Billed as a way to increase local revenues, a measure before the Kentucky General Assembly would allow local governments to pursue more aggressive investments.
House Bill 75, sponsored by Rep. Steve Riggs, D-Louisville, would permit cities, counties, school districts and other governmental entities to invest their funds in mutual, closed-end and exchange-traded funds, and high-quality corporate bonds.
HB 75 passed the House on a vote of 95-to-0 on Jan. 23.
The bill is now being reviewed by the Senate State & Local Government Committee.
Riggs said local investment returns are only around 0.5% because of outdated laws.
He expects local government investment returns to increase fivefold under his proposal to expand investment options, he said.
Under current state law, local governments and political subdivisions can only invest money in uncollateralized certificates of deposit issued by a bank or savings and loan institution, securities issued by a state or local government, and commercial paper.
Investments in CDs, securities and commercial paper can only be made if the issuer is rated in one of the three highest categories by a nationally recognized rating agency.
HB 75 would expand the list of eligible investments to include funds invested in high-quality corporate bonds issued, assumed, or guaranteed by a solvent institution, funds that have a standard maturity of no more than 10 years, and are rated in the three highest rating categories by at least two competent credit rating agencies, according to a staff analysis.
The bill requires local governments to hire a professional investment advisor that is regulated by a federal regulatory agency.
The amount of total funds that can be invested in government-issued securities, mutual funds, exchange traded funds, individual equities, and high-quality corporate bonds must not in the aggregate exceed 40% at one time.
“This proposal promotes diversification within the entire investment portfolio of a local government,” the analysis said. “Any impact is subject to the continued investment decisions of the local government.”
Riggs said that improving returns could help local governments avoid the need for tax increases.
The Kentucky Legislature is in session through April 15.