MFOA of Ontario CHUMS Financing Corporation.

• Author: Gregg, Malcolm
• Position: Municipal Finance Officers' Association of Ontario

One of the ongoing challenges for municipalities, particularly those not large enough to warrant specialist staff, is to maximize their short-term cash management returns. Leaving surplus funds with the bank is an easy administrative option, but it does not get the best return available. Much better returns can be had by investing in the money market (or any other market for that matter within the limits of legislated authority) provided the municipalities have the staff to manage their portfolios. For those without the resources to undertake their own investments, an investment pool may be the best option.

In the Province of Ontario, the investment pool option became a reality in 1992. Until then, municipalities could lend to or borrow from each other, but they could not combine their funds to invest on a mutual basis. While borrowing and lending between two municipalities obviously can be beneficial to both by sharing the spread between borrowing and investment interest rates, it is a cumbersome procedure requiring a municipality to find another municipality to match its needs, negotiate the rate of interest and do the paperwork for the transaction. Given the many short-term investment or borrowing transactions of an average municipality, this could be an onerous administrative task and, as a result, intermunicipal borrowing and lending has not developed on a large scale. After many years of pressure from the Municipal Finance Officers' Association of Ontario (MFOA), the Ontario provincial government amended its Municipal Act to permit the joint investment of municipal funds either by entering into agreements directly with other municipalities or through an agent. The board of directors of MFOA saw the new legislation as an opportunity to become that agent. The board moved very quickly to form a subsidiary company--the CHUMS Financing Corporation--and by November 1992, the new investment fund was open for business.

The name of the fund is unusual and perhaps needs a word of explanation. The Province of Ontario funds and regulates various services provided by the broader public sector, which includes such entities as municipalities, universities and colleges, school boards and hospitals. Through common usage in provincial budgetary jargon, this became known as the MUSH sector, an acronym of the agencies involved. In searching for a name for its new investment corporation, MFOA looked at MUSH as its potential client base but assumed...