Public Act 307 of 2008, which was signed into law in late December, amends the Revised School Code to allow school districts and intermediate school districts to invest funds in certificates of deposit with financial institutions that participate in the Certificate of Deposit Account Registry Service (CDARS) program.
CDARS is an investing tool that allows financial institutions to offer customers insurance on deposits greater than the Federal Deposit Insurance Corporation (FDIC) limit. CDARS spreads an investor's funds among as many member institutions as necessary so that no more is invested in any single institution then is covered by FDIC insurance -- thus allowing the investment to be fully covered by the FDIC insurance.
Prior to the law, some school districts conducted business with several different financial institutions in order to maximize FDIC insurance coverage for their deposit balances.
School districts may only invest funds as specified by statute. One lawful investment option is to invest funds in certificates of deposits (CDs) issued by financial institutions that maintain a principal office or a branch office located in Michigan.
This CDARS program includes costs that reduce investment returns and also places limitations on when and for how long a district can invest. Be aware that there can be a delay between sending the money to a Michigan bank and when it is actually invested in multiple institutions. The bank is required to receive reciprocal deposits from out-of-state banks that are participating in the transaction. Schools need to ensure that the Michigan bank they invest with follows the reciprocal deposits requirement in the legislation.
Other options include the diversified pooling of the MILAF+ liquid asset fund and the MILAF+ Term, which allows schools to invest in pooled investments for specific maturities.