After developing customized liquidity-management strategies with public entities that have budgets as low as $2.5 million, I can confidently say that opportunities for smaller municipalities have returned. The weak interest-rate environment of the past decade is no more; your cash has value once again!
The Town of Elma* has proven this to be true with their impressive interest earnings since their first cashVest® report last June. The Town Supervisor’s office has worked closely with threeplusone in order to feel confident making cash-management decisions and comfortable with their liquidity position.
The results speak for themselves. We anticipate Elma to generate over $60,000 in interest earnings in the next 12 months, a 1440% increase over the $3,894 that the Town earned in the previous 12 months before working with us.
Elma’s cashVest score has increased by over 30 points since their initial report; they made advances in all five components of the score. Some of the main drivers of the Town’s success can be seen below.
1.) They significantly increased the value they receive on over 44% of funds.
2.) The Town earned 1.63% on strategic funds in mid 2018, compared to earning .08% on these funds in 2017.
3.) The Supervisor’s office took steps to reduce banking fees by over $15,000. This action freed up significant dollars for investments.
4.) The Town updated their investment policy to ensure that the correct procedures were in place and all available investment options according to General Municipal Law were properly represented. This enabled the Town to create an investment plan that works for their office and greatly benefits the taxpayers.
If your public entity has a budget under $10 million and you’re not budgeting for a substantial increase in interest income in 2019, then it’s likely your cash holds untapped potential.
It’s time to follow the Town of Elma’s lead and put a new focus on liquidity management. By implementing a customized cash-management strategy, its Supervisor’s office has generated new and recurring revenue streams—and shown a strong dedication to its taxpayers.
We can help your entity find similar revenue streams where you may never thought to look.
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 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
Each time the Federal Reserve raises interest rates by a quarter of a percent, the higher the value of your cash.
Earlier in the year, I made 10 bold predictions for 2018. My top three predictions were related to increased interest rates. They were:
1.) The Federal Reserve will approve three rate hikes of .25% each to reach a level of 2.00% on Fed fund rates.
2.) The 30-day T-bill rate will break the 2.00% level.
3.) The average bank Earnings Credit Rate (ECR) will break the 1.00% level.
All three predictions have occurred, which means the value of your cash has gone up by .75% or more over the last 10 months. This equates to an additional $7,500 on every $1 million invested or being used to cover banking fees on an annual basis.
It’s anyone’s guess what the Federal Reserve will decide at their next meeting in December. Chairman Powell has indicated that it is his intention to continue on a path of slowly raising short-term interest rates despite mounting political pressure to do otherwise.
At threeplusone we believe very dollar of cash has value in the marketplace. Identifying “all” cash through our proprietary liquidity modeling is what makes our services unique to public entities and higher Ed institutions.
A quarter of a percent rate increase means $2,500 more in earnings per million dollars. That may not sound like much but, as the numbers add up, it could increase your bottom line by tens to hundreds of thousands of dollars per year.
And that can mean a lot to your entity and to those you serve.
Recently the Federal Reserve has come under increased pressure to pull back on its rising-rate strategy, which started at the end of 2017.
Over the last 24 months, short-term Fed fund rates have risen from a zero baseline to 2.25%. The Fed’s rate target is between 3.0% to 4.0%. This strategy has come under pressure due to new concerns over a potential stalling in the nation’s economic growth.
Whether the Fed continues on its current path or not, the effective and proactive management of your cash should be a top priority. Either way, all cash has value and the ability to match liquidity to the time duration will determine the yield that can be earned through your financial institutions.
By having a quarterly liquidity analysis, your entity will be able to capture all the necessary data to determine your need for cash vs. maximum investment opportunities. The result: all available cash will be earning the highest yield, while remaining legal, safe and liquid.
Keep in mind that cash-flow forecasting is far different from a liquidity analysis. Cash-flow forecasting projects highs and lows of cash levels of revenues vs. expenses. A liquidity analysis weighs all patterns of cash within an entity for its cash needs vs. the time horizon of dollars for investment.
Cash-flow forecasting and liquidity analysis should be projected side by side, on a regular monthly or quarterly basis. Doing this leads to greater efficiency and higher interest earnings on “all cash.”
The three+one team specializes in providing liquidity analysis and data to public and higher Ed entities. Our proprietary modeling creates time-horizon levels on all cash and matches it to its value in the marketplace, leading to new sources of interest income.
Either way, whether the Fed boosts short-term rates or holds them steady, your cash has great value. Now’s the time to seize the opportunity for both your entity and those you serve.
Federal Reserve Chairman Jay Powell has made it clear: short-term interest rates will continue to rise gradually, as the Fed orchestrates a fine balance between economic growth and the threat of inflation.
This is good news for those public and higher Ed entities that have cash to invest. If you need to borrow, now is the time to do it.
If your entity is weighing the pros and cons of using cash vs. going into the marketplace to borrow for a capital project, first contact your Financial Advisor (FA). In many cases, the cost of borrowing may still be under 3.0%, while the value of cash should exceed 3.0% in 2019. As a result, the cash on hand can be put to work over the course of months and years; by yielding a higher level of interest earnings, you could offset the capital expense of borrowing.
The value of cash is only getting stronger, leading to more options of how you can put it to work.
At threeplusone, we help public and higher Ed entities evaluate both short- and long-term liquidity needs, leading to higher interest earnings with their financial institutions—and potentially lower borrowing costs. Keep in mind that our data and liquidity analyses demonstrate the value of strong cash management to rating agencies. We stress the best practices of liquidity management, focused on borrowing strategies and repayment over the life of the project.
As rates continue to move up, so can the value of your operating and non-operating cash. With its greater worth, you’ll be in a better position when you go to the market to borrow.
Whatever the case may be, those you serve will benefit from this upward trend—if your cash and borrowing strategies are proactively managed.
That’s where we can help.