Introduction

How local governments invest taxpayer dollars held in reserves can boost their local economies—or it can cost their economies millions.

When local governments collect revenues, they do not generally expend them immediately. In the time between collecting and expending revenue, governments generally hold funds in reserves by depositing them into one or more financial institutions or trusts to generate returns. In Iowa, these local government funds held in reserve commonly end up in pooled investment trusts, the Iowa Schools Joint Investment Trust (ISJIT) and the Iowa Public Agency Investment Trust (IPAIT). Together, these two trusts managed nearly $2.5 billion in local government funds across Iowa in fiscal year (FY) 2025. According to financial disclosures, when Iowa’s local governments deposit public dollars with IPAIT, the trust deploys about 90% of it into investments outside Iowa’s economy. In FY 2025 none of the funds school districts invested with ISJIT stayed in Iowa-based financial institutions. Only 4.8% of the total—just under $120 million—remained invested in Iowa-based institutions.[1] Indeed, the trusts invest nearly six times more with foreign banks than with Iowa institutions.[2]

This report evaluates the economic impacts of deposit decisions by Iowa’s local governments, comparing the status quo with alternatives that keep local governments’ funds local. It examines both the direct fiscal implications for taxpayers and the broader impact on community economic development.

Key Findings

• Iowa’s local governments held $2.5 billion in public funds with ISJIT and IPAIT, of which almost all (~$2.4 billion) was invested outside of Iowa in FY 2025.
  • In FY 2025, ISJIT and IPAIT invested 95.2% of assets under management outside Iowa and only 4.8% with Iowa-based financial institutions.[3]
  • Invested reserves from Iowa’s local governments generated nearly $110 million in investment income in FY 2025.
  • Fees paid to ISJIT and IPAIT in FY 2025 came to approximately $7.2 million. About $2 million, or 27% of the fees, were added costs for royalties and sponsorships.
• If the entire $2.5 billion in local government deposits currently with ISJIT and IPAIT were invested with Iowa-based financial institutions, Iowa’s banks could have lent an additional $1.75 billion into the local economy.
  • On average, the yield offered by IA-based banks from 2015 through 2025 has been 1.0% higher than the net yield paid by ISJIT and IPAIT.
  • Traditional financial institutions like local banks do not charge local governments fees for royalties and sponsorships, saving taxpayers an additional $2 million.
• CSI’s macroeconomic model simulations found a range of positive outcomes for Iowa’s economy, depending on the assumed yield on deposits under each scenario. If the funds currently deposited with ISJIT and IPAIT were kept in local financial institutions:
  • From 2026 through 2030, Iowa could expect a cumulative increase of—
    • $3.3 to 3.5 billion in Personal Income.
    • $2.9 to $3.1 billion in Disposable Personal Income.
    • $5.3 to $5.6 billion in overall GDP.
  • For the year 2030, Iowa could expect a boost to jobs and population by—
    • 7,200 to 8,500 jobs.
    • 7,600 to 7,750 population.
  • Under the model’s assumptions, CSI estimates local governments would generate between -3$ million and +$24 million in investment income in 2026, depending on the yield.
• IPAIT and ISJIT invest most of their deposits in U.S. agency and U.S. Treasury securities, money market funds outside Iowa, and out-of-state financial institutions. Often, the out-of-state financial institutions are used for repurchase agreements, which present more risks than treasuries and money market funds.
• Iowa is one of 11 states with locally run pooled public investment trusts. The two more common arrangements are for state-run public investment trusts (20 states) and no public pooled investments (19 states).
• CSI reviewed 26 states’ laws governing where local governments must hold public funds. Across the 26 states reviewed, 14 states have a policy comparable to Iowa’s that allows local governments to invest funds in out of state securities after initially depositing them with an in-state institution. The remaining 12 states reviewed prohibit out-of-state investments.

Background

In 2025, local governments across Iowa held an average of $2,488,590,692 in investment deposits across two investment management trusts: The Iowa Public Agency Investment Trust (IPAIT) and the Iowa Schools Joint Investment Trust (ISJIT). Local governments generated $109,647,222 in investment income from these deposits and paid $7,194,800 in operating costs (fees and other expenses) to generate this income.

Of the approximately $2.5 billion held with these two entities, $1,118,305,140 was held with IPAIT as of June 2025, an increase of 9% from 2024’s average net position of $1,024,618,714.[4] In 2025, Iowa’s schools had an average net position of $1,370,285,552 with ISJIT, an increase of almost 11% from 2024’s $1,236,867,200.[5]

From the funds held at IPAIT, participants received $49,758,715 in FY2025 investment income, a decrease of 5% from the prior year.[6] Total fund expenses were $3,256,543, up from $2,968,396 in 2024.[7]

From funds held at ISJIT, participants received net investment income of $59,888,507 in 2025 and $62,485,252 in 2024.[8] Total expenses for generating the net investment income totaled $3,938,257 in 2025 and $3,776,382 in 2024.[9]

Table 1

The approximately $2.5 billion in local public funds invested with IPAIT and ISJIT generated about $110 million in investment income for local governments across the state. The implied yield on the invested funds for 2025 was approximately 4.4%.[10]

Looking back to fiscal year 2015, assets under management of IPAIT and ISJIT have grown from $724 million to $2.5 billion since FY 2015, or 243%.

Figure 1

While combined assets under management grew consistently since 2017, the net yield on those assets fluctuated much more due to the ups and downs of the Federal Reserve’s federal funds target rate. The lowest yields were earned in 2015, 2016, and 2021. The highest yields were earned in 2024 prior to the Federal Reserve beginning to lower interest rates again.

Figure 2

Public entities have options for where they can place their reserves. They may park their assets with ISJIT and IPAIT, but they can also keep deposits with local banks or other Iowa financial institutions. When deciding on the right institution for holding their reserves, local governments might reasonably ask, “What type of yield would public entities have earned on assets under management at each type of institution?”

Figure 3 provides a comparison. As shown, the net yield earned by depositors in Iowa-based banks has generally been higher and less volatile than those held with ISJIT or IPAIT. Using estimates provided by Iowa-based banks, the net yield on Iowa-based banks for large dollar volume entities (a category in which most public entities would fall) was higher with the exception of fiscal years 2024 and 2025. On average, the yield offered by IA-based banks from 2015 through 2025 has been 1.0% higher than the net yield paid by ISJIT and IPAIT.

Figure 3

Why Choose ISJIT or IPAIT When IA-Based Banks Often Offer a Higher Yield?

For anecdotal confirmation of the data shown in Figure 3, CSI reviewed a sample of annual financial reports of local governments. Figure 4 illustrates the common finding from that sampling using a financial report from Mason City, Iowa. From page 2 of Mason City’s report, the figure shows the interest rate offered by First Citizens compared to investments in IPAIT. Overall, the First Citizens certificate of deposit (CDs) generally had a marginally higher interest rate compared with investments in IPAIT, while accounts with a shorter maturity generally had a lower interest rate.

Figure 4

Notably, ISJIT and IPAIT have invested in Iowa-based bank notes in the past. For instance, IPAIT held these investments in Iowa-based financial institutions:

• In 2021 and 2022, $5,285,568 (2021) and $360 (2022) in Community State Bank.
• In 2022, $30,049,814 in Greenstate Credit Union.
• From 2021 through 2023, between $856 and $75,436,801 in Hills B&T.
• From 2022 through 2025, between $25,011,405 and $74,535,021 in Cedar Rapids B&TC Demand and Savings.

In its cursory review, CSI did not find any investments made by ISJIT in Iowa-based banks. One previous investment—$15,733,467 in a West Bank CD—was mentioned but could not be verified.

Given the sparseness of investments in Iowa-based financial institutions by ISJIT and IPAIT—and the observation that Iowa-based banks offer competitive and often higher yields—why are not more unspent tax funds deposited with Iowa-based banks or other financial institutions directly? The answer may lie with past practice, established relationships, financial managers’ preferences, and the ease of using a specific financial service provider.

Management Fees as Opposed to Performance Fees

Figure 5

ISJIT and IPAIT receive fee revenue for marketing, royalties, adviser services, custody, administrative expenses, and other expenses. In FY 2025, fees paid to ISJIT totaled approximately $3.9 million and fees paid to IPAIT reached $3.3 million (see Figure 5).

These fees generally accrue regardless of performance. For instance, IPAIT reported that its administration fees, investment advisory fees, marketing fees, royalty fees, custodian and cash management fees, and professional fees rose by 9.7% (+$340,631) even though its return, as measured by investment income, decline by 3.7% (-$2.4 million, approximately). Per ISJIT, the drop in generated investment income stemmed from Federal Reserve policy of lowering interest rates throughout the year.

While fees for bona fide services such as investment advising or account maintenance are standard in financial and trust management, sponsorship and royalty fees are uncommon.  In 2025, ISJIT and IPAIT paid private associations $1,096,124 and $840,954 respectively in such royalties.

Figure 6

Which States Have Entities Similar to IPAIT and ISJIT?

Iowa is somewhat unique in its structure of having a group of local governments create an investment trust. Among U.S. states, 20 allow for public pooled investments administered by the state, 11 (including Iowa) allow for public pooled investments administered by local governments, and 19 states have no public management of investments (see Figure 6).

In addition to Iowa, the following states have pooled public investments at the local government level: Arkansas, California, Colorado, Kansas, Kentucky, Louisiana, New Jersey, New Mexico, Oklahoma, and Oregon (see Figure 7).

Figure 7

Economic Impact of Local Funds Deposits

As background on what is currently happening, Figure 8 shows the IPAIT and ISJIT asset allocations in fiscal year 2025. Overall, ISJIT has $0 in Iowa-based financial institutions while IPAIT has $109 million, or approximately 5%. This background begs the question: What if Iowa’s public entities placed a larger portion or all their unspent tax funds in Iowa-based financial institutions?

Figure 8

Modeling the Economic Impact in Iowa-Based Community Banks

When deposits are placed in local banks, those institutions can expand their lending base by some fraction of the deposits. The exact amount of lending depends on national and local economic conditions, risk, regulatory requirements, and the nature of potential projects. The most recent loan-to-deposit ratio (LTR) for Iowa was 83.2%.[11] Using this 83% LTR as the guide, CSI’s analysis assumes the infusion of cash into Iowa-based banks would be lent out for mortgages, business expansions, and local infrastructure funding.

Within statutory risk tolerance thresholds, financial managers are generally required to be prudent fiduciaries. Those duties compel them to search for ways to maximize the institutions’ return on their deposits, which are taxpayer dollars. This decision-making framework may lead local government fiduciaries to invest public funds with ISJIT or IPAIT where those dollars then get invested mostly outside of the state. Public entities may earn a higher return using this strategy, although again, that outcome historically has not generally been the reality for Iowa’s government investments. Often, the out-of-state financial institutions are used for repurchase agreements, which present more risks than treasuries and money market funds. Alternatively, public entities could place the money directly with their local banks. As with ISJIT or IPAIT, this strategy could boost or lessen the local government’s financial return, depending on yields.

Given the uncertainty in expected yields between the two options, CSI modeled two scenarios to provide a range of impact should the $2.5 billion in ISJIT/IPAIT deposits be reallocated to institutions that keep the local public dollars within Iowa’s economy.

Assumptions of the Model

Under both scenarios, CSI modeled the economic impact using Regional Economic Modeling Incorporated’s Tax-PI+ model (REMI). REMI is a dynamic modeling system that provides direct, indirect, and induced estimates should a deposit shift happen. Direct effects include bank earnings, loan availability, and yield changes. Indirect effects capture any flow of money through business expansions, new hiring, and potential productivity improvements. Induced effects capture the potential for higher household spending as wages rise. Additionally, in one scenario the direct impact includes the potential loss in revenue to public entities by accepting lower overall yields on their unspent funds by shifting away from ISJIT/IPAIT, while the other scenario assumes higher yields for local governments by shifting away from ISJIT/IPAIT.

The two scenarios modeled in REMI analysis were: 

• A full shift towards local banks where local banks offer a lower yield of 0.15%, which is the average yield difference between high yield offerings of local banks and the net yield of ISJIT/IPAIT over the past two years; and
• A full shift towards local banks, where local banks offer a higher yield of 1.0%, which is the average yield differential over the past 12 years.

The following table summarizes the key direct assumptions:

Figure 9

The economic impact for the two scenarios is presented in the following figures.

Scenario 1 Results

Overall, for Scenario 1, the cumulative annual results from 2026 through 2030 include:

• An increase in Personal Income of $3.5 billion.
• A rise in Disposable Personal Income of $3.1 billion.
• An increase in GDP of $5.6 billion.

The annual figures for employment and population by 2030 include:

• An increase in employment of 8,534.
• A rise in population of 7,749.

Figure 10

Scenario 2 Results

Overall, for Scenario 2, the cumulative annual results from 2026 through 2030 include:

• An increase in Personal Income of $3.3 billion.
• A rise in Disposable Personal Income of $2.9 billion.
• An increase in GDP of $5.3 billion.

The annual figures for employment and population by 2030 include:

• An increase in employment of 7,163.
• A rise in population of 7,594.

Figure 11

Policy in Other States

Iowa leaves the option open for local governments to invest in securities across the world within risk safeguards. Policies across other states generally fall into one or both of two buckets:

1.  Appendix A lists the states that require government entities to deposit government money into local banks and financial institutions. Apart from conditional requirements in Connecticut and somewhat vague requirements in Kansas, every state requires government money to be initially deposited with a state-based bank or financial institution.

2.  Appendix B offers a rough classification of policies related to security requirements across different states. Of the 26 states CSI reviewed, 14 allow for the purchase of securities outside of the state and 12 do not.

Bottom Line

Currently, few of the local taxpayer dollars deposited with ISJIT and IPAIT remain in Iowa’s economy. Only about 5% of those dollars stay in Iowa’s economy while being held in deposits there. Economic modeling by CSI demonstrates how keeping local government deposits in Iowa banks can stimulate local lending, lower borrowing costs, and generate broader economic benefits for Iowa’s local economy. The data suggest in most years local government will also receive a higher yield on their deposits with local Iowa banks than with ISJIT and IPAIT. While local governments could see lower yields on deposits some years, the benefit to the local economy of keeping the dollars local would nonetheless outweigh the downside of the marginal difference in yield even in these years, based on CSI’s economic modeling.

Appendix A

The following is an accounting of statutory requirements for handling of unspent government money.

Appendix B

Endnotes