It’s already happening! Banks and advisors are setting expectations with clients for more upcoming rate cuts by the Federal Reserve. These will lead to lower deposit rates and yields on short-term cash for next year.
As mentioned in prior blogs, you shouldn’t fall into the trap that lower interest rates mean that the value of cash cannot be a valuable revenue-generating asset.
The right data will enable you to plan on making more interest income next year.
A number of public and higher-Ed institutions keep more cash than necessary on the sidelines, so liquid that the cash becomes dormant. Doing so leads to a lost opportunity in creating or preserving interest income.
There are three steps you should take to make more interest income on your cash, even in a declining interest-rate environment.
First, have a liquidity analysis performed by three+one®. Keep in mind that a liquidity analysis is far different from a cash flow analysis. Looking at all financial transactions from an entity’s perspective—and comparing each transaction that flows through its financial institutions—will lead to valuable data for all parties involved. The more information you have when you actually need cash, not just when you think you need it, will create a level of confidence as you seek to put all cash to work.
Second, the time horizon of short-term cash will allow you to understand the value of cash in the marketplace. All cash has value, whether for a day or for two or more years. Having the confidence to make the decision is a matter of having the necessary information at hand. Our proprietary cashvest® platform can provide you with all the data you need to manage your cash, while also providing a road map to your financial institutions, with sound advice in the management of deposits or investments.
Third, trust the data. While short-term interest rates may rise or fall, the ability to leverage the time value of your cash will allow you to capture or preserve interest income on all cash. In doing so, you should have confidence in what the data is telling you. The ability to have accurate information at your fingertips will allow you to make timely investment decisions with your financial institutions, while always having access to cash when it is needed.
This is the time to start preparing for next year. Let our cashvest® platform provide you with the accurate liquidity data necessary to put all of your cash to work. You’ll be taking advantage of the time value of all cash and preserving your interest income.
Having the right data will enable you to instruct your financial institutions on the steps you plan to take to make more interest income next year. That’s better than having them tell you to expect lower-interest earnings.
cashvest® by three+one® is here to help you demonstrate that kind of confidence.
Across the country, local public entities find themselves in the same predicament: trying to do more with fewer resources, smaller staffs, and greater demands.
In today’s environment, these issues are virtually universal, in cities, towns, villages, and school districts within a given county—and adjacent counties.
On top of these constraints is a steady stream of unfunded federal and state mandates that public entities must implement, with ever fewer dollars to cover day-to-day overhead expenses.
It should come as no surprise that more and more entities are looking to work together to eliminate duplication of services and reduce unnecessary overhead. As a result, shared-services initiatives are gaining popularity, ranging from public works, public safety, self-insured healthcare plans, and cooperative purchasing programs.
The ability to join forces can have an immediate and beneficial financial impact. The one impediment is jurisdiction of control. Entities involved in sharing services should have a long-term perspective of outcome and address this clearly upfront—and in writing.
The need to consider or expand shared services may not be desirable, but rather an absolute necessity to survive. This is especially true for smaller entities within larger jurisdictions. In the minds of taxpayers, a proper business attitude is to be applied, rather than an emotional wrestling match over control.
Under a shared-services agreement, the concern of lost identity should not be raised; the initiative is a joint effort in providing/receiving services for the participants’ mutual benefit. In general, the initiatives should focus on saving money and/or generating revenue.
Here are 5 financial shared-service initiatives to consider:
1. Conducting a universal banking services Request for Proposal. A banking RFP would create a large volume of buying power to use in negotiating competitive pricing on bank fees and deposit rates. A collaboration like this could include villages, towns, cities, school districts, and the county government, all at once. The end result could lead to hundreds of thousands—if not millions—of dollars in savings and or additional interest income. rfpPrep® by three+one® is the first-ever electronic banking RFP (Request for Proposal) service, entirely online and specifically designed to facilitate the bidding of banking services. Visit our rfpPrep site for more resources.
2. County governments can be a source of purchasing the short-term paper of related entities as they come to market. As local villages, towns, and school districts issue Bond Anticipation Notes (BAN) or Tax Anticipations Notes (TAN), a county could be a bidder of such notes, as allowed by legal statutes, for investment purposes. As such, the county can be an additional bidder, helping to lead to lower rates and greater competitive pricing on cash for investment.
3. Counties can provide additional resources and expertise through their finance offices in helping smaller local entities identify and manage their cash. It would still be expected that associated entities would control their cash, but alleviate the stress associated in identifying and investing cash.
4. Combining technology efforts can be effective and beneficial both in financial and banking transactions, especially in the flow and protection of collections and payments.
5. Finally, consider consolidating tax collection. In the future, all tax collections will be automated. The need to have a counter or have the control of check collection will become obsolete. Having one point of contact for tax payment and options payment can lead to major personnel and banking cost savings.
Sharing services can be pathway to strengthening the financial well-being of all those involved. Let three+one help you in setting up and managing your shared-services initiatives. What may seem as a major undertaking can be simplified with through our proprietary liquidity analysis and modeling capabilities.
As always, our mission is to help public entities to do more in serving their communities.
While we have seen increases in interest income since the Fed started raising (or normalizing) the Federal Funds rate since late 2017, this period of normalization has many public finance personnel searching for the right cash allocations. Between 2008 and 2015, the Fed kept rates at essentially zero, so the current environment of relentless rate movement is new and brings new opportunities, new questions, and new challenges.
Here are six ways to maximize the value on your entity’s cash no matter what the Fed does:
1. Leverage the ability to take advantage of what the yield curve has to offer today. Count on what can be counted. If you play the market, you risk making an inaccurate move. Counting on data and the opportunities the market holds today preserves interest income. For example, identify the time-horizon opportunities on every dollar deposited at each of your banks. Once those durations have been time tested, take advantage of the time-deposit and fixed-income opportunities available to you in order to preserve interest income no matter what the Fed does.
2. Know what cash you need to be liquid but, more importantly, know what cash you don’t need to be liquid. Liquidity is a vital part of public-financial management, but keeping all funds in a demand-deposit account, money-market fund, or the like, can prevent the public from realizing the benefits liquidity data can bring in interest for the next five years. Many remember what happened in 2008 when the Fed lowered rates and the value on cash that had been kept with 100% liquidity dwindled to nil.
3. Know your options and understand where you fall with your peers. Depending on your state’s laws, you could have many options: deposit placements (ICS, CDARS, etc.), fixed income, cooperative investments, CDs, money funds, and more. One opportunity does not fit all. Knowing how your entity’s cash performance stacks up against your peers is invaluable to knowing that you are creating additional value off the value the public creates through tax dollars.
4. Do not separate a cash-management (treasury-services) plan from an “investment plan.” In 2019, your entity’s investment plan and treasury-management plan should be heavily integrated, even more so as rates fluctuate. This will differ depending on your bank, your budget size, the time horizon of your cash, and the availability of your staff.
5. Maximize the value of your banking relationships. Understand the benefits your entity’s cash provides to your banks, your investment managers, etc. Even in a plateauing rate environment, your cash has considerable value!
6. Don’t be afraid to ask for help! Considering all the responsibilities public servants have to juggle, it’s impossible for them to undertake every accounting, financing, budgeting, treasury, and human-resources challenge by themselves. It is also not always possible to add additional personnel to lessen the burden on yourself or your current staff. Bring your staff together and have a frank conversation about what is possible to undertake, what is not, and what outside experts you can bring in to help.
Lastly, if you have questions on any of these points, please reach out to the team at three+one®. We’re here to help—and always welcome hearing your questions and concerns.
In preparing a balanced budget, the first option in making ends meet should be finding new sources of revenue before considering an increase in taxes. And, yet, raising taxes is almost a spontaneous reaction any time a budget gap is discovered – or even suspected.
At three+one®, we believe tax increases should only be levied as a last resort, not as the starting point.
Before a tax increase is even considered, can you, as a conscientious public official, say unequivocally that you’ve implemented every source of cost savings or new avenues of untapped revenue?
I estimate that nationally at least $500 billion of public cash is underperforming at marketplace rates. These dollars are either being kept on the sidelines for “just-in-case” expenditures or being left dormant since cash is considered to be a low-value asset. In many cases, this cash is being left in bank accounts with such little attention it may as well be invisible.
Just consider if the average yield on a public deposit was 2.0%. On a national basis, that equates to over $10 billion in new revenue for public entities. Let me repeat that: $10 billion per year of new revenue.
The revenue an entity can earn on all cash is no small amount. It’s generally enough to cover budget gaps, offset tax increases, or even enable offering tax rebates. I could go on and on. cashvest® by three+one® provides liquidity analysis and time horizon data that identifies and allows an entity to capture the full marketplace value on “all” cash.
Bear this in mind: the money public entities handle is not really their money; it belongs to the taxpayers.
Realizing the value of all cash is the first option one should consider before an entity even considers raising taxes.
Let cashvest® by three+one® help you put your cash to work.
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.
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.
