Local Government Investment Pool: What You Need To Know In 2023

Introduction

In 2023, local government investment pool (LGIP) has become increasingly popular among local governments in the United States. LGIPs are investment vehicles that allow local governments to pool their funds together to achieve economies of scale and earn a higher rate of return on their investments. In this article, we will explore the basics of LGIPs, including their benefits, risks, and how they work.

What is a Local Government Investment Pool?

A LGIP is a type of investment vehicle that allows local governments to pool their funds together to achieve economies of scale and earn a higher rate of return on their investments. LGIPs are typically managed by a state or local government, and they invest in short-term securities such as treasury bills, commercial paper, and certificates of deposit.

Benefits of LGIPs

One of the primary benefits of LGIPs is that they allow local governments to earn a higher rate of return on their investments than if they were investing individually. This is because LGIPs can take advantage of economies of scale and negotiate better rates on their investments. Additionally, because LGIPs are managed by a state or local government, they are subject to fewer regulations and restrictions than other investment vehicles.

Risks of LGIPs

While LGIPs offer many benefits, they are not without risks. One of the main risks of LGIPs is that they are not insured by the Federal Deposit Insurance Corporation (FDIC). This means that if the LGIP were to experience losses, local governments could lose some or all of their investment. Additionally, because LGIPs invest in short-term securities, they are subject to interest rate risk and market volatility.

How Do LGIPs Work?

LGIPs are typically managed by a state or local government, and they invest in short-term securities such as treasury bills, commercial paper, and certificates of deposit. Local governments can invest in a LGIP by purchasing shares in the pool, with the value of their investment being determined by the number of shares they own. The LGIP manager is responsible for overseeing the pool’s investments and ensuring that they meet the investment objectives of the pool. The manager may also be responsible for providing local governments with investment advice and guidance.

Types of LGIPs

There are two main types of LGIPs: single-state and multi-state. Single-state LGIPs are managed by a state government and are only open to local governments within that state. Multi-state LGIPs are managed by a group of states and are open to local governments in multiple states.

Who Can Invest in LGIPs?

LGIPs are typically open to local governments, including counties, cities, towns, and school districts. Some LGIPs may also be open to other government entities, such as state agencies or public utilities.

Conclusion

In conclusion, LGIPs offer many benefits to local governments, including the ability to earn a higher rate of return on their investments and take advantage of economies of scale. However, they are not without risks, and local governments should carefully consider the risks and benefits before investing in a LGIP.

People Also Ask

What is the difference between a LGIP and a money market fund?

While both LGIPs and money market funds invest in short-term securities, there are some key differences between the two. LGIPs are typically managed by a state or local government, while money market funds are managed by a financial institution. Additionally, LGIPs are not subject to the same regulations and restrictions as money market funds.

What is the minimum investment in a LGIP?

The minimum investment in a LGIP varies depending on the specific pool. Some LGIPs may have a minimum investment of $1,000, while others may require a larger initial investment.

Are LGIPs insured by the FDIC?

No, LGIPs are not insured by the FDIC. However, some LGIPs may have additional insurance or protection provided by the state or local government managing the pool. It is important to carefully review the LGIP’s offering documents to understand the level of protection provided.