Local Taxpayer Investment Account Reaches New High
The Washington State Local Government Investment Pool (LGIP) reached an all-time high balance of almost $16.2 billion on May 30, 2017. The LGIP is run by the Office of the State Treasurer (OST) and was authorized by the state legislature in 1986. The fund was designed to provide a safe, liquid short-term investment option for taxpayer investment by local governments. It now serves local, regional and state government entities in Washington state, numbering more than 500.
LGIP participants benefit from the economies of scale of a large pool of money and the investment expertise of the State Treasurer’s office to achieve an attractive return on their short-term funds. They have same-day access to 100 percent of the money they have in the pool. Participation in the pool is voluntary.
Benefit To Taxpayers
There are dozens of state pools available across the United States. Forty-three states have pools run by the state treasurers. Of those, the Washington LGIP charges the lowest fee – which serves to benefit the participants, and thus the taxpayers of the state. To an extent you could think of the LGIP as an interest bearing checking account.
As an example, when a person receives their paycheck they know that there will be bills to pay in the future, like car payments, rent, and food. Some of those payments will occur within a relatively short time frame while others will be paid further out into the future.
Short-term Investment, At Scale
The money for payments that will be made within the short time frame may be left in the checking account while those that won’t be paid until later, may be put into a CD or other longer-term investment option.
Governmental entities are in a similar situation, and keep some cash available to meet short-term needs while other cash is invested into longer-term maturities.
Daily Cash Flow Is Sizeable
There is significant cashflow activity in the LGIP on a daily basis. Over the last 12 months there were $50.5 billion in deposits and $47 billion in withdrawals, with an average balance of $12.7 billion. The LGIP distributed over $71 million in earnings to participants.
The number of entities utilizing the LGIP has grown over time, from around 300 in 1995 to more than 530 in 2017. While originally limited to local governments, it has since been expanded to include community colleges, universities, and state agencies.
Several Factors Influence Deposit Levels
Factors that contributed to the record high LGIP balance include the increased number of participants, population growth, and economic growth since the great recession. The balances in the LGIP will vary greatly over time due to seasonal factors. Among these are property taxes, receipt of bond issues, debt service payments, and the relative attractiveness of the LGIP yield versus shorter- or even longer-term investment options.
In addition to managing the LGIP, the Washington OST investment division is responsible for balancing the state’s checkbook and investing those balances in excess of what is needed to meet current expenditures.