2. Takeaway for the evening: Seek council’s direction on revising the
borough’s investment policies and implementing best practices as
defined by GFOA and other communities.
3. Overview
Restrictions on Investments
Current Investment Structure
Research & Best Practices
Next Steps
4. Act 72 of 1971
The law that governs how we can invest
Most commonly used vehicle for financial institutions
Must pledge collateral for deposits exceeding FDIC limits
Collateral pledged on a pooled basis
5. Act 72 Criticism
Collateral valued at face-value, not market-value
Broad list of eligible collateral (may include illiquid assets)
Institutions required to do frequent valuations. Many don’t.
Gov’ts may request reports on status of deposits. Many don’t.
(Monthly requests recommended)
6. Act 72 Criticism Cont’d
3 requirements for a collateral pledge to be valid against FDIC:
• Written agreement
• Approved by board of directors
• Approval reflected in minutes
Approval must be kept continuously as an official record
7. Authorized Investments
Treasury Bills
Short-term Obligations
Savings Accounts & CDs
Treasury Obligations (full faith & credit)
Obligations of the Commonwealth & PA Agencies
Some Investment Company Shares
8. What is our investment structure today?
Susquehanna Bank
TD Bank
PA Local Government Investment Trust (PLGIT)
9. What is our investment structure today?
Susquehanna Bank
• General Fund (Operations, AP, payroll, etc.)
• Sewer Account
TD Bank
• Parking revenue
10. PLGIT
Another general fund
Grants
Donations
Another sewer fund
Capital improvement fund
Escrow accounts
Loans
Highway aid fund
11. With PLGIT, the borough has a lot of stale accounts with balances
that appear to be simply sitting there.
12. The current investment policy was written in 1998. It does not reflect
today’s financial environment. It’s time for an update.
15. “A written investment policy is the single most important element in a public
funds investment program.” – GFOA
16. Best Practices
A written investment policy most important element
Priorities:
17. Best Practices
A written investment policy most important element
Priorities:
Safety
18. Best Practices
A written investment policy most important element
Priorities:
Safety
Liquidity
19. Best Practices
A written investment policy most important element
Priorities:
Safety
Liquidity
Yield
20. “Adherence to an investment policy signals that an entity is well-managed
and is earning interest income suitable to its situation and economic
environment.”
21. When creating an investment policy:
Examine state investment statutes
Examine state collateral statutes
Review sample investment policies
Draft investment policy
Review by appropriate parties
Formal adoption by council
Written investment procedures
Annual review
22. The policy should designate:
Authorized investment officers
Standard of care
Eligible instruments
Diversification
Safekeeping
Maximum investment terms
Internal controls
Members of investment committee
Reporting mechanism & procedures
Benchmarks
Role of investment advisor/brokers
24. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
25. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
from beginning to end
26. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
from beginning to end
according to law
27. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
from beginning to end
according to law
properly collateralized
28. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
from beginning to end
according to law
properly collateralized
with good reporting back to council
29. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
from beginning to end
according to law
properly collateralized
with good reporting back to council
and all investment partners on board.
30. A conversation to help identify . . .
A policy to set up a structure for the borough to manage its investments
from beginning to end
according to law
properly collateralized
with good reporting back to council
and all investment partners on board.
Future conversation: pensions & an investment committee
31. Benchmarks (West Whiteland’s Investment Policy):
“Total COFI and asset class (equity, fixed income and cash) and per
adviser and per mutual fund returns shall be compared to universes
of professionally managed, tax-exempt, balanced, equity, fixed
income and cash-equivalent or “money market” funds as well as to
appropriate index standards.”
32. Pensions (Mt. Lebanon Police Pension Policy)
10-year investment horizon
Chief Objectives:
Provide maximum benefits, defray reasonable expenses for participants
Diversify assets to minimize impact of large losses
Provide for funding, anticipated withdrawals
Conserve and enhance capital of fund
Minimize principle fluctuations over 3-5 year cycles
Achieve a long-term level of return
33. Sample Fund Allocations (West Whiteland)
Single issuer securities do not exceed 5 % of total (except U.S. Treasury)
Individual securities do not exceed 5% of total (except U.S. Treasury)
Corporate bonds no more than 20 % of market value of COFI fixed income
No limit to investing in U.S. Treasury securities
no single issue more than 10 % of investments at market value.
U. S. Agency securities limited to 30% of investments at market value
34. Themes of municipal investment plans
Ethics and Conflicts of Interest
Permitted Investments
Diversification
Performance Benchmarks
Reporting
