18469_Authority_June

!" !!! !"#$%&'"()*'+ !!"!!#$%&!'(') Plgit’ s i nvestMent a dviseR and a dMinistRatoR ’ s RecoMMendations FoR local goveRnMent investing FoR a changing econoMic cliMate By Courtney Mulholland, Institutional Sales and Relationship Manager, PFM Asset Management, a division of U.S. Bancorp Asset Management, Inc. In last issue’s PLGIT article, we continued our review of the Four Pillars of Local Government Investing Specifically, we looked at short-term investments. In this article – which is Part 3 of 4 -- we will be reviewing long-term investments . Sometimes municipal leaders – who rightly seek safety above all else – fall into the habit of managing all their funds in a short-term manner. This may apply to fund balances in their portfolio that could be allocated to longer-term investments or to a windfall that may follow, for example, the sale of infrastructure. By adhering exclusively to a short-term investment strategy, municipal investors may not be taking full advantage of investing certain funds to match their purpose and time horizon. Just as in the case of purchasing short-term investment products, local government managers should also do two things before opting for long-term investments: Confirm permitted products. Officials should do a review of what and when long-term products are acceptable for investment per PA codes and their own local codes. Pennsylvania law requires local governments to find investment options with the objective of optimizing returns as it focuses on the safety of principal. Municipalities should research potential investments to ensure that their investment planning conforms to those restrictions. Review cash flow plans. A municipality should engage in cash flow forecasting to distinguish between cash needs for short-term commitments and cash that is available for a longer period of time. Long-term Investing Historically, longer-term investments often produce higher returns than short-term investments. But, as we noted above, municipalities are charged with maintaining adequate liquidity to meet specific needs and minimize risk. While liquidity and safety are of primary importance to local governments, so is planning for the future, and using available funds strategically and beneficially. There may be no set definition for a long-term investment, but there are certainly different levels. For the purposes of this article, the long-term investments we refer to might be better titled “intermediate-term.” These typically fall within the timeframe of 3 months to two years and are meant to make the best use of funds that aren’t earmarked for daily or weekly expenses, as in the case of capital project funds, while still holding to the codes that maintain safety and liquidity. For most Pennsylvania local governments, intermediate-term investments are certificates of deposit (CDs), an account with a fixed sum that sits untouched and accrues interest for a specific period of time (e.g. 6 months, 9 months, 12 months, or longer.) Continued on page 52.