Projecting General Fund Interest in the Budget Model

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Projecting General Fund Interest in the Budget
Model

• Budget Administrators Group
• April 10, 2007

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Background About General Fund Interest

• Cash balances in the General Fund are considered
  working capital and as such are included for
  investment in the University Investment Pool.
• Distributions are calculated on the basis of
  month-end cash balances.
• The rate of return is based on the 90-day U.S.
  Treasury Bill rate.
• General Fund distributions are credited or
  debited to a central chartcom -- unlike other
  operating funds in which the distributions are
  credited or debited to each fund-department ID
  chartcom automatically at month end.
• General Fund interest is attributed to
  Activity-based units through the UM Budget Model.
  
• The initial projection is included in your Net
  Funding.
• Actual interest is attributed at year-end and the
  difference between projected and actual is
  included in your year-end adjustment.

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Rationale for Change in Method used to Project
General Fund Interest

• Current Method
• Has, at times, produced unacceptably inaccurate
  projections
• Uses a cash balance factor calculation that is
  rather complex and difficult to explain -- making
  it difficult for units to understand variances
  between projected and actual interest
• New Method
• While still unlikely to produce perfect
  projections, is more easily explained
• Relies almost entirely on unit Source/Use
  Workbook projections -- making it easier for
  units to understand variances between projected
  and actual interest

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Current Method for Calculating Projected Interest

• Interest is calculated on a monthly basis.
• The projected 90-day T-bill rate is applied to
  the units projected month-end cash balance.
• Unit projected month-end cash balance is
  calculated using
• Projected General Fund carryforward balance (from
  unit Source/Use Workbook)
• Projected General Fund expenditures net of
  revenue less the units General Fund Allocation
• Calculated using a projected daily expenditure
  rate times the number of days in each month
• The units General Fund Allocation (apportioned
  by month)
• Allocated by month using the three-year lagged
  monthly revenue trend

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New Method for Calculating Projected Interest

• Interest is calculated on a monthly basis.
• The projected 90-day T-bill rate is applied to
  the units projected month-end cash balance.
• Unit projected month-end cash balance is
  calculated using
• Projected General Fund carryforward balance (from
  unit Source/Use Workbook)
• Projected Unit Uses net of Unit Sources (from
  unit Source/Use Workbook)
• Allocated by month using the two-year lagged
  monthly transactions trend for all units in the
  EVPAA department group.
• The units General Fund Allocation (apportioned
  by month)
• Allocated by month using the three-year lagged
  monthly revenue trend

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Current Method for Calculating Actual Interest

• Interest is calculated on a monthly basis.
• The actual 90-day T-bill rate is applied to the
  units month-end cash balance.
• Unit month-end cash balance is calculated using
• Actual General Fund carryforward balance
  (reflected in the GL)
• Actual General Fund expenditures (reflected in
  the GL)
• Actual General Fund revenues less the units
  General Fund Allocation (reflected in the GL)
• The units General Fund Allocation (apportioned
  by month)
• Allocated by month using the three-year lagged
  monthly revenue trend (for quarterly reports to
  units)
• Recalculated at year-end using actual monthly
  revenue trend for the current fiscal year (for
  final year-end adjustment)