Stock Market Turnaround Results In Higher Than Targeted Returns

An unexpected turnaround in the stock market has helped the City of Moose Jaw’s bottom line as the City’s investments have brought in higher than expected returns.

At this past Wednesday special meeting of Council to deal with the 2021 budget Council was told the new investment policy was paying off as the two funds - moderate and long term - had returns at higher rates than had been targeted.

The long term had returns of 8.59 percent when the target for the fund was 6.0 percent and the moderate term fund had returns of 5.68 percent when the target return was 5.68 percent.

Initially markets suffered a rapid 30 percent loss due to the COVID - 19 pandemic. The loss had initially impacted the City’s investment portfolio with large losses reported in April. Markets have however rebounded, according to analysts at Forbes and elsewhere, due to an aggressive strategy by the US Federal Reserve to purchase investment grade bonds and pump money into the economy and consumer’s hands causing a rapid 50 day rally in the markets.

“We are certainly meeting these targets in terms of generating our investment income we can use for a variety of programs and services,” financial director Brian Acker told Council.

In giving his report as part of Budget deliberations asking for an annual drawdown be made from the City’s reserves Acker said the earned interest allowed Administration to request a total of $6,078,174.

He highlighted three of the drawdowns from the investment earnings from the reserves.

The drawdown of $2.5 million would help for such things as paying for paved roads, structures, bridges and related items.

The second drawdown highlighted by Acker as a $2,759,711 from the Land Development Fund to finance the needed infrastructure for SaskPower’s natural gas fired electrical generation plant to be built at the South East Industrial Park.

He said the drawdown from the Land Development Fund was “significant” but it would be offset from funds from the proposed Canadian Tire retail development on Thatcher Drive. Canadian Tire has removed the pre-conditions for the project and an announcement has been made the project is proceeding but the City has yet to receive any funds.

The third drawdown he highlighted was $122,052 from the Perpetual Care Fund. The fund is made up of the fees charged for plots in the City’s cemeteries and the interest is drawn down annually to care for the graveyard.

Councillor Dawn Luhning, who is a member of the Investment Committee, commented on the success of the fund this year and asked about any additional funds which might be available.

“Needless to say this is not a bad thing. You know 8.59 percent is not indicative of what we are going to see next year. Just remember that…This year ended up very well in the markets we all thought the bottom was falling out at the end of March or the middle of April. We were on the edge of our seats wondering what was going to be happening,” Councillor Luhning stated.

She then asked if the drawdown for this year was normal or influenced by the good rate of returns and if given the higher than targeted rate of returns if there were additional funds for other things.

Acker said the policy did not allow the spending of all of the funds earned as it was used as a cushion for other years if the rate of return on investments soured.

“This is a good year. We have done fairly well. In future years we are not going to do as well. We want to maintain the (status quo policy) to draw down on a consistent basis and not up, down, up, down,” he said. “That will significantly effect our programs.”

Councillor Heather Eby said drawing down from earnings the reserves are generating demonstrates to citizens the reserves are being used to keep taxes low.

“So many people are asking why aren’t you using your reserves? This shows were are using our reserves and how well we are using them to a tune of $6 million this year,” Councillor Eby said.

She said the $6 million of investment earnings represents 20 percent more property owners would have to pay in property taxes.

“My thoughts on this is the $100 million is a workhorse for the citizens of Moose Jaw. Working for us every day, every year and every decade…over the course of time this is such a good horse in the barn for us.”

The City’s reserve system was set up when the Province ran Moose Jaw’s finances after the City declared insolvency following poor spending choices made by the Council of the day during the Great Depression.

SEE RELATED - City Reserves Explained

It needs to be noted while the City is in fact using proceeds from the investment earnings to help lower taxes they are in fact also at the same time building up reserves through property taxation.

In a unanimous 7 - 0 vote Council agreed to the draw down from the reserves.