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Schools

District 86 Investment Policy Scrutinized

Two board members wondered about a possible conflict of interest and sought a presentation from the district's investment advisor.

The will ask a Naperville investment firm employed by the district to make a presentation at a future meeting after a pair of board members suggested a conflict of interest may exist.

District 86 participates in the Illinois School District Liquid Asset Fund (ISDLAF), which provides investment opportunities for school districts. It was formed 17 years ago as the result of a meeting of the executive directors of the Illinois Association of School Boards (IASB), the Illinois Association of School Administrators, and the Illinois Association of School Business Officials.

The ISDLAF Board of Trustees is comprised of school officials. However, the address listed on the ISDLAF home page is also the address of Naperville-based PMA Financial Network, Inc.

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Board member Dianne Barrett suggested it could be a conflict of interest for PMA to make recommendations that the school district invest in funds in which PMA has a financial interest.

District 86 business manager Jeff Eagan noted that PMA is divided into separate entities, implying therefore that no conflict of interest exists.

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According to the PMA website, PMA Financial Network, Inc. “specializes in privately insured, collateralized, and FDIC-insured certificates of deposit and commercial paper investments, and is the fund administrator of local governmental investment pools,” while PMA Securities, Inc. “provides fixed income institutional brokerage and investment banking services, registered money fund products, and is the distributor for several intergovernmental investment pools.”

PMA Securities, Inc. has a Warrenville address, which also appears on the ISDLAF website.

Eagan’s explanation did not seem to convince Barrett or fellow board member Dr. Richard Skoda.

“Wouldn’t they have a vested interest in making sure enough money was invested into [ISDLAF], since they’re making money at it?” Skoda asked Eagan.

“I don’t know,” Eagan said. “You’d have to ask them.”

Who makes investment decisions?

Eagan noted that the district only had two options for investment services, ISDLAF and Illinois Funds, which is run by the State of Illinois.

“So, ultimately, you’re actually making the decision,” Board President Dennis Brennan said.

“Correct,” Eagan said. “The decision to make an investment is based on our cash flow.”

Eagan added that the district also used to solicit local banks.

“We provided PMA with the local banks and local contacts,” he said.

Superintendent Dr. Nicholas Wahl the local banks still have a chance to compete.

Barrett asked if there were other firms other than PMA that could provide the same services to the district.

“There are other companies,” Eagan said. “It’s the cash flow product that PMA provides for free that makes PMA stand head and shoulders above other competitors.”

The smell test

“It just doesn’t smell right,” Skoda said. “I’m saying whoever invests our money should not be investing it in a fund they manage.”

“We do have a business office that is a check and balance on anything PMA tells us,” Brennan said.

Brennan suggested that PMA be invited to make a presentation to the board at a future meeting, which might allay some of Barrett and Skoda’s concerns.

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