Imagine the power that cash holds in today’s marketplace. With short-term rates still hovering above 2.0%, the income generated on idle cash can have a major impact on one’s entity and those they serve
As we enter the budget season mid-year or at year end, the challenge of stretching tax dollars often leads to less resources or decisions of where to cut, especially when tax caps can easily be outweighed by insurance premium increases, pension obligations, cost of living increases, or other essential services.
Too many times the frame of mind in forming a budget comes down to cost controls, rather than revenue-producing opportunities. While this may be understandable at one level, it is not a mind-set that will move your entity forward. At best, you will be in constant ‘treading water’ mode.
A great example is the value of one’s cash. So many see the need to have idle cash available for ‘just in case’ circumstances rather than viewing cash as an asset to generate additional income and opportunities.
At three+one® we can help a public entity find new sources of revenue through all levels of cash. In 2019, three+one®’s flagship service cashVest® will provide proprietary liquidity analysis and data that will result in over $100 million of new revenue to communities that will lead to:
- Closing a budget gap
- Preventing additional tax increases
- Providing additional teachers, police, firefighters & EMTs
- Technology upgrades
- New community services
- After-school programs
- Student field trips
- Arts & Cultural community events
- New musical instruments
- Enhanced sports Programs
- Continuing Education & Online Learning
Obviously, the list can go on. Simply put, the power of cash can have a wonderful impact on one’s budget today and in the future. The time is now to have a conversation with the team at three+one® about our cashVest® liquidity analysis service. The result could make all the difference between stagnation and growth in your 2019 and 2020 budgets.
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.
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.
As one looks through the eyes of a taxpayer, how do you think they would react to any one of the following responses from a public official when asking about how the entity manages their public cash?
1.) Why bother? Cash has no value.
2.) I don’t have the time, given all our other priorities.
3.) All our money is already invested in our bank.
4.) I don’t want to risk not having cash when I need it.
5.) I don’t currently have the staff or resources to look into this.
6.) It’s probably not going to be worth the effort.
7.) My board won’t approve it.
8.) It’s only going to bring in another $50K to$100K. That’s not enough to really impact my bottom line.
9.) All our cash is spread among so many banks and bank accounts, it would be a giant hassle.
10.) I don’t want to upset my bank or bankers.
Just imagine if those you serve heard those responses as they open their tax bill or tuition bill.
Given the financial stresses and tight margins public and higher Ed institutions experience, the need to have a single asset sitting dormant provides little cover when asked this hard question: “Why didn’t you?”
cashVest® by threeplusone® is our proprietary liquidity analysis service that helps public entities take unrecognized and underappreciated cash and turn it into a revenue-generating asset.
Cash has real value in today’s marketplace—on average 2.25%. That can add up to real income in the six- or even seven-figure levels.
As a treasurer of a public authority and a trustee to a university, I truly understand the stresses on a finance staff. One more request can mean putting something else aside. However, you do not need to do this alone. The threeplusone® team can analyze all your cash, develop time-horizon patterns on it, and work alongside you in having a conversation with your bank(s). The end result: higher earnings on your cash.
Regarding private higher Ed institutions, our liquidity analysis will substantiate your Financial Accounting Standards Board (FASB) liquidity-disclosure requirement in 2019.
Join the ranks of our clients whose most common question after using cashVest® by threeplusone® for the first time is: “Why didn’t I do this sooner?”
After developing and implementing a clear liquidity plan over the last year, Beaufort County, SC has increased its interest earning by over 300%. Treasurer Maria Walls, CPA has worked closely with her bank, investment advisors, and threeplusone to make sure every dollar that she has on hand is being put to work to earn more.
Beaufort County has an annual budget of $245 million. For fiscal year 2018 (July 2017-June 2018), Treasurer Walls recorded a record $2.9 million in interest earnings for her county. As she continues to proactively implement the County’s monthly cashVest® updates, we anticipate the County to earn over $3.5 million in interest earning for the next fiscal year.
With significant advances in all five components of the County’s cashVest update, Treasurer Walls was able to increase her score by over 20 points since the initial analysis. Here are a few ways the County has achieved over $2 million in interest earnings:
1.) By ensuring 100% of all the County funds are providing value, either through direct interest earnings or by offsetting banking fees.
2. ) The Treasurer continues to work on balancing the County’s operating balances and using threeplusone’s time-horizon data to ensure all low- and non-performing cash is receiving the maximum rate potential.
3.) The County increased the interest on operating liquidity by over 215% during the 2018 fiscal year.
4.) The Treasurer’s office adopted an investment policy that guides current and future employees in the allowable investments and restraints that maximize the County’s cash assets within the appropriate confines of safety and liquidity.
As budget season approaches, it’s time to focus on liquidity management. Let us help you achieve greater interest earnings in 2019 by identitying the value of your cash and putting it to work the way Beaufort County has.
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.