BOROUGH OF SOMERVILLE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
Note 5:
DEPOSITS AND INVESTMENTS (CONT’D.)
(c)  Credit Risk – GASB Statement No. 40 requires that disclosure be made as to the credit rating of all debt security investments except for obligations of the U.S. government or obligations explicitly guaranteed by the U.S. government. This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. In general, the Borough does not have an investment policy regarding Credit Risk except to the extent outlined under the Borough’s investment policy. The New Jersey Cash Management Fund is not rated.
(d)  Interest Rate Risk - This is the risk that changes in interest rates will adversely affect the fair value of an investment. The Borough does not have a formal policy that limits investment maturities as a means of managing its exposure to fair value losses arising from interest rate fluctuations.

As of December 31, 2022, based upon the insured balances provided by the FDIC and NJGUDPA coverage, no amounts of the Borough’s bank balances were considered exposed to custodial credit risk. In addition, based upon the existing deposit and investment practices, the Borough is generally not exposed to credit risks, concentration of credit risks and interest rate risks for its investments nor is it exposed to foreign currency risks for its deposits and investments

Investments

New Jersey statutes permit the Borough to purchase the following types of securities:

  1. 1. Bonds or other obligations of the United States of America or obligations guaranteed by the United States;
  2. 2. Government money market mutual funds;
  3. 3. Any obligation that a federal agency or a federal instrumentality has issued in accordance with an act of Congress, which security has a maturity date not greater than 397 days from the date of purchase, provided such obligation bear a fixed rate of interest not dependent on any index or other external factor;
  4. 4. Bonds or other obligations of the local unit or bonds or other obligations of school districts of which the local unit is a part or within which the school district is located;
  5. 5. Bonds or other obligations, having a maturity date of not more than 397 days from the date of purchase, approved by the Division of Investment in the Department of the Treasury for investment by local units;
  6. 6. Local government investment pools;
  7. 7. Deposits with the State of New Jersey Cash Management Fund established pursuant to section 1 of P.L. 1997, c. 281 (C.52:18A-90.4); or
  8. 8.
    Agreements for the repurchase of fully collateralized securities, if:
    1. a. the underlying securities are permitted investments pursuant to paragraphs (1) and (3);
    2. b. the custody of collateral is transferred to a third party;
    3. c. the maturity of the agreement is not more than 30 days;
    4. d. the underlying securities are purchased through a public depository as defined in section 1 of P.L. 1970, c. 236 (C.19:9-41) and for which a master repurchase agreement providing for the custody and security of collateral is executed.
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