The Peachtree City Water and Sewerage Authority (WASA) board held a special called meeting on March 20, 2019, and approved a resolution to authorize the investment of WASA funds with the Office of the State Treasurer in the Georgia Fund 1. The move was made because the size of WASA’s account with Morgan Stanley became too small for them to manage.
WASA’s investment in the Georgia Fund 1 may be a possible event of default.
The Georgia Fund 1 is one of four funds created by the Office of the State Treasurer to pool money from local governments for investment purposes. The policy is to invest prudently with a degree of judgment and care. There is no guarantee of a return or preservation of principal.
The Bond Resolution for WASA’s 2013 bonds under the “Funds Constitute Trust Funds” says that all moneys received by the Authority “shall be deposited in banks insured by the Federal Deposit Insurance Corporation.” Deposits also are allowed with institutions which pledge collateral security obligations that are unconditionally guaranteed by the United States or other marketable securities eligible under the regulations of the Federal Reserve System and applicable State law.
The Georgia Fund 1 application and instructions clearly state, “Georgia Fund 1 deposits are not guaranteed or insured by any bank, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the State of Georgia or any other agency.”
The Georgia Fund 1 doesn’t meet the Bond Resolution requirements for security.
An Event of Default in the Bond Resolution is (7) “the Authority shall fail to perform any of the covenants, conditions, agreements, and provisions contained in the Bonds or in the Bond Resolution on the part of the Authority.” WASA’s investment in the uninsured Georgia Fund 1 appears to be a failure to perform in accordance with the Bond Resolution provisions.
The Georgia Fund 1 assesses an annual administrative fee on each account based on the interest earned and fair market value increase or decrease. For the most recent audit available, the fiscal year ending June 30, 2016, the admin fee was 10.7 percent.
John Dufresne
Former WASA Board Member
Peachtree City, Ga.
