What local entities are covered by GUDPA?
GUDPA protects deposits of counties, municipalities and local school districts. It covers deposits of public bodies formed by one or more counties or municipalities, or any board, commission, or agency of a county or municipality having custody of public funds, in addition to any charitable or spillover fund established pursuant to N.J.S.A. 54:4-66.7 et seq. For example, public funds of a county college and a municipal public library would be protected.

GUDPA does not apply to funds of the State or State agencies. Further, it does not apply to private non-profit corporations, even those which perform public services.

What deposits are covered by GUDPA?
Currently, the first $250,000 of governmental deposits in each insured depository are protected by the Federal Deposit Insurance (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF) in most situations. Public funds in excess of the FDIC or NCUSIF insured amounts are protected by GUDPA.

Protected public funds include those which are beneficially owned by the governmental unit and collected by it for its use or the use of the public. Typically, these funds are raised through taxation or the sale of public assets. GUDPA should not be relied on to protect intermingled trust funds, bail funds, withholdings from an employee's salary or funds which may pass to the local government upon the happening of a future condition.

Which banks and credit unions participate in GUDPA?
Local government units are required by law to deposit their funds in an eligible public depository pursuant to GUDPA. State and federally chartered banks, savings banks, savings and loan associations, and credit unions having at least a branch office in New Jersey must be certified by the Department of Banking and Insurance for participation in the GUDPA system. Anyone will be able to print a copy of an eligible depository's certificate from the Department's website. A governmental unit which is unsure whether a depository is certified to receive its funds may contact the Department or use the above link.

How the funds are protected?
Each depository participating in the GUDPA system must pledge collateral equal to at least 5% of the average amount of its uninsured public deposits and 100% of the average amount of its uninsured public funds in excess of the lesser of 75% of its capital funds or $200 million. The minimum 5% pledge applies to institutions that are categorized as "well capitalized" by Federal banking standards. The percentage of the required pledge will increase for institutions that are less than "well capitalized." No collateral is required for amounts covered by FDIC or NCUSIF insurance.

The collateral which may be pledged to support GUDPA deposits includes obligations of the State and federal governments, insured securities and other collateral approved by the Department. When the capital position of the depository deteriorates or the depository takes an unusually large amount of public deposits, the Department of Banking and Insurance may require additional collateral to be pledged.

If a governmental depository fails and the FDIC or NCUSIF does not insure or pay out the full amount of public deposits, the collateral pledged to protect these funds would first be liquidated and paid out. If this amount is insufficient, other institutions holding public funds would be assessed pro rata up to 4% of their uninsured public funds. Although these protections do not constitute a 100% guarantee of the safety of all funds, no governmental unit under GUDPA has lost protected deposits historically.

What is "eligible collateral"?
As set out in NJSA 17:9-41, "eligible collateral" means:

• Obligations of any of the following
  • The United States
  • Any agency or instrumentality of the United States, including but not limited to, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration, and the Small Business Administration;
  • The State of New Jersey or any of its political subdivisions;
  • Any other New Jersey governmental unit; or
    
    
• Obligations guaranteed or insured by any of the following, to the extent of that insurance or guaranty:
  • The United States;
  • Any agency or instrumentality of the United States including but not limited to, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Housing Administration and the Small Business Administration;
  • The State of New Jersey or any of its political subdivisions; or
    
    
• Obligations now or hereafter authorized by law as security for public deposits;
  
  
• Obligations in which the State, political subdivisions of the State, their officers, boards, commissions, departments, and agencies may invest pursuant to an express authorization under any law authorizing the issuance of those obligations; or
  
  
• Any other obligations as may be approved by the commissioner by regulation or by specific approval.
  
  

What laws implement GUDPA?
GUDPA is codified in the New Jersey Statutes as N.J.S.A. 17:9-41 et seq. In addition, the Department of Banking and Insurance has promulgated regulations in the New Jersey Administrative Code at N.J.A.C. 3:34 et seq.