AREA INVESTMENT WATCH : High-Yield Fund Failed to Attract Interest of Officials in Many Cities : Finances: Safer government securities won out over more lucrative Orange County investment pool.
While Montebello was pumping $47 million into Orange County’s ill-fated investment pool, other Southeast-area cities were playing it safe.
Long Beach and other cities opted to put most of their surplus money in the state’s investment fund, Treasury bills and certificates of deposit--investments that paid less interest than Orange County’s fund but proved safer.
City officials said they place a higher priority on safety and accessibility of the invested money than on potential earnings.
“Safety is our foremost objective,” said Dick Hilde, Long Beach city treasurer. “Rate of return is important, but not anywhere near safety of principal.”
Funds in the state pool are invested mostly in U.S. government securities, certificates of deposit (CDs) and commercial paper (short-term loans to major corporations).
Long Beach has dabbled in reverse-repurchase agreements, a key tool in Orange County’s investment pool, but there are stricter limits, officials said. In a reverse-repurchase agreement, a city uses some of its holdings as collateral to borrow money to invest in other securities.
Long Beach had $63 million in reverse repurchases June 30, according to the city’s annual financial report.
“There’s nothing inherently evil with reverse repos,” insisted James C. Hankla, Long Beach city manager. “We structure ours a lot differently than Orange County.”
Orange County ran into trouble because it extensively used short-term reverse-repurchase agreements to make long-term investments, said J.C. Squires, deputy city auditor in Long Beach. In Long Beach, reverse-repurchases must mature at the same time as the bonds in which the proceeds are invested. These investments are limited to 25% of the city’s holdings.
A look at investments in Southeast-area cities:
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ARTESIA
Total invested: $2.4 million.
Primary investments: State investment pool.
Comment: “We have our money with (the state pool) because we can go in and make withdrawals and deposits without being penalized. We are so small. We don’t have enough money to be tied up in bonds and things like that.”
--Patricia Mitchell, city clerk/treasurer
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BELLFLOWER
Total invested: $3.8 million.
Primary investments: State investment pool.
Comment: “Historically, we’ve put our money in the (state pool). It’s highly liquid, very safe and brings us a reasonable rate of return.”
--Tae Rhee, city finance director
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CERRITOS
Total invested: $169.3 million.
Primary investments: U.S. government securities.
Comment: “Our No. 1 priority is safety, next is liquidity and then return on principal. We have . . . never leveraged and have never bought on margin.”
--John H. Saunders, administrative services director
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COMPTON
Total invested: $25.7 million.
Primary investments: U.S. government securities, state investment pool.
Comment: “We can only go with vanilla-type investments: Treasury bills, U.S. government agencies, CDs. For a small investment portfolio, we’re doing OK. It’s safe.”
--Douglas Sanders, city treasurer
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DOWNEY
Total invested: $32.4 million.
Primary investments: U.S. government securities, state investment pool.
Comment: “Safety is the priority. They were doing things (in Orange County) that I do not think were the type of things you should do with taxpayers’ money.”
--Lowell Williams, finance director
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HAWAIIAN GARDENS
Total invested: $3 million to $4 million (estimated).
Primary investments: State investment pool.
Comment: “We never thought about getting into the Orange County pool. Somebody told me about it. I said, ‘Let me see their investment policy.’ I looked at it and said, ‘They do what?’ I’m happy to say our money is in (the state pool).”
--Nelson Oliva, c ity a dministrator
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LA HABRA HEIGHTS
Total invested: $1.1 million.
Primary investments: State investment pool.
Comment: The city’s investment strategy “is very conservative; that’s why we are with (the state investment pool).”
--Keith McVicar, city accountant
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LA MIRADA
Total invested: $13.3 million.
Primary investments: U.S. government securities.
Comment: “We were approached by the treasurer’s office of Orange County to participate in the investment pool and declined, realizing what their investment portfolio was made of.”
--Gary Sloan, city manager
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LAKEWOOD
Total invested: $26.4 million.
Primary investments: U.S. government securities.
Comment: “We never considered getting into Orange County. We like to keep our money where we can see it and touch it.”
--Hank Stern, deputy city treasurer
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LONG BEACH
Total invested: $871.5 million.
Primary investments: U.S. government securities.
Comment: “I sleep well at night because I know I have strong internal controls. I have to report to an investment committee, I have the city auditor looking over my shoulder and I report monthly to the City Council.”
--Dick Hilde, city treasurer
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LYNWOOD
Total invested: $10 million.
Primary investments: State investment pool.
Comment: “The city’s investment policy is conservative.”
--Alfretta F. Earnest, finance director
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MONTEBELLO
Total invested: $77.2 million.
Primary investments: Orange County investment pool, certificates of deposit.
Comment: “We’ve been investing in the Orange County pool since 1991. We saw it as an absolutely safe investment with the best rate of return we could get for our money.”
--Richard Torres, city administrator
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NORWALK
Total invested: $3.3 million.
Primary investments: State investment pool.
Comment: Officials decided two years ago to avoid the Orange County pool. “We can’t afford to make a bad investment decision. We made sure our money was safeguarded.”
--James Weber, finance director , city treasurer
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PARAMOUNT
Total invested: $19.8 million.
Primary investments: State investment pool.
Comment: “We’re very, very conservative in our investments. We prefer short-term investments, which means you don’t get great returns. But you safeguard your principal that way.”
--Richard Leahy, assistant city manager
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PICO RIVERA
Total invested: $14.2 million.
Primary investments: State investment pool.
Comment: “The basic premise underlying Pico Rivera’s investment philosophy is to ensure the safety of the funds and to assure that money is always available when needed. The city does not buy stocks, it does not speculate, it does not deal in futures or options.”
--Randy Rassi, finance director
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SANTA FE SPRINGS
Total invested: $32.9 million.
Primary investments: State investment pool.
Comment: “In Orange County, they were more like dealers than treasurers. They were borrowing money to invest more money.”
--Susan Bergeron-Vance, assistant director of finance and administrative services
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SIGNAL HILL
Total invested: $20.4 million.
Primary investments: State investment pool.
Comment: “We don’t have the ability to get into the Orange County fund. We made an inquiry at one time and were told it was closed to cities outside of Orange County. We did look at it, but whether we would’ve (invested in it) is another matter.”
--Douglas N. La Belle, city manager
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WHITTIER
Total invested: $32.6 million.
Primary investments: State investment pool, U.S. government securities.
Comment: “The first priority of any investment is safety, a risk-free investment. We heard about an opportunity to invest in Orange County about five years ago, but chose not to. We had good investments that were meeting our needs.”
--Trudy Hill, city clerk-treasurer
Correspondents John Canalis, Psyche Pascual and John D. Wagner contributed to this report.
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