Bond Sale Realizes $2.2 Million
The sale of the City’s blue chip low risk bond portfolio has realized a profit of $2.2 million with a projected additional $700,000 over the next five years but the news was not greeted with unanimous jubilation.
At last Monday evening’s meeting of Moose Jaw City Council finance director as well as Investment Committee Member Brian Acker reported the sale of the City’s bond portfolio valued at $47,236,036 for $49,438,590 netting the City approximately $2.2 million.
The funds have been invested into resaleable GICs paying an average of 2.4 percent over the next five years. The bonds were parked in the safe GICs until the investment policy is being approved. The policy, to be set by Council, will decide how to re-invest the funds.
Photo By Roxanne Ashe - Virtual Interiors Photography
In the report the GICs were said to be resaleable and could be invested into pools - each with potential higher payouts but additional risk - when the market conditions warranted it.
Addressing Council Acker stated “the reality is the GICs are resaleable and the intent would be to re-sell tham and invest them into mid-term and long-term pools at which time you would see a significantly higher rate of return.”
Councillor Scott McMann, who is a member of the Investment Committee, said there had been discussion to use the $2.2 million and the $700,000 in projected interest in infrastructure.
“There was certainly some informal discussion at the Investment Committee with this gain. We were contemplating and some of the discussion, certainly from the City Council members was this be earmarked for infrastructure and water main replacement…(I was) under the impression we would dedicate the $2.2 million to the water main replacement program.”
In questioning Councillor McMann asked if the $2.2 miilion could not be dedicated to water main replacement.
City manager Jom Puffalt replied it was possible if Council decided to as the GICs were resaleable.
Councillor Brian Swanson, who has adamantly opposed the formation and the work of the Investment Committe due to risk and cost, continued to express his opposition to the change in the City.s investment strategy and policy.
“The reason why bonds are sold at a premium is there is someone willing to pay a premium because it is paying higher interest than they can get anywhere else…if we would have held these bonds to fruition the city would have netted five and a half million dollars and if we got $2.2 million for selling them now. And the GIC revenue at the end of the day is no closer than we are led to believe,” Councillor Swanson said.
He pointed out some of the bonds carried interest rates of 4.35, 3.3, 3.75 and 7.5 percent.
Regarding re-vesting the money into dedicated investment pools Councilor Swanson said there was no guarantee they would generate a positive return.
“I could argue there is just as much chance to lose money as there is to gain money especially when you move into the riskier end of investing.”
Councillor Swanson spoke out about the entire City policy when it came to debt and investments.
“What the City of Moose Jaw is planning is to maximize out its debt level and still be tens of millions of dollars short for the required infrastructurework while at the same time we are moving up to 70 percent of our reserves into equity investments. I know a lot of people say is the first thing you do is pay down debt. What we are doing is maximizing debt and at the same time moving into riskier investments and I am not supportive of that at all,” Councillor Swanson said.
Councillor Dawn Luhining however opposed Councillor Swanson’s argument wondering “if the $2,2 million is a figment of his imagination.”
Councillor Luhning stated there had been a professional analysis done which put the City in a better financial position. In the past Councillor Luhning was opposed to and voted against the establishment of an Investment Committee but her opposition was based upon the projected cost of a money manager.
“There was an analysis done by licensed and trained individuals in the industry to sell the bonds because we were in a better position to do that and did not hinder the risk level of the investments, We did that and the City earned $2.2 million dollars. I don’t see why that is a problem. I really don’t when every municipality in this country is looking to other ways to generate other revenue streams,” Councillor Luhning stated.
She went on to state the individuals advising the City were both trained and licensed in the expertise they were providing the City.
“There are things that you have to understand in this industry that not the average individual does,” she said.
Councillor Luhning stated the City would be investing in a mix of investments which sould help minimize the risk and generate a good rate of return for the City.
“We are not putting all of the reserves on Red Five and gambling it all overnight.”
“Is there going to be losses? There may very well be losses, but there might be significant gains over the years as well that we are not realizing at this time,” Councillor Luhining stated, adding “we are not gambling away the future of the City of Moose Jaw.”
It also needs to be noted the interest received from investments has been attributed to keeping Moose Jaw’s tax rates low.
In a 6 - 1 vote the report was received and field with Councillor Swanson the lone vote in opposition.