Loading...
HomeMy WebLinkAboutItem #24 - Discussion ItemJoseph R. Grassie City iianayer ones E. Gurruerson irector of Finance November 18, 1977 Cash Management Tne following contains some background information and my recommendations for improving tne City's casn management. These recommendations are predicated on an objective of improving casn flows, maximizing the city's income on investment and increasing the participation in minority banks. This memo is split into tnree parts: 1. Background a) Legal framework b) Present cash management system 2. Short -tern recommendation 3. Long -tern reconnnenuation 1. (a) background - Legal frame\lork Tne City Charter specifies that "wanking institutions...shall agree to pay the hignest rate of interest" and that "the commission snail provide by ordinance for the prompt... deposit of all city monies". (2) Tne ordinance mentioned in the charter was enacted and it calls for: "time ueposits (to be made)... in all the national and state banks located '':itnin the city... such time deposits snail be prorated among such banks... provided, that the interest rate to be paid to the city... shall be not less tear, tne highest offer by any bank... the aggregate time deposits... (snoul d be) nut less than one million two hundred fifty tnousana dollars." (12) A permanent rotation scheme among nine Miami banks for a demand deposit account with a minimum ":corking fund valance of at least six hundred fifty tnousand dollars". (12) Note: Purentnetical numuers refer to the attached Compendium of Lagai References. Page 1 of 4 1. (b) background - Present Cash Management System The present cash management system can best be described as a "seat of the pants" operation. Deficiencies in the present system are: . Simplified, one montn in the future, casn budgeting is performed. I• nvestments are made only in Certificates of Deposit, Repurchase Agreements and Treasury bills. (Thereby excluding investments sucn as: Turnpike Project bonds (lo), Puerto Rican bonds (4), Treasury Notes and Bonds, and a multitude of U.S. Agency Securities.) . Due to inadequate casn budgeting, a conservative investment philosophy is used so that the city treasury does not "run out of money". . Accounting for investments .iitn tne present system is burdensome, tnereby :►asting payroll dollars ors clerical vs. analytical work. This paperwork loaa also creates an atmosphere in conflict with investment goals. (The placing of numerous investment transactions many times will produce nigger returns, but these alternatives may be scratched in light of the volume of paperwork these transactions would require). . Cash flows are slowed by transporting checks from tne downtown central collections cashier to Dinner Key and pack downtown to the bank. . The Treasurer's Pooled Investment capability in the F.A.M.I.S. system is not oeinq usea to its fullest potential. Investment flexibility is utcreasea by not using this F.A.1.I.S. feature. . Most investments are placed with local banks, consistent with the hignest interest rate concept (9), but reducing tne City's marketplace for investment opportunities. . Most investments are neld to maturity, tnereby not making us available for "straps and trades" and "riding the yield curve". . The rotation system is a permanent one and it has two more years before completes its first cycle. This scheme is inefficient in that: .. The bank may not be convenient. .. All state and national wanks located in Miami are not included on the rotation list. .. The bank knows it will only nave us for a year and thereby is not motivated to provide superior service. There is MO attempt at ,watching the float. Disbursements in many cases are made prior to requirements and funding of those disbursements in all cases are made ignoring float. eiNNE 2. Short-term recommendation Within the framework of tne charter provision it is recommended that the foliowing criteria be established: . Terminate the bank rotation system in fiscal year 1978. . Maximum interest income. . Accurate and timely data processing services including reconciliations and portfolio accounting. . A single depository acting as fiscal agent. Minority bank participation. Minimum five year program on a bid basis. . Use of warrants. The above mentioned criteria .Mould be set forte in a Request for Proposals to all Miami banks to submit oids to act in the capacity of the City's depository for a five year perioa. Based on the above banking relationship, internal improvements including the following will Pc implemented: r, time deposit of 525U,JUU.Ou will be made into each of the four minority banks, renewable semi-annually, paying interest at the then legal "passbook savings account" rate. . Cash ouugeting. . Expansion of investment instruments. . Moving the deposit function downtown to decrease lag time in deposits. . Investments made on a pooled investment basis. . Expansion of the investment marketplace. . Monitoring float and delaying cash disbursements to meet requirements. 3. Long-term recommendation Implementation of a Computerized Cash Management System which would: . Enable tne city Lo make swaps and trades. Ease tne accounting for cash. . Increase casn budgeting prediction. . Produce meaningful investment reports. Page 3 of 4 There are several computerized investment systems available. One such system is called MONEYMAX. This system is presently installed in some 25 counties and municipalities. The estimated first year cost is $75,000.00 - $85,000.00; the second vear and thereafter it is S14,000.00 $19,000.00. Based on our portfolio size, the .i0NEY \:X minimum increased return on investment would be $725,000.00 - S450,000.00 annually. I recommend that the City Commission authorize the City Manager to return to the Commission with a proposal to purchase such a system. CUPENDI UM OF LEGAL REFERENCES FEDERAL (1) Circular No. A-102 Revised - Federal Register, Volume 42, No, 176 = Monday, September 12, 1977. Uniform Administrative Requirements for Grants -in -Aid to State and Local Governments STATE (2) Constitution of the State of Florida; Article VII, Section 10. Pledging Credit Statutes: Chapter 518: Investment of Fidaiary Funds: (3) Chapter 516.15. bonds on ;rotor vehicle tax. Anticipation certificates legal investments gnu security. (4) Chapter 510.152. Puerto Rican bonds or obligations, legal investments and securities. (5) Cnapter 516.16. Chapter cunanulative. Chapter 65): Banking Code, Second Part: (6) Cnapter b53. CO. Invest;;i nts. (7) Chapter bb9.24. Depositories of public moneys and pledge of assets. Cnapter 16o: Municipalities: (8) Chapter 166.101. Definitions. (9) Cnapter 166.122. Establisiment of sinking funds. Chapter 340: Turnpike Projects: (10) Chapter 340.21. Bonds eligible for investment a NEW CITY (11) Charter of City of Miami, Florida; Section 47, Collection of money. by. Director of Finance; payment into city treasury; deposits; interest. Code of City of Miami, Florida: Section 16; Finance: (12) Section 16-2. Depositories for City funds. Designated; rotation of checking accounts; Interest on time deposits. (13) Section 16-3. Kind of Security. (14) Section 16-4. What Ueposited. (15) Section 16-47. Self Insurance and Insurance Trust Fund. Created. Sources. (16) Section 89. Pension funds (17) Motion Number 75-261, Narcn 25, 1975. A motion accepting, for a period of six months, the recomendation of the City Manager v l cn respect to minority banks and deposits of city funds.