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Treasurers Shop For The Top Rates
The goal for both the city and county is to temporarily invest the revenue surpluses they don’t need immediately. Though both governments want to grow those funds, each approaches the same end goal a little differently.
Right now, the interest rate and the marketplace itself create an interesting investment environment, said City Treasurer Albert Mooney.
“It just so happens we’re in a unique investment environment unlike any I’ve seen in the 22 years I’ve worked in local government,” he said.
“The investment environment we’re in right now is flat-out unparalleled. The rates we’re being offered here are lower than the rates we’re getting in some of the guaranteed money market accounts some of the big banks have offered.
“I could go back 18 years and you wouldn’t see a lower interest rate on a treasury report than what we’re sending to the City Commission right now.”
It’s a good environment, but not a great time to get a good return on your money, he added.
When Mooney hired on as deputy city treasurer in 1984 the city had money invested in a lot of different places, he recalled.
And, historically, he said investing was defined by the bond issues the city would take to the marketplace.
“Institutionally, some of the banks that might serve as paying agent had as a condition that the city would have some commercial account activity with them,” Mooney explained.
“That was the old guard back then. That was sometimes how we ended up having a splintered set of relationships with different banks.”
For investment purposes today, he said the city’s money goes to the banks that have a track record of the most competitive offerings or quotes and best rates of return.
“We’re just looking at who’s going to give us the most return for the money,” Mooney said.
“This is the taxpayers’ money. We’ll ladder out our investments and every Tuesday we’re pulling the trigger after we see who has got the best offering on the board.”
The city also evaluates and awards basis points for each financial institution’s Community Reinvestment Act rating, its employment practices and its efforts in meeting community needs with innovative programs and practices that promote equitable lending and work force diversity.
Most of the city’s taxes are due by July 31 for the summer levy, whereas in a lot of other communities, tax revenues don’t roll in until August or September.
“We might see different investment rates then,” Mooney said, “because there’s not a lot of money out there and some of these institutions work off of that type of cash flow in the marketplace.
“If suddenly the liquidity (for the banks) dries up because the taxes aren’t due from other communities, but the city has a lot of money we’re placing out and laddering for investments, we might suddenly see some better rates.”
The city moves its investment dollars around constantly, depending on the maturities of various investments, Mooney said.
The city limits its investments to a maximum of 1 percent of any bank’s “big time activities,” such as CDs in excess of $100,000.
The city has a host of different investment needs and a lot of unique stakeholders in its $210 million portfolio, namely all the city departments that are banking with the treasurer’s office.
The treasurer’s office staggers the timing of the city’s investment portfolio because of the timing of different demands on city funds, such as the seasonal needs of the streets department, for instance.
The treasurer’s office considers investing with banks with assets of $100 million or more. But it also considers small banks with big-bank affiliations or that are merging with larger financial institutions, because such factors typically lower the risk levels of investments with smaller banks.
Mooney also keeps in touch with local treasurers, like Kent County Treasurer Ken Parrish, to find out what financial institutions they’re using and what their experiences have been with them.
Neither the city nor county are required to use locally based or represented banks for investment purposes, but under state law they must do business with banks that have an office in Michigan.
The city doesn’t make a concerted effort to place its investments primarily in local banks. Small communities sometimes take that approach, and that was true more so in the 1960s and early 1970s when the banks almost required the city to do some ancillary business as well, Mooney said.
As Mooney sees it, if he had $10 million invested and could suddenly pick up half a percent elsewhere — which would represent an additional $50,000 over a year — he’d go for it.
He believes in shopping around among Michigan banks, so those that want a piece of the city’s investment action have to be competitive in going after it.
The county’s approach to investing, on the other hand, includes “spreading it around.”
Parrish said nearly every bank in Kent County has a share of the county’s investment business.
He noted that the county will immediately invest $100,000 in any local bank that is FDIC insured — if that bank asks for some of the county’s business.
“I think it’s important that we do business with the local banks to the extent that we can, given our policies and procedures, because taxpayer dollars should support local banks whenever possible.”
After that, the attention turns to an institution’s investment rate and trying to squeeze the best rate possible, he said.
Under the county’s investment policy, no more than 25 percent of its $420 million investment pie can be placed in any one financial institution.
As far as Parrish’s office is concerned, one of the investment decision keys is the size of the bank.
The treasurer’s office has guidelines as to how much it can invest in proportion to a bank’s overall assets. Currently, the county is invested in most of the smaller local banks up to its operational limit because of their size.
“We don’t want to be a dominant depositor, so we look at the size of the bank and we also evaluate its financial condition. Fortunately, in West Michigan we haven’t had any problem with that.”
Parrish said it’s kind of a two-tiered process with the small and large banks.
“What the smaller banks do is stay in touch with us to let us know how they’re growing and when they reach the next increment of size, because that then translates into more deposits into their bank.”
Vying for the county’s investment dollars doesn’t involve a formal bidding process, he said, but most of the larger banks will contact his office weekly with updates on their CD rates.
With the national and global banks, he explained, size isn’t an issue so the county doesn’t have any worry about being the dominant depositor in their case. Thus, the focus is more on their current rates.
Parrish explained that banks set their interest rates based on a lot of factors, but typically on their own need for cash.
They’ll have rates that are higher — in some cases, for CDs over $100,000 and, in other cases, for CDs over $1 million, he said.
“With the larger banks, we’re typically buying in $1 million increments so we do tend to get the best rate offered because of the volume.”
Volume also is the reason why the county runs a local government investment pool that allows local units of government to invest through the county.
About 25 of the 35 cities, villages and townships currently participate, which enables them to take advantage of the higher returns the county can earn because of the volume it does, Parrish observed.
“The village of Sparta doesn’t have huge dollars to throw around in investments, but they can invest say $25,000 with us and get the same rate we get because of the $1 million rate. It adds to our volume so that we can continue to get the best rates not only for the county but for everybody involved.”
Safety, liquidity and yield are the guiding principles, he said. Goal No. 1 is to not ever lose on any investment.
“We want to make sure we’re putting them in good, safe investments and that we can get the money when we need it, so we don’t go real long term on our investments. After those two things, then we look to try to maximize yield.
“We understand that this is taxpayer money so we’re very careful about making sure we don’t lose any principle or have any deposits lost.”