Finance committee hears AMG pitch to invest 2016 TIF bond reserve fund to lock yields

Arbitrage Management Group recommended that the city actively invest the debt-service reserve fund (DSRF) for a 2016 Eagle Town tax-increment financing revenue bond and other bond project funds in short- and medium-term fixed-income securities allowed under Indiana law, during a Sept. 22 Finance Committee meeting. The firm said doing so would lock in predictable yields and reduce the risk of falling money-market returns as the Federal Reserve signals more rate cuts.

The DSRF in question is about $350,000 and is associated with a revenue bond issued in 2016 that matures in February 2037. Dave Gadell, representing Arbitrage Management Group (AMG), said the reserve “can only be used for making up shortfalls” in bond payments and that most municipalities never tap the fund. He told the committee the city’s bond official statement and Indiana law permit active investment of those proceeds.

Why it matters: the money currently sits in a variable-rate money-market account and will decline in yield if the Fed follows through on projected cuts. AMG proposed a laddered strategy — splitting the reserve into roughly equal parts across 1-, 2- and 3-year fixed-income securities — to lock yields now while preserving some liquidity to meet bond obligations.

Gadell summarized the allowed investments described in the official statement and Indiana law (cited to Indiana…