ENHANCE YOUR COUNTY’S CASH PRACTICES

I am always surprised when I meet a county finance official who doesn’t practice advanced liquidity management techniques because they think the financial results will not be worth their time and effort. Nothing could be further from the truth.  Even in a low-interest-rate environment, employing effective cash management practices can mean millions of dollars in additional revenues to small and mid-size counties, and tens of millions to larger counties. But before I prove that to you, let me first describe what effective liquidity management means.

Quite simply, it means managing the public funds that are on deposit in your municipal bank accounts in the most effective ways possible in order to maximize interest income and to bolster non-tax revenues.  It means regularly determining how much liquidity you have available to invest using a combination of certificates of deposit, U.S. Treasury bills, municipal bonds, or other fixed-time deposit investments as permitted under your county’s adopted Investment Policy.  Then, by using future cash forecasting, you need to determine how long some of those funds will remain on deposit before they will be needed for operating expenses. And once you know how much cash you have available and how long some of those pockets of liquidity will remain on deposit, you can then determine which investment, for which timeline, and at which bank, will pay your county the highest rate of return on those dollars. Most county finance officials try to practice this kind of cash management at least to some extent, but given limited staff and only so many hours in the day, it’s sometimes very low on the priority list.

So – is advanced liquidity management worth the effort?  You bet it is.  In order to substantiate that claim, I am going to highlight three different counties from across the U.S. who have drastically improved their earnings by using the latest in liquidity analysis tools. In order to measure the true impact of effective liquidity management, I first calculated how much each of these counties would have earned over the past 12 months had their funds remained on deposit in daily money market accounts or general deposit accounts. Those are reliable options for SOME of your day-to-day operating funds – but they are not good options for ALL of your funds – especially when those funds could remain on deposit for many months. Here are some examples of what effective liquidity management can do for a county: