Effective cash management should be a priority for local governments. It requires timely collections and disbursements, and prudent yet effective investment strategies. The brochure provides a summary of the major recommended cash management practices and legal requirements for local governments.
One of the most important functions for a local government is sound cash management, which ensures adequate cash availability, proper safeguarding of assets, and maximum investment yield. Providing for sound cash management will assure that investments are optimized for the best possible return for taxpayers.
The major recommended practices for managing your cash are to:
Some of these functions, such as managing receipts and disbursements, are day-to-day. Others, such as planning your investment strategy, have a longer-term outlook.
Improving cash management starts with building an accurate cash flow estimate and monitoring your actual receipts and disbursements.
Perform a detailed cash flow analysis. Identify major revenue and expenditure types and their expected timing. Review historical data which will help to determine typical cash inflows and outflows throughout the fiscal year. Identify reserves and other balances that could potentially be invested longer term.
In addition to monthly account reconciliations, review monthly analysis reports from your bank(s). Alternatively, consider using an automated financial management information system to track daily cash balances.
With more frequent and timely billings, your municipality can improve its cash collections. For example, semiannual billing for water user fees can be accelerated to quarterly, to provide a quicker and steadier stream of income. First, however, ensure that the added complexity of more frequent billing does not significantly increase expenses and reduce or even eliminate the extra investment income that would be earned on more frequent receipts.
Second, explore with one or more banks such options as contracting with them for the collection of property taxes, special assessments and user fees so that payments may be made directly to the bank (Real Property Tax Law Section 996; General Municipal Law Section 99-t), and electronic funds transfers (EFT) for receiving payments from the State and certain other entities.
Generally, the longer that cash can be held prior to disbursement, the more interest it can earn. However, holding on to cash too long by delaying bill payments can result in late fees. Also, some vendors offer discounts for bills that are paid quickly. Local governments should analyze their full range of disbursements and consider the use of technologies such as EFT and online banking to optimize timing of disbursements.
A municipality should ensure that all of its cash is in interest-bearing accounts. For example, many banks offer a variety of checking accounts, only some of which pay interest. For funds that require infrequent disbursements, consider longer-term investments that pay higher interest rates. Remember that investments need to follow the basic rules of legality, safety, liquidity and yield. As per General Municipal Law Section 39, make sure you have established a formal investment policy to guide your municipality in making these decisions, and review it annually.
Bank fees can add up over time, particularly for municipalities with multiple bank accounts that charge a monthly fee. Consolidate accounts when feasible to minimize fees, while continuing to maintain separate accounts on your municipality’s books.
To maximize interest and minimize fees, issue a request for proposals (RFP) for banking services every 3-5 years. Banks continually refine their products and offerings, and an RFP can encourage competition to identify the most cost-effective banking services.
Remember, public moneys must be deposited and invested in accordance with the following New York State statutes (note that a number of federal laws also pertain to the deposit and investment of public moneys):
General Municipal Law (GML)
Additional statutes that relate to banking include:
For further information about electronic payments of State Aid: