Time has worth. Time-horizon data are what makes cash worth more in the marketplace. The ability to know how soon you need cash and how long you don’t need it at the ready, is the very foundation of liquidity analysis.
Whether short-term rates continue to move up or flatten out, the ability to time the flows of your cash is a speciality that has its rewards in today’s marketplace, with rates floating at 2.25%+.
The need to keep cash handy to pay a “maybe” vendor bill is no longer a sound strategy. Rather, using historical “ebbs and flows” allow an entity to take advantage of the marketplace rates going forward. Some may consider this cash-flow management. At threeplusone, we see it differently. To us, it’s liquidity management.
Capturing higher rates and maintaining it is all about understanding the time-horizon concept.
One might say, “had I only known.” That no longer has to be the case. By using time-horizon data, one can look forward and map out a strategy to manage all cash, both short or long term. Using this data can lead to six-figure (or greater) increases in interest earnings.
At threeplusone, we have been recognized as the pioneers of liquidity analysis for public and higher Ed entities. We have developed proprietary algorithms that design time horizons around all levels of cash, enabling our clients to understand the value of their cash in marketplace, while adhering to all legal, safety, and liquidity requirements.
The time has come to make more on your cash by applying our liquidity analysis principles. You’ll be thrilled with the results!
After developing customized liquidity-management strategies with public entities that have budgets as low as $2.5 million, I can confidently say that opportunities for smaller municipalities have returned. The weak interest-rate environment of the past decade is no more; your cash has value once again!
The Town of Elma* has proven this to be true with their impressive interest earnings since their first cashVest® report last June. The Town Supervisor’s office has worked closely with threeplusone in order to feel confident making cash-management decisions and comfortable with their liquidity position.
The results speak for themselves. We anticipate Elma to generate over $60,000 in interest earnings in the next 12 months, a 1440% increase over the $3,894 that the Town earned in the previous 12 months before working with us.
Elma’s cashVest score has increased by over 30 points since their initial report; they made advances in all five components of the score. Some of the main drivers of the Town’s success can be seen below.
1.) They significantly increased the value they receive on over 44% of funds.
2.) The Town earned 1.63% on strategic funds in mid 2018, compared to earning .08% on these funds in 2017.
3.) The Supervisor’s office took steps to reduce banking fees by over $15,000. This action freed up significant dollars for investments.
4.) The Town updated their investment policy to ensure that the correct procedures were in place and all available investment options according to General Municipal Law were properly represented. This enabled the Town to create an investment plan that works for their office and greatly benefits the taxpayers.
If your public entity has a budget under $10 million and you’re not budgeting for a substantial increase in interest income in 2019, then it’s likely your cash holds untapped potential.
It’s time to follow the Town of Elma’s lead and put a new focus on liquidity management. By implementing a customized cash-management strategy, its Supervisor’s office has generated new and recurring revenue streams—and shown a strong dedication to its taxpayers.
We can help your entity find similar revenue streams where you may never thought to look.
Debt financing is a necessary tool for all public entities when they are faced with major capital projects. School districts purchase new fleets of buses, counties manage infrastructure projects that span multiple years, and cities construct public spaces meant to attract residents and tourists. Though these endeavors carry a large price tag, they also provide worthwhile benefits.
Government entities, having limited sources of revenue, strive to pass balanced budgets each year. Debt financing allows for the opportunity to pursue more ambitious public works by funding the projects over several years.
Moreover, when a public entity borrows for a project, the financial burden is spread across generations of taxpayers. This is more equitable than asking current residents to pick up the entire tab for public parks and buildings that will be utilized well into the future.
If you’re a finance official who is currently navigating the debt-financing process, it is imperative that you know your duties don’t end once the funds are secured. Your cash is more valuable today than at any point in the past decade and these proceeds can significantly help reduce your initial borrowing costs.
Collaborating with project managers to develop an accurate draw schedule will help you maximize your earnings without sacrificing liquidity. Additionally, the IRS has arbitrage laws that limit the amount of interest certain entities can earn on borrowed proceeds. Don’t shy away from working to offset borrowing costs because arbitrage calculations seem intimidating. Rather, talk to your municipal advisors and work with vendors who specialize in these areas.
Finance officials will be called on to lead debt-financing efforts when their entity is considering a large project outside the scope of their routine activities, or if the state mandates a specific capital project.
Public entities that work with threeplusone® to receive time-horizon data feel confident that their operating and reserve funds are always earning the highest yield possible without sacrificing safety or liquidity. We encourage our clients to be proactive in managing their bond proceeds with a similar level of detail in order to offset borrowing costs to the fullest extent possible.
The most important resolution for threeplusone® in 2019 will be to make a difference for the public entities and higher Ed institutions we serve.
This year, we’ll strive to help such entities across America generate over $100 million in new interest income as a result of our working with them. These are new dollars that would not have been realized were it not for threeplusone’s liquidity analysis and data services being applied in identifying all cash as a revenue-generating asset.
This difference can mean so much and do good for those who public entities and higher Ed institutions serve.
So what are these differences, you may ask? Just consider a potential top 10:
• Lowering taxes or tuition costs
• Filling a budget gap
• New capital purchases
• A new playground
• New emergency vehicles
• New hires
• Additional police or firefighters
• Reducing OPEB obligations
• New technology purchases/enhanced infrastructure
• Covering the increase costs of healthcare
These are changes that can come by making all your cash work harder than ever in the interest of those you serve.
It is the mission, passion, and moral obligation of the threeplusone team to make a difference to those who serve in public entities and higher education and, in turn, to those they serve.
One thing is clear: $100 million can make a real difference in 2019. The money is there to be realized, especially for your entity and community.
Over the last several years, three+one has blogged frequently about the changing landscape of banking and the value of cash as an asset.
Last year at this time, I made a prediction of the top 10 trends for 2018. My batting average edged up over that of 2017, from 70% to 75% in 2018. As we head into 2019, the top 10 trends I see evolving are as follows:
1.) The outlook on cash will continue to be very positive, with cash becoming an even more valuable asset; expect it to be earning 3.0%+ by year-end 2019.
2.) Liquidity analysis and data will become more prevalent and as a standard requirement, given the value cash has become. In 2019, the Financial Accounting Standards Board (FASB) has mandated that all non-profit organizations disclose such information on financial statement. We expect the Governmental Accounting Standards Board (GASB) to follow suit in coming years.
3.) The Federal Reserve will still raise short-term interest rates at a slower pace than in 2018, due to a divided outlook by members of the Fed’s board. The 30-day Treasury bill will reach 3.0% during the year. This will lead to a continual trend of U.S. Treasuries being purchased as an alternative to bank-deposit products.
4.) I do not expect an economic recession in 2019; rather, I believe the nation’s signs of economic growth will continue on a pace of 3.0% or greater. Consumer confidence will remain high, and unemployment at historic lows.
5.) Given the new leadership in the House of Representatives, pressure will mount to have greater oversight of banking, stalling any additional rollbacks of Dodd-Frank. I also foresee calls for banks to set aside additional reserves in case of financial market stresses appear to loom.
6.) Expect the big banks to continue building their presence in large metro areas, with regionals concentrating on mid-tier cities and counties, and community banks on smaller cities and towns. Community bank mergers will continue throughout 2019.
7.) Blockchain and 5G technology will lead the way for greater pressure on entities to upgrade their technology infrastructure.
8.) The average bank Earnings Credit Rate (ECR) will exceed 1.50%.
9.) Given the staggering growth in online purchasing and lower oil prices, prepare for a dip in sales-tax projections. This gap can be made up through the proactive management of “all” cash, generating significant revenue to offset the sales-tax shortfall.
10.) three+one will help public entities and higher Ed institutions earn an additional $100 million+ in new interest earnings, enabling a greater return to those they serve.
At three+one we strive to help clients navigate through the changing landscape of banking and an environment of rising interest rates.
Like 2017, 2018 was a great year for those entities that put our recommendations into practice. Next year promises to be even more rewarding, given the trends we have identified here.
If you don’t know where to start, please call us. If you have benefited from our work, please share the word. We’d like to help more entities like yours make real improvements to their budgets and bottom lines in 2019.