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.
It is my expectation that average earnings on short-term cash in 2020 will range between 1.50% to 2.00%.
With short-term rates currently hovering just above 2.0% and recent indications by the Federal Reserve to lower short-term rates, one would expect lower budget interest earning projections for 2020. However, that doesn’t need to be the case.
Municipal public entity and higher-ed budgeting of interest income for 2020 fiscal year is critically important.
A majority of public and higher Ed institutions continue to keep many levels of cash on the sidelines for “just-in-case” circumstances. For them, that means leaving sizable balances in low interest-bearing accounts.
Here are three steps you can take now to preserve and increase your interest income earnings for next year:
1. Perform a liquidity analysis around all your cash. This is far different from a cash-flow analysis. A liquidity analysis not only looks at the ebbs and flows of a month’s highs and lows of cash, but also includes the float of every dollar as it relates to actual daily transactions that occur all across your entity and your financial institutions . By monitoring your liquidity, the ability to pay your bills while also investing all other cash will allow you to maximize the value of all of your dollars, not just some of them.
2. Be aware that the valueof cash in the marketplace depends on the amount of time you have on your cash. Currently, money invested for 30 days is receiving higher rates than that invested for 90 days or longer. However, this can change, so having an active dialogue with your financial providers to establish an investment strategy is important. In the past eight months, there have been a couple of times we’ve seen 12-month rates jump up; they allowed those who paid attention to lock in higher rates. For your bank or investment advisor to take advantage of such opportunities relies on your ready response, always knowing what monies can be put to work, and the necessary approval processes are in place to implement upon their specific recommendations.
3. Remember that this is also good time to keep an open dialogue with your banker(s). Proactive involvement with your bank(s) will help you strategize against any reactive rate moves the bank could make in a changing rate environment.
If you don’t where to start – or don’t have the time or resources – let the team at three+one® help. With the support of our proprietary liquidity analysis and data, we can gauge critical time horizon on all your cash. That will enable you to capture the highest marketplace value for your cash and help preserve and increase your income this year and all next year.
Though it appears that rates will be slightly lower for the next budget year, that doesn’t mean you have to lower your interest-earnings outlook. It just means you need to know what tools are out there to help you make the most of your cash on hand.
Your 2020 budget can reflect an increase in interest earnings through a proactive management style and the liquidity data of three+one®.
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.
Are you looking for a way to alleviate escalating expenses, cut
out miscellaneous fines/taxes for your taxpayers, or close a budget gap—but
can’t seem to find a solution? CFO Sarah Sullivan and her team at the Richland
Library in South Carolina have experienced similar issues. After working closely
over the last couple of years, developing and implementing a clear liquidity
plan, the library has increased its interest earnings by over 150%. This has
enabled the library to solve some serious financial challenges.
With Sarah’s proactive approach, and by incorporating three+one®’s time horizon and
treasury data, the library will completely eliminate all overdue fines this
upcoming fiscal year. The library is able to go fine free and put their mission
first by encouraging current and past customers to use the resources, services
and programs that they offer—without the fear of fines.
With Sarah and her team’s hard work and dedication to increasing interest
earnings over the last year, the library recorded over $208,000 in interest
earnings (net of fees) and has the potential to exceed $260,000 (net of fees)
over the next 12 months. Here are a few ways the library has achieved record interest
• By ensuring 100% of all the library’s funds are providing value,
either through direct interest earnings or by offsetting banking fees.
• By continuing to work on balancing the library’s operating
balances and using three+one®’s time horizon data as cash flows change to ensure all low- and
non-performing cash receive the maximum rate potential.
• By utilizing three+one®’s liquidity data to identify solutions
within their current banking relationship for short-term funds. Doing so
ultimately resulted in 50% of their annual earnings.
We’re thrilled for Sarah Sullivan and her team and are pleased to
share the Richland Library’s success
Now let three+one® help put all your entity’s cash to work, finding solutions for
potential budget shortfalls, lowering tax burdens on constituents, and so much
Lycoming County, Pennsylvania is located
approximately 130 miles northwest of Philadelphia and is the largest county in
the state by land area. It has a population of approximately 113,000, and its
county seat, Williamsport, is the birthplace of Little League Baseball.
Lycoming County is divided by the Appalachians and is beautified by rivers,
creeks, and watersheds. As gorgeous as the landscape in this county is, what
makes it such an incredible place is the people; they are kind, hardworking,
professional, and the county officials are true public servants.
With the partnership and collaboration of the
county’s Commissioners, Director of Administration, Fiscal Services,
Treasurer’s Office, and the Controller’s Office, the county has made cashVest®
by three+one® an integral part of its liquidity monitoring
responsibilities. All officials have made earnings and savings a priority for
the taxpayers’ cash. When asked about the importance of the cashVest®
program, Matthew McDermott, Director of Administration, stated: “Counties have
a myriad of responsibilities and functions they carry out to serve their
residents. Lycoming County recognized
that it did not possess the in-house capability or expertise to effectively
monitor and conduct the analysis of its liquidity, so we turned to three+one®
to make the most out of our cash.”
During the county’s initial cashVest® period (January 2017 – December 2017), the county was focused on investing its available cash. With an annual budget of nearly $103 million, the county earned $603,165 in interest during that initial 12-month period.
Over the last 12 months, Lycoming County used
liquidity data, technology, and treasury services and is on track to earn no
less than $2.1 million in interest—an increase of over 248%. “I’m here to
do everything I can for the Lycoming County taxpayers. This program has
increased our collaboration with the county’s banks and has provided valuable
data that the Treasurer’s Office uses,” says County Treasurer Connie
The question your entity should be asking is
this: Would such an increase in interest income/savings benefit your taxpayers?
Whether it helps fund a new capital project, hire an additional staff member,
increase wages for current staff, pay down debt services, or something else, the
answer must be an emphatic ‘Yes!’
Lycoming County officials have done an
outstanding job utilizing three+one®’s data and analytics to
maximize the potential of its cash in the following ways:
● Allowing 100% of funds to provide value to
the county by having equitable banking relationships.
● Increasing liquidity proficiency by ensuring
its cash is taking advantage of time-horizon data.
● Maximizing the rates earned on all cash
through market statistics.
● Optimizing cash flow through banking
technologies and account-balance optimization.
These steps have all led to providing the
greatest value to the county’s taxpayers. The county is now earning over 3% of
its total tax revenue from interest income and savings on an annual basis,
creating a new stream of revenue which the county will use to mitigate tax
By taking advantage of three+one®’s
independent and objective analytics, you can be certain that all opportunities
to earn more will be achieved. Just remember that Lycoming County is earning in
excess of $150,000 in interest income and savings each month.
Let three+one® provide your entity
with the tools it needs to prosper, just like we’ve done for Lycoming County.