Shifting Focus on Liquidity

Shifting Focus on Liquidity

Liquidity data has, again, come into focus as S&P Global Ratings has reassessed its local government ratings measures to include seven new criteria of which one is “liquidity.” The new “Liquidity Score” actually measures the availability of cash (and cash equivalents) in the short, medium, and long term. Liquidity now makes up 10% of the framework for local GO ratings at S&P.

According to S&P, the chart below outlines a summary of the basis for providing a local government’s GO rating.

Among the other qualitative factors that positively affect this Liquidity Score, two of the most often highlighted are: (1) Liquidity projections for the current year and the following year, and (2) “Robust and stable” cash-flow capacity compared with peers.

We all know governments carry cash on the balance sheet for liquidity needs, reserves, etc., but do you have a forward-looking analysis evaluating cash and how it can be used to provide stability and generation of value to your taxpayers? According to S&P, this can increase your Liquidity Score and potentially have a positive impact on your entity’s credit rating.

In assessing your entity’s readiness to prepare for more attention and scrutiny regarding liquidity, here are four questions you should consider:

(1) What ongoing mechanisms are in place to help your liquidity management?

(2) Does your entity have control and oversight of liquidity data?

(3) How does your entity qualitatively and quantitatively provide liquidity data to help maximize the value brought to the taxpayers on cash?

(4) What is your entity’s cash-flow capacity compared with peers?

Aside from credit rating agencies placing an emphasis on liquidity, liquidity data have also come into focus as FASB issued an Accounting Standards Update (ASU) requiring not-for-profit entities to disclose in the notes to their financial statements relevant information about their liquidity position. These liquidity disclosures require numerical details about the actual liquidity position of a not-for-profit.

Your entity may have controls, internal experts, and time to provide and perform these types of analyses on a regular basis, and if not, three+one® can provide you with the tools, data, and peer comparisons to ensure you’re always prepared to have a credit rating that looks its best.


Aurora’s $165,000 Example

Aurora’s $165,000 Example

The Town of Aurora, New York is located southeast of Buffalo and includes the Village of East Aurora. Its Main Street is famous for its energetic small-town ambiance with specialty shops, restaurants, and historic homes. It may be most celebrated as the home of Fisher-Price, the internationally renowned toy manufacturer.

The Town of Aurora, with a population of approximately 13,000 (2010 census), has an $8.9 million budget (all funds). In August 2017, Supervisor Jim Bach and the Town Board engaged the cashvest® & rfpPrep® services by three+one®, seeking to provide their taxpayers with as much additional revenue/savings as possible.

Supervisor Bach and Assistant to the Supervisor Kathleen Moffat have carried out three+one®’s plan. Over the past twelve months, the Town has achieved $165,820 in realized interest earnings and “soft savings” of $35,902 in banking fees.

Here are some of the ways the town accomplished this substantial spike in additional revenue:

(1)  100% of the town’s cash is earning interest and 79% of all the town’s cash is providing value through a diversified-liquidity strategy that is meeting the 30-day Treasury index. Current investments are earning between 1.89% and 2.15%. Due to the town’s proactive liquidity strategy employing time horizon data and stress-test modeling, the town has a significant portion of cash locked in fixed-income solutions earning 2.10% through October 2020 – something that could not have been achieved without time horizon data and fixed income solutions.

(2)   The town does not look at its cash in select “buckets.” The three+one® plan benchmarks all cash on a quarterly basis and helps the town implement a comprehensive liquidity strategy on all cash in order to guarantee all assets are bringing value to the taxpayers. There’s a science behind continually earning while offsetting banking services, ensuring cash flow for A/P & payroll, and strategic liquidity time horizons.

(3)   The Town Board revised and updated its investment policy statement and took steps to adopt electronic payment solutions. These steps provided the framework necessary to ensure the safety of public dollars while meeting all legal requirements and maximizing the value on cash. The adoption of electronic payment options: (1) decreased costs, (2) increased float (increased investment potential on funds), and (3) provided increased transparency through online ePayable technology.

The Town of Aurora’s Board is enthusiastic about trying solutions that provide additional revenue to the taxpayers. With proposed AIM (Aid and Incentives for Municipalities) funding cuts in New York, tax-cap limits, infrastructure needs, and abundant taxpayer service essentials, this new income will provide a much-needed boost in revenue.

If you are a town/village/city or school district weighing the options of whether to take advantage of bringing revenue benefits to your entity, consider the size of your budget and identify your year-to-date interest earnings.

Here are some examples of where interest earnings using cashvest® by three+one® should be:

$5 million budget = at least ~$94,860 in income

$19 million budget = at least ~$353,400 in income

$22 million budget = at least ~$409,200 in income

$69 million budget = at least ~$1,283,400 in income

$92 million budget = at least ~$1,711,200 in income

Finally, bear in mind that there is no one solution in today’s public banking marketplace. Be cautious and skeptical of any vendor that suggests a “one size fits all” product; they simply don’t exist. Public entities have different banks, ever-changing liquidity variations, strategic-liquidity amounts of different sizes, varying degrees of experience, and available time horizons.

We’re proud of the success The Town of Aurora has achieved. We stand ready to do the same for your entity.

Vlog: Investing in Public Finance Officials

Vlog: Investing in Public Finance Officials

Finance is a continuous and rapidly evolving industry. Technology, regulatory requirements, and obligations to our taxpayers or higher-ed stakeholders are at the forefront of policy considerations.

In today’s vlog we discuss the importance of investing in the education of our finance officials. Professional development is vital to the success of your finance office and your entity.


It Takes Three, Marvin Gaye.

It Takes Three, Marvin Gaye.

I love Motown classics, especially Marvin Gaye and Kim Weston’s It Takes Two. But when it comes to your public entity’s financial success, it doesn’t just take two—it takes three.

Finance, accounting, and treasury are all key if you’re to continually ace the fiscal scorecard. Each function is essential in planning for the future, working toward improvements, and maximizing everyday results.

It Takes Three, Marvin Gaye.

Here is how I communicate the importance of these roles to the boards and administrators I communicate with on a daily basis:

Finance prepares for tomorrow. It budgets for the future and examines methods or practices that may require modifications in order to perpetuate improvements. It takes inputs from all of the entity’s departments and applies historical trends to extrapolate forward.

Treasury focuses on today. It maximizes every dollar to bring additional value through savings, interest income, banking efficiencies, etc. Treasury looks strategically at performance-enhancing decisions and works with financial partners (current and prospective) to provide optimal present-day results, enabling finance to work better going forward.

Accounting reconciles the past and suggests areas that need improvement. It looks back at past performance to better understand how well finance and treasury worked together to boost operations. Accounting draws conclusions that can help draft recommendations for both finance and treasury.

Why do I think this is good to remember?

Each respective role is essential today. If communications are non-existent between these three departments, I encourage each area to meet together and examine where enhancements can be made.

When gearing up for budget season, better collaboration can bring additional value to your taxpayers. When finance, treasury, and accounting work together, they can develop a financial strategic plan. This may include recommending/adopting new technologies, discussing a plan for a banking-services RFP, developing suggestions to offer legislators on how to save for future capital projects, etc.

We often lose sight of how important financial budgetary roles are. It’s easy to overlook how the treasury department can add significant value to the bottom line by means of interest income/savings. Likewise, accounting can become so customary that we manage to underestimate how it can help provide us with data that lead to several taxpayer enhancements.

It’s good to remember, in public finance, it takes three.