At its August 14, 2012 regular meeting, the Board of Education placed the discussion of banking services on its August 30, 2012 regular meeting agenda. This action came as a follow-up to a request from four board members to include Mechanics and Farmers Bank as a banking option for Guilford County Schools (GCS). The letter containing the request and staff's response to this request is attached for your review. In addition that response, the following information is provided to assist the board in its discussion of the district's banking services:
GCS uses the North Carolina General statutes, the North Carolina administrative code, Guilford County Board of Education policies and GCS administrative procedures (see attached) to guide the selection of the financial institution(s) to be used as a central depository and for the investment of funds not required for daily operations.
For the 2012-13 fiscal year, GCS will manage an operating budget of approximately $620.7 million and a capital outlay budget of $2 million plus the unspent public school building capital fund (PSBCF) dollars, qualified school construction bond (QSCB) dollars and local bond dollars. As outlined below, these resources are provided to GCS in different ways.
The state and federal funds included in the GCS budget are held by the North Carolina Department of Public Instruction with the North Carolina Department of State Treasurer. As a result, these funds, which total approximately $430.6 million, are not available to GCS to deposit in any financial institution.
The GCS finance office oversees the deposit and investment of monies in the local fund, the child nutrition fund, the after-school care enrichment services (ACES) fund and the special revenue fund. GCS currently deposits these funds into two financial institutions: Wells Fargo; and the Sort Term Investment fund (STIF) Account through the North Carolina Department of State Treasurer. Wells Fargo serves as the central depository for GCS where daily deposits are made and checks are issued; the STIF Account is used for investing funds not required for daily operations.
Wells Fargo was selected by the board of education as a result of a request for proposal (RFP) process. The most recent RFP for banking services was issued in 2006. At that time, the board awarded the banking services contract for a four and one-half year period (January 1, 2007 - June 30, 2011) with the option to renew for five additional years (July 1, 2011 - June 30, 2016) to Wachovia currently operating as Wells Fargo. GCS has continued to utilize Wells Fargo during the renewal period.
The local fund appropriation for Guilford County is transferred into the district's Wells Fargo checking account on the following schedule: half of 1/11th of the appropriation in July and June and the remaining 10/11th's of the appropriation from August to May. In addition to the local fund appropriation, the following funds are also deposited in with Wells Fargo: child nutrition; ACES; and the special revenue fund.
The amount of funds deposited with Wells Fargo varies greatly over time. For example, the average balance in the Wells Fargo checking account, which includes dollars from the local fund. ACES fund and special revenue fund, for March 2012-June 2012, was $9.45M with a low balance of $1.40M and a high balance of $31.18M. This average is impacted by the payroll withholdings from all funds being deposited into this account then drafted by governmental entities, benefits vendors, etc. As another example, the average balance in the Wells Fargo child nutrition checking account for the same time period was $2.8M with a low balance of $.58M and a high balance of $4.60M.
The capital outlay county appropriation, PSBCF, QSCB and local bond dollars in the capital outlay fund are held by Guilford County and are transfarred into the district's Wells Fargo checking account weekly as invoices are processed and checks are issued.
Local fund dollars are typically the only funds transferred to the STIF account. The 2011-12 average balance in our STIF account through the North Carolina Department of State Treasurer was $33.5M with a low balance of $4.56M and a high balance of $48.99M. The funds in this account earned an annual rate of .506% in July 2012. This account typically offers a higher yield and better liquidity than accounts available in other financial institutions.
As the board is considering its banking options, the following should be considered:
A financial institution with a limited number of locations in Guilford County would have difficulty meeting the needs of the district as a central depository due to the requirement that all ACES and child nutrition funds receipted at the schools must be deposited daily. As a result, having banking branches throughout the county is a virtual necessity for a district like GCS with over 120 schools spread throughout the county
Schools are able to deposit the individual school funds raised through the donations fundraisers, athletics, etc. in financial institutions of their choice and usually make that decision based on bank location and pricing.
It is important that we continue to try to earn the greatest return on investments in order to meet the amount of investment earnings included as a revenue source in the local fund budget. The investment earnings included in the local fund budget total approximately $303,000. It is also important to maintain the required liquidity to meet the needs created by the cyclical nature of our cash flow. We are often able to move a significant portion of the monthly local county appropriation transfer received in the first week of the month, to the STIF account until it is needed for the mid-month and end-of-month payroll. Meeting these two objectives (return on investments and liquidity) will be impacted greatly if significant dollars are invested at lower rates in extended time deposits.
Under current board procedure, the district does have the option of investing a portion of the funds not required for daily operations in financial institutions which meet the board of education's standards/qualifications for investments. As a result, outside of the funds deposited in the central depository, currently Wells Fargo, GCS has the option to invest dollars with:
- the STIF account through the North Carolina Department of State Treasurer;
- financial institutions, including those with the local presence within the Guilford County community such as Mechanics and Farmers Bank; or
- a combination of the two options.
Regardless of the option(s) chosen for the investment of funds, staff recommends that it retain the ability to transfer funds as necessary to meet the overall goals of the board.