PROPOSAL COULD LIMIT TEXAS CITIES’ INVESTMENT OPTIONS
The League recently filed comments with the federal Securities and Exchange Commission voicing concerns about a report issued by the President’s Working Group on Financial Markets. The group’s report addressed the vulnerabilities of money market mutual funds which, according to the group’s report, allowed for a “run” on money market funds that significantly contributed to the financial crisis in 2008. (Specifically, the group has recommended a shift away from a stable net asset value [NAV] to a floating NAV as the method of assigning value to the funds.)
The stable NAV has been a key reason why money market mutual funds appeal to a broad range of investors, including Texas cities. In fact, the Texas Public Funds Investment Act (PFIA) provides that cities and other local governments may only invest in a money market mutual fund that features a stable NAV of $1 per share. Assigning a floating NAV to money market funds would conflict with the current provision in the PFIA, and consequently would eliminate Texas cities’ ability to invest in money market funds.
The League’s comments echoed the concerns of the National League of Cities and other groups, while also highlighting the conflict between the group’s proposal and state investment laws.