312 Standard & Poor’s Public Finance Criteria 2007
Other CriteriaT
he primary objective of a government invest-
ment pool (GIP) is the prudent management
of public funds on behalf of state and local gov-
ernments. GIPs are established to offer cost-effec-
tive investment vehicles in which municipalities
and public entities pool their idle cash and oper-
ating funds while earning a competitive rate of
return and providing safety and liquidity. GIPs
are operated by U.S. states, counties, cities and
other public entities and generally serve as invest-
ment vehicles for public investors in the state or
municipal jurisdiction.
State-level pools are generally run by treasurers
that are either elected or appointed officials of the
state. In general, state-sponsored GIPs serve as a
voluntary, professionally managed, investment
option for operating funds for municipalities within
a state. Some state pools have been in existence for
more than 25 years. Many municipalities invest in
state-run GIPs as they offer a cost-effective invest-
ment vehicle. School districts are often mandated to
invest surplus funds and operating money in state-
run pools. Other public entities see GIPs as an
alternative to self-management or to private money
market funds.
County-sponsored GIPs are popular in California
and Washington. In California, elected county
treasurers run most county pools. These county
treasurers are responsible for management not only
of their own county funds, but also of the manage-
ment of public entities (i.e., school districts) funds
located within the respective county. County gov-
ernments in California maintain investments pools
for their operating and capital funds as well as for
the investment of underlying local governments.
Other government/private-sponsored GIPs may
be formed through inter-governmental agreements
or directly by private firms. For example, the
Florida Local Government Investment Trust
(FLGIT) was created through the joint efforts of the
Florida Association of Court Clerks and the Florida
Association of Counties. The first privately spon-
sored GIP was the Pennsylvania Local Government
Investment Trust (PLGIT), formed in early 1981.
Over time, GIPs have undergone a significant
transformation due to new regulations intended to
tighten operations and establish more stringent
investment criteria. The greater scrutiny stems fromincreased awareness of the risks associated with
investing in seemingly “safe” pools, as demonstrated
by some well-publicized losses suffered by a few
GIPs. Fortunately, many states have heeded the call
for more oversight and disclosure by adopting the
guidelines recommended by public associations such
as, the National Association of State Treasurers
(NAST), the Government Finance Officer’s
Association (GFOA), the Association of Public
Treasurers of U.S. & Canada (APT US&C) and the
Government Accounting Standards Board (GASB).
The investment practices and guidelines called
for the adoption of formal and clear investment
objectives, written and approved investment poli-
cies and full disclosure of pool objectives and poli-
cies. Many pools have established advisory boards
to provide oversight to pool managers and to set
basic investment guidelines and operating policies.
However, some GIPs delegate control and invest-
ment decision-making responsibilities to the pool
manager or fiduciary, with limited oversight and
with no formal board. Proper controls begin with
established investment policies and suitable over-
sight. GIP advisory boards add a much-needed
level of oversight and help ensure that these poli-
cies are adhered to and are consistent with a
pool’s objectives.
Such oversight-whether performed by a board
of pool participants or an outside, independent
service-should be part of all GIP programs,
regardless of the experience and track record of
the pool’s manager.
To provide an additional level of oversight, states
and public investor associations have requested and
received Standard & Poor’s ratings on GIPs.
Standard & Poor’s maintains ratings (both public
and private) on approximately 70 GIPs or funds
targeted to public entities. Standard & Poor’s has
two types of pool ratings: Stable NAV Pool Ratings
and Variable NAV Pool Ratings. Stable NAV GIPs
can differ in their level of risk taking, internal over-
sight, participant services, and external reporting.
GIPs are generally not registered with the SEC
under the Investment Company Act of 1940, but
many pools do choose to follow the investment
guidelines of SEC Rule 2a-7 of the Investment
Company Act governing U.S. money market funds.
These pools seek to provide a stable net asset value