Municipalities Should Review Their Cash Management Strategy

One of the most important responsibilities of any municipality is to manage taxpayer dollars efficiently. Communities often focus on how their funds are spent while letting their cash management strategy run in the background. This can be a costly mistake.

Community leaders should review their cash management procedures often, especially with rates on the rise. With effective cash management, municipalities can increase the benefit of their projects while minimizing the cost to their taxpayers.

Rising Rates and Falling Deposits Equal Opportunities for Municipalities

In 2022, interest rates are rising rapidly and bank deposits are falling. Both declining bank deposits and higher interest rates can translate to higher rates for certain cash accounts that are frequently used by municipalities.

Governments can benefit from reviewing their current cash management strategy periodically to ensure that they are capitalizing on the current rising interest rates. Some may find that partnering with a new cash management vendor could help them access better rates. To ensure a municipality is maximizing their cash management strategy, they should implement a request for proposal [RFP] from several companies that offer cash management solutions.

With RFPs from several vendors, municipalities can gain a clearer understanding of their options and choose the service that best meets their needs. When reviewing these proposals, leaders should pay close attention to rates, safety, liquidity, and the level of personalized service that is offered.

What to Seek in an Effective Cash Management Strategy

Whether a community gets its revenue from taxes or a bond referendum, leaders should ensure that they are safe, available when needed, and earning a competitive return. This is the basis of a successful cash management strategy. When the current strategy falls behind in any of these categories, leaders should take that as a sign to seek additional vendors.

Safety

The most important aspect of a municipality’s cash management strategy is achieving safety for their funds. Taxpayers entrust their funds to their community leaders who must, at a minimum, ensure that these funds are secure.

FDIC / NCUA insurance provides the highest level of safety for cash reserves because it is backed by the federal government. This coverage is available at most financial institutions, but it is limited to $250,000 per account ownership category at each insured bank or credit union. This limit could create complications for those cities with more than this amount in reserve. However, with the advent of fintech, municipalities can spread their deposits across multiple FDIC / NCUA insured financial institutions, achieving full protection for their funds.

The FDIC and NCUA only cover certain types of accounts like checking, savings, and CDs. Other types of investments are not covered by FDIC / NCUA insurance, including local government investment pools [LGIPs]. Municipalities who invest in non-insured products such as these risk losing their funds if there are issues with the management of the fund or its investments.

Liquidity and Payment Services

Once a municipality has achieved safety for their cash reserves, liquidity becomes an important consideration. While municipalities often try to plan their major expenditures far in advance, it’s not always possible. When unexpected expenses arise, municipalities need the flexibility to access their funds.

In addition to liquidity, some cash management services also help with managing payments for planned projects. These services can be especially important when a municipality has a capital project funded by a bond referendum. These projects can have dozens of vendors all with different payment schedules. Automated vendor payment solutions can reduce the effort required to manage these payments, reduce risk of fraud in the payment process, and ensure payments are on schedule.

Competitive Rates

When interest rates are on the rise, municipalities should take care to ensure that their cash is earning nationally competitive rates. Interest earned on cash reserves and referendum proceeds can help offset costs, maximize the utility of taxpayer funds, and minimize the need to raise taxes to cover inflationary cost increases.

Municipal staff often find that locating accounts with competitive interest rates is a labor-intensive process. With today’s technology, municipalities can achieve safety, liquidity, automation, and competitive interest rates without the additional effort.

Municipal Cash Management Solutions by ADM

Our company, the American Deposit Management Co. [ADM], helps municipalities access FDIC / NCUA protection for large sums of cash with a single deposit and a consolidated monthly statement. This is accomplished through a concept we developed called Marketplace Banking™, and it’s powered by our proprietary fintech.

Our innovative technology spreads exceptionally large sums of cash throughout a nationwide network of financial institutions to achieve extended FDIC / NCUA protection. In addition to the ultimate protection for referendum funds, our clients can access rates that often match or exceed those offered by LGIPs and other similar investment vehicles.

To learn more or get started, contact us today.

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