“Black” is the New Color for 2017

“Black” is the New Color for 2017

As Peter, Garrett, and I travel across the country speaking at various conferences, we ask public entities of all sizes, “How will your cash position in 2017 end?” The answers we’ve heard so far were:

a.) Red

b.) Black

c.) No change

d.) I have no idea

By an overwhelming majority, the responses were “in the black.”

This is big news and we’re one of the first, if not the first in the country, to be reporting this.

"Black" is the New Color for 2017

Most public entities will end up with higher cash balances this year than last. This tells me that the underpinnings of the U.S. economy are improving, despite news reports of anemic growth.

The signs are encouraging. Larger cash balances should be considered an opportunity that should not go unnoticed or wasted.

With higher short-term interest rates as the new trend, the ability to capture a new stream of income on higher cash balances means more money to an entity’s bottom line.

At three+one, we can help entities like yours identify operating and non-operating cash reserves and the level of cash that can be used to achieve higher deposit or investment rates through banks or Register Investment Advisors.

With more cash, you can bring more money to your bottom line. The next couple of years will be a time to budget more income thanks to healthier cash balances. You just have to take advantage of the opportunity that exists.

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See Us At These Upcoming Events and Conferences:
Ohio GFOA – September
GFOA SC – October
PA GFOA – October

Why The U.S. Regulatory Environment Matters

Why The U.S. Regulatory Environment Matters

From the Glass-Steagall Act of 1933 to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the U.S. banking regulatory environment has been a legal and compliance cacophony.

Since the United States has a dual banking system—banks are federally or state chartered—banking supervision is widespread and extensive. The Office of the Comptroller of Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System are just some of the parties involved with bank administration at the federal level. Furthermore, as promoted by Dodd-Frank, the Financial Stability Oversight Council (FSOC) was fashioned as an additional monitoring agency to oversee the aforementioned primary federal banking regulators.

 Why The U.S. Regulatory Environment Matters

In addition to these primary federal regulators, there are many state banking boards and commissions that oversee the nation’s banks. Here is an additional short list of agencies and monitoring bodies that supervise depository institutions and financial services firms:

• Consumer Financial Protection Bureau
• The Office of Foreign Assets Control
• The Financial Crimes Enforcement Network
• The Department of Justice
• The Securities and Exchange Commission
• The Commodity Futures Trading Commission
• The Financial Industry Regulatory Authority

Before you start thinking there is no need for the Commodity Futures Trading Commission to regulate the bank where you make your deposits, think again. Banks cannot pick and choose how they’re regulated. To stay profitable and viable in the marketplace, banks are trying to maintain the most profitable client relationships. So they are moving out of relationships that are less profitable and holding on to relationships they wouldn’t want to see go to a competitor.

Why does all this matter to you?

It matters because your relationship with your bank doesn’t exist in a vacuum. Your depository institution must comply with most, if not all, of these regulatory agencies. My message to you is simple: Talk with your banker.

 Why The U.S. Regulatory Environment Matters

Explore new banking services that can help maintain the bank’s appetite for your business. Perform a proper liquidity analysis to identify the difference between the low- and non-performing dollars that are dormant in deposit at your bank and the transactional dollars that you need for operational purposes. Look at the banking services your entity is currently using (or not using) and perform a cost-benefit analysis on your treasury services to see how beneficial they are to your bottom line. How has your entity changed the way it does its banking to stay ahead of the ever-changing banking dynamic? In short, what impacts your bank will impact your banking relationship.

three+one is here to help you in performing the liquidity and cost-benefit analyses you need to improve your banking relationships.

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See Us At These Upcoming Events and Conferences:
Ohio GFOA – September
GFOA SC – October
PA GFOA – October

Jamie Dimon Has a Point

As we witness the changing landscape of banking, Jamie Dimon, the Chairman and CEO of JPMorgan Chase, made a strong point last week: Given changing Fed policies, the chasing of retail banking deposits will become more competitive, leading to less deposits for small banks to lend against. As a result, Dimon urges smaller banks—those under $50 billion in holdings—to consider merging for economies of scale, the ability to serve larger markets, and to profit from greater branding power. By making the right mergers (staying under $50 billion in assets) they would be better able to compete for retail deposits.

 

Jamie Dimon Has a Point

 

Dimon stated that the largest U.S. banks have the capital and marketing dollars they need to capture the majority of retail deposits, the most lucrative deposits a bank can hold.

This whole trend is precisely what we have been saying over the last three years: There will be a continual consolidation of banks, with smaller banks merging and with fewer bank branches out in the marketplace.

As this trend continues, we believe banks will have less appetite for public deposits, leading to a greater search of alternative liquidity investments like U.S. Treasuries and other government-secured bonds.

At three+one, we can help public entities and Higher Ed institutions like yours navigate through banking’s ever-changing landscape. We can help you make your deposits look more attractive to banks of all sizes. In addition, we can place a time horizon on all operating and non-operating cash, which will allow you, your bank, and/or your Register Investment Advisor(s) to maximize the value of your cash, without jeopardizing any legal, safety, and liquidity requirements.

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See Us At These Upcoming Events and Conferences:
National GFOA in Denver – May 21
Ohio GFOA – September
GFOA SC – October
PA GFOA – October

Safety, Liquidity, And Yield! –Really!

Safety, Liquidity, And Yield! –Really!

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In order to celebrate three years of three+one blogs we will be celebrating by posting three of our staff-picked favorites. Throughout our travels and from the conferences we’ve attended we’ve tripled the size of our list. That means that many of you will be reading these for the first time! Enjoy and stay tuned for more commentary, advice, and news. Today I will be addressing one the top questions the nation’s public and Higher Ed financial officers ask me as I travel across the country. Today’s question: “Are there opportunities to earn income on my operating cash while still staying safe and liquid?” This blog was written in 2016 just as interest rates were about to rise. It could be seen even as more relevant today as rates continue to rise.

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Believe it: Short-term interest rates will go up by year-end! And I mean 2016!

Given the stronger economic conditions in the U.S. and the surprising lack of the Brexit fallout (despite what the press would have you believe), I see short-term rates increasing by 25 basis points, mirroring the actions taken by the Federal Reserve in 2015.

 

Safety, Liquidity, And Yield! --Really!

 

Does that mean you will earn more on your short-term cash deposits? That depends on whether you’re proactive or passive in managing your cash deposits.

Either way, as a fiduciary of other people’s money, you need to make sure that you keep the funds safe and liquid—while also determining the value of your deposits in the marketplace.

The number one question I hear as I travel across the country is “Are banks going to pay more on deposit accounts?”

No pun intended, my standard answer is “Don’t bank on it.” Please understand that this is not the fault of the banks, it is a matter of their playing “catch-up,” having weathered the low-interest-rate environment of the past eight years. Lending rates will go up, but catching up on deposit rates will likely take from three to six months.

You may ask, “Is there an alternative to bank savings and deposit accounts?”

Yes there is. And it’s one that will enable you to be safe, liquid, and deliver a higher interest rate on your cash.

The solution is to look outside of the “norm”, and look into a Bank Deposit Investment Account (BDIA). Instead of a traditional savings or money market account, a BDIA lets your bank serve as a custodian for direct investments in fixed income, managed by a nationally recognized Registered Investment Advisor (RIA).

A BDIA lets you still use a bank to provide the safety of your underlying dollars, while allowing your RIA to create an investment portfolio that takes advantage of any rate increases. The difference between a standard bank deposit account and a BDIA can be anywhere between 20 to 70 basis points (as of 2017 you could expect anywhere between .70-1.20%).

Why wait for the Fed to take action? The ability to see an increase in your interest earnings can start today.

Being proactive—taking advantage of three+one’s proprietary liquidity analysis and the help of an RIA—will provide a new source of income by the end of 2016. And you’ll likely see even more growth in 2017 as short-term interest rates are projected to continue rising.

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See Us At These Upcoming Events and Conferences:
National GFOA in Denver – May 21
Ohio GFOA – September
GFOA SC – October
PA GFOA – October

A Taxing Deduction

The release last week of a newly proposed tax plan for individuals and companies appears to provide tax relief for all taxpayers. What it will look like after it goes through Congress will be anyone’s guess.

 

A Taxing Deduction

 

As I start to dig into the preliminary details, the deduction of state and local income and property taxes would be eliminated.

A Taxing Deduction

While this may seem minimal to some individuals living in low-taxing communities, the impact to residents in heavily taxed states could be significant. You can be sure the offset of these deductions will be reviewed and analyzed over the coming months.

In the federal government’s previous tax plans, the deduction for sales taxes was eliminated. At the time that was very controversial, and very negative long-term consequences were foreseen. Today the loss of those past deductions is nothing but a faint memory, but the loss of deductions for property and income taxes would have a much greater impact.

As we tour nationally, we continue to see public entities with healthier balance sheets. This encouraging trend speaks to a healthier underlining economy nationally. That said, these entities will likely need to look to other sources of income as the public will have less appetite for any increases in property, sales, or state income taxes.

A Taxing Deduction

It is always smart to explore alternative options to raise revenue. One way to increase your total annual revenue by .25 to .30% is to proactively manage all your operating and non-operating cash. While that percentage may seem small, it could very well lead to tens to hundreds of thousands of new dollars of revenue.

With a rising rate environment, one could also see annual income on cash increase by another 100%+ over the next year or two. This increase could help temper the need to raise taxes for cost-of-living increases, health premium increases, capital projects, or project budget deficits caused by tax caps or public votes.

Cash in today’s marketplace has a value of at least 1.0% or more, leading to a potential source of new income that could have a major effect on your bottom line, this year and next.

Taxpayers in heavily taxed states or localities (even with lower tax brackets) will be more sensitive to any tax increases if they do not see a benefit—even if it was only for a tax deduction.Whatever efforts you take that use innovative thinking to offset the loss of these deductions will be well received by your state’s taxpayers.

At three+one, we can help you identify the value of your operating and non-operating cash and, through your banking institution(s) or RegisteredInvestment Advisor (RIA), turn it into an asset that will have significant value in the marketplace and improve your bottom line immediately.

See Us At These Upcoming Events and Conferences:

GFOA South Carolina – May 1
National GFOA in Denver – May 21
New York State Association of Counties Finance School- May 2-4