Focus on Ohio: "Little left to coffer: Local governments' investments turn dry"

The article appears in today's The Lima News. It's hard to select portions for a blog post because the entire article should be read but here's the lede:
When the economy turned sour, local government entered a slow slide downward as revenues evaporated. Now, some of the last holdouts of happier financial days are disappearing. 
"It's sickening, really," said Putnam County Treasurer Tracy Warnecke, who just reinvested money from a certificate of deposit that had been earning 3.99 percent but dropped to a paltry .8 percent.

"I feel like I'm not doing my job, but I'm trying to do the best I can with what we have," she said.


Ohio law lays out in no uncertain terms what public fund managers can and cannot do with taxpayer money. Risky investments -- which potentially bring more reward -- are out. Instead, treasurers rely on fixed-income investment such as CDs and treasury bonds. As the Federal Reserve continues keeping interest rates near zero, investment managers are seeing the last of their solid returns disappear.
On top of this:
...In 2007, when rates were still flying high, Allen County's investments generated $2.9 million in extra revenue. Returns north of 5 percent weren't unrealistic.

Now, Link would be happy to get a 2 percent return. The Allen County Treasurer's latest total portfolio review showed about 1.5 percent, his target for the year.

That may not seem like an enormous change, but when you're dealing with a portfolio that holds more than $55 million, percentage points mean hundreds of thousands of dollars. By 2009, interest had fallen to $1.4 million. This year Link budged just $900,000.

"When you have to go to the commissioners and you have to cut out a million dollars, that's people's jobs, that's things you have to buy that aren't paid for, that's deputies, that's the cruisers, that's myriad things. While it's not the biggest piece of pie in our revenue stream, it's a very important one," Link said.
There are variations on the same theme in the rest of the article. 

1 comment:

Paul said...

This is a big deal for school districts as well, who early in a levy cycle often hold a substantial cash balance that in past years were invested in CDs and other high grade fixed income instruments. That investment income was revenue that didn't have to be generated with property taxes.

Here in our district, the lack of any meaningful return from cash investing means about 1 mill of additional property taxes is needed to generate the same revenue.

Of course, the ticking time bomb is the situation this creates for the public employee pension funds. In order to continuing paying the high level of benefits they've committed to, they need a rate of return which cannot be achieved with 'safe' investments, such as CD and Treasuries. Consequently, the retirement funds put what I believe is irresponsible amounts of money into the stock market and commercial real estate investments.

They got burned pretty badly in the 2007 shake out. If fear it's not over.