimated receipts and expenditures, which is used to forecast future cash balances.
  • If external conditions or information from the forecasting system indicate a potential for a cash balance below the level indicated in this policy or the balance falls below prescribed levels, as depicted in the regular monitoring, actions such as delaying expenditures, postponing construction project lettings, suspending work on construction projects, delaying major purchases such as for right of way, equipment, and the like will be identified by the Office of Finance staff and presented to the Chief Financial Officer.
  • The Chief Financial Officer will develop recommended actions and present them to the Commissioner and Deputy Commissioner.
  • Final actions will be determined by the Commissioner, Deputy Commissioner, and Chief Financial Officer, after consultation with the other departmental division directors and the Executive Budget Officer in the Department of Management and Budget.

Definitions

Cash Balance

The Cash Balance is the amount of cash at the fund level shown in the state accounting system. This is based on actual receipts from all sources, including transfers from the Highway User Tax Distribution Fund (legally prescribed share of motor fuel tax, motor vehicle registration tax, and motor vehicle excise tax revenues), other ongoing revenues, and reimbursements from the Federal Highway Administration for expenditures related to highway construction, and on actual expenditures made from existing encumbrances.

Projected Cash Balance

This is the estimated amount of cash taking into account anticipated revenues, transfers, and bond sales (with respect to the Trunk Highway Bond Fund), and anticipated expenditures, based on historical patterns of spending from various MnDOT programs, including transfers required to be made to the state bond fund in November of each year.

Trunk Highway Fund

This fund is the principal operating fund for MnDOT, and to some extent for the Department of Public Safety. It is a governmental fund that accounts for public monies used to construct, maintain, and operate Minnesota’s trunk highway transportation infrastructure. Annual transfers of funds to the trunk highway bond account in the state bond fund are also made from this fund.

Trunk Highway Bond Fund

This is the fund into which the proceeds of trunk highway bonds are deposited and from which payments for projects authorized to be funded with bond proceeds are made.

Responsibilities

Commissioner

  • Ensures that sufficient cash balances exist for ongoing payments of legal obligations to contractors and suppliers

Chief Financial Officer

  • Ensures that all necessary procedures exist for compliance with this policy

Director, Office of Finance

  • Ensures that all necessary procedures needed for compliance with this policy are carried out and that regular reporting of balances occurs

Frequently asked questions

Considering that payments cannot be made without an encumbrance, how could the cash balance be so low that an insufficient amount of cash exists to fully fund the expenditure?

At the beginning of a fiscal year, direct appropriations are based entirely on estimated revenues. As the year progresses, actual revenues are received, but it is possible, although unlikely, that revenues may be significantly less than estimates due to unforeseen circumstances such as a recession, sudden unavailability of petroleum supplies due to a war in the middle east, a terrorist attack on refineries, and so forth.

What circumstances might lead to reimbursement by the Federal Highway Administration to be delayed?

The federal highway revenue portion of estimated revenue is based on estimated execution of federal aid highway agreements, not actual receipt of cash from the federal government. Cash is received on a reimbursement basis for actual costs incurred. However, when federal advance construction financing is used, actual cash reimbursements are planned to be received in future years instead of in a current year. If the U.S. Congress failed to appropriate funding in a timely manner in a particular fiscal year, a significantly delay in the receipt of federal reimbursement in conjunction with advance construction agreements might result, and the amounts of expected reimbursement might be substantial.

Also, the possibility of sudden unavailability of petroleum supplies for the same reasons as mentioned above would affect the cash available for the federal government to use to provide reimbursement to MnDOT, which might result in a delay of ongoing federal reimbursement.

Are there large cash outlays at certain times of the year?

A significant portion of MnDOT’s expenditures are made in accordance with highway construction contracts. These payments occur from the middle part of spring until the middle part of autumn. Payments in the winter months are substantially less. Also, MnDOT is required by statute to transfer money to pay debt service on upcoming trunk highway bonds from the Trunk Highway Fund to the State Bond Fund before December 1 of each year. The current requirement is for transfers of approximately $200 million per year, which are made in late November of each year.

Related information

This policy is highly related to Advance Construction financing and the Fund Balance. Hyperlinks will be added when the policies are updated.

History of policy updates or amendments

Supercedes

Policy 2.4 – Cash Balance, Financial Administration, established 7-1-10

Effective date

Effective date as signed by responsible senior officer.

Ownership

Responsible Senior Officer

Tracy Hatch
Deputy Commissioner/COO/CFO
tracy.hatch@state.mn.us
651-366-4811

Policy Owner

Duane Leurquin
Director, Financial Management
duane.leurquin@state.mn.us
651-366-3165

Policy Contact

Kristi Schroedl
Assistant Director, Financial Management
kristi.schroedl@state.mn.us
651-366-4859