Caution, Not Risk, Is Rule for Handling Public Funds
As a man who values his sleep, Treasurer Hal Pittman doesn’t like staying up at night worrying about the $749-million investment portfolio he manages for the county.
Despite uncertain economic times that have turned many small investors into insomniacs, Pittman is relaxed and still sleeps well. That’s because he doesn’t mind not beating Wall Street day after day. After the catastrophe that was the Orange County bankruptcy a few years back, he’s downright proud of the humdrum returns he’s been getting.
“The risky things, I don’t do,” he said. “It’s not my money, it’s the public’s, and besides, I’m not much of a gambler.”
The volatility in the stock market in recent months has not hurt investments by area governments, which now rely on a simple maxim: Always protect the principal.
Pittman, for instance, has placed most of the county’s money in government securities, or government-backed investments such as bonds and treasury notes. Under his stewardship, the county’s investment portfolio netted a modest 5.78% yield in the first nine months of 1998.
Although that doesn’t sound like much, it added up to $3.6 million, and certainly was a better showing than investors who saw their net worth plummet with the stock market.
Area cities including Oxnard, Thousand Oaks and Moorpark have pursued similar investment paths, preferring to err on the side of caution rather than gamble on a possible windfall.
Like the county, city portfolios in Ventura County rely heavily on the government securities market and also include large investments in the state’s Local Agency Investment Fund. That is a $31-billion pool of municipal monies, which has shown a 4.85% yield over the past year.
The LAIF is managed by the state treasurer’s office, and although conservatively structured, it is highly diversified, with investments ranging from government securities to commercial deposits to corporate bonds.
Despite its modest returns, LAIF is credited by many experts with providing a much-needed cushion for cities and school districts against the occasional dip in securities markets.
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In the wake of Orange County’s momentous bankruptcy in 1994 and Camarillo’s near insolvency in 1987, the state and local governments have mandated more conservative and inflexible policies regarding municipal investment.
Local governments are barred from speculation--the root of Orange County’s bankruptcy--and taking chances with the public’s money in markets that don’t offer deposit guarantees.
Area governments have gone a bit further and instituted safeguards to monitor their accounts and policies that emphasize safety and liquidity.
The county, for instance, has adopted polices that require Pittman to prepare a monthly financial report that is reviewed by the county’s chief administrator, the auditor-controller and the Board of Supervisors.
“We have a lot of checks here,” Pittman said. “There’s no way that I or anybody else could change the way we invest.”
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Cities also have stringent policies regarding portfolio investments. Treasurers and finance officers must prepare reports for city councils, and a few cities, such as Thousand Oaks, have appointed outside reviews boards.
“We’re weathering what’s going on out there very well,” said Moorpark’s Chief Financial Officer Wayne Boyer, who helps oversee the city’s $17.4-million portfolio. “The interest rate cuts were a little disappointing, but it’s not something that’s worrying us.”
The Federal Reserve Board’s recent ratcheting down of short-term interest rates from 5.5% to 5% to stoke the nation’s economic fires in the midst of economic turmoil in Asia, South America and Russia has prompted some local government financial managers to revise their earnings projections.
“There are a lot of [financial managers] out there playing the yield curve, trying to get the best return,” said Jim Bruno, a Ventura County financial planner. He is a member of the Thousand Oaks investment review committee, an outside body that monitors the city’s investments and financial policies.
“With interest rates where they are, is it better to get in for the long or the short term? No one knows,” Bruno said.
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Some economists and market experts predict the Fed will cut interest rates again, but the most recent cuts are already rippling through the securities market. The yield on treasury securities, for example, has fallen considerably, from more than 5% last year to 4.27% on three-to-six-month investments and 4.15% on five-year notes.
Those reductions haven’t yet affected area government investments, but they will when the securities mature and fund managers will have to invest at a lower yield.
“It’s no fun to have [liquid] money right now,” said Oxnard Treasurer Dale Belcher. “There’s so little incentive that reinvesting it after something matures gets to be kind of a challenge.”
With a portfolio totaling about $80 million, Oxnard’s investment profile is similar to most other cities’, with about $22 million in the LAIF and the remainder tied to government securities.
Belcher said the portfolio’s performance has been consistent over the past year, yet small. She does not reinvest the portfolio’s returns, but withdraws the money to fund various city programs and pay debts.
The economy has forced her, like others, to become more of a securities hustler, angling daily for a better yield by constantly tweaking the city’s investment structure.
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“I’m out looking for those little bleeps where we can can make a little extra,” she said.
“But that’s not by taking any risks. It’s those little hiccups in the market that I’m looking for.”
Thousand Oaks’ municipal portfolio is second only to Ventura’s, totaling about $107 million. It is also one of the most diversified, with only about $14 million in government securities and $31.5 million in LAIF.
The remainder is invested in bank acceptances, or monies loaned by municipalities to banks for small-business loans, certificates of deposit and other funds.
With this diversity, Chief Financial Officer Bob Biery said the city has and will remain insulated from market and interest rate fluctuations.
Although the array of safety measures may protect area governments from squandering their revenues on longshot investments, current crises in the world market have tempered many economists’ prognoses for the U.S. economy.
How any slowdown will affect interest rates and investment yields is unknown. In the meantime, local fund managers like Pittman say they are ready to react to any market change that might hurt or help their portfolios.
“These are volatile times, and nobody’s sure what’s going to happen next,” he said. “But we’ve been pretty successful so far, and I’m sure we’ll be able to keep it that way.”
