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Abstract: 

In recent years, the speculative investment practices of a few local governments have generated increased public scrutiny of government investment in general. Public concerns about reckless investment practices are justified when the possible consequences are loss of tax dollars and default of debt obligations, as illustrated by the bankruptcy of Orange County, California. All investment managers grapple with the tradeoff between portfolio yield and safety of principal, but the tensions are particularly pronounced in the government sector. In government, the adage “do more with less” often translates into “spend more without raising taxes.” Many state and municipal governments have bridged that gap by enhancing investment revenues. Thus, government financial officers are challenged to mobilize investment revenues and still ensure the safety of principal. The author undertook a survey of large municipalities to enhance understanding of municipal investment policies and practices. The survey focused on large U.S. cities, because they are more likely to be engaged in active investment management of idle cash and may face considerable fiscal pressures to enhance interest revenues.

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Affiliations:  1: Robert F. Wagner Graduate School of Public Service, New York University.