Town signs agreements


 

FALLS VILLAGE — Town Treasurer Linda Paviol, presented information on the town’s banking arrangements to the Board of Finance this week, and also spoke to The Journal about the pledge agreements with the town’s bankers.

The term "pledge agreement" is unfamiliar to many, and has caused some concern. Selectman Peter Lawson at an Oct. 29 special meeting of the Board of Selectmen, said flatly, "The term ‘pledge agreement’ scares me."

"It’s like a collateral loan," Paviol explained. "We are loaning the bank money, and they are putting up securities as collateral."

The securities will go into an account in the town’s name at the Federal Reserve, Paviol said, and before anything about the account is changed town officials must be notified.

Margaret Caiati of the National Iron Banksaid several towns in the area are using pledge agreements.

In a worst-case scenario, such as a bank failing, the town of Canaan/ Falls Village would ask the Federal Reserve to release the securities, just as a bank would repossess property when a borrower fails to repay a loan, said Paviol.The arrangement is good from a bookkeeping standpoint, Paviol emphasized, as it allows the town to keep funds liquid. An alternative strategy, such as a series of short-term Certificates of Deposit, would require a great deal of planning and getting multiple signatures from the relevant town officials.

And the big question: Are the town’s funds safe under the pledge agreements?

"I believe them to be," Paviol, who has a background in banking, replied. "Our attorneys have reviewed the language, and say these are binding contracts."

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