Investment earnings keep falling

CITY HALL — The city’s financial investments continued to languish in the second fiscal quarter as interest rates remained near historic lows.

From October to December, the city’s investment portfolio generated $1.39 million in earnings, compared with $1.58 million in the previous quarter, according to a report from City Treasurer Ron Borucki.

The city’s rate of return dipped from 1.53% to 1.4% last quarter, according to the report.

With interest rates already at historic lows, the potential silver lining, Borucki reported, was that there were indications that interest earnings may not go much lower.

“Effectively, what we’re seeing is rates bottoming out …” he said. “But it’s a slow slog to basically wait until rates come our way. We will be doing the best we can.”

And unlike some other public agencies, Glendale has not seen its investments completely vaporize, Borucki added.

Burbank officials are mired in a class-action lawsuit to recoup $10 million the city invested in corporate bonds issued by Lehman Bros., which declared bankruptcy in September 2008.

“At least with the city we can take comfort in the fact taxpayer dollars have not been lost,” Borucki said.

In the meantime, the low returns are delivering a sharp blow to the city’s bottom line.

The city’s portfolio generated about $8.5 million in earnings last year, compared with $12.4 million in 2009 and $19.4 million in 2008, according to the report.

The earnings drop, combined with other lagging revenues, have city officials predicting this year’s revenues will be roughly $3.5 million lower than expected, according to a mid-year budget report from Finance Director Bob Elliot.

Elliot will present the report to the City Council on Tuesday, but is not expected to recommend any major mid-year budget reductions.

Still, with revenues expected to stay low amid rising costs, Elliot and other city officials are bracing for a General Fund budget gap of at least $10 million.

It will be the fourth consecutive year that the City Council will have to fill a significant shortfall.