Deposits and Investments

Significant Changes to Deposits and Investments

Deposits and Investments

Added how to account for investments at amortized and fair value.

3 Accounting

3.2 Assets

3.2.1 Deposits and Investments

Investment Requirements Each municipal corporation should, by action of its governing body, authorize investment of any moneys which are not required for immediate expense and which are in the custody of the county treasurer or other municipal corporation treasurer. State law (primarily Chapter 39.59 RCW, along with Chapter 35.39 RCW for cities and Chapter 36.29 RCW for counties) limits the types of investments allowable for local governments. Limitations on eligible investments reflect preservation of capital and liquidity of funds as primary objectives for investment of public funds. In general, local governments may invest in reasonably safe investments, such as:

  • Obligations of the federal government, its agencies and government sponsored organizations
  • Obligations of Washington State and local governments
  • Obligations of other States and local governments located in other states that have one of the three highest credit ratings of a nationally recognized credit agency at the time of purchase
  • The Washington State Treasurer’s Investment Pool (Chapter 43.250 RCW)

Absent statutes specifically authorizing a local government to make an investment in a certain investment type. For example, the following investments are generally not eligible for investment of public funds:

  • Corporate stocks
  • Corporate bonds
  • Foreign government obligations
  • Futures, options, swaps and other derivatives
  • Real estate or commodities
  • Limited partnerships
  • Negotiable certificates of deposit
  • Certificates of deposit from banks that are not designated as qualified public depositories
  • Money market or mutual funds

For a detailed description of eligible and non-eligible investments, along with policy considerations and suggested controls over investing activities, local governments should consult the Office of State Treasurer’s Guide to Public Funds Investing for Local Governments.

In addition to restrictions imposed by state law, investments of local governments may be further restricted by policy, contract or regulation. For example, debt covenants or arbitrage requirements may restrict investment of bond proceeds. Local governments should consult with bond counsel for guidance on such restrictions.

Deposit requirements Except for funds deposited pursuant to a fiscal agency contract with the state fiscal agent or its correspondent bank, no public funds should be deposited in demand or investment deposits except in a public depositary located in this state or as otherwise expressly permitted by statute (RCW 39.58.080). WAC 389-12-020(3) allows public depositaries to arrange for the investment of public funds in certificates of deposit issued by one or more federally insured financial institutions wherever located on behalf of a treasurer provided the funds are initially invested in an authorized Washington public depositary. The total deposits of public funds by any treasurer in any one public depositary may not exceed that depositary’s net worth. If a public depositary’s net worth is reduced, a treasurer may allow public funds on deposit in excess of the reduced net worth to remain until maturity as long as the depositary provides collateral equal to one hundred percent of the excess deposits (RCW 39.58.130). Net worth for public depositaries may be adjusted by the Public Deposit Protection Commission (PDPC) to reflect the depositaries proportional net worth position in Washington State. A financial institution receives designation as a public depositary from the PDPC. This designation is readily verified, either from the financial institution (via a letter of authority from the PDPC) or directly from the PDPC. A quarterly list of each public depositary and its net worth is published on the Washington State Treasurer’s website at Washington state and federally chartered credit unions may also accept public deposits within limitations set forth in RCW 39.58.240. State law allows up to two hundred fifty thousand dollars on deposit for any one depositor of public funds in any one credit union. A quarterly list of each approved credit union and its public deposit balances is also available on the Washington State Treasurer’s website.

Accounting for Deposits and Investments

Deposit and investment amounts are both reported together in BARS account 308 (beginning cash and investments) and BARS account 508 (ending cash and investment).

Except for investments held in an investment pool that reports the pooled investments at fair value, all deposits and investments must be reported at either face value or amortized cost. Face value is the stated value of the investment by the issuer. Amortized cost is the value equal to the acquisition cost less the value of principal repayments and the adjustment for the discounts or premiums received at the time of purchase. Governments should establish a policy on when investments should be reported at amortized cost, face value, or fair value. This policy should be disclosed in the Note X - Deposits and Investment.

If accounted for at amortized cost, the purchase of an investment at a premium or discount would require an entry to the Investment Income BARS Code 361.10.00 to account for the premium or discount on the purchase of the investment.

Amortized Cost Example:

Investment in a bond with a face value of $1,000. The government purchases the investment for $950. The cash and investment balance should remain at $1,000. Accounting entry would be as follows:

      Investment purchase (cash and investment account)                            $1,000
                    Cash                                                                                                                    $950
                    Investment income 361.10.00                                                                             50

The bond investment receives annual principal repayments and interest payments. For example, the first payment is $100 of principal plus $10 of interest. Accounting entry would be as follows:

       Cash (principal and interest payment amount)                                      $110
                    Investment maturity (cash and investment account)                               $100
                    Investment income 361.10.00                                                                           10

Accounting for investments in an investment pool that reports at fair value:

Fair value is the estimated price at which an investment would be bought or sold as of the reporting date. Fair value adjustments are performed at least annually at the financial statement reporting date. The investment would recognize unrealized gains or losses on the investment in the 361.10.00 Investment Earnings BARS code. Unrealized gains and losses on investments would only occur with investments held in investment pools reporting at fair value.