[r63] Messmer Report: Relieving financial strain for local governments

Posted by: Zach Weismiller  | Friday, May 25, 2012

Our local economies, including both private businesses and government entities, are making a strong comeback from the recession. The success and prosperity of one always touches the other; so with that in mind, this session we created measures to help our local units of government make stronger investments.

The first, Senate Enrolled Act (SEA) 109, expands the existing authority of counties and other local governments to invest, through a local bank, in certificates of deposit that are issued by federally insured banks or savings and loan associations.  They also now have the authority to invest in interest-bearing deposit accounts under the same procedure and conditions.

SEA 109 will also benefit local banks because they will be able to qualify to become part of a network of certificate of deposit account registrars (CDR’s). CDR’s is an exchange clearing house where for every dollar that a bank places, they can receive a dollar in return. Currently, 35 banks in Indiana are members of CDR’s and this bill extends the CDR program to all other deposits in the bank rather than limiting them to certificate of deposits.

 Banks will also be allowed to retain deposits from customers whose balances exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit, which is currently $250,000. Since many companies and local government units maintain balances significantly higher than the $250,000 FDIC limit, this is a popular product. In addition, this legislation provides more protection by the FDIC for those who invest, and now local governments will have more options.

The second bill concerning local government investments, SEA 191, will increase the amount of time local governments can authorize their investing officer to invest public funds for a maximum of five years. Previously, the maximum amount of time was only two years. In order to do this, the fiscal body of the local government unit must approve a written investment policy and adopt an ordinance to provide this authority.

The authority provided may not last longer than four years, and the legislation also limits the amount of money that may be invested for more than two years to 25 percent of the local government unit’s total portfolio of publicly funded investments, including transaction accounts.

This allows local governments to earn more interest income on investments, therefore allowing them to better fund local projects and better improve our communities.

Slowly but surely the financial strains of local governments will improve as both of these pieces of legislation will help to quicken the pace of recovery.