Cape May Takes Next Step Toward Investing in NJ/ARM

CAPE MAY – Cape May City Council took another step on the road to investing public funds in the New Jersey Asset & Rebate Management (NJ/ARM) Program April 4.
With each step, the city gets closer to allowing its financial officers to use the NJ/ARM and gain the benefit of its higher interest rates. Yet each vote, this one on introducing the NJ/ARM into the city’s Cash Management Plan, is taken with a degree of expressed concern by some members of council.
Deputy Mayor Lorraine Baldwin has been especially vocal about her concerns. At a meeting two weeks ago, Baldwin asked if investments in the NJ/ARM are covered by the Government Unit Deposit Protection Act (GUPDA), which normally protects municipality deposits that are in excess of the amounts covered by the Federal Deposit Insurance Corporation (FDIC). 
At the April 4 meeting, she learned that GUPDA does not insure funds on deposit in the NJ/ARM. The city’s new Chief Financial Officer, Kevin Hanie, said the nature of the investment vehicles used by the NJ/ARM, which are almost all treasuries backed by the federal government, makes depositing funds with the NJ/ARM a safe option. The NJ/ARM has S&P Global Ratings’ highest rating.
The NJ/ARM works similarly to a pooled money market fund for state municipalities. It provides investment services for bond proceeds and general operating funds.
The conversation focused on the perception that the NJ/ARM is safe, New Jersey municipalities are not barred by law from placing funds in the NJ/ARM, even though GUPDA protection is normally required for public deposits, and the interest rates are higher than the city is getting from deposits at FDIC-insured banks.
In the end, city council approved a resolution amending the cash management plan “to incorporate the NJ/ARM program and to request a report be made to Council prior to substantial investments being made in NJ/ARM.”
Substantial investment was defined as $1 million or more.