Electrifying

Electrifying

The increase in the production and sales of all-electric vehicles has strong financial benefits, both in tax incentives and savings, as owners don’t have to buy gasoline. However, the threat that electric vehicles may pose to oil companies is not only a challenge to the marketplace. It is a strong concern to government entities. 

Gasoline taxes are folded into every gallon of gas sold and are shared by federal, state, and local sources. The income from these taxes covers transportation infrastructure costs and general-fund expenses. In many cases, sales taxes fall within the top-five revenue sources for county governments, with taxes on gasoline making up a sizable portion of a county’s sales-tax revenue.

The dilemma rests on how dependent local governments are on gas sales-tax receipts. What happens when less gasoline is consumed, as more vehicles run on rechargeable batteries year over year? This doesn’t change the imbedded infrastructure costs to build and maintain roads, bridges, and tunnels. All-electric and hybrid vehicles still account for wear and tear on our roads and streets.

The answer might be found in a recent legislative proposal in the state of Ohio. Under this proposed legislation, an owner of an electric vehicle would be charged a higher annual registration fee to make up for not paying gasoline taxes. If this proposal becomes law, Ohio owners will pay $200 per year to register their all-electric vehicles; hybrid owners would pay $100. Part of this additional revenue would go toward updating the state’s power grid as a result of higher electric demand.


No matter what means is finally taken on a state-by-state basis, you can be sure that government entities will be seeking ways for owners of hybrid and electric-only vehicles to pay their fair share in taxes.

Just as the “green-minded” public wants to save money and help reduce emission gases, government entities will be seeking workable ways to generate revenue to compensate for gas-tax losses.

I’d like to urge public officials to think differently on this and work with resources one has before looking to levy new taxes.

A majority of public entities today are sitting on cash that has great value and that can be a new source of revenue. The desire to put cash to work is often a low priority, either due to lack of resources or the expectation that cash needs to be close at hand in case of unexpected expenditures.

The point I want to stress is that all cash has significant value in the marketplace—and that can lead to unexpected revenue.  At three+one®, we can show you the true value of all your cash through our proprietary liquidity analysis and data. We’ve helped entities across the country see six- or even seven-figure increases in annual interest earnings.

Before creating additional taxes on the public you serve, look to put a new charge into the value of your taxpayers’ money.

The results can be electrifying.

Transparency

Transparency

In an era when information of all kinds is instantly available online, requested fiscal data from finance officers is expected at the snap of a finger. Greater awareness and access of information, through technology and social media, forces finance departments to be ready and able to provide a new level of transparency. This is especially true when it comes to taxes, budgets, and expenditures.

Whether it be the elected officials to whom you report, the media, the public, or your own employees, the expectation for accurate, real-time information has escalated.

The pressure to provide increased transparency—with fewer resources and in a more immediate time-frame to do so—creates greater stress to those in the government and Higher Ed. sectors. These areas are under more intense scrutiny due to new and stricter regulations, enhanced media coverage, and ongoing tax/tuition pressures.

When it comes to accountability, being able to report the level of cash an entity has on hand may be more difficult than one may think. With several banking relationships and dozens of bank accounts, an entity’s ability to tabulate and chart all cash can seem to be an overwhelming task. However, given that it is the taxpayers’ cash one is talking about, the need to be timely and proactive is imperative.

At three+one®, our cashvest® liquidity analysis and data can provide you with a complete picture of all your cash at the click of your mouse. Having such information at your fingertips gives you the confidence you need when difficult questions are asked—and transparency is expected.

The request for information today is more demanding than ever, but it doesn’t have to be a dreaded task. With our help, you can have the information you need at the moment you need it.  You will not have to divert precious time and labor to the calls for transparency that seem to be ever-increasing in current times.

A Plateau in Rates – Now What?

A Plateau in Rates – Now What?

Let’s face it, markets are fickle.   Just when you were getting used to earning four to five times the interest earnings you were accustomed to, you start seeing CD, T-Bill, ECR, MMDA, and LGIP rates flatten, or possibly even decline over previous months for the first time in over a year.

What’s happening?

A Plateau in Rates - Now What?

The short answer is: short-term rates are rising because they are more closely linked to Fed actions. With the current high-end Fed Funds target rate at 2.50%, it’s no surprise why the 1-month T-Bill rate is currently at 2.47%.  Long-term rates are flattening because investors aren’t sure when the Fed’s next move will be, which is also a good indication of why the 1-year T-Bill is currently at 2.48%.  Again, investors aren’t sure what the Fed’s next move is.

So, what do you do?  Understand that interest rates will always be on the move.  For those entities that locked-in higher rates by investing using time-horizon data, you were able to ensure your taxpayers earned anywhere between 2.60%-2.70% for monies stress tested and available for 6+ months.

The good news is that in today’s market, it’s never too late to take advantage of opportunities in the yield curve.  Here are three ways you can earn and save more for your taxpayers despite a flattened yield curve:

1.) Identify how much you’re earning on ALL money. Don’t solely focus on the strategic liquidity you have for specific time horizons but also the operating dollars being used to satisfy payroll, A/P, etc.  It’s a fallacy that only time deposits can help close the gap for the taxpayers.  If you’re like most of the entities with whom I work, you’re also looking at earning on demand deposits, too.

2.) After analyzing each bank account and identifying where your longer-term opportunity lies, save yourself the time and trouble of rolling 30-day CDs every 30-days.  If the data suggests you have time-horizon capability, use that strategic liquidity to your taxpayers’ advantage.  We do not advocate public finance officials play the markets’ games.  Err on the side of being as proactive and safe as possible.  Keep in mind, the Chicago Mercantile Exchange’s FedWatch tool has a 47.8% probability of at least one rate cut by 1/29/2020.  Now is the time to be proactive.

3.)You cannot underestimate the power of technology.  Before you make up your mind that all technology is bad, consider this – with your competing priorities and time constraints, can you affordto save time and achieve better results with technology? Utilize the right bank technologies for you (the right technologies for you).  Adopt AND adapt to new technological investment opportunities in the marketplace.  If your investment strategy hasn’t changed in a decade, then I would seek an objective party to provide perspective for you.

Patience Has Its Reward

Patience Has Its Reward

The Federal Reserve has recently signaled a level of patience on its path of raising short-term interest rates. This is a major shift since it embarked on raising short-term rates beginning in late 2016.

On January 30, the Federal Reserve decided to maintain the current rate target range of 2.25% to 2.50%.

Patience Has Its Reward

There are several reasons for this change in temperament: the increased volatility in the equity markets; a possible economic slowdown due to the recent government shutdown; uncertainty in other economic indicators from international trade tariffs; and concern over corporate earnings.
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While these market signals of a possible slowdown may be brief (counter to my own personal beliefs), the ability to capture higher rates on your cash still exists in the marketplace.

As mentioned in previous blogs, while short-term rates may stay within a narrow range, the ability to extend your cash investments over a longer period may exist. This is a conversation you should have with your financial institution or financial advisor.

Knowing when you need your cash and how far your can extend your cash investments are the core elements of liquidity management.

At threeplusone we can provide you with time-horizon levels on all your cash, allowing you to take advantage of several opportunities that exist in today’s marketplace.

Keep in mind that every dollar you hold has value in the marketplace. As a result, having patience has its rewards. The longer you can sustain your cash investments, the greater the earnings your cash will likely produce.

Let us show you how our proprietary liquidity algorithms can help your entity—and your financial institutions—capture more earnings on your cash while staying legal, safe, and liquid.

It’s BACK

It’s BACK

After a long overdue wait, Bank of America Merrill Lynch recently reiterated that cash is once again considered a preferred asset*.

Given the increase in short-term interest rates, cash should be considered a strong asset class going into 2019, provided it is proactively managed. It is expected that bank deposit rates and the 30-day Treasury yield could hover between 2.5% and 3.0% in 2019, given the current outlook of the Federal Reserve.

I know I sound like a broken record, but cash has great value and needs to be managed accordingly. That includes ensuring that all legal, safe, and liquidity requirements are met.

It's BACK

It should be noted that threeplusone has been a pioneer in developing liquidity analysis and data services for the proactive management of cash for public and higher Ed entities. By identifying and establishing a time horizon on all cash, one’s financial institution(s) can use threeplusone analysis & data to help capture the value of this asset in the marketplace, thus leading to substantial new sources of interest earnings.

Cash as a preferred asset class is back, one that could lead to tens or even several hundreds of thousands of dollars to your bottom line.

It’s great that the market is now recognizing what we have been saying all along: Cash, as it has had in the past, has value right now and will have it in the future.

*CNBC, Fred Imbert and Michael Bloom, November 23, 2018

The Real Cost

The Real Cost

When it comes to comparing the cost of banking services, the need to dig below the surface is necessary.

Most public entities will conduct banking Request For Proposals (RFP) to compare pricing on bank services and products. In these RFPs, the level proposed for an earnings credit rate (ECR) plays an important role in determining best pricing. But that may not always be the case.

Externally, banker(s) will view each client as a whole relationship. But internally to the bank, each service or type of deposit account is viewed separately. Here’s the most important thing to remember: the cost for individual banking services and the level of rates offered on bank deposits have their own separate profit centers. They must stand alone and be compared separately.

The Real Cost

An ECR is used to determine the interest earnings a bank calculates internally for the level of deposits necessary to cover banking fees. This level can vary from .50% to over 1.25%. However, that’s only half of the real calculations in how the bank covers its cost.

It is important to note that bank fees for products have built-in profit margins to cover the cost of services and overhead. For large national banks, the pass-through costs for their organic overhead are greater than those of local community banks. Bear in mind that local community banks need to cover the costs for outside, third-party support and services; these might be higher due to a smaller number of clients vs. national banks.

As a former Market President of a major bank, here are some tips you should consider when determining the best bank pricing:

1.) Internally, banks price treasury services separately from deposit rates. So should you! Keep in mind that banks internally price their treasury services independently of treasury management of deposits. Since they are priced separately inside the bank, you should also view them separately when comparing pricing. Even though the industry makes you think they are intertwined, you’ll get the best pricing on your banking services and the highest yield on your cash if you consider them independently.

2.) Request a proposed ECR rate, and one that will readjust as the Federal Reserve increases the Fed fund rate. Ideally, the sharing arrangement between you and the bank should be a 50/50 split. As rates increase, so should the narrowing of the spread.

3.) Be sure to have the bank disclose any FDIC charges related to deposits being held by the bank. You may have a higher ECR but if FDIC charges creep in, the less competitive your ECR may be. There needs to be a balance on both sides of the relationship.

4.) A wholesome relationship and strong communications between you and your banker(s) are imperative. There is a direct link between better pricing and strong ties with your bank.

At three+one, we believe in strong relationships with your financial institutions. As interest rates change, so does the value of your deposits and how they relate to the overall value of your banking services and fees. As an independent liquidity analysis and data firm, we provide a pure, unbiased perspective around both sides of any banking relationship.

There is a real cost to doing business. To make a true comparison—and be fair to all involved, including those your entity serves—it is important to know what your real costs are.

We’re here to help you sort it all out.