A Guide to Cash Management for Public Organizations

Public entities – like school districts and municipalities – must approach cash management strategically. A deliberate approach is necessary because these organizations face increased public scrutiny regarding how taxpayer dollars are managed. Additionally, they are often subject to additional regulations governing cash investments.

A successful cash management plan for a public organization should include unique strategies for bond proceeds and cash received through regular taxes. Each decision that a cash manager makes when crafting their plan should maximize the utility of funds and help achieve the goals of the organization.

Goals of Public Entity Cash Management

The first step in creating an effective cash management plan is establishing the goals of the organization. Three of these goals are found in nearly every cash management plan – safety, liquidity, and returns.

Safety is of the utmost importance for public institutions and requires cash managers to choose investments that have stable principal value along with access to robust government insurance. Liquidity is another important consideration that requires carefully selecting investments which provide simple access to funds when they are needed. Finally, public organizations should seek a competitive return on cash reserves. The interest earned on cash reserves helps keep pace with inflation and can even provide the capital to fund new projects that benefit stakeholders.

Tools for Investment of Public Entity Cash

To balance safety, liquidity, and return needs, cash managers at public institutions must make informed decisions about their investment options. Stocks and corporate bonds are generally not appropriate vehicles to invest taxpayer funds due to their lack of safety. Instead, cash managers should consider the variety of deposit account options available at banks and credit unions.

Deposit accounts – including checking, savings, money market deposit accounts, and Certificates of Deposit [CDs] – are all protected by government insurance when purchased through an FDIC member bank or NCUA member credit union. This coverage provides the ultimate safety, but these accounts differ in both liquidity and returns.

Checking accounts are often used for operating expenses due to their high liquidity, but they typically provide minimal returns. Many cash managers employ savings and money market accounts to achieve higher returns for cash that is not needed on a day-to-day basis while maintaining easy access to their cash. Additionally, a well-rounded cash management plan also typically uses CDs to achieve even higher returns for cash that is not needed in the short term.

Tactics For Investing Cash

Municipalities and school districts often raise funds through a combination of tax dollars and bond referendums. Each of these sources of funds typically finances different types of projects and requires a different approach to cash management.

Bond Proceed Management

Proceeds of a bond referendum are often used to fund large projects – like the construction of a new school building or the implementation of a capital project. As such, they are typically needed on a set schedule that extends at least a few years into the future.

CDs are a preferred investment for bond proceeds that are not needed in the short term as they provide FDIC or NCUA insurance, optimized returns, and accessibility at a future date. A CD ladder can further enhance a cash management plan for bond proceeds by making cash available on key dates throughout a project.

As the date approaches to spend cash from a bond referendum, a cash manager may employ more liquid investments such as money market deposit accounts. By doing so, they can continue to collect interest on the funds while maintaining government insurance and liquidity.

Managing Cash Reserves

Funds that are collected through ordinary taxes should be invested based on the length of time until it is needed. Cash needed on a day-to-day basis is often deposited into a checking account to maximize liquidity. Once that cash is set aside, a cash manager can review other options to achieve greater returns on cash that is needed at a later date.

Again, money market deposit accounts or savings accounts are popular choices for cash set aside to address emergencies that may occur or to fund projects in the short term. For cash that is not needed in the short term or that is earmarked for future projects, CDs are an excellent option.

Modern Cash Solutions Improve Cash Management for Public Organizations

With both bond proceeds and other funds, one issue remains with available cash investments – the limitation on FDIC and NCUA insurance. Municipalities and school districts often have cash reserves vastly exceeding the $250,000 limit – especially for the proceeds of their bonds.

Modern cash solutions offer a simple way to access extended government insurance. The right financial partner will also simplify the cash management process with a variety of options to balance liquidity and return needs.

Get Modern Cash Solutions for Public Entities From ADM

At American Deposit Management, we provide modern cash solutions for public entities including school districts and municipalities. We simplify bond proceed management and our experienced team can even assist with complying with arbitrage rebate rules, help make vendor payments, and provide support during an audit.

Our solutions are tailored to the unique needs of public organizations and provide access to extended deposit protection from the FDIC or NCUA so that all an organization’s cash can be covered. In addition to extended safety through our patent-pending technology, we provide access to nationally competitive returns and liquidity that matches various needs. Best of all, we offer easy reconciliations with centralized management and one consolidated monthly statement.

To learn more about our solutions for public entities and get started optimizing cash reserves, contact us today.

BACK