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District finance director and advisors present options to earn higher returns on cash balances
Summary
Taos Municipal Schools officials heard presentations on overnight investment and institutional money-market options from the district finance director, the New Mexico State Treasurer’s office materials and Morton Capital Markets; the board asked staff to return with implementation proposals.
Taos Municipal Schools’ finance director and two outside presenters laid out options on Oct. 25 for parking district cash in higher-yield, short-term instruments instead of traditional checking accounts.
Dr. Rainier Martins, the district’s director of finance, said the administration had solicited options including a local bank (Centennial), the New Mexico State Treasurer’s investment options and a third-party broker-dealer, Morton Capital Markets. Martins said the goal was “to be conservative regarding our cash flow” while seeking better yields than a checking account.
Martins showed a hypothetical example in which $10 million could be invested in a 30-day product at 3.5 percent “but no penalty for withdrawal prior to maturity,” adding that he preferred an overnight approach to preserve liquidity. He told the board the state treasurer’s daily options were available on the treasurer’s website and that both the Centennial and state-treasurer options “would satisfy this necessary state statute.”
Larry Lundberg of Morton Capital Markets described a US government institutional money-market fund the firm uses for public entities. Lundberg said the fund’s “7-day average” was paying about 3.94 percent and that the fund’s holdings are “100% US government securities,” with most maturities in the 7–10 day range. He said the fund had supported “daily liquidity” with a 2:30 p.m. cutoff for same-day redemptions and that institutional minimums typically start at $1 million.
Lundberg gave a numerical illustration: at a 3.9 percent net yield on $10 million, the district could earn roughly $390,000 more annually than it would in a low- or no-interest checking account. He cautioned the board that the highest historical yields were higher earlier in the year and that money-market rates fluctuate with Federal Reserve actions.
Secretary Trujillo and other board members asked about collateralization of funds held at banks and asked staff to check statutory reserve guidance. Secretary Trujillo pointed to the district’s collateral report (bank-pledged securities) and asked about long maturity dates on some pledged securities; Lundberg explained that banks frequently hold longer-dated securities as pledged collateral and that an institutional government money market would own the underlying US government assets directly.
The presenters did not ask the board to approve a specific transaction on Oct. 25. Board members thanked the finance director and the presenters and asked district staff to return with formal agenda items and recommended documents for future board consideration and, if appropriate, action.
