Recently the Federal Reserve has come under increased pressure to pull back on its rising-rate strategy, which started at the end of 2017.
Over the last 24 months, short-term Fed fund rates have risen from a zero baseline to 2.25%. The Fed’s rate target is between 3.0% to 4.0%. This strategy has come under pressure due to new concerns over a potential stalling in the nation’s economic growth.
Whether the Fed continues on its current path or not, the effective and proactive management of your cash should be a top priority. Either way, all cash has value and the ability to match liquidity to the time duration will determine the yield that can be earned through your financial institutions.
By having a quarterly liquidity analysis, your entity will be able to capture all the necessary data to determine your need for cash vs. maximum investment opportunities. The result: all available cash will be earning the highest yield, while remaining legal, safe and liquid.
Keep in mind that cash-flow forecasting is far different from a liquidity analysis. Cash-flow forecasting projects highs and lows of cash levels of revenues vs. expenses. A liquidity analysis weighs all patterns of cash within an entity for its cash needs vs. the time horizon of dollars for investment.
Cash-flow forecasting and liquidity analysis should be projected side by side, on a regular monthly or quarterly basis. Doing this leads to greater efficiency and higher interest earnings on “all cash.”
The three+one team specializes in providing liquidity analysis and data to public and higher Ed entities. Our proprietary modeling creates time-horizon levels on all cash and matches it to its value in the marketplace, leading to new sources of interest income.
Either way, whether the Fed boosts short-term rates or holds them steady, your cash has great value. Now’s the time to seize the opportunity for both your entity and those you serve.
It’s a real pleasure for us to celebrate the work of others in our community—especially when the impact of that work is felt around the world.
An organization that continues to have a profound impact worldwide is Full Circle Home, one that I have known since its inception.
This not-for-profit organization, led by Vickie Durfee, connects deployed service members at bases around the world with their loved ones all across the United States.
Since its founding in 2007, Full Circle Home has helped over 21,000 troops send holiday gifts and love notes to their families, at no cost to them. The simple act of giving a gift with a handwritten note bridges the gap between our troops overseas and those who support them back home.
These gift packages give our troops abroad a way to express their gratitude, and recognize the daily sacrifices made by their loved ones. This gift connection spans the miles, providing encouragement and recognition to the families affected by these deployments.
I am pleased to learn that Vickie has been nominated this year for the Eagle Rare Life Award awarded by Eagle Rare Bourbon. Eagle Rare Bourbon, a Kentucky based spirit company, honors a group of individuals that embodies excellence, and demonstrates the epitome of leadership, courage, survival, heroism, devotion and character. The top five finalists to receive the most votes in each category will be considered for a category prize of $5,000 along with a winner of the $50,000 Grand Prize and Eagle Rare Life Award. These cash awards will be used by the recipients to further the noble work of their organizations. Winners are determined by public vote.
By a simple vote, you will help recognize Vickie’s work and that of Full Circle Home. Simply click on this link to vote and to read more about the Full Circle Home: https://eaglerarelife.com/stories/vickie-durfee
Your vote can make a real difference in helping Full Circle Home continue its global mission and its impact on our military soldiers and their loved ones.
Your vote will count!
The trends continue: short-term interest rates are still on the rise, the economy is growing, technology is advancing, and banks want your business. That is good for you and your banks.
Let me breakdown each of these trends:
First, short-term interest continues to rise and I expect this trend to continue throughout 2019. The Federal Reserve wants to bring short-term rates back up to what it views as normal levels: 3% to 4%.. This means you will make a greater interest earnings on your cash and banks will make more net-interest margin on deposits, making it appealing to both sides of the relationship.
Second, the U.S. economy is improving and above most expectations. A better economy means higher tax receipts for public entities, a strong job market for college graduates, and a more stable lending base for banks. All that is good for everyone as well.
Third, advancing technology brings new levels of productivity both personally and professionally in today’s marketplace. The ability to do banking transactions faster, virtually, and at your fingertips, allows greater access, control, and opportunity whenmanaging your cash. It also gives banks greater ease in monitoring and managingdeposits and transactions. These tech advances are both great for you and helpful to your banks.
Finally, as rates rise so does the spread that banks make on deposits. As a result, banks are more willing to raise deposit rates—if asked. The need to communicate with your banks as rates go up is imperative if you are to make the most of this rising-rate environment. This is good news and for both you and the banks, as you will both experience more interest earnings.
Rising rates, a stronger economy, advancing technology, and a desire for banks to gain and keep your business. They all have all the makings of a great 2019.
The link to ensuring success is the support and services of threeplusone. This is a fact. Our proprietary liquidity analysis and data will enable your entity to be proactive in managing all its cash in a rising-rate environment, while adopting new technologies and enhancing itsbanking relationship. And that is good news for both your entity and your bank.
In a politically charged environment that has polarized our differences, there is still a world in which differences can come together.
That world is cash!
I doubt if you could find anyone who doesn’t want cash to be identified and lead to greater interest earnings in a rising-rate environment.
Whether it is to save or spend money, the value of cash is greater today than it was a year ago. We can all agree to that.
Using greater interest earnings on cash to pay down debt, close a budget gap, lower taxes, or cut tuition costs is good. We can all agree to that.
Clearly, cash is still king. We can all agree to that.
If you have a strong cash balance, it can lead to a better credit rating. We can all agree to that.
A greater understanding of all cash—and how to make it work harder—leads to greater control within an organization. We can all agree to that.
The stronger your balance sheet, the happier you and those you serve will be. We can agree to that.
A healthier community or more successful entity leads to better, more positive media coverage. And who doesn’t want that?
There is more cash in the public and higher Ed marketplace today than ever before in U.S. history. The ability to manage your liquidity effectively and efficiently can be a unifying message within and outside an entity or institution.
At threeplusone® we can help a public entity or higher Ed institution identify all cash and make sure it’s earning greater yield while remaining legal, safe, and liquid through financial providers. Putting all your cash to work will lead to a success story you’ll want to share.
And everyone will agree to that.
Let me be so bold to say it straight out: “public finance officials deserve a pay raise.” If this issue is not addressed, a public service crisis could be looming.
In today’s public world, the demands in serving the public are becoming ever more onerous. With fewer allocated resources and greater public expectations, it’s a wonder we have individuals willing to serve in these positions.
Almost without exception, we see annual budgets go up but the salaries of elected and appointed finance professionals stay the same. Is that just a concern over the public’s reaction to pay raises? Or something else? When you consider that public finance professionals manage millions to billions of dollars, it’s astonishing how poorly they’re compensated.
Their level of responsibility is enormous. Day in, day out, finance professionals are handing audits; budgets; mandated local, state and federal reporting; attending public hearings; answering FOI requests; and taking complaint calls from all quarters. They’re expected to respond to greater social media interaction and be on call 24/7 during emergencies. The list goes on and on.
While those who serve the public are not in their positions for the money, they do deserve to be recognized for their work. They deserve competitive compensation. If they don’t get it, the private marketplace will almost surely lure them away or they will just retire early.
Few people realize that, on a national basis, the average pay for a public finance professional is at the bottom 10% of the professional pay scale. Personally, I find this unacceptable. It’s no surprise that millennials are unwilling to fill such roles now. If this trend continues over the next decade, it will create a crisis.
Clearly, we will need these younger people going forward. More than half of today’s public finance officials are over the age of 50 and more than half of that group are 60+.*
Here are my suggestions in addressing this issue:
1.) Community, business, and finance leaders need to take a public stand and lead, review, and adopt fair compensation levels. To remove any level of politics from the process, this should not be conducted by elected officials.
2.) Have an independent consultant evaluate local, state, and national compensation levels along with competitive salary ranges. In Upstate New York, I have recommended the services of the Burke Group, (Compensation Consulting Division), who helped evaluate leadership compensation for an area college and at a public authority. The results were well received, independent, and adopted with facts and numbers behind the findings and recommendations.
3.) Have states set standardized, competitive compensation guidelines and levels along with minimum standards to abide by. These should be based on entity size, population, and budget formulae and CPI increases should be automatic. This will allow for your entity to yield better candidates for the position that is being offered.
4.) Work to build up our “bench strength,” with a real push to attract and pay new talent. This is necessary if we’re to avoid a shortfall in filling positions being left by retirements. The need for signing bonuses and competitive scholarship opportunities through various finance associations may be necessary, along with a long-term commitment. Keep in mind that the average length of time a millennial will stay in a position will likely be two to three years if there is not a path to growth and greater responsibilities. If compensation levels are not addressed, the pool of talent to pick from will be slim, coupled to lower skill levels. That will lead to a crisis for public entities like yours.
5.) Where will the money come from to provide these higher wages? New sources of revenue and savings from an improving economy and efficiencies in new technologies, along with new income being generated by higher interest rates, should go a long way.
This is not an easy topic to discuss publicly, but there is no option if we are to protect public interests, accountability, and funds.
At threeplusone, we can help you address this issue. First, by taking a stand, which this blog’s purpose serves. Second, in reviewing the issue, the ability to generate the funds necessary to pay public officials more can come from the additional interest income on all cash as a result of our liquidity analysis and data. Our proprietary liquidity models have proven over and over that, if all cash is put to work, the increase in revenue a public entity can be from tens to hundreds of thousands of dollars, perhaps even millions. In doing so, no additional stress on a public budget would be required in fulfilling such a request.
Entities should make their constituents aware of the problems in attracting—and retaining—talented financial professionals to public service careers. Properly communicating their initiatives to competitively pay public finance officials should be a successful path to avoid an unnecessary crisis, while protecting the public trust and its funds.
* ”Governing, By the Numbers,” (Public Sector Has Some of Oldest Workers Set to Retire) August 2013. Bureau of Labor Statistics/Survey2018.