A System for Forecasting and Monitoring Cash Flow: Phase II, Forecasting Federal and State Revenues, Maintenance Contracts, Other Expenditures, and Cash Balances

About the report:

The research on which this report is based was performed as part of a study to develop an improved system for generating a two-year forecast of monthly cash flows for the Virginia Department of Highways and Transportation. It revealed that current techniques used by the Department to forecast right-of-way payments, salaries and wages, and allocations to cities, counties, other state agencies, and transit properties require no change. On the other hand, it showed that forecasts of expenditures on materials, supplies and equipment, and maintenance contracts have overestimated actual cash outlays by significant margins. In addition, this research revealed that success in forecasting federal revenue reimbursements is, at best, likely to be spotty and that forecasts typically will be overly optimistic. For state revenues, official forecast approved by the Office of the Secretary of Transportation necessarily serve as the basis of the official cash forecast; nevertheless a technique is proposed for early identification of significant changes in state revenue collections. The use of techniques derived from this research in a December 1983 forecast of cash flows for January Through July 1984 showed that the estimated cash balance for the end of the period was within $4.0 million of the actual balance. Among the major recommendations are that it may be reasonable to establish cash balances at contingency levels consistent with the expected excess of expenditures over revenues for the months of July through October.

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