Editor's note: This corrects how the city treasurer is selected, which will still be by election.
Let's imagine you just won the lottery and you have $150 million in the bank. Would you (a) hire a full-time professional to manage your money, or (b) hire a part-time person to manage your money?
Essentially, the city of Huntington Beach has chosen (b). By voting to make the treasurer's position part-time, the city believes that it is OK for a part-timer to manage your money. This isn't just a "petty cash" account. It's $150 million. And the reason for making this move was the old "budget crisis" excuse. Apparently, eliminating this position would save more than $100,000 annually.
If the budget crisis was the "real" reason, why not look at the two, not one, deputy city administrators on the city's payroll? They're making an average of more than $180,000 a year. To my knowledge, no other city in Orange County the size of Huntington Beach has two deputy city administrators. Why two deputies? Isn't one enough?
Perhaps the "real" reason for this change in the city treasurer's office has been the annual return on the city's money. According to the latest treasurer's report, the annual return has been a meager 1.54%. Because the treasurer has chosen an ultra-conservative approach by investing in primarily short-term bonds, the annual returns are dismal and may appear unacceptable to some City Council members. It's unacceptable to me.
But, at least, I'm willing to admit it in public. The City Council isn't. They accept each and every monthly city treasurer's report with rarely any discussion and/or debate. So, where's the Investment Advisory Board? According to the city's website, it hasn't had a meeting in more than a year.
The first basic principle of investing is simple. No risk, no return. The more risk, the more return (or loss). There needs to be a balance. The second basic principle of investing is diversification. It should come as no surprise that the city's annual returns barely keep up with inflation. There is no reasonable risk and virtually no diversification.
I'm not saying that the city should invest in hedge funds, junk bonds or "speculative" investments. But instead the City Council should have worked together with the treasurer's office to adapt a more balanced and different investment policy. We have some of the country's most successful investment firms right here in our own backyard, Newport Beach.
Bill Gross, the founder of Pacific Investment Management Company (PIMCO) and one of the world's most prominent money managers, comes to mind. According to the Jan. 15 issue of Barron's magazine, Gross picked the following two funds as his "top picks" for the past year: the Reaves Utility Income Fund and the PIMCO Corporate Opportunity Fund. They returned 24% and 29.6%, respectively, over the past year. That's more than 20 times better than 1.24%. Doesn't the city of Huntington Beach deserve a better return on its money than just more than 1%?
It'll be interesting to see if the city of Huntington Beach changes its investment policy in the future. Then, we all might know the "real" reason for the change in the treasurer's office.
TIM KARPINKSI is a Huntington Beach resident.