Councillors See Red In Investment Debate
The language got a little bit heated when it came to the City’s investment portfolio and plans to draw down some of the projected earnings and use them to help pay for capital and operating expenditures in the 2020 Operating and Capital Budgets.
At this past Monday night’s special Council meeting a request was asked to draw down $3,067,341 from the projected returns from the City’s investment portfolio. The drawdowns approval must be approved annually under the Investment Committee Bylaw and are done based upon the amounts required in the budgets. Prior to the appointment of the Investment Committee and a shift away from blue chip bonds to more of an equity investment strategy the drawdowns were down automatically and built into the budget.
Council during this past Monday evening’s special Council meeting to deal with the budget - MJ Independent Photo
The largest portion of the drawdown will be $2,610,000 of earnings from Capital Expenditure Fund Equity and Land Development Funds to be used to fund Transportation (roads) and Parks & Recreation capital projects. A further $130,000 from the Perpetual Care Fund will be used to fund cemetary maintenance.
“We have approximately $100 million in investments managed by professional portfolio managers are expeted return on the long term portion of that portfolio which is about $70 million is about six percent and our expected return on the moderate return of the portfolio is about 4.25 percent and that is the other $30 million of the $100 million. We also estimate inflation to be two percent in 2020 and that plays into the overall draw down,” finance director Brian Acker told Council.
Draw downs based on six percent return will be only four percent so as to maintain the buying power of the fund based upon inflation he said as an example.
Councillor Brian Swanson said he previously supported taking some of the reserves and using them for capital requirements “but that was prior to putting the money into the stock market. I think this motion has it backwards. To say we are going to assume a six percent return in the stock market is easy to say but history will show it is pretty hard to back up.”
“It very well could be six percent, it could be ten percent and it could be minus ten percent. So to draw down future stock market gains this has got it backwards. We should be drawing down based upon the previous years earnings. Worse case scenario and that is to draw down in a year where there is a negative return which history will show is quite possible,” Councillor Swanson said, adding that drawing it down in advance of knowing the actual returns is based upon the “assumption I am going to win the lottery.”
Councillor Dawn Luhning, who sits on the Investment Committee, strongly disagreed with Councillor Swanson’s assessment.
“To say that the Investment Committee is going to invest the funds into the stoick market is just not true. We did not put all of the $100 million on red and spin the wheel and take a gamble on our reserves,” Councillor Luhning said.
Council was then told $2,119,677 had been gained through investments since July.
“It is a substantive gain at this point. It does not mean where we wiill end up at the of the year obviously but I think it does provide some level of comfort that the monies are being properly invested, they are being managed there is risk involved that is being taken into account,” Acker said.
He said if the predicted returns are not realized then in 2021 there woud be an adjustement made. To wait to draw down to see what would be earned would be skipping a year of investment earnings as it had always been done in the past.
Following Acker’s answers Councillor Luhning continued to state the Investment Committee was not taking unwise risks with the City’s money.
“The Investment Committee has not put everything into aggressive funds…we are being moderate and prudent,” she said.
“I take offense we are putting everything on red and gambling it away.”
Mayor Fraser Tolmie entered the debate stating what the Investment Committee was trying to do was reduce taxes.
“Our intention is to reduce the tax burden on the citizens of Moose Jaw…we are to wisely steward the funds brought to us,” Mayor Tolmie stated.
Councillor Swanson then disagreed with the assertions Councillor Luhning made in ner remarks.
“I never once said we are putting it all on red,” he said, adding “I have talked to many people in the community, many sophisticated business people and I have yet to find anyone that supports this.”
Just before calling the vote Mayor Tolmie said “a lot of people I have spoken to think this is a good idea.”
And in a 6 - 1 vote with Councillor Swanson the lone opponent the draw down of projected investment earnings was approved.
The change in the City’s investment strategy from blue chip bonds has been a hotly conested issue with Councillor Swanson opposed to moving from bonds to other investment models as too risky and unsure in his opinion with the City’s funds. Recently the bonds were sold off.