In 1975, the Illinois General Assembly authorized the development and implementation of a Public Treasurers' Investment Pool under the jurisdiction of the Illinois State Treasurer to provide an investment alternative for public treasurers across the state. During the early years, a financial institution was assigned responsibility for managing the Pool's investments, and providing the necessary accounting and custodial services. However, as the Pool won widespread acceptance among Illinois public treasurers, the State Treasurer assumed a more active role in the management of the Pool's resources.

The advantages of Pool participation are many, but the major attractions of the Pool are as follows:

(1) SAFETY — all investments in the Pool are made in instruments authorized for purchase by the State Treasurer for his/her own portfolio. Within the framework of this statutory authority the Treasurer has traditionally invested participant funds in collateralized certificates of deposit issued by Illinois banks and savings and loan associations, and in repurchase agreements purchased from primary government securities dealers regulated by the Federal Reserve Bank of New York.

All time deposit funds are fully guaranteed through a combination of FDIC or FSLIC insurance for the first $100,000, and direct treasury securities (bills, bonds, or notes) held by one of 18 State Treasurer's safekeeping banks for funds in excess of the insured level. Funds invested in repurchase agreements are secured by direct treasury securities held via the Federal Reserve's book entry system by the Pool's custodian, Marine Bank of Springfield. All repurchase agreement relationships are conducted within the framework of the Master Repurchase Agreement sanctioned by the Public Securities' Association. The Pool therefore holds a perfected security interest in all treasury securities underlying repurchase agreements executed on behalf of participants.

(2) CONVENIENCE — Public treasurers need only to complete a one page application to begin receiving the benefits of IPTIP participation. The application is then forwarded to the State Treasurer's Office for approval. When approval is granted, the application is forwarded to the custodian so that an account may be immediately created for the receipt of funds from the public unit. When the account is opened by the custodian, a representative of the Marine Bank calls the public treasurer to supply the account number so that funds may be wired into the Pool immediately. Participants may use multiple accounts in the Pool to segregate the investment of general corporate funds, bond funds, motor fuel tax funds, etc.

All participants receive written confirmation of each IPTIP transaction daily, and on a cumulative basis each month. Participants may receive distribution of investment income by check each month, or instruct the custodian to reinvest such income in their participant account.

(3) YIELD — The pooling of funds enables public treasurers to receive a higher rate of return than if funds were invested separately with local financial institutions. IPTIP represents the best investment alternative for the small investor whose availability of funds may be limited. In fact, many treasurers use IPTIP as an alternative to repurchase agreements over a weekend, particularly when the level of funds is too low to justify the paperwork and custodial expense of such transactions.

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(4) LIQUIDITY — The beauty of IPTIP participation is that funds can be deposited in any amount, earn a competitive rate of return, the fully guaranteed, and still be available as needed to pay bills as they are presented. Investment staffs are released from administrative tasks such as monitoring investment maturities, or constantly evaluating collateral pledged to support their deposits. Funds are always available when they are needed.

(5) SERVICE — The needs of the Illinois Public Treasurer have always governed the conduct of the Pool. When the General Assembly passed a strict new repurchase agreement law to protect Illinois public treasurers in 1986, the Pool reacted by developing a custodial alternative for participants. Illinois public treasurers can now execute repurchase agreements with a financial institution of their choice, and have underlying securities held by the Pool's custodian in a segregated custodial account via the Federal Reserve's book entry system. This enables public treasurers to conform with all requirements of the new repurchase agreement law, control the cost of custodial relationships, and protect their investment dollars by having a third party hold securities on their behalf.

NEW SERVICES — EFFECTIVE SEPTEMBER 1, 1987, FOUR CHANGES WILL BE MADE TO IPTIP WHICH WILL SIGNIFICANTLY ASSIST PUBLIC TREASURERS IN THE MANAGEMENT AND INVESTMENT OF THEIR FUNDS:

(1) DIRECT DEPOSIT OF STATE DISTRIBUTIVE FUNDS — Participants will be able to receive deposit of sales and income tax distributive funds from the state directly into their participant account. This will allow public treasurers access to their distributive funds 4 to 5 days earlier than is the case at present when they receive funds from the State Comptroller's Office through the mail. Funds will be immediately credited on the distribution date to each participant's account, or wired free of charge to a local depository at the direction of the public treasurer.

(2) ELIMINATION OF PRIOR DAY NOTICE RULE FOR DEPOSITS AND WITHDRAWALS — Participants will no longer be required to notify the custodian in advance of deposits or withdrawals. All funds not cleared by 11:00 a.m. will be invested each day.

(3) CHECK WRITING SERVICE — Participants will be able to disburse funds against their Pool balance to pay their bills. The custodian will establish checking accounts for each participant investment account, upon request of the public treasurer. The participant will then be able to pay their bills through the Pool. At 11:00 a.m. each day, the custodian will value the assets of the Pool and invest all available funds.

(4) CUSTODIAL SERVICE — Participants will be able to use their custodial accounts to hold any book entry security purchased for their own portfolio. Charges for such service will be assessed against their investment account at a rate of $12.50 per security transaction (covers both deposit and withdrawal). This is roughly half the cost of charges assessed by most custodians holding book entry securities.

These four changes in the conduct of the Pool signal a new and exciting era for the Illinois Public Treasurers' Investment Pool. Recent negotiations with the Pool's custodian have resulted in a reduction of administrative charges of nearly 10%. This means that we have succeeded in introducing four new enhancements to the Pool at the same time that we have reduced the cost of the Pool's administration by nearly 10%. This reduction will result in a slight increase in the yield available to participants.

These latest enhancements by no means signal the end of our efforts to adjust the Pool to reflect the continuing needs of public treasurers across the State. We are currently discussing the possibility of introducing a separate high yield Pool as an alternative for aggressive public treasurers who are concerned with the yield on their investments, and are willing to accept slightly less security. In addition, we are pursuing the possibility of adding an arbitrage managment service for those public treasurers active in the municipal bond market. This would offer issuers the assistance of money management and accounting services in full conformance with the new tax reform bill. We will keep you advised as to the progress on these two potential enhancements to the Pool.

We look forward to serving you in the near future. •

Page 6 / Illinois Municipal Review / September 1987