City Set For Potential Bond Windfall
The City has a potential to add to its reserves by selling bonds and reinvesting the money
Record low interest rates, bonds with higher interest rates and a review of the investment portfolio may lead the City to a predicted $3 million windfall.
During Monday evening's regular meeting of Moose Jaw City Council the newly minted Investment Committee was given the green light to disperse the bond portfolio and re-register the funds in Guaranteed Investment Certificates (GICs).
“One of these things uncovered in that process (there is) some value contained in our existing bond portfolio,” Brian Acker, finance director told Council.
Acker explained the potential financial windfall lies in the fact the bonds carry higher rates of return than what interest rates are at the present time they could be sold at a premium and the funds reinvested into GICs.
“If we were to sell these bonds today we would actually gain $2.4 million over what their maturity value will be,” he stated.
“We would also be able to take the funds and reinvest them in term deposits bearing in the neighbourhood of an additional $650,000 in overall interest,” Acker stated, adding “there is the potential there for a gain of about $3 million on our investments.”
According to the Quarterly Report the City held $64,472,749 million in face value of bonds on March 31, 2019 in its investment portfolio. The bonds range from 2.50 to 6.09 percent in interest paid.
Acker said though “the value of the bonds do fluctuate on a daily basis dependent what happens with interest rates.”
As part of the sale there would be no investment fees charged to complete the transactions.
Councillor Dawn Luhning, a member of the Investment Committee, said she fully supported the move.
“…honestly it’s something we should absolutely do for the City of Moose Jaw,” Councillor Luhning stated.
She said if the markets were to change the bond sales would not proceed.
“If it is completely different tomorrow it will not be done. We are not going to take the bonds at a loss. There is a significant opportunity here.”
“To me it is kind of a no brainer because we will not be taking on an any additional risk. It does not change the way we invest at this point. It is just a way to realize a significant gain in the way the market has been,” Councillor Luhning stated.
Councillor Scott McMann, another member of the Investment Committee, said he was in favour of the move.
“It makes good sense and the quicker we do it the (better) chance we are going to realize more gains,” Councillor McMann stated.
He went on to state the three Council members on the Investment Committee – Mayor Fraser Tolmie, Councillors Luhning and McMann – had briefly discussed the potential windfall and thought it should be used for capital projects. But the final decision was Council's.
“Certainly it’s a windfall we have always been short in our capital and to me that is where it would make sense to put it.”.
Mayor Fraser Tolmie stated the potential windfall “overcomes any criticisms we have received in the past.”.
In the past both Councillors Luhning and Swanson have raised concerns about an Investment Committee and how either hiring a money manager or investing in stocks poses a major financial cost and risk to the City.
SEE RELATED – Swanson and Luhning Express Concerns
“This puts us ahead of the curve but if we continue to do this the citizens of Moose Jaw it reduces the burden on them for capital costs to modernize and fix aging infrastructure ,’ Mayor Tolmie said.
Councillor Brian Swanson questioned if the interest paid by the bonds had been deducted from the potential amount from selling the bonds and re-investing it in GICs. Acker replied it had
The report to Council did not show this calculation.
“It's very exciting to see in such a short period of time the courage of this Council and good advice to take ,” Councillor Chris Warren stated.
In a 6 – 1 vote, with Councillor Swanson opposed, Council approved the measure.