HILLTOWNS — Last year, the town board of Westerlo authorized its then-acting supervisor, William Bichteman, to invest 30-percent of the town’s surplus funds into New York Cooperative Liquid Assets and Securities System, a mutual fund that promises returns greater than what most banks offer and allows depositors to access their funds immediately. 

Now, Bichteman, as supervisor, is authorized to invest up to 50-percent of Westerlo’s funds; the Berne-Knox-Westerlo Board of Education has authorized Superintendent Timothy Mundell to invest district funds; and the towns of Knox and Berne will be exploring the advantages of NYCLASS in future meetings. 

“It’s virtually a zero-risk opportunity,” Bichteman told The Enterprise this week. 

He discovered NYCLASS when he was searching for a way to invest town money beyond the obvious bank account. Bichteman contrasted NYCLASS with Certificates of Deposit, which are safe investment vehicles but traditionally restrict access to the funds deposited for a certain period of time, a restriction that Bichteman described as “cumbersome.” 

NYCLASS allows same-day withdrawals, does not require a minimum deposit, does not charge fees, and offers relatively high potential returns.

At Knox’s regular town board meeting on Feb. 18, Supervisor Vasilios Lefkaditis said that investing in NYCLASS would earn the town an additional $18,500 each year, on top of what it currently gets back in interest from KeyBank, the town’s depository. 

“If we move 1.2M to NY Class,” Lefkaditis told The Enterprise in an email this week, “I estimate the town will earn north of 25k in interest in total. Which is a net swing to the black of nearly 30k a year. The 30k includes the 3-4k in fees the Town was paying prior to 2016 which we no longer pay.”

Mundell painted a similar picture in an email he sent to The Enterprise this week.

“We anticipate that by depositing general fund monies, we will be able to generate 60k of additional interest over the course of a fiscal year, July 1-June 30,” Mundell wrote of BKW funds. “We also have several reserve accounts such as a transportation reserve for bus purchases, the capital reserve to support project expenses, and other reserves … We could see an additional 60K from those deposits.”

Mundell said that the school will retain funds in the Bank of Greene County as well, which he said is for “liquidity and convenience.”

Berne’s supervisor, Sean Lyons, told The Enterprise that the town board will be reviewing the Berne’s investment policy in the near future and that his intention is to make changes that allow the town to generate more revenue through investments.

“I am familiar with NYCLASS and investments as a source of revenue is one of my goals for 2020,” Lyons told The Enterprise in an email. “The code of the Town of Berne has an investment policy (Chapter 33) and its annual review will be in the next month or so.”

What is NYCLASS?

 NYCLASS is a mutual fund, founded in 1989, that caters to local governments, including school and fire districts. Most NYCLASS participants are municipalities, which contribute nearly half of the funding, followed by schools at approximately 41 percent. The bulk remaining is broken up between fire districts, cooperatives, and “other,” according to the NYCLASS website. 

NYCLASS invests funds from those corporations into United States Treasury securities, which make up nearly 80 percent of the group’s portfolio; repurchase agreements account for 14 percent of the portfolio; and collateralized bank deposits make up nearly 7 percent of the portfolio. 

Standard and Poor’s Financial Services, a leading credit-rating company, gave NYCLASS’s pool a grade of AAAm, meaning it “demonstrates extremely strong capacity to maintain principal stability and to limit exposure to principal losses due to credit risk,” according to S&P’s pool profile of NYCLASS. AAAm is the highest rating S&P gives out. 

NYCLASS’s portfolio is managed by Public Trust Advisors, LLC, which also manages similar government pools in Texas, Michigan, Indiana, and more. 

Public Trust Advisors is overseen by NYCLASS’s governing board, which is comprised of 15 members elected by NYCLASS participants. The board members themselves are NYCLASS participants, being the treasurers or executives of towns, or the business administrators of school districts. 

While it’s curious that there’s been an influx of Hilltown participants and onlookers in a relatively short period of time, it’s not a matter of coordinated efforts, nor an increase in marketing on NYSERDA’s end.

“Although the program has been in existence for over 30 years, participation is now at an all-time high now that the economy and interest rates have improved,”  NYCLASS’s regional marketing director for Upstate New York, Lyn Derway, told The Enterprise. “We have over 600 participants across the state with over $3.6 billion in total deposits.”

The risks

Not all Hilltown residents are happy with the shift away from more secure investment strategies, however. 

When the Westerlo Town Board moved to authorize NYCLASS as a depository, resident Leonard Laub, who works as a business consultant across the globe, chided Bichteman for what Laub saw as a risky maneuver, since one third of its portfolio is not insured.

“Their selling point is this is a secure investment,” Bichteman said at the time. “We’re not reaching for the moon here. We’re just trying to get some return.”

Councilman Joseph Boone rattled off a list of other regional municipalities that invest with NYCLASS, including Voorheesville, Colonie, and Bethlehem.

“To me, that’s a pretty respectable group,” Boone said at the time.

Laub shot back that Bernie Madoff, the investment advisor who was sentenced to 150 years in prison in 2009 after it was discovered that he was running a Ponzi scheme, had a “pretty impressive list of clients, too.”

In a letter to the Enterprise editor published in October, last year, Laub wrote:

“In public meetings, [Bichteman] played up the higher rate of return [of NYCLASS] compared to safe and guaranteed CDs and dismissed clear risks resulting from NYCLASS increasingly depending on investments which are not guaranteed, then crowed about the town having received several hundred dollars from investing hundreds of thousands.”

The U.S. government backs treasury securities, which means the money spent on them is basically guaranteed, though not necessarily with an ideal return. Repurchase agreements, the next largest chunk of NYCLASS’s portfolio, are a form of collateralized lending, according to investopedia.com, and can sometimes be backed by the U.S. treasury, but not always. 

“Since we operate in accordance with NYS General Municipal,” Derway told The Enterprise in an email, “we do not invest in commercial paper. Besides treasuries, we invest in bank CDs and repurchase agreements. All are collateralized as required.”