SENATE COMMUNITY AND URBAN AFFAIRS COMMITTEE
SENATE, No. 2978
STATE OF NEW JERSEY
DATED: JUNE 19, 2017
The Senate Community and Urban Affairs Committee reports favorably Senate Bill No. 2978.
This bill amends current law governing the types of securities that may be purchased by local units and school districts to provide that local government investment pools must be managed in accordance with generally accepted accounting and financial reporting principles established by the Governmental Accounting Standards Board (GASB). Current law requires local government investment pools to be managed pursuant to United States Securities and Exchange Commission (SEC) regulations governing money market funds (17 C.F.R. s.270.2a-7). Local government investment pools function like money market funds in the private sector.
In July 2014, the SEC published amendments to these regulations that took effect in April 2016. GASB research indicated that the SEC regulatory revisions would affect investment pools to an extent that few governments would be able to continue to place their funds in these types of securities. For example, the revised federal regulations require pool participants to transact at a floating net asset value instead of a stable net asset value, and allow for the potential imposition of liquidity fees or redemption gates. These new regulations could make it difficult for New Jersey local governments to withdraw their funds from an investment pool to meet cash flow needs.
In December 2015, GASB issued Statement No. 79 (GASB 79) to address accounting and financial reporting for certain external investment pools and pool participants. GASB 79 establishes specific criteria for an external investment pool to measure its investments at amortized cost for reporting purposes. The use of amortized cost is allowed if the pool uses a stable net asset value per share and meets all GASB requirements regarding investment maturity, quality, diversification, liquidity, and the shadow price requirement. GASB 79 also requires investment pools and pool participants to disclose any limitation on participant withdrawals.
Enactment of this bill would permit New Jersey’s local units and school districts to place public funds in local government investment pools that are managed in accordance with GASB benchmarks. It is the sponsor’s view that local government entities should be able to continue to use safe and liquid investments with competitive interest rates as a means of generating interest income on operating and reserve funds and bond proceeds. Interest income allows local units and school districts to restrain property tax increases and borrowing needs. These entities have limited investment options and enactment of this legislation will make it easier for them to find suitable investments.