407 West State Street, Trenton, NJ 08618  (609)695-3481
 NJLM logo 

William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director

Municipal Finance
It's Not What You Have - It's How
You Manage It

Richard S. Krawczun
Director of Finance, Lawrence Township (Mercer)
Bruce Engle
Vice President, Government and
Institutional Banking, Sun National Bank

You're in the business of running a town and using taxpayers' dollars to do it. So, there is added pressure on you to protect your town's money. You must put it in a safe place with people you know and trust, and use products and services that benefit your town's finances the most.

There are many factors municipal leaders need to consider when choosing financial products and managing cash. Here are some things you need to know before choosing your municipality's next financial institution.

Protecting Public Funds - GUDPA Certification Put simply - no public depository (which means state or federally chartered banks, savings banks or savings and loans with an office in New Jersey and which hold public funds) can accept your town's deposits if they do not have a Government Unit Deposit Protection Act (GUDPA) certification (N.J.S.A. 17:9-41 et. seq.). New Jersey is the only state to have this requirement, and it serves to protect your taxpayers' dollars regarding the way your financial institution handles public funds.

GUDPA protects county, municipal and local school district deposits, as well as deposits of public entities formed by one or more counties or municipalities. It also covers any county or municipal board, commission or agency that has custody of public funds.


By having a Cash Management Plan adopted, you are not only in compliance with state law, you are protecting your town's funds with pre-determined rules that leave no questions as to how funds are being managed.


Through a complicated formula and set of rules, GUDPA-certified banks must take extensive precautions to protect your town's public funds. Although not 100 percent guaranteed, through pledged company collateral, insurance from the Federal Deposit Insurance Corporation (FDIC) (up to $100,000 of public funds) and GUDPA protection (anything over $100,000), no government unit under GUDPA has ever lost protected deposits1.

As of December 31, 2004, there were 108 banks in New Jersey with GUDPA certificates. That's a lot of banks to choose from...so, outside of GUDPA, what should you look for in a financial institution?

Using Your Cash Management Plan to Find the Right Financial Institution New Jersey municipalities and those local units that are regulated by the provisions of the Local Fiscal Affairs Law (N.J.S.A. 40A:5-1 et. seq.) are required to adopt a Cash Management Plan each year. Outside of being required, your Cash Management Plan is a great tool that lets you see - in writing - what you really need in your town's financial institution.

In general, the plan authorizes which official(s) may make investments of the town's funds and which investments are permitted, and designates the municipality's legal depositories. The plan also serves as the governing body's policy statement that will guide the investment of idle funds. Therefore, issues of liquidity, diversification, maturity and safety should be included in the plan. The Cash Management Plan also requires monthly reporting of investment activity to the governing body and is subject to review during the annual audit. Additionally, the plan may address issues concerning your legal depositories by outlining certain stipulations the institution must adhere to in doing business with your town, such as insurance and reporting needs, acceptable forms of collateral and investment procedures.

Chief Financial Officers, or the official charged with custody of local funds, should be diligent in having the plan adopted by the governing body. By having it adopted, you are not only in compliance with state law, you are protecting your town's funds with pre-determined rules that leave no questions as to how funds are being managed. Additionally, the Local Fiscal Affairs Law (N.J.S.A 40A:5-14f) protects officials from liability in the event of loss if investments were made in accordance with the adopted plan.

With your cash management outline in hand, you will have the knowledge and guidance of your municipality's policy guidelines and, at the same time, get a real sense of what your financial institution should have to offer you.

For example, there are many different features offered through various checking accounts that are designed specifically for public entities. So, which one is right for you? You can use your cash management plan to do some research to find the accounts and features that best suit your town. Ask questions like:

  • Are there minimum balance requirements for an interest-bearing checking account?
  • Are there compensating balance requirements? (e.g. A certain amount of your account balance won't accrue interest.)
  • Does your account provide unlimited check writing? Or are there stipulations?
  • Is the checking account linked to a Sweep Account? (Does your bank "sweep" your checking account balances into investment outlets that are tied to various market funds?)

Checking accounts are just one example of the many types of accounts, products and services that exist to serve public entities. By having your Cash Management Plan laid out, you are fulfilling your obligation to the state, as well as outlining the types of products and services your town needs and that you need to find in a financial institution.


It is important that your municipality is provided with pertinent information, guidance and the support necessary to meet your town's financial needs.


Finding the Right Mix In addition to traditional checking and savings accounts that serve municipal operating needs, many financial institutions offer ancillary cash management products and services that prove beneficial to running your town and managing its cash.

Online and electronic banking has become extremely popular among municipalities. It's easy to use and provides up-to-date information without waiting for your statement. To name a few features, online banking allows clients to:

  • View detailed information on the accounts in a timely manner
  • Transfer funds between accounts
  • Wire funds electronically

Other products and services that fall under cash management umbrella include:

  • Direct deposit and payroll processing
  • Merchant Card Services, which allows municipalities to accept credit cards for payment of items including property taxes, water and sewer bills, court costs and licenses.
  • Corporate trust / capital market accounts
  • Municipal lease financing
  • Municipal credit enhancement, including Bond Anticipation Notes (BANS) and Tax Anticipation Notes (TANS)
  • Courier services

While not all institutions offer these particular cash management products, you might find, based on your cash management plan and through speaking with advisors, that your town could benefit from some of these services. So don't be afraid to ask your financial institution what they offer so you can find the right mix for your town's funds.

In municipal finance, it's not about how much cash you have. It's really about how well you manage the cash you do have.

It is important that your municipality is provided with pertinent information, guidance and the support necessary to meet your town's financial needs. By working with GUDPA-certified institutions and with your cash management plan, you have the tools you need to get started in choosing the right financial institution for you and choosing the right products and services.

Municipal Finance An outline on Cash Management Plans can be found on DCA's Web site, www.state.nj.us/dca under Division of Local Government Services, Local Finance Notices, Selected Pre-1998, CFO-1997-14. The phone number is (609) 292-6420. Further resources are available at the New Jersey Department of Banking and Insurance web site, www.state.nj.us/dobi, or by calling (609) 292-5360.

 


407 West State Street, Trenton, NJ 08618  (609)695-3481
 NJLM logo 

William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director

Municipal Finance
It's Not What You Have - It's How
You Manage It

Richard S. Krawczun
Director of Finance, Lawrence Township (Mercer)
Bruce Engle
Vice President, Government and
Institutional Banking, Sun National Bank

You're in the business of running a town and using taxpayers' dollars to do it. So, there is added pressure on you to protect your town's money. You must put it in a safe place with people you know and trust, and use products and services that benefit your town's finances the most.

There are many factors municipal leaders need to consider when choosing financial products and managing cash. Here are some things you need to know before choosing your municipality's next financial institution.

Protecting Public Funds - GUDPA Certification Put simply - no public depository (which means state or federally chartered banks, savings banks or savings and loans with an office in New Jersey and which hold public funds) can accept your town's deposits if they do not have a Government Unit Deposit Protection Act (GUDPA) certification (N.J.S.A. 17:9-41 et. seq.). New Jersey is the only state to have this requirement, and it serves to protect your taxpayers' dollars regarding the way your financial institution handles public funds.

GUDPA protects county, municipal and local school district deposits, as well as deposits of public entities formed by one or more counties or municipalities. It also covers any county or municipal board, commission or agency that has custody of public funds.


By having a Cash Management Plan adopted, you are not only in compliance with state law, you are protecting your town's funds with pre-determined rules that leave no questions as to how funds are being managed.


Through a complicated formula and set of rules, GUDPA-certified banks must take extensive precautions to protect your town's public funds. Although not 100 percent guaranteed, through pledged company collateral, insurance from the Federal Deposit Insurance Corporation (FDIC) (up to $100,000 of public funds) and GUDPA protection (anything over $100,000), no government unit under GUDPA has ever lost protected deposits1.

As of December 31, 2004, there were 108 banks in New Jersey with GUDPA certificates. That's a lot of banks to choose from...so, outside of GUDPA, what should you look for in a financial institution?

Using Your Cash Management Plan to Find the Right Financial Institution New Jersey municipalities and those local units that are regulated by the provisions of the Local Fiscal Affairs Law (N.J.S.A. 40A:5-1 et. seq.) are required to adopt a Cash Management Plan each year. Outside of being required, your Cash Management Plan is a great tool that lets you see - in writing - what you really need in your town's financial institution.

In general, the plan authorizes which official(s) may make investments of the town's funds and which investments are permitted, and designates the municipality's legal depositories. The plan also serves as the governing body's policy statement that will guide the investment of idle funds. Therefore, issues of liquidity, diversification, maturity and safety should be included in the plan. The Cash Management Plan also requires monthly reporting of investment activity to the governing body and is subject to review during the annual audit. Additionally, the plan may address issues concerning your legal depositories by outlining certain stipulations the institution must adhere to in doing business with your town, such as insurance and reporting needs, acceptable forms of collateral and investment procedures.

Chief Financial Officers, or the official charged with custody of local funds, should be diligent in having the plan adopted by the governing body. By having it adopted, you are not only in compliance with state law, you are protecting your town's funds with pre-determined rules that leave no questions as to how funds are being managed. Additionally, the Local Fiscal Affairs Law (N.J.S.A 40A:5-14f) protects officials from liability in the event of loss if investments were made in accordance with the adopted plan.

With your cash management outline in hand, you will have the knowledge and guidance of your municipality's policy guidelines and, at the same time, get a real sense of what your financial institution should have to offer you.

For example, there are many different features offered through various checking accounts that are designed specifically for public entities. So, which one is right for you? You can use your cash management plan to do some research to find the accounts and features that best suit your town. Ask questions like:

  • Are there minimum balance requirements for an interest-bearing checking account?
  • Are there compensating balance requirements? (e.g. A certain amount of your account balance won't accrue interest.)
  • Does your account provide unlimited check writing? Or are there stipulations?
  • Is the checking account linked to a Sweep Account? (Does your bank "sweep" your checking account balances into investment outlets that are tied to various market funds?)

Checking accounts are just one example of the many types of accounts, products and services that exist to serve public entities. By having your Cash Management Plan laid out, you are fulfilling your obligation to the state, as well as outlining the types of products and services your town needs and that you need to find in a financial institution.


It is important that your municipality is provided with pertinent information, guidance and the support necessary to meet your town's financial needs.


Finding the Right Mix In addition to traditional checking and savings accounts that serve municipal operating needs, many financial institutions offer ancillary cash management products and services that prove beneficial to running your town and managing its cash.

Online and electronic banking has become extremely popular among municipalities. It's easy to use and provides up-to-date information without waiting for your statement. To name a few features, online banking allows clients to:

  • View detailed information on the accounts in a timely manner
  • Transfer funds between accounts
  • Wire funds electronically

Other products and services that fall under cash management umbrella include:

  • Direct deposit and payroll processing
  • Merchant Card Services, which allows municipalities to accept credit cards for payment of items including property taxes, water and sewer bills, court costs and licenses.
  • Corporate trust / capital market accounts
  • Municipal lease financing
  • Municipal credit enhancement, including Bond Anticipation Notes (BANS) and Tax Anticipation Notes (TANS)
  • Courier services

While not all institutions offer these particular cash management products, you might find, based on your cash management plan and through speaking with advisors, that your town could benefit from some of these services. So don't be afraid to ask your financial institution what they offer so you can find the right mix for your town's funds.

In municipal finance, it's not about how much cash you have. It's really about how well you manage the cash you do have.

It is important that your municipality is provided with pertinent information, guidance and the support necessary to meet your town's financial needs. By working with GUDPA-certified institutions and with your cash management plan, you have the tools you need to get started in choosing the right financial institution for you and choosing the right products and services.

Municipal Finance An outline on Cash Management Plans can be found on DCA's Web site, www.state.nj.us/dca under Division of Local Government Services, Local Finance Notices, Selected Pre-1998, CFO-1997-14. The phone number is (609) 292-6420. Further resources are available at the New Jersey Department of Banking and Insurance web site, www.state.nj.us/dobi, or by calling (609) 292-5360.

 

1 NJ State Department of Banking and Insurance Web site - www.state.nj.us/dobi/gudpafact.htm

 

 

Article in June 2005, New Jersey Municipalities