The 2019 mid-term election battles were some of the fiercest in our nation’s history. Many records were set and highly publicized during this cycle, including voter turnout, female candidates, and advertising spend. However, lost in all that chaos were some record-breaking victories for funding of schools and other public projects through local referendums.
Highlighted by Wisconsin, who saw school referendums break historical records, several states and hundreds of municipalities saw large funding increases for their public education systems. In addition to funding education, many districts approved bond issues for transportation or other infrastructure. A staggering total of at least $76.3 billion in bond sales were approved by voters during the 2018 midterms, with at least $20.6 billion of this total earmarked for education1. Now the question that local leaders must ask themselves is this: How do we protect our funds and keep the money working for us until it is put to use?
What are the challenges that come with managing referendum funds?
Congratulations! Your funds are approved. Now it’s time to get to work.
Getting the voters to approve the funding for your project may have been the easy part. Now that funds are rolling in, you must decide where to keep them until they are spent.
1. Traditional banks have limitations.
Your first inclination might be to call your local bank to determine where to keep your deposits. Local banks can be a great place to start. But if your planned deposit exceeds the FDIC insurance limit of $250,000 per depositor – which most referendums would – this may not be a good solution.
You could reach out to multiple banks to start accounts and spread the money among them, but then you’d likely need a dedicated employee (or employees) just to manage the multiple accounts, account statements, reconciliations and points of contact. This process can become tedious even when you only need a few banks to cover your deposits.
2. Earning the maximum return on your deposit is difficult when protection and liquidity are required.
As you well know, it takes effort to maximize the return on your idle cash. Many large institutions have a team dedicated solely to this task. Leaner organizations sometimes lack the means to monitor the ever-changing landscape of rates and deposit terms as banks compete for their business. In many cases, money is left on the table simply due to lack of manpower.
A special challenge arises with bond proceeds. Sometimes these funds must be fully insured to prevent taxpayers from losing their money. This limits your negotiation power with traditional banks as they can usually offer protection only up to the FDIC insurance limit. Some banks may offer the ability to spread your funds among CDs at various banks, but CDs are not liquid instruments. So, this isn’t always a great solution when you’re managing a project.
3. Managing payments to your vendors can be very labor intensive.
Now that you’ve found a safe and productive place to deposit your funds, selected your suppliers, and launched your project, the challenge shifts to managing your vendors. As your projects grow, so does the list of vendors, phone calls, billing questions, credits, change orders, etc. This creates another situation where you will need lots of manpower and expertise in dealing with vendor payments and the related issues. If your vendors aren’t managed appropriately, you could leave funds on the table or risk delaying or even suspending of your project.
Is there an easier way to manage bond proceeds and vendor payments?
It all starts with advanced financial technology, or ‘fintech’ for short. The need for more efficient fund management inspired the creation of deposit management companies, like the American Deposit Management Co.
Since 2009, ADM has worked to develop a proprietary fintech system that provides a solution to the issues noted above – with a single point of contact and a single account statement. By leveraging our relationships with hundreds of banks, we can provide FDIC coverage on hundreds of millions of dollars in funds in just a few minutes. We also leverage our vast network of depositors to negotiate great rates with our bank partners. All you need do is start an account with ADM and make a single deposit. We take care of the rest.
1. Fortune – http://fortune.com/2018/11/07/bond-sales-infrastructure-midterms/