|Written by Mark Lineberger|
|Wednesday, 27 April 2011 00:00|
Facing the tightest budget in recent memory and an uncertain economy, the Camp Verde Town Council is always on the lookout for ways to keep the town’s finances afloat.
Last week, Town Manager Russ Martin said he thinks he’s found a way that could help improve the town’s return on its investments.
Currently, the town invests funds with the Local Government Investment Pool, a short-term investment program in which money from participating municipalities across the state is managed by the Arizona State Treasurer’s Office.
“We’re in it $4 to $5 million at any moment and receiving very little in return on our investment,” Martin said at an April 20 council work session. “ … We’re asking, ‘How can we get this money to go to work for us?’”
Martin suggested that the town consider working with financial services firm Stone and Youngberg to find more effective ways to increase returns on those millions in investments, possibly by as much as a factor of 10.
The firm is already working with towns like Cottonwood, Florence and Queen Creek, Martin said, and those towns have all been “very pleased” with the results.
“They’ve given rave reviews,” Martin said.
Councilwoman Jackie Baker expressed some concern when it comes to investments.
“Speaking of investments, it’s kind of scary when [credit ratings firm Standard and Poor’s] is talking about reducing the rating for the United States of America,” Baker said. “So sitting here in Camp Verde, it’s kind of scary.”
While any investment carries risk, Martin said the types of investments Stone and Youngberg has been working with for municipalities generally did well through the recent financial crisis.
“There’s not the horror stories,” Martin said. “This has not happened with this type of investment.”
Kenton McCarthy with Stone and Youngberg gave the Town Council an overview of the type of work his firm does when it comes to investing public money from the local level.
Currently, McCarthy said that the yields on the town’s investments have largely been determined through the fund policies set by the Federal Reserve System. Those policies have been changed in response to the recent downturn in the economy. While the goal of those changes is to hopefully stimulate the economy, it’s also generally resulted in lower yields for the types of investments the town has been making.
With unemployment still high and the economy still uncertain, McCarthy said the Fed was “handcuffed” to those policy changes.
If the town went with his firm, McCarthy said the town’s money would be invested in a variety of different mostly-government bonds that aren’t as affected by policy changes the way more long-term investments are. McCarthy reiterated Martin’s assertion that it could increase the town’s returns tenfold.
If the town did start seeing more money, Martin warned the council not to “fall in love with the balance sheet” by holding out for more and more returns further down the line.
“We still have to spend our money the way people expect us to,” Martin said.
The town wouldn’t have to pay Stone and Youngberg for their services, McCarthy said. The firm makes money from this process from a bid-ask spread built in to every bond, the difference between the top price a bidder is willing to pay and the lowest price the seller is willing to take.
McCarthy said all the town would have to do is listen and provide feedback and that the simpler the relationship is kept, the better.
Martin said that McCarthy will likely return to the council in a couple of weeks with some more information so the town can decide how it wants to proceed.
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