Local Government Investment Policy – PA TIMES Online

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Benjamin M. Effinger
September 6, 2024

There are many facets to public sector finance, and the investment policy is one of the most critical components. No matter the size and scope of an agency, it is crucial to have an established written investment policy which is adopted by the governing authority. The investment policy ensures that the local government agency is investing public funds in accordance with state and federal laws and within established public sector principles, such as safety, liquidity and yield, in that specific order. Public sector finance investment policies are adopted by governing authority, however, are typically informed and authored by the public sector finance professionals employed by the agency. In Los Angeles County, the investment policy is approved annually by the governing Board of Supervisors, upon the advisement of the Treasurer and Tax Collector. Once approved, the investment policy is made public and published on the Treasurer and Tax Collector’s website—the 2024 policy can be accessed here –

You may be asking, what specifically does the investment policy cover and/or direct? That is a great question, and one that must be understood by the elected officials and the appointed local government executive managers, not just by public sector finance staff. There are several critical elements which make up the investment policy. The following is an extensive list of topics that should be considered for inclusion within a written local government investment policy:

• Scope and investment objectives
• Roles, responsibilities and standards of care
• Suitable and authorized investments
• Investment diversification
• Safekeeping, custody and internal controls
• Authorized financial institutions, depositories and broker/dealers
• Risk and performance standards
• Reporting and disclosure standards

As an organization, local government agencies will be charged with determining the scope of their investment policy and whether they will need an additional memorandum of understanding (MOU). In addition, subsequent contractual documents may be required should an organization choose to contract investment services with a third party vendor or participate in a larger municipal treasury pool (which can command much more advantageous interest rates than individual investments with smaller dollar amounts). If an organization seeks guidance or is looking for best practices for establishing or revising their investment policy, the Government Finance Officers Association (GFOA) Best Practices for “Investment Policy” can be a great place to start.

In Los Angeles County, our treasury management operation is large and complex. The LA County team operates the largest local government investment pool in the nation, recently reporting a treasury pool value in excess of $60+ Billion. This is largely because many agencies, either discretionary or non-discretionary, place their public funds in the County treasury pool to maximize their earning potential through a more advantageous rate of return. The treasury management operation consists of a dedicated public finance and investment team, led by a chief investment officer, a dedicated cash management team, which I lead and oversee the daily, monthly and yearly cash position for the County, and a dedicated internal controls team which audits and accounts for all transactions occurring within the treasury pool. There are more than 45 full time employees that keep this operation moving on a daily basis, handling transactions and identifying excess cash positions, to invest millions and billions of dollars daily on behalf of the County and our treasury pool participants.

Let’s look a little bit of a deeper into the topics of LA County’s adopted annual policy. Some of the critical components covered in our policy are:

• Authority to Invest (on behalf of the County)
• Pooled Surplus Investment (PSI) Portfolio
• Liquidity of PSI Investments
• Reporting Requirements
• Investment Limitations
• Environmental, Social and Corporate Governance (ESG) Scores
• Permitted Investments

Details on each component listed above can be accessed in the above linked 2024 LA County Investment Policy. These highlighted areas are critical to the effectiveness of the treasury pool for the County and also aligns with the County’s strategic goal on fiscal responsibility—“County Strategic Plan Strategy III.3—Pursue Operational Effectiveness, Fiscal Responsibility and Accountability.”

In summary, having an establish written local government investment policy is a cornerstone for sound fiscal health within an organization. Deviation from an investment policy can result in ruins for a local government agency and leave the governing authority responsible for explaining the fiscal demise of the organization to the constituents to which it serves. Reviewing and revising an agency’s investment policy annually is a best practice, ensuring the policy is up to date with current practice of the agency’s treasury management operation. For more information about best practices related to investment policy, seek guidance from the experts within your local GFOA chapter.

Author: Benjamin M. Effinger, MPA, is the operations chief of the Cash Management Division of the County of Los Angeles Treasurer and Tax Collector. He is also currently a doctoral candidate pursuing his doctorate in public administration from the University of La Verne. Ben can be reached at [email protected].

(6 votes, average: 5.00 out of 5)
Loading…