What Are Local Government Investment Pools?

What is an LGIP?

An LGIP gives eligible public entities access to a professionally managed portfolio without requiring each organization to build that portfolio on its own.

The Government Finance Officers Association (GFOA) describes LGIPs as pooled investment funds typically overseen by a state treasurer or authorized governing board for the benefit of public entities within the jurisdiction. Governments participate by purchasing shares or units in the pool, which invests participant funds in a diversified portfolio of short-term securities.

While the structure resembles a money market fund, LGIPs are built for public entities and typically rely on a governmental exemption from SEC mutual fund registration. Oversight, eligible investments, and participant rules come from state law and the pool's governing documents rather than SEC Rule 2a-7.

For many public entities, managing a diversified short-term investment portfolio internally may not be practical. By participating in an LGIP, governments gain access to capabilities that might otherwise require significant internal resources, including:

• Professional portfolio management
• Diversification across multiple securities
• Economies of scale
• Regular reporting and transparency
• Liquidity designed for public-sector cash needs

LGIPs Are Designed Around Public Funds Priorities

Unlike investment strategies focused primarily on maximizing returns, LGIPs are generally structured around the priorities that govern public funds management. While specific objectives vary by state and pool, most focus on:

• Safety of principal
• Liquidity for operating and cash-flow needs
• Yield, consistent with safety and liquidity objectives
• Compliance with applicable laws and investment policies
• Transparency and accountability for participants

For most public entities, preserving capital and maintaining liquidity take precedence over pursuing additional yield. As a result, LGIPs are typically evaluated as cash-management and liquidity tools rather than long-term investment vehicles.

How LGIP Accounts Work

An LGIP participant usually opens an account with the pool sponsor so authorized users can move money under the pool’s operating procedures. In day-to-day use, that process looks familiar to a treasury team.

• Deposits move by wire, ACH, or another approved transfer method.
• Redemptions are requested through the pool’s portal, phone process, or written instruction.
• Same-day access depends on the pool’s cutoff times, transaction rules, and liquidity procedures.

The pool then invests the combined cash in permitted instruments. Depending on state law and pool policy, eligible investments can include:

• U.S. Treasury obligations
• Federal agency securities
• Municipal obligations
• Certificates of deposit
• Commercial paper
• Repurchase agreements
• Other short-term instruments

The participant does not own a specific bill, note, or security, but instead owns a share or unit of the pool. Yield is earned by the portfolio and allocated back to participants according to the pool’s methodology.

GFOA notes that interest is normally allocated daily, proportionate to the participant’s investment. Some pools credit interest monthly, while others compound and pay earnings daily. The pool’s information statement or operating procedures should explain the calculation method, crediting schedule, fee treatment, and statement presentation.

Those statements become source documents for accounting, reconciliation, cash reporting, and financial statement support. For many public finance teams, that information should not be standalone statements reviewed only at month-end. The mechanics of moving money in and out of a pool are simple. The operating work those mechanics create, recording earnings, reconciling balances, tying activity back to the right fund, is where most of the time goes.

For example, Washington State’s Local Government Investment Pool allocates net earnings daily based on each participant’s pro rata share of total pool deposits, then credits those earnings to participant accounts at month-end. A government that increases its balance during the month earns a larger share of the pool’s income based on the amount and timing of those deposits. The same reporting framework also supports participant statements, reconciliation, and cash-position monitoring.

Stable NAV and Variable NAV

One of the most important factors when evaluating an LGIP is whether the pool operates with a stable net asset value (NAV) or a variable NAV.

NAV is the value of one share or unit in the pool. A stable-NAV pool seeks to maintain a constant share value, often $1.00 per share. These pools are typically designed for liquidity, capital preservation, and minimal price volatility, making them well-suited for operating cash, payroll reserves, debt service funds, and other balances that may be needed on short notice.

Many stable-NAV pools are designed to meet the criteria established by GASB Statement No. 79, which permits qualifying external investment pools and their participants to use amortized cost-based measurement for financial reporting instead of fair value measurement.

A variable-NAV pool allows the share value to move with the market value of the underlying portfolio. These pools may hold longer-term securities or take more interest-rate exposure in pursuit of higher yield. That can make sense for money with a longer time horizon, but it changes the risk profile: the amount you redeem may be higher or lower than the original investment amount.

GFOA’s guidance makes this distinction central to due diligence. Stable-NAV pools are used for funds that prioritize liquidity and stability, while variable-NAV pools may be better suited for cash that can tolerate market fluctuations in exchange for the potential for higher returns.

Importantly, a stable NAV does not eliminate risk. Even when a pool seeks to maintain a constant share price, participants should still evaluate the pool's portfolio composition, liquidity profile, governance structure, and investment policies.

This is where many organizations get into trouble. They compare yield without first matching the pool to the cash need. A government funding next week's payroll has different liquidity needs than one investing reserves that may not be used for several years. Matching the pool's structure to the expected use of funds is often more important than maximizing return.

Rated and Unrated Pools

Another important consideration is whether an LGIP carries a rating from an independent rating agency.

Ratings can provide an additional layer of due diligence by assessing factors such as portfolio credit quality, liquidity, diversification, maturity structure, management practices, and governance.

For stable-NAV pools, ratings generally focus on principal stability and the pool's ability to maintain a constant share value. For variable-NAV pools, ratings may also consider sensitivity to changing market conditions and price volatility.

A strong rating can help treasury teams compare pools and may support compliance with investment policies that require or prefer externally rated investments. However, ratings are opinions based on established methodologies and ongoing surveillance. They are not guarantees of performance, liquidity, or principal preservation.

A rating can provide an additional point of comparison, particularly for organizations whose investment policies reference external ratings.

Likewise, an unrated pool is not necessarily riskier than a rated one. Many state-sponsored pools operate under conservative investment policies, statutory investment restrictions, and strong governance frameworks without obtaining a formal rating.

Whether a pool is rated or unrated, finance teams should evaluate several key questions:

1. Does the pool's investment strategy align with the purpose of your funds?
2. Do the pool's liquidity provisions support your expected cash-flow needs?
3. What information is available about portfolio holdings, maturities, credit quality, and risk exposure?
4. Does the pool provide sufficient reporting for accounting, reconciliation, disclosure, and audit support?
5. Does participation comply with your governing statutes and investment policy?

The key question is not whether a pool is rated, but whether its structure, reporting, liquidity profile, and risk characteristics align with your organization's requirements.

Why Public Entities Use LGIPs

LGIPs are popular because they solve a real operational problem: public entities need cash to work harder without sacrificing liquidity or policy control. The order matters, though: safety of principal first, then liquidity for operating needs, then yield consistent with both. Reading the same set of benefits as a flat feature checklist, with yield carrying the same weight as safety, is how teams end up in the wrong pool.

For smaller organizations, the benefit is scale. A township, school district, or public authority may not have the staff to manage a laddered portfolio, monitor credit quality, compare market rates, and process daily liquidity needs. A pool gives that organization access to a larger portfolio, full-time investment management, and participant reporting.

For larger organizations, the benefit is flexibility. An LGIP can serve as the daily liquidity layer. Bank deposits, direct securities, separately managed accounts, and other authorized investments can support different cash needs.

For most public entities, the main benefits fall into five categories.

• Liquidity: Many pools are designed for same-day or next-day access, subject to cutoff times and pool rules.
• Diversification: Participants gain exposure to a pool of securities rather than a single bank account or issuer.
• Professional Management: The pool sponsor or adviser manages credit, maturity, liquidity, and compliance within the pool’s policy.
• Economies of Scale: A larger pooled portfolio can access investment options, pricing, and operational resources individual participants may not reach alone.
• Competitive Yield: Pools often aim to provide a market-based short-term return while keeping safety and liquidity at the center.

Washington’s State Treasurer, for example, describes its LGIP objectives in priority order: safety of principal, adequate liquidity, and a competitive interest rate. That sequence is the public funds mandate in plain English, and it is the test for whether a given pool fits a given dollar.

The Risks Behind the Yield

LGIPs are generally designed to prioritize safety and liquidity, but they are not risk-free. Understanding how a pool manages risk is an important part of due diligence.

Credit Risk

Credit risk is the possibility that an issuer or counterparty connected to the portfolio fails to meet its obligations. Diversification can reduce exposure to a single issuer, but it does not eliminate credit risk entirely.

Interest-Rate Risk

When interest rates change, the value of fixed-income securities can change as well. Stable-NAV pools generally manage this risk through short maturities, liquidity requirements, and portfolio constraints. Variable-NAV pools expose participants more directly to market-value fluctuations because share prices reflect changes in the underlying portfolio.

Liquidity Risk

Liquidity risk deserves special attention because access to cash is often the primary reason governments use an LGIP in the first place.

Many pools offer same-day liquidity under normal market conditions, but that does not always mean unlimited withdrawals at any time. Pool policies may include:

• Advance notice requirements for large withdrawals
• Daily transaction cutoffs
• Limits on certain transaction types
• Provisions designed to protect all participants during periods of market stress

That last category includes what are sometimes called liquidity gates: temporary restrictions on redemptions, redemption fees, or pro rata withdrawal limits a pool can impose under stress to protect remaining participants. Routine cutoff times are not gates. Gates are emergency mechanisms that should be understood before they are needed.

Finance teams should review these procedures carefully and ensure they align with expected cash-flow needs.

Governance Risk

A pool's investment results depend not only on its portfolio but also on its governance framework. Oversight structures, investment policies, transparency, reporting practices, and risk controls all influence how a pool operates and responds to changing market conditions.

What "Not FDIC Insured" Actually Means

LGIP investments are generally not insured by the Federal Deposit Insurance Corporation (FDIC). Unlike a bank deposit, a pool participation unit represents an investment interest in a portfolio of securities, so it also sits outside the protections that apply to other vehicles. There is no SIPC coverage as there would be for a brokerage account, no state collateralization requirement as there typically is for public deposits, and no federal guarantee of the underlying securities unless those securities are themselves Treasury or agency obligations.

That also means participants should not assume the state, sponsoring entity, or pool administrator automatically guarantees principal or performance unless the pool's governing documents explicitly say so. Public entities can use LGIPs prudently and successfully, but leadership should understand the distinction between a bank deposit, a Treasury security, a money market fund, and an LGIP investment.

Who Can Participate

Eligibility depends on state law, pool documents, and the pool's governing structure. While requirements vary by jurisdiction, many LGIPs are designed for public-sector participants, such as:

• Cities and municipalities
• Counties
• School districts
• Special districts
• State agencies
• Public colleges and universities
• Public authorities and other political subdivisions

Some pools may also permit participation by tribal governments, public hospitals, or other eligible entities authorized under state law.

Before opening an account, confirm that participation is permitted under both applicable law and your organization's investment policy.

Typical Participation Process

Once eligibility is confirmed, onboarding generally involves:

1. Reviewing the pool's information statement, investment policy, operating procedures, audited financial statements, and fee schedule.
2. Obtaining governing body approval, if required.
3. Submitting account-opening documents, authorized signer information, tax forms, and banking instructions.
4. Establishing internal controls for deposits, withdrawals, reconciliation, and reporting.
5. Determining which funds and accounts are appropriate for pool participation.

That final step is the most important for public finance teams. Eligibility answers whether a government can use an LGIP; investment planning answers which funds should use it.

Operating cash, reserve funds, debt service accounts, bond proceeds, and restricted grant funds may each have different liquidity, legal, policy, and reporting requirements. A well-managed investment program evaluates the purpose of the cash before selecting the investment vehicle, ensuring that liquidity needs and investment objectives remain aligned.

GASB Rules for LGIPs

LGIP accounting depends on the pool’s structure, measurement basis, and reporting characteristics.

GASB standards matter because LGIP participation appears in a public entity’s financial records and financial statement support. The relevant standards include GASB 79, GASB 31, GASB 40, and GASB 72.

GASB 79

GASB Statement 79 addresses certain external investment pools and pool participants. It establishes criteria that allow a qualifying external investment pool to measure all of its investments at amortized cost for financial reporting.

The criteria start with how the pool transacts with participants. They also cover portfolio maturity, quality, diversification, liquidity, and shadow pricing requirements.

If a pool qualifies, participants can report their position using the pool’s amortized-cost information. If the pool does not qualify, fair value measurement becomes more important.

In the financial statements, that typically means LGIP holdings appear in the deposits and investments note at amortized cost, with disclosure that the pool measures at amortized cost under GASB 79.

GASB 31

GASB 31 establishes how governments account for and report investments and external investment pools in their financial statements.

In practical terms, it is one reason LGIP holdings cannot be treated like informal cash balances. They are investments or cash equivalents with reporting requirements attached. On the face of the financial statements, this drives how LGIP balances are classified, whether as cash equivalents or investments, and how income from the pool is recognized.

GASB 40

GASB 40 requires governments to disclose the risks associated with their deposits and investments. For LGIP holdings, that may mean reporting information related to credit risk, interest-rate risk, concentration risk, custodial credit risk, or other exposure, depending on the pool and the participant’s financial statement requirements. These disclosures typically appear in the deposits and investments note and may reference the pool’s weighted average maturity, credit ratings, and any concentration above the participant’s policy threshold.

GASB 72

GASB Statement 72 defines fair value and provides guidance for fair value measurement and related disclosures. It generally requires investments to be measured at fair value unless an exception applies, and it establishes the fair value hierarchy used in disclosures.

For LGIP participants, the accounting question is whether the organization can support the measurement, classification, income recognition, and disclosure treatment used in its financial statements. When fair value applies, LGIP positions are categorized in the fair value hierarchy, most often Level 2, and disclosed accordingly. When the pool qualifies under GASB 79, the holdings are reported at amortized cost and excluded from the hierarchy, which still has to be noted.

What Your Team Must Track While Managing LGIP Holdings

A participating government needs more than the current pool balance to manage LGIP holdings well. At a minimum, your treasury and accounting teams should be able to track:

• Pool name and sponsor
• Account or subaccount structure
• Fund, project, department, or purpose tied to each balance
• Deposits, withdrawals, transfers, and authorized users
• Daily or monthly yield
• Interest earned and credited
• Fees, if not already netted from yield
• NAV or fair value factor, when applicable
• Stable-NAV or variable-NAV classification
• Rating status and rating changes, if applicable
• Portfolio reports and holdings data
• Investment policy compliance
• GASB measurement and disclosure support
• Journal entries for income, fair value adjustments, and reclassifications
• Liquidity assumptions used in cash forecasting

This is where the LGIP becomes part of the operating system of public finance. The pool may provide the data, but your organization still needs to connect that data to fund accounting, cash forecasts, board reporting, and audit support.

When that work lives in spreadsheets, teams are left reconciling statements, manually allocating interest, checking policy limits by hand, and rebuilding the same support schedules every reporting cycle.

That can create a larger problem than wasted time: the numbers become harder to trust when the organization most needs confidence.

How to Evaluate a LGIP for Your Organization

The best LGIP is the one that fits your organization's cash needs, investment policy, and risk tolerance. Before comparing yields, make sure the pool aligns with your legal requirements, liquidity needs, reporting obligations, and investment objectives.

A higher yield may come from longer maturities, different credit exposure, or a variable-NAV structure that is not appropriate for the funds you plan to invest.

Use the following framework when evaluating an LGIP:

Operational fit matters as much as the pool itself. A high-quality pool still needs internal processes that let your team:

• Tie balances to the right fund
• Record investment income accurately
• Show leadership how the position fits into the broader liquidity plan

Where LGIPs fit in Your Investment Strategy

LGIPs work best when they have a defined role in your liquidity and investment strategy.

For many organizations, the pool belongs in the liquidity tier. That means it supports near-term cash needs, operating reserves, payroll, vendor payments, debt service, or project draws. In this role, the pool is judged by availability, safety, reporting clarity, and policy compliance before yield.

Other funds may sit in a reserve or strategic tier. These dollars can tolerate more structure because they are not needed immediately. A variable-NAV pool, laddered securities, separately managed account, or longer-duration instrument may be more appropriate there, depending on policy and risk tolerance.

A simple liquidity map can keep the decision grounded:

• Daily Liquidity: Bank balances, stable-NAV LGIPs, and other instruments available immediately or nearly immediately.
• **Short-term Liquidity:** Investments matched to known obligations within weeks or months.
• Strategic Reserves: Funds with a longer horizon and more ability to absorb price movement.

Each dollar needs a job. Cash needed tomorrow should stay close to operations. Reserves needed next year can support a different strategy if the team has visibility into future cash needs.

Put the Pool in Your Larger Investment Strategy

The practical test for an LGIP reaches beyond the rate sheet. Your team should be able to answer four questions:

1. What is the money doing?
2. Why does it belong there?
3. When can it be accessed?
4. How will it be reported alongside other cash and investment decisions?

Before the next investment committee meeting, choose one LGIP position and trace it from beginning to end. Start with the source fund and authorized purpose. Your review should confirm the support behind the position.

• Current balance
• Yield
• NAV treatment
• Policy limit
• Next expected cash need
• GASB disclosure support

If that path runs through five spreadsheets and three inboxes, the pool may be working, but the process around it is not.

Public finance teams manage money under a standard of trust. LGIPs support that trust when selection, tracking, and reporting all connect to a complete treasury picture.

Managing LGIP Holdings with DebtBook

DebtBook is not an LGIP provider. It is a system of record that helps public finance teams manage LGIP positions alongside debt, cash, and other treasury activity. Once funds are invested, treasury and accounting teams still need to track balances, record earnings, support financial reporting, and keep the investment aligned with liquidity needs.

DebtBook helps governments centralize investment data, automate reporting for GASB 31, 40, and 72, generate fair value journal entries and valuations, monitor investment policy compliance, and maintain audit-ready records.

Because investment decisions are tied to liquidity planning, DebtBook also connects investment holdings, projected cash flows, investment maturities, and debt service requirements. That gives teams a clearer view of how much cash belongs in a pool, how much should remain readily available, and when funds may be needed for operations.

By bringing debt, cash, and investments into a single system, DebtBook helps public finance teams manage LGIP holdings with stronger financial controls.

FAQ

Are LGIPs safe?

LGIPs can be conservative investment vehicles, but “safe” depends on the pool’s structure, holdings, maturity limits, credit quality, liquidity rules, governance, and reporting transparency. A stable-NAV pool focused on high-quality short-term instruments has a different risk profile than a variable-NAV pool designed for enhanced return.

Are LGIPs FDIC-insured?

No. LGIP investments are not FDIC-insured when they are pool participation units rather than bank deposits. They are also not automatically guaranteed by the state, sponsor, or governing board unless the pool documents explicitly say otherwise.

Is an LGIP the same as a money market fund?

No, although some LGIPs operate like money market funds. LGIPs are built for public entities and usually rely on the governmental exemption from SEC mutual fund registration requirements. Some follow money market-style operating standards, but oversight, eligible investments, and participant rules depend on state law and pool documents.

What is a stable-NAV LGIP?

A stable-NAV LGIP seeks to maintain a constant share value, commonly $1.00. These pools are often used for liquidity because they aim to minimize price volatility, although they still carry risk and are not guaranteed.

What is a variable-NAV LGIP?

A variable-NAV LGIP allows the share value to fluctuate with the market value of the underlying portfolio. These pools may pursue higher yield through longer maturities or different investment strategies, but participants accept more price movement.

How is LGIP yield paid?

Yield is earned by the pool’s portfolio and allocated to participants according to the pool’s rules. Many pools calculate earnings daily and credit them monthly, while others compound and pay daily. Always confirm whether the published yield is net of fees.

What should a government report for LGIP holdings?

At a minimum, the organization should support its balance, income, measurement basis, fair value or amortized-cost treatment, applicable risk disclosures, and investment policy compliance. GASB 79, 31, 40, and 72 determine how those records appear in the financial statements.

Can bond proceeds be invested in an LGIP?

Sometimes, but only if state law, bond documents, arbitrage rules, and the organization’s investment policy allow it. Bond proceeds often carry additional restrictions, so they should be tracked separately from general operating cash.

How many LGIPs should an organization use?

There is no universal number. Some organizations use one primary pool for liquidity, while others use multiple pools to diversify providers, compare yield, or separate purposes. The right answer depends on policy, controls, reporting capacity, and liquidity needs.

How should you start evaluating an LGIP?

Start with the pool’s information statement, investment policy, operating procedures, audited financial statements, monthly holdings reports, fee schedule, and rating reports if available. Then compare those documents against your governing law, investment policy, cash forecast, and reporting requirements.

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Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.