I. Authority of the State Treasurer to Make Internal Cash Pool Transfers:
A. “The Treasurer of State may transfer funds into and out of the respective funds in the cash pool as circumstances may require to meet current obligations and shall request the State Controller to effect such transfers by journal entry as set forth in section 131-B” of Title 5. see PL 386 s. CC-2; (2005) (LD 1677 as amended in the 122nd Legislature).
B. 5 M.R.S.A. s. 131-B says that “[I]n order that state obligations may be paid as they come due, the State Treasurer may request the State Controller to transfer funds on deposit among the various funds in the cash pool of State Government by journal entry in such manner as to best manage the available funds to meet current obligations of the various funds and accounts. PL 386 (2005) (LD 1677 as amended in the 122nd Legislature).
C. The “prudent banker” rule and precedent.
II. Authority of the State Treasurer to Incur External Cash Pool Loans:
A. “Temporary loans to be paid out of moneys raised by taxation during any fiscal year shall not exceed in the aggregate during the fiscal year in question an amount greater than 10% of all the moneys appropriated, authorized and allocated by the Legislature from undedicated revenues to the General Fund and dedicated revenues to the Highway Fund for that fiscal year, exclusive of proceeds or expenditures from the sale of bonds, or greater than 1% of the total valuation of the State of Maine, whichever is the lesser.” Maine Constitution, Article IX, Section 14.
B. Temporary loans, under the limits set forth above, are allowed absent a 2/3 vote of both Houses when “paid out of money raised by taxation during the fiscal year in which they are made.”
III. Negative Cash Balance Coverage Options for Cash Pool Funds:
A. Negative Cash Balances should be avoided: The State’s accounting system generally does not allow spending beyond resources and thereby prohibits negative fund cash balances. There are nevertheless select occasions when a fund balance is permitted to achieve a negative cash fund balance. In most instances, these negative balances are caused by timing issues and are corrected within the fiscal year.
B. Tax Anticipation Notes (TANs), Lines of Credit (LOCs), Internal Cash Pool Journal Vouchers and Total Cash Pool Resources: The following steps will be taken when the estimated cash balance of any fund is projected to become less than zero during a fiscal year:
- Confer with the Controller’s Office to develop a shared understanding of why and when the fund(s) balance may be less than zero.
- Review the historical balances of all cash pool funds
- Review overall cash flow projections for the fiscal year at issue.
- Determine the amount and timing of other fund balances which may be made available to support inter-fund transfers during the fiscal year at issue.
- Review market conditions and cost efficiencies for public sales and private placements for tax anticipation notes and lines of credit.
- Act to efficiently secure enough liquidity to support all budgeted state disbursements.
- For the General Fund, if internal cash pool transfers are employed, transfer funds first from positive-balance feeder funds and next from positive-balance other primary government funds held in the cash pool, and then from other funds as the Controller and Treasurer concur. Transferred funds shall be repaid with forgone earnings. Feeder funds are those funds held in the Cash Pool whose earnings are attributed to the General Fund.
- For all other funds, all internal cash pool resources are available to support inter-fund lending. Journal vouchers that document specific transfers from one fund to another are preferred.
- Any fund may be allowed to run negative if in the judgment of the Controller and the Treasurer the effect on the Cash Pool transparency is not unreasonable. These negative cash balances shall be covered by the Cash Pool as a whole and the cost of covering these negative cash balances shall be charged against that fund and earnings credited to other Cash Pool participants on a pro rata basis through the cashpool distribution.
The effective date of these guidelines shall be August 10, 2008.