Measuring money... faster, cheaper, cleaner

The Government Finance Officers Association (GFOA) was joined by a host of other organizations in writing a comment to FSOC on its money fund reform proposals. GFOA writes, "The fixed NAV is a fundamental feature of money market mutual funds. As investors, many state and local governments look to MMMFs as part of their cash management practice. In the Government Finance Officers Association's Best Practice, "Use of Various Types of Mutual Funds by Public Cash Managers," governments are encouraged to look to money market funds for short-and medium-term investments, with appropriate cautions. One of the critical reasons for this recommendation is the fixed NAV feature found in these products. In fact, many governments have specific policies that mandate that they invest in products with stable values. These requirements and the popularity of MMMFs as a cash management tool reflect the fact that these funds are highly regulated, have minimal risk, and are easily booked by the investor. State and local governments currently have $127 billion invested in these funds according to the Federal Reserve Bank. Additionally, changing the fundamental feature of MMMFs from a fixed NAV to a floating NAV would dampen investor demand for municipal securities and therefore could deprive state and local governments and other borrowers of much-needed capital. Consider that MMMFs are the largest investor in short-term municipal bonds, holding 73% of all outstanding short-term bonds equaling nearly $271 billion. Creating a marketplace where the NAV changes from fixed to floating would make MMMFs far less attractive to investors, thereby limiting the ability of money market funds to purchase municipal securities. Losing this vital investing power could lead to higher debt issuance costs for many state and local governments across the country." The letter was signed by these organizations: American Public Power Association, Council of Infrastructure Financing Authorities, Government Finance Officers Association, International City/County Management Association, International Municipal Lawyers Association, National Association of Counties, National Association of Health and Educational Facilities Finance Authorities, National Association of Local Housing Finance Agencies, National Association of State Auditors, Comptrollers and Treasurers, National Association of State Treasurers, National Council of State Housing Agencies, National League of Cities, and the U.S. Conference of Mayors.

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