Proposal to let school districts run local investment pools fails after treasurer, comptroller warn of risks

A bill that would have allowed local governments and school districts to form their own local government investment pools (LGIPs) and expand options beyond the state LGIP failed in the Senate Education Committee after financial officers warned of added risk.

Charlie Zacker of PMA Financial told the committee local pools can be tailored to districts’ liquidity needs and keep investment dollars in local banks, arguing such pools operate under the same statutes and auditing constraints as the state LGIP. "By providing a specialized vehicle with duration matching, we are simply giving local governments another option," he said.

Tennessee State Treasurer David Lillard and Comptroller Jason Mumpower testified against the bill, saying the state LGIP already provides safety, liquidity and competitive returns and cautioning that local pools could permit securities-lending, longer-duration instruments and guaranteed investment contracts that increase counterparty and liquidity risk. "Last year, the LGIP returned 4.76% with a minimal administrative fee," Lillard said, noting the Treasury’s economy of scale and experienced staff. Comptroller Mumpower warned the bill could shift control away from local taxing authorities and raise oversight concerns.

After debate the committee recorded three ayes and five noes; the measure failed in committee and will not advance this session.

What’s next: Committee members said the questions raised by treasurer and comptroller warrant further study; school finance and treasury staff may pursue alternative approaches or technical fixes outside this bill.