It’s obvious that COVID will be a historical reference point. We will be forever saying things like, “Remember when COVID hit?” and adding how it affected our lives. For those in public finance and higher education, there was immediate concern for our entities’ financial stability. We asked, “What will happen to sales tax?”, “What will unemployment do to our constituents?”, “How will they pay their taxes and tuitions?”, and “How can we maintain our level of services?”
When COVID hit, one revenue line that was finally recovering was interest income! Ever since the “Big Recession,” rates had been low; we were finally seeing them come back above 2%. Didn’t that feel great?! We had more interest revenue which meant we didn’t have to depend so much on tax or tuition dollars. We could expand programs and services, improve infrastructure, etc. Then, with COVID, rates practically dropped to 0% and interest income was irrelevant.
Now, suddenly, we’re back to rates over 4%. Once again, our interest revenue line is significant!
I’ve been a school board member for nearly 11 years and have seen our district’s interest revenue line drop from $2 million to $50,000. Ouch! We depended on interest revenue to support our class sizes, salaries, extracurricular activities, and more. Now, as rates peak and stabilize, it’s time to consider how we can preserve and protect our interest revenue line.
That’s where liquidity data comes in!
Public entities and higher Ed institutions have cyclical, discernable patterns. We know our cash flows, payroll and AP cycles, debt service, etc. But do we truly know the longevity of every dollar, its liquidity? With historic data, stress-test modeling, and short-term forecasting, we can see what’s needed to make decisions that can protect and preserve our interest income and budget line. We can know how much cash can be invested across multiple fiscal years so, if rates suddenly drop again, we will still have cash earning at higher rates.
Those entities that used liquidity data prior to COVID were able to ride through the low-rate environment without huge revenue sacrifices.
This is precisely what cashVest® is and does! And we can do that for you!
