Municipalities hold bond referendums for a variety of reasons including funding capital projects that bring much needed benefits to their constituents. And it’s no secret that a great deal of work goes into planning these projects and gathering public support for a referendum.
However, once a municipality wins the vote, their work is not done. Municipalities must manage the proceeds of the bond sale, which can be a significant undertaking. Bond proceeds must be invested in a manner that provides protection, and they should earn a competitive interest rate to maximize the value of the referendum. Additionally, bond issues are highly regulated and require regular filings with government entities which can be a time-consuming process. Luckily, as a Registered Municipal Advisor, the American Deposit Management Co. [ADM] can help alleviate these burdens.
ADM Provides the Most Safety for Bond Proceeds
Ensuring that bond proceeds are protected is an essential first step in managing referendum funds. Further, FDIC and NCUA insurance, backed by the full faith and credit of the U.S. Government, provide the highest level of protection against bank failure. In fact, since 1933, “no depositor has lost a penny of FDIC insured funds.” So, it stands to reason that FDIC / NCUA insurance is the ultimate level of protection for referendum funds, but these programs have their own limitations.
Typically, FDIC / NCUA insurance is limited to $250k per ownership category at each insured bank. This limit is often far too low to protect the full amount of proceeds from a bond referendum and leaving funds unprotected can create additional risk for the municipality. In the past, some issuers have extended protection by opening accounts with several banks. This process can be labor intensive because municipal employees must search for banks paying competitive rates, maintain relationships with each of these banks, and reconcile several different accounts.
However, with advances in financial technology, or fintech, municipalities can now get protection for all of their referendum funds without the added workload. Here, at the American Deposit Management Co. [ADM], our clients can achieve extended FDIC / NCUA protection for all their bond proceeds through a single account and a single monthly statement.
ADM Provides Highly Competitive Returns for Bond Proceeds While Staying in Compliance
In addition to extended FDIC / NCUA protection, ADM provides highly competitive interest rates available for referendum funds. We accomplish this by spreading deposits across our nationwide network of community banks.
Banks in the ADM network compete for funds by offering competitive interest rates to our clients. Municipalities that take advantage of these competitive returns will see the purchasing power of their referendum funds grow over time.
Municipalities should also consider Arbitrage Rebate rules when choosing how to invest their bond proceeds. These rules limit the amount of interest that issuers can earn relative to the servicing cost of the bond. If issuers earn too much on their invested bond proceeds, they have to pay a rebate to the IRS. To prevent a municipality from owing these rebates, ADM performs ongoing Arbitrage Rebate testing. These tests ensure that municipalities remain in compliance with applicable laws and investment profits don’t exceed the set limits.
ADM Provides the Necessary Liquidity for Referendum Funds
One common caveat when investing bond proceeds is the need for liquidity. Municipalities need access to their funds on a regular basis in order to complete the intended project, and each project comes with its own unique payment schedule.
For this reason, ADM takes a municipality’s spend-down schedule into consideration when recommending investments. This ensures that the municipality has the necessary liquidity to pay vendors as needed while working to maximize the return on deposited funds.
ADM Provides Automated Regulatory Filings and Transparent Reporting
Municipal bond issues are highly regulated, and issuers must file ongoing reports to both the IRS and Depository Trust Company. Preparing these reports can be time consuming for municipal employees. For that reason, ADM automates these filings to reduce the workload of municipalities and ensure that the required filings are submitted on time.
Additionally, ADM makes reconciliations easy. Through our easy-to-use online portal and consolidated monthly statement, issuers can view their principal balance, earnings, and distribution history whenever necessary. This information can help leaders provide updates to stakeholders and keep track of how their bond proceeds are performing.
ADM Provides Automated Vendor Payments
A capital project is a massive undertaking for municipalities and can include several vendors, all of whom must be paid at different intervals. Paying these vendors and reconciling payment schedules can be labor intensive for municipal employees. Also, some payment methods, like paper checks, can open a municipality up to the risk of fraud. To combat all of these potential issues, ADM offers automated vendor payments.
Through automation, municipalities can ensure that all of their vendors are paid on time and with the proper amount. Automated vendor payments can also greatly reduce the workload of municipal employees, freeing them up to complete other tasks. Automating vendor payments with ADM can also reduce the risk of Accounts Payable fraud. Our program has special protections to ensure payments are approved and money goes to the right vendor, at the right amount, every time.
Our proprietary technology also reduces the time and effort spent on paperwork by automating required filings, Arbitrage Rebate testing, and vendor payments. These benefits ensure that municipal employees can spend their time adding value to their community rather than manually processing paperwork. To learn more about our innovative offerings and to free your staff from the burdens of managing referendum funds, contact us today.