Inflation numbers continue to stay low, but does that mean costs are staying flat for public and higher Ed entities? Unfortunately, the answer is “no.”
As the treasurer of a public authority, I see our costs for health care, equipment, labor, and vendors continue to climb. This is especially true for Other Post-Employment Benefits (OPEB). These expected and unexpected costs put pressure on an entity to evaluate and determine the need to raise taxes, rates, or tuition, sometimes beyond the level of inflation. Even though this is often beyond your control, do you think the people you serve understand that?
The answer is “yes and no.”
Regarding public entities, the taxpayers will be supportive if measures have been taken to be prudent and proactive in dealing with financial stresses. Sharing services among other public entities are being encouraged, coupled with common sense best-management practices to make ends meet. We’ve noted that capital projects with a strong infrastructure purpose are also being supported.
On the higher Ed side, annual tuition increases have been pared back compared to those in the past. But the need to stay competitive—in enrollment, new programs, and physical facilities—will always be a challenge.
In both cases, the need to be innovative in finding new sources of revenue is essential in dealing with public perception and reaction.
That’s why three+one continues to urge every kind of public institution to be proactive in managing its cash as an asset. Done right, this will lead to tens—if not hundreds—of thousands of dollars in new revenue to your bottom line. That can be a major way to offset the pressure of rising costs.
As we all know, the people we serve expect us to look under every rock to keep costs under control and find new sources of savings and revenue. The time spent on this effort will serve all of us well, especially in preserving jobs and the quality of services the public has come to expect.
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The phone call comes in on a Monday morning and you are informed a check for $60,871 was cashed by a major bank in Alaska, but not to the payee you had designated. Your signature is on the check clearing the main operating account from your local bank. The account number lines up and your money has been debited from your account. Your money is gone, the intended payee is still owed the amount, and your local bank says you have a problem. What a way to start a Monday morning and your week!
Who’s responsible? Your office, your local bank, or the large bank that cashed the check?
Ultimately it comes down to how you established your banking relationship and if fraud-protection services have been set up with your local bank. First of all, do they offer such services? Is your bank committed to protect your entity, no matter what? Does the bank have the capital to protect itself from such events?
When I led teams at two major banking Institutions, it was in our DNA to protect both our clients and the bank. On a normal day, our banking division would have over 2,000 attempts to defraud the banks through phone calls, check/credit card scams, and online hacking of bank accounts. It was our goal to be the body armor around our client relationships. The cost the banks was significant but necessary since, to us, our clients always came first.
Is that true for all banks? Unfortunately the answer is “no.” Not all banks are equal in the level of their fraud protection and even if they’re able to offer such protection. But in any case, I can assure you that banks of all sizes work feverishly to stay ahead of scams before they reach you—and potentially cost you a large sum of money.
Next week, in Part 2 of this blog series, we will offer several suggestions that can go a long way in protecting your entity or institution from fraud.
NYSGFOA Annual Conference
Pre-conference – March 20th, 2018
Annual Conference – March 21-23rd, 2018
Over the last several years, three+one has blogged frequently about the changing landscape of banking and the value of cash as an asset.
Last year at this time, I made a prediction of the top 10 trends for 2017. My batting average was in the same range as 2016, over 70% correct.
As we head into 2018, the top 10 trends I see evolving are as follows:
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.
4. The U.S. GDP will be on pace to reach 4.0%, and the nation’s unemployment rate will break the 3.75% level. Over two million new jobs will be created as a result of the newly approved federal tax reform legislation.
5. Continuing 2017’s trend, public entities will enjoy higher cash levels throughout 2018.
6. Under the leadership of the Federal Reserve’s new chair, Dodd-Frank regulations will be relaxed but not eliminated. The changes made will be beneficial to banks of all sizes.
7. There will be a spike in the number of community bank mergers.
8. Public entities and higher Ed institutions will issue a greater level of banking Request for Proposals (RFPs) due to greater pricing pressures, bank branch closings, and more competitive deposit-rate offerings.
9. Alternative payment options will grow, given new technology, greater restrictions placed on the usage of cash and checks, and more attention being given to digital currency and its regulation.
10. By year’s end, three+one will have helped public entities and higher Ed institutions realize upwards of $20 million in new interest income as a result of best practices in liquidity analysis and the proactive management of their cash.
At three+one we strive to help clients navigate through the changing landscape of banking and an environment of rising interest rates.
The link between a stronger credit rating and stronger liquidity is direct, if an entity’s liquidity is well managed and well viewed by its credit agencies.
Liquidity analysis and management of all cash are important components in showing credit agencies that your entity has a strong handle on its sources of revenue. How effectively that cash is managed requires a strong plan that covers operating and capital payments.
Outside of the basics of receiving and disbursing funds, the management of liquidity of operating and reserve funds is expected. But credit agencies take more favorable views based on how well the funds are managed while they’re under an entity’s control.
Think of it this way: liquidity is cash. If cash is viewed as an asset, it can be effectively managed, calculating in operating and capital payments, and lead to increased bottom-line income.
At three+one, we specialize in identifying and managing our clients’ operating and non-operating liquidity. Our pure and independent data allow entities to manage cash more effectively—and benefit from a significant increase in interest income. Frequently in the tens to hundreds of thousands of dollars each year.
A stronger liquidity initiative could lead to a stronger credit rating and lower rates on lending in the marketplace. The link between the two is a direct one.
With the proper management plan, the end result can be a “win-win” for your entity and to those you serve—in both lower costs and higher interest earnings
Last month President Trump nominated Jerome Powell to become the next Federal Reserve chair, replacing current chair Janet Yellen in January.
So who is Jerome Powell? What can we expect from him that will directly affect public entities, higher Ed, and health care institutions?
Jerome Powell will be the first Fed chair that comes from the world of investment banking. He has extensive experience as a lawyer, and investment/private-equity banker, with considerable government expertise, having worked closely with the U.S. Treasury Department. What differentiates Powell from previous Fed chairs is that he was never an economist.
Most observers consider Powell to have much the same outlook on economic issues as Yellen.
So what can we expect from the new Fed chair, assuming he will be confirmed by the U.S. Senate?
Powell will take a more corporate approach to managing his office. You will also see more direct messaging by him and fewer opinions offered by various Fed board governors in public.
Powell will likely maintain a similar, centralist approach as Yellen’s on monetary policy. I don’t expect a shift in current Fed policy; that should be calming to the markets.
Under his leadership, we can expect the Fed to stay on track to bring up Fed rates to 2.0% by no later than 2019.
As a former Goldman Sachs investment banker, we can expect Powell to ease up on the level of regulations being imposed on banks under the 24,000+ pages of Dodd-Frank. The same with other various Federal regulations, including the Volker Rule.
While I expect him to go easy on some regulations, I don’t think he will unravel the rules that were established after the financial crisis of 2008 to protect the liquidities levels of the banking system.
Powell will set a strong balance between what economic numbers are surfacing with a strategy that will sustain the U.S. economy in case of a future U.S. recession.
I think Powell was an excellent choice and will prove to be a strong Fed chair. You will find him to be more sensitive to issues affecting smaller banks, as well as to the unnecessary and burdensome regulations on big banks that have piled on onerous costs and needless overhead.
The changes under Powell could lead to a methodical approach in raising short-term rates while making bank deposits and lending more appealing to banks and the marketplace, with hopefully less paperwork.