As the Fiscal Officer of your political subdivision, you have a fiduciary responsibility to your tax and ratepayers. Tantamount in that list of responsibilities is the safeguarding of the units assets.
When contemplating the investment of public dollars, three (3) key factors need to be considered: Safety, Liquidity, and Yield – in that order.
First, let’s considered questions on safety. Is the investment about to be undertaken legally authorized? Is the investment for an allowable term? Has the depository been approved? Second, how liquid is the investment – are the funds being invested accessible prior to maturity? Will you have a need for the invested funds prior to the investment’s maturity? Only after consideration of these two factors (Safety and Liquidity) should your attention be focused on yield.
Occasionally, fiscal officers are presented with investment opportunities focused solely on the yield or return. Often, these are from out of town, unknown sources (typically salespeople over the phone). It has been documented in Indiana that public officials have been taken advantage of by these individuals and their communities’ funds have been put at risk and sometimes lost. Leaving the local officials embarrassed and potentially liable for the losses.
Indiana Code 5-13 contains much of the guidance needed concerning permitted investments for Indiana’s political subdivisions. Additionally, as called for in the Code, each community should have an Investment Policy. That policy should be approved by its Fiscal Body and reviewed annually.
Adherence to the applicable state statutes protects the local community’s funds. This protection primarily comes in the form of prudent policies and practices. Additionally, the State of Indiana offers protection for public funds on deposit through Indiana’s Public Deposit Insurance Fund (PDIF).
The PDIF serves as a back –up to the Federal Deposit Insurance Corporation (FDIC) protection for your funds held in various financial institutions. Presently, the FDIC coverage limits for funds held in an insured depository is $250,000. The insurance kicks in if the financial institution in question fails. So long as your deposits and investments are legally made with an approved depository, the PDIF should cover any loss of funds, in excess of the FDIC coverage. Again, it is worth noting that your deposits and investments must be made in accordance with state laws and local policies in order to be covered. Hence, the reason for having an updated local investment policy.
It would be prudent to find, review and update (if needed) your investment policy and confirm that your deposits and investments are made in accordance with state law and local policy.
LWG can assist you in reviewing or drafting investment policy. Please feel free to reach out to a member of our team with questions or additional information.