Joshua Esses A way for Stamford to save $2 million
Earlier this month, the Town of New Canaan took a step to improve its finances that all municipalities in Connecticut should take note of — Stamford in particular.
The “Town Purchase Card” agenda item for their May 7, Board of Selectmen meeting reads innocuously enough: “Approval of a request from the Town Treasurer for the Town to enter into a credit card agreement with M&T Bank.”
However, this credit card agreement—since approved by the New Canaan Board of Selectmen — could bring hundreds of thousands of dollars into New Canaan’s coffers every year. For a city the size of Stamford, the benefit could be in the millions.
This story begins with an observation made a year ago by Andrew Brooks, New Canaan’s town treasurer (and a friend of mine): In our personal finances: it’s better to pay bills on credit, and get cash back rewards for doing so, than to pay in full at the time of purchase, with no reward. So, why not apply this same concept to government?
Throughout the course of the year, local government collects money through taxes and fees, and pays out money for salaries for city employees, and to purchase goods and services to support various governmental functions.
Presently, all of the Town of New Canaan’s disbursements are made either via check, or electronically (e.g., Automated Clearing House, or ACH). I understand the city of Stamford operates similarly. However, New Canaan’s newly approved credit card agreement will revolutionize the way the town makes disbursements, and save New Canaan taxpayers hundreds of thousands of dollars in the process.
The Town Purchase Card will allow New Canaan to pay a substantial portion of its bills on credit, through M&T Bank, which will work with New Canaan’s vendors to set up electronic payments pursuant to this credit card program. At the end of each year, New Canaan will receive a rebate, just like a credit card cash back rewards program, of approximately 2 percent of all monies spent on the Town Purchase Card. So, if New Canaan pays $10 million on credit, as they are estimated to do the first year the agreement is in effect, New Canaan will receive about $200,000 at year-end.
Paying on credit will also allow New Canaan to pay bills later, such that monies deposited by the town into money market or other investment accounts can continue to earn interest before they are paid to M&T Bank to settle up on their credit balances. Back of the envelope calculations reveal this improvement in payment terms is worth an additional 10 percent or so on top of the cash back rewards, i.e., an additional $20,000, to be spent on schools, roads, parks, tax rebates, or whatever else the taxpayers desire.
The M&T credit card agreement (and others like it, as multiple banks in the state offer similar services) can save cities such as Stamford hundreds of thousands, if not millions of dollars. Brooks estimates that about 15 percent to 20 percent of New Canaan’s spending can be made via this credit card agreement. Unfortunately, not all disbursements can be made on credit — wages and benefits to city employees must still be paid the old-fashioned way, either via check or electronically, and some vendors will be unable to accept payments on credit.
Nonetheless, if New Canaan is representative for Stamford, that means that more than $100 million of Stamford’s nearly $600 million of annual spending can be made on credit. With a cash back reward of nearly 2 percent, and the ability to pay debts later and earn more interest, if fully implemented, a similar program could bring an extra $2 million or more to Stamford each and every year.
Joshua Esses grew up in Stamford, and graduated from Westhill High School in 2009. He lives in Stamford, and writes about city affairs at www.teamstamford.org.