An analysis by the Common Sense Institute finds two Iowa-based investment funds created to manage cash reserves for Iowa cities, counties and schools invested most of that money out of state last year.
“Local governments aren’t sitting on tons of reserves the way the state is sitting on billions of dollars in reserves,” said Ben Murrey, director of policy and research for the Iowa chapter of the Common Sense Institute, “but there’s always money that needs to be held somewhere, deposited somewhere after they’ve collected tax revenue and before they spend it.”
In the last fiscal year, over 95% of the nearly $2.5 billion local governments in Iowa deposited in the two funds created for this kind of situation were invested out of state. “So until it actually gets spent by the local governments, it’s not going to work in Iowa’s economy,” Murrey said.
The report compared investment yields in Iowa banks and the returns on investments made in these two funds over the past decade. Murrey said the data suggests requiring that reserve funds from local governments be invested in Iowa banks would yield slightly higher returns over time, could boost the state’s economy and create up to 8500 jobs by the end of this decade.
“We’re talking about government holding in trust money that was handed over to them from taxpayers, for the sake of the good of taxpayers,” Murrey said. “When you’re having that conversation it’s worth considering: Is the money serving taxpayers?”
Iowa law requires initial deposits from local governments and public schools to be made in an Iowa-based investment fund, which then manages an array of investments in Iowa and elsewhere to generate additional income. Murrey’s research team found at least 14 states had similar laws and found a dozen that required all temporary cash reserves from local governments to be invested within that state.