Sharing a Piece

Sharing a Piece

States are facing momentous challenges and budget shortfalls as they try to deal with the impact of COVID-19. It’s easy to see why most of them are tempted to hang onto their share of the $110 billion in CARES Act funding they received electronically in May. Payments ranged from $9.5 billion to California and more than $5 billion each going to New York and Florida, with all states receiving funding based upon their population size. But it would be a colossal mistake for states to selfishly try to hang onto all of that money, or attempt to use it themselves. If that emergency aid is not spent on coronavirus-relief efforts prior to December 31st, it must be returned to the federal government. Put quite simply, states do not have the means or mechanisms in place to effectively use the vast majority of those funds within the next six months.

liquidity analysisState governments are cumbersome, slow-moving bureaucracies that are often several steps removed from the people they serve. State Houses are filled with policymakers and attorneys, and those bureaucracies are not really set up to actually deliver public services to the people who need them the most.

Counties, on the other hand, are much closer to the people they serve. Public officials in both Washington, D.C. and the states already know this. That’s precisely why both the federal government and the states create new programs and then mandate that local governments must implement them and deliver the services. It’s how the system already works…and works well. The federal government passes money down to states for things like education, public transportation, and human-services programs. States then act as conduits forwarding much of that money down to local governments like counties, cities, and school districts to actually provide the necessary public services. We ask, why should the CARES Act money be any different?

There are 3,141 counties in the United States, and they are the level of local government that is the most efficient and effective at delivering public services to American citizens. We entrust our county governments to deliver public safety and law enforcement services. Moreover, counties are the delivery system for the vast majority of all public health and human-services programs such as food stamps, medical care, and housing assistance. From economic development, to coordination of fire, E-911 and EMS services, to public health programs and pandemic planning, it’s the counties who are actually on the front lines, delivering the services that people so desperately need. State and the federal government bureaucrats understand that. Neither has the manpower nor the mechanisms in place to deliver those services. That’s precisely why they depend on county governments to do it for them.

Which is precisely why now, as we battle COVID-19 together, it is more important than ever that states pass along to counties a major portion of the CARES Act money they recently received from Washington. Did you know that 138 of the largest counties (about 4.5% of the total) have populations in excess of 500,000 people and they received about $30 billion in direct federal aid under the CARES Act? But the remaining 3,003 U.S. counties are not slated to receive one single dollar, unless their states decide to voluntarily share the Coronavirus Relief Fund money they received. States could effectively redistribute a large share of those billions of dollars to counties and thus provide the “biggest and best bang for the buck” as we combat this pandemic.

In support of that idea, on June 24th, the U.S. Treasury issued guidelines for use of CARES Act funds which contains the following language:

“Consistent with the needs of all local governments for funding to address the public health emergency, States should transfer funds to local governments with populations of 500,000 or less, using as a benchmark the per capita allocation formula that governs payments to larger local governments. This approach will ensure equitable treatment among local governments of all sizes.” 

Unfortunately for these smaller counties, the Treasury guidance used the word “should” rather than “must.”

liquidity analysisA few states have acted appropriately and should be commended for quickly realizing that the most effective way to put their CARES Act money to work is to pass a large portion of it down to counties. Pennsylvania, Ohio, Michigan, and Florida are leading the way; counties in those states are using CARES Act money to fund things like individual and family assistance, public health programs, rent subsidies to prevent evictions, grants to assist small businesses, employee training programs, and funding to not-for-profit agencies impacted by COVID-19.

A handful of states are still debating whether or not to share the funding they received while most other states, such as New York, appear to be simply keeping the money for themselves.  It is hard to believe that the very same states that regularly rely on counties to deliver their public services will now magically come up with a quick and efficient delivery system to put those CARES Act dollars to work. The hard truth is they simply cannot do it on their own.

States should be tapping into well-established networks such as the National Association of Counties (NACo) who can help them connect with local governments and find out what is working well in other parts of the country. Individual state-by-state organizations such as the New York State Association of Counties (NYSAC) and the Florida Association of Counties (FAC) can be incredibly helpful as well.

This major influx of cash from the CARES Act can also be placed into interest-bearing accounts until it is spent. That move can generate even MORE money to help combat the effects of the COVID-19 pandemic. Yes, the funds must be spent during 2020…but even so, if that liquidity is properly managed during the time it is being held on deposit, it could generate an estimated $100 to $150 million in interest income between now and December 31st. That is $100 to $150 million in “free” money that could enhance and increase the overall impact of the CARES Act funding.

At three+one, our innovative cashvest® program helps municipalities determine their precise liquidity needs for upcoming expenses and also provides them with the critical data they need in order to maximize the value of every dollar they have on deposit. We stand ready to do whatever we can to assist our neighbors to win the battle against COVID-19.

States are facing budget shortfalls because of falling sales tax revenues. Their natural inclination is likely to hang onto the billions of dollars that just got deposited into their coffers. But the CARES Act money must be spent within the next six months, and according to the law, it cannot be used to fill budget gaps created by revenue shortfalls. Since states cannot possibly put all that money to work on their own, they should immediately pass along a significant share of the money to counties—and do it NOW—when it can most effectively address the impacts of the pandemic devastating our nation.

The author served as a county legislator, a county treasurer, and as a disaster recovery coordinator in New York State and has always strived to maximize the impact of federal and state monies at the local level.

Supporting Each Other

Supporting Each Other

COVID-19 has brought on financial challenges to all public entities in one form or another. Who would have thought on New Year’s Day 2020 that we would be thrown into such twists and turns a few months later?

The need to make quick decisions around those you serve, and those who work for you, spiraled in just a few days into a “new normal.” The strains on your organization began by having to work remotely. They continued as you had to wrestle with unforeseen financial demands and questions of potential revenue gaps, all resulting from major disruptions in your community, state, and nationwide.

As you looked around, it was clear that it was not just your entity facing financial un-certainty. Neighboring counties, towns, villages, school districts, community colleges, etc. were all in the same boat.

As the COVID-19 effect continues, public entities are having to plan around current budget gaps due to lower sales taxes, disruption in tax payments, and other various revenue streams that stretched reserve funds and put contingency dollars in jeopardy.

Coupling these challenges with lower interest rates and cuts in revenue, many public entities are being forced to address revenue shortfalls. The desire to borrow on anticipated revenue is leading to the issuance of Revenue Anticipation Notes (RANs) or Tax Anticipation Notes (TANs).

With today’s lower interest rates, the ability to borrow at these rates makes RANs and TANs extremely attractive in addressing potential cash flow concerns.

On the other hand, those entities with cash are finding it very challenging to find investment alternatives for this cash, given lower deposit and CD rates, decreasing state pool rates, and Treasuries near zero. However, based on your Investment Policy Statement, you may be able to buy RANs and TANs being issued by other public entities around you. Doing so, you’d be supporting your neighbors while earning higher rates on your cash; it could be at or above 1.0%. This has become so appealing, even the Federal Reserve is partaking in this practice.

three+oneAt three+one®, our innovative cashvest® platform allows a public entity to determine (a) the levels of liquidity needed to meet day-to-day needs; (b) whether it needs to borrow a certain amount of money; and (c) if there are dollars available to be invested.

Supporting local communities and providing a platform to make that happen are core values at three+one®. Our proprietary liquidity modeling, forecasting, and data services are designed specifically to help public entities and higher-Ed institutions address all their liquidity challenges.

Together, we can take a challenge and turn it into an opportunity to become stronger in the future. And better able to serve those who depend on us.

Hear It For Yourself. rfpPrep® Is Helping Public Entities

Hear It For Yourself. rfpPrep® Is Helping Public Entities

For any public entity or higher-Ed institution, a productive relationship with your banking partners is absolutely necessary given the depth of financial complexity for these sizable organizations. Using rfpPrep® by three+one®, your entity can streamline the RFP process of procuring banking and merchant services with a single, customized portal where financial institutions can respond to your request-for-proposals. You receive error-free bidding and analysis in a fraction of the time typical of the RFP process.

Beaufort County, SC Treasurer Maria Walls shares with you her experience with rfpPrep® and the benefits to her taxpayers.

Within These Four Walls

Within These Four Walls

The color of the four walls we now call our office has changed, let alone the way we conduct business. Who would have ever thought that the four walls within our own home would be the office we conduct our day-to-day business, not just for a day or two, but for months, maybe more? Just imagine considering a vacation day being a day you leave the house to go to our regular office.

The health crisis of COVID-19 has changed all of our lives, which will surely have long-term ramifications.

They say it takes 21 days to create a habit, and for many, the last 90 days have created lifetime changes that have led to new ways in how one transacts business.

It was over six years ago when we started blogging about how the way public entities and higher Ed institutions conduct their banking was going to change, as was the landscape of banking itself. We knew it would be a process that would evolve, with some adapting readily, while others would be reluctant.

Fast forward to the COVID-19 pandemic. Virtually overnight, organizations of every type were forced to embrace banking digitization and remotely. Even the New York Stock Exchange went 100% online for two full months!

Three months ago, the idea of working remotely, while also accepting or sending money electronically was a “remote” possibility. The COVID-19 crisis provided us no other option than learning to adapt, while forming new habits that may very well lead to long-term trends.

Some of these trends may include:

  • Fewer bank branches and greater online banking technologies, led by artificial intelligence.
  • More virtual conference calls, fewer in-person meetings.
  • Conferences will still be held, but with new parameters.
  • Electronic banking will become a norm, rather than a request.
  • Changes in hardware and software that will provide greater flexibility to work remotely.
  • A move to less office and counter space.
  • Embracing greater technology capabilities with stronger fraud protections.
  • A general shift toward more remote work being done from home as initial research shows a recent 20% increase in productivity across all sectors

Though the way we conduct business may have changed, the desire to have a personal relationship with the person on the other side of the phone or computer will not change. Being able to blend personal contact with technology will be essential if we are to create a new norm.

At three+one®, we had a vision to help public entities and higher Ed institutions navigate through an ever-changing landscape of banking, whether through new regulations, changes in interest rates, or advances in technologies. Most importantly, the idea that each client has different needs, yet many common experiences, has been built into our firm’s DNA. 

While the four walls that you conduct business may have changed, the spirit of the institutions we serve has not. Our mission remains the same: to help you succeed through unchartered and unexpected environments, especially as new habits are being formed.

5 Key Benefits of Liquidity Analysis

5 Key Benefits of Liquidity Analysis

The current marketplace is causing everyone to ask a lot of questions, but there are few definitive answers unless your entity is armed with data. A comprehensive liquidity analysis by cashvest® provides essential short- & long-term benefits to your entity. Here are 5 key benefits we are talking about today!

Liquidity Is Like an Iceberg

Liquidity Is Like an Iceberg

Liquidity is like an iceberg… it’s the part that you can’t easily see that may be the most important to you.

County governments are complex, diverse organizations that encompass dozens of agencies, multiple segregated funds, and anywhere from 40 to more than 400 separate, individual bank accounts.

“Liquidity”’ is the cash that is sitting in those numerous bank accounts, in many cases going largely unnoticed on a day-to-day basis.

A ship’s captain needs information about the colossal part of the iceberg that lurks quietly beneath the surface of the water. Likewise, county leaders need information and data about exactly how much overall cash they have to work with, and precisely when that cash will be needed to meet spending obligations.

cashvest® is the proprietary financial tool, developed by three+one®, that can help your county identify that liquidity, precisely measuring its size and depth, and then help you put that vital information to work.

What can cashvest® do for you?

Increased Interest Earnings – The valuable data that your county will receive from the cashvest® dashboard will provide your CFO with ongoing critical information about the available cash balances in those dozens (in many cases hundreds) of different bank accounts. That cash can then be put to work earning interest—perhaps in certificates of deposit, converted into a money-market accounts, or even invested in U.S. Treasury bills. The results, and the increased revenues to your county, will surprise you.

Decreased Banking Fees – Banks are providing important financial services to your municipality. In many cases, banks will tell you that these services are being provided at no cost to the county. But of course, there is some “cost” in that your bank probably requires that your county maintain a “compensating balance” in order to qualify for those “free” services.

For example, let’s say your county is required to maintain a $10 million minimum balance in order to avoid bank service fees. And let’s just say that $10 million could be earning 60 basis points in interest, even in today’s low-rate environment. That means that your county could have earned $60,000 in interest on that money over 12 months. So, while you didn’t write a check to your bank, you still compensated it to the tune of $60,000 because they had the use of your money. Let cashvest® help you identify multiple smaller accounts which can result in lower compensating balances being required. By putting more of that $10 million to work, your county might be able to pocket a large chunk of that $60,000.

Other benefits of liquidity information include avoidance of unnecessary short-term borrowing, increased bond ratings, and lower interest rates when your county does need to borrow money. Why not give three+one® a call? You may discover that your iceberg is a lot bigger than you thought!