The job of the Trustees of Trust Funds is to maintain custody of the Town’s perpetual care funds, charitable trusts, private donations, and capital reserve/expendable trust funds. We facilitate the maintenance of these funds under the wishes of the donor or by law.
Our first focus is to secure the funds from loss or theft; second, to maintain records and submit reports; and finally, to invest the funds in accordance with the law and our Town investment policy. Andover has three trustees: Alex Estin, Sarah Whitehead (filling a vacancy until the next Town Meeting) and me, Joanne L. Edgar, CPA, currently serving as the chairperson.
There are several different types of trust funds held by us for the Town of Andover: capital reserve, cemetery, expendable, library, school, scholarship, and private donations. Each of these has its own rules and regulations set by the trust document and/or by state law.
We invest these funds within the rules and regulations of each trust and following state law and our Town investment policy. In general, this boils down to the following.
Funds must be 100% collateralized. This means that wherever the funds are held and invested, they are guaranteed and secured in the event of the institution’s failure. Our funds are currently held by RBS Citizens Bank Government Funds group, which covers the first $250,000 under FDIC. The remaining balance of funds is guaranteed by Bank of New York Mellon under a third-party custodian agreement.
Investment of funds is limited by law to protect the principal investment against loss. Essentially, any investment vehicle which would guarantee the principal, such as money funds, CDs, Treasury bills, or state, city, and town municipal bonds are the investments that would qualify.
Earnings on investment vehicles which guarantee principal usually set their rates at the federal funds rate or the Treasury bill rate. In early 2008, these rates were 3.94% and 2.75% respectively. However, by late 2008 these rates dropped to .16% and .03% and have remained this low ever since.
In September of 2012, the federal funds rate was .14% and the Treasury bill rate was .11%. Interest rates have been kept low in an effort to keep the economy moving. The theory is that low rates mean easier and more affordable financing for such things as cars and homes, which in turn spurs more spending, which helps the economy. The negative impact of low rates is lack of earnings on savings. Rates are not expected to climb much before 2015.
So why reserve capital if we can’t earn any revenue? We still reserve capital each year for future projects in an effort to keep property tax rates from sharply rising in a year when an improvement is needed.
If you would like more information on the laws governing trust funds, visit DoJ.NH.gov/charitable-trusts/municipalities.htm. For more information on the Federal Reserve, banking, and the economy, visit FederalReserve.gov. If you have any questions for me, please e-mail me at Joanne@nullJEdgarCPA.com.