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Local Governments Now Have Clearer Investment Options Thanks to ESB 6349

The 2016 legislative session produced some bills that many of us were not necessarily tracking but that may have some impact on how you invest excess funds in the future. One such bill was ESB 6349, concerning public funds, deposits, and investments. The bill was presented at the request of the state treasurer to simplify the authority granted to local governments for investments, as well as clarify language for public deposits and public funds.

Prior to the enactment of the bill, the authority to invest was scattered through several statutes. Chapter 39.59 RCW said that whatever one entity could do, any other type of entity could do as well. As a result, determining eligible investments for various types of local governments was challenging to say the least.

The new legislation provides that, unless there is specific authority elsewhere in the RCW, the universe of eligible investments is found in Chapter 39.59 RCW. Additionally the bill provides clarity on public deposits by amending Chapter 39.58 RCW and the Local Government Investment Pool (LGIP) in Chapter 43.250 RCW.

The LGIP is a good example of specific authority elsewhere in the RCW , which authorizes local governments to investment in an investment pool. This authority is further stated in RCW 43.250.010 which states in part:

The legislature also recognizes that not all eligible governmental entities are able to maximize the return on their temporary surplus funds. The legislature therefore provides in this chapter a mechanism whereby eligible governmental entities may, at their option, utilize the resources of the state treasurer's office to maximize the potential of surplus funds while ensuring the safety of those funds.

For all other investments, the investment provisions of ESB 6349 amend Chapter 39.59 RCW by removing section (1) – (4) of RCW 39.59.020 and replacing the authorization for investments to read:

Local governments in the state of Washington are authorized to invest their funds and money in their custody or possession, eligible for investment, in investments authorized by this chapter.” (Chapter 39.59 RCW).

The bill additionally repeals RCW 39.59.030, which provided a listing of eligible investments, and replaces it with a new section of eligible investments, which consists of:

  • Bonds of the state of Washington and any local government in the state of Washington.
  • General obligation bonds of a state and general obligation bonds of a local government of a state.
  • Certificates, notes, or bonds of the U.S., or other obligations of the U.S. or its agencies, or of any corporation wholly owned by the government of the U.S..
  • Federal home loan bank notes and bonds.
  • Bankers’ acceptances purchased on the secondary market.
  • Commercial paper purchased in the secondary market.
  • Corporate notes purchased in the secondary market.

It’s important to note that the options for investing in commercial paper and corporate notes can only be made if they meet the investment policies and procedures adopted by the state investment board. The board is set to meet on September 15, 2016 and will likely approve a policy at that time for commercial paper and corporate notes purchased in the secondary market.

In light of these changes, the Office of the Washinton State Treasurer has updated its Guide to Public Funds Investing for Local Governments. This is an excellent resource for those local governments that are considering investment options and strategies.

We have received a few inquiries about eligible investments since this legislation was passed and want to remind everyone that investing public funds must be done with an eye to safety and liquidity. A good way to ensure that is through an investment policy, which provides protection and guidance to both staff and officials, assures safekeeping of public dollars, and provides good internal controls over the investment process. Our website has an investment policy topic page that provides some excellent examples of investment policies that have been adopted by local governments. If you have not considered an investment policy in the past, now may be a good time to consider this important financial management tool.

If you have any questions about whether your investment purchases are allowed, be sure to reach out to the Office of the Washington State Treasurer.

MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

Photo of Toni Nelson

About Toni Nelson

Toni worked with many local governments and authored numerous MRSC publications on budgeting, cash basis accounting and reporting, and the application of Washington State B.A.R.S. requirements. During her time at MRSC, she also conducted multiple trainings annually on similar subjects and was consider an expert in small city finance issues. She retired in 2020.