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.

There’s No One Way

There’s No One Way

There’s no one way to manage cash. Different banks, investment advisors, and financial advisors have their own approaches and perspectives in the management of short-term cash.

However, there is one essential in managing short-term cash: to manage all cash as a revenue-generating asset. You must keep in mind that cash is not linear, but rather multi-dimensional, with different purposes, both in time and value.

Cash Management

Cash is multi-dimensional, with different purposes, both in time and value.

The ability to capture the ebbs and flows of all cash is in the data. Cash patterns are similar to human behaviors since humans are the ones who are conducting the timing of transactions. The genuine need for cash is often far different than when you thinkyou need it. The patterns detected through the data will show actual needs vs. assumed ones.

The cashvest® platform by three+one® is the first of its kind in the public and higher Ed marketplace. It looks at every individual banking transaction, thus detecting the flows of cash through an entity’s financial systems, and then matches it as the cash flows through your bank’s systems. It’s through cashvest® that patterns surface, enabling unparalleled liquidity management. This level of data puts the power of managing your cash in your hands and the financial institutions that manage your cash.

The strength of liquidity analysis and data leads to a greater precision of knowing when you need cash and how to best maximize its value in the marketplace.

Yes, there are different methods to managing cash. But now there is one definitive way to identify all of your cash’s investment potential. That is cashvest® by three+one®.

Confidence in the Data

Confidence in the Data

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. 

three+one Banking Consumer Rates

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.

Budgeting Interest Income for 2020

Budgeting Interest Income for 2020

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.

2020 Budget Cycle

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®.

Fed Rates & the Public’s Cash

Fed Rates & the Public’s Cash

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.

colorful money

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.