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Senate of Pennsylvania
Session of 2013 - 2014 Regular Session

MEMORANDUM

Posted:	October 18, 2013 10:44 AM
From:	Senator Dominic Pileggi
To:	All Senate members
Subject:	Local Government Investments

I intend to introduce legislation to address the dramatic reduction in earnings on investment experienced by municipalities, school districts and municipal authorities due to the recent recession and slow economic recovery. Although interest rates on money market type investments are at historic lows, there are some securities not currently permitted as investments for Pennsylvania local governments that have significantly higher relative rates of return. These higher yielding securities do not represent high risk investments, but the national mainstream of permitted investments for local governments. Currently, each level of local government in Pennsylvania has its own statute defining permitted investment with varying language. They are limited to a small list of security types that are generally the lowest-yielding among short-term fixed income options (United States Treasury obligations; short term federal agency obligations; collateralized or insured bank deposits; insured certificates of deposit; general obligation municipal debt securities; or, registered money market mutual funds investing in other Pennsylvania permitted investments). My legislation would expand the list of permitted investments for local governments, school districts and municipal authorities to deal with the impact of low yields, the decreased availability of GSE debt securities and lower bank deposit rates. Specifically, my legislation would add high qualify money market instruments such as commercial paper, negotiable certificates of deposit, bankers’ acceptances, and corporate notes to the authorized list of investments for local governments. By expanding the list of permitted investments, and establishing reasonable criteria and constraints on the use of these investments, local governments can: Increase returns; Become aligned with national best practices for public funds investment; Allow their investment officers the same tools as their counterparts in most other states; Institutionalize appropriate risk-management strategies to protect public funds; and Clarify and provide uniformity to the permitted investments used by various levels of local government. By expanding permitted investments for all types of local governments, the Commonwealth would eliminate inconsistency and opportunities for confusion among investment providers, auditors and governmental units.

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