60-Day Working Capital Reserve Limitation

A. Federal regulations provide that service units may retain “A working capital reserve as part of retained earnings of up to 60 days cash expenses for normal operating purposes is considered reasonable.” Unusual transactions/variances should be excluded from normal operating expenses for purposes of the limitation calculation.

B. The 60-Day Working Capital Reserve Limitation is calculated by taking the last 12 months of cash expenditures divided by 6. This limitation is then compared to the service unit’s adjusted fund balance to calculate and monitor over/under recoveries. The limitation is an absolute amount and applies to both over and under recoveries. The adjusted fund balance of individual service line activities must meet these limitations.

C. Service units that accumulate fund balance over or under recoveries in excess of specified limits (60 days of average cash operating expenses) must adjust future rates in order to meet the Federal break-even requirements over a reasonable period of time (e.g., at least biennially). Over/Under recoveries must be carried forward to the next rate calculation.