Is your governmental entity’s investment policy still relevant?

by Tom Olinger, CPA

It’s no secret that markets have changed rapidly over the last year. At the time of this writing, interest rates (and costs) are continuing to rise. While government and public administration leaders may wish to consider several actions in response, one in particular can be of great benefit: Reviewing and updating your governmental entity’s investment policy.

Why is this important? A strategically updated investment policy could help to add a significant amount of revenue to your entity’s annual operating budget. These extra dollars can be used to offset the rising costs of operations of the government to help manage any tax levy and fee increases.

Here are a few things to consider as you assess your governmental entity’s investment policy.

Are your current interest rates in line with current market rates?

A good first step is to review your portfolio’s current mix of investments as well as local bank accounts. Make note of each interest rate and compare it to the current market rates. With this insight, you can determine which investments and accounts are—or are not—in line with the market and if you need to make any portfolio or policy adjustments.

Do your current investment maturities meet your cash flow needs?

Your governmental entity’s cash flow fluctuates throughout the year; conducting a cash flow analysis can help you get a clearer picture of it from month to month. Having this perspective allows you to ensure your portfolio’s current investment maturities are structured to meet your cash flow needs.

Digging into your governmental entity’s major expenditures, such as debt and capital payments, can help you understand your cash flow needs. Then the question becomes: How much money can your entity invest? If you can maximize this amount, you can have the appropriate liquidity of cash to meet your needs while maximizing your investments.

Also, be sure to evaluate the amount your governmental entity needs to have in cash and ladder investments to ensure these maturities come due in accordance with cash flow needs.

Is your diversification of investments in line with your policy?

Your governmental entity’s investment policy should serve as the guiding principle of how you invest to minimize risk. As you review your policy, check to see that your investments meet state guidelines and that your policy provides a guide on your council’s or board’s investment philosophy.

Are you meeting FDIC and government and public administration-specific collateral requirements?

Market changes can lead to significant fluctuations in investment values, which could cause your governmental entity to fall out of compliance with certain regulatory requirements. It’s important to make sure you’re following state statutes accordingly, both in the types and values of your investments.

Not sure where to start? We can give you a clear path.

It’s never a bad idea to revisit your government entity’s investment policy, but it’s especially important to do so now given our ever-changing market. If you’re unsure of how to begin, Abdo can help. We can evaluate your entity’s current investment policy and other policies to make sure they are relevant to the current environment. Our experts will work closely with you to guide you through next steps, empowering you to make the most of your entity’s investment policy.

To learn more about how we can help government and public administration leaders navigate an uncertain market environment, contact us today.