It does not take a crystal ball to see that uncertainty in our world is at an all-time high. Whether you’re discussing the global economy, local governments, or even our day-to-day lives as citizens, we have very few definitive answers about the future. If you talk to a public finance official, though, you may realize that this is just a more severe version of situations they must consider regularly.
Elected officials and budget officers are continually asked to complete the impossible task of predicting the future. This year will certainly bring new challenges and learning lessons for everyone. It will also expose the strengths of the savviest cash managers—and their budget officers will be thanking them. These finance officials did not leave the value of their taxpayers’ dollars to chance. They used data to confidently lock in interest rates on dollars that weren’t needed for immediate use.
Wayne County, NY and its Treasurer, Patrick Schmitt, are shining examples of this practice into action.
When COVID-19 was spreading across the United States and the Federal Reserve responded by cutting rates from 1.25% to near 0%, Wayne County was able to earn an effective rate over 1.30% across all taxpayer dollars it held—not just those that were invested. With the power of cashvest® by three+one® supporting the County since 2015, its finance policy has been focused on maximizing opportunities available and guaranteeing future revenues.
Today, with the help of three+one®’s MC Short-Term Forecast®, Wayne County is able to monitor and project its liquidity position into the future so that finance officials can plan for any necessary withdrawals from or potential contributions to the County’s fixed-income portfolio.
For the past three years, Wayne County has managed to keep nearly 100% of its funds identified as being available longer than six months invested in fixed income. This amounts to 80% of its total liquidity position producing interest earnings that can be calculated and budgeted because of their fixed interest rates. Had the County only been using a liquid investment pool to manage these dollars, it would have seen the annual value on its funds drop by 75% or more in just a matter of weeks.
The year 2020 has been unlike any other. But, if there is one thing that we can all take from the past six months, it’s that changes are going to continue to happen more quickly and more frequently going forward. Because uncertainty will always be with us, it is essential that public finance officials count on what can be counted—and lock in the value they receive on every taxpayer dollar.
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 Information Age and resulting new technologies have led to a a paradigm shift in the way the world makes decisions. Look no further than professional sports to see how the approach to formulating strategies has changed.
Coaches, who in the past defended their most important decisions using factors like “gut feeling” and “momentum,” are now making calls based on the probability of winning games according to the data. Analytics gives these leaders the opportunity to completely remove emotions from the situation and take an unbiased approach based on the numbers. The underlying statistics have always been there but now, thanks to technology, they have easy and virtually unlimited access to them.
Modernized treasury management within public entities and higher Ed sectors is no different. Cash can be spread out across many accounts at multiple institutions all earning different yields. Combine this with restrictions or limits on withdrawals and required balances, and one’s cash management picture can be a lot more complex.
Treasury officers are eager to get their hands on data and analysis from one central location that enables them to feel both comfortable and confident when making their cash-management decisions. Analytics makes it possible to maximize the potential of public funds without sacrificing safety or liquidity—and save valuable time during the decision-making process.
This type of information and analysis can include time-horizon data, effective rates for all entity funds across different providers, current market rates, and much more. Finance officials who collaborate with threeplusone have this data at their fingertips; that gives them the ability to maximize taxpayer dollars like never before.
Much like coaches in professional sports, finance officials are accountable to a large group of constituents who will not hesitate to voice their opinions if the results are not in line with their expectations.Having the data in hand and an appropriate application of analytics that backs up your decisions can be the difference maker in getting your finance office the hard-earned recognition it deserves!