|
ie versely with interest rates; as rates nave sent only a small portion of me tuna,ana uuwnalLe IL ally way.
<br /> t
<br /> • Local Heroes: Finance Chiefs Are Often Boring; Wn
<br /> d That's Good News in Light of Orange County Woes ;:sai
<br /> a g �sti.
<br /> is varies enormously among.public-finance interest rates come back down."I'm fairly tie
<br /> :y Continued From First Page �-
<br /> 11- sider buying them in the first place? officials, says Mr. Lamb,.a consultant to confident we'll get our money back over a
<br /> .r, For one thing,derivatives aren't inher- many municipal and state agencies. "The period of time," Mr. Flowers says. He r Or
<br /> ently risky when used, for example, as a • municipal finance director for a state, a adds: "They [the brokers] just didn't fill ±a t
<br /> . 1 simple hedge to protect a municipality's major city or a major public authority you in on everything." "$2.
<br /> sophisticated Escambia has learned its lesson,•he
<br /> at portfolio against other investment losses. generally would be fairly so p ,;,co;
<br /> is• ; Another:the lure of quick and huge invest- finance," he .says. But that stands in_ says.Now the county is investing in Trea- nfil;
<br /> ter ment gains that turn a finance director into "sharp contrast"'to finance officers of Bury.notes. ,
<br /> yal a local hero because such gains help local some smaller cities,towns,school districts.:, Conservative Approach • -.
<br /> its politicians keep taxes down. Professor and public authorities "They are often out Still,most taxpayers can rest easy. r x
<br /> . Lamb predicts that the next derivative of their depth,"he says"' every Orange County or Florida city with . itti,.,,
<br /> ,w- shoe to fall will likely be some other Disturbing confirmation of that came derivative losses, scores of municipalities 4, ,
<br /> m- . California municipality that has used that from Alan McDougle, finance director of and other government agencies have stuck ;�.,
<br /> m- state's ."more permissive" investment Lima, Ohio (pop. 50,000), in recent testi- to the safe bets that have always charac see
<br /> -ity laws to get into risky investments"out of a ' mony before the House Banking Commit terized much municipal finance.
<br /> !st- need to make up for lost tax revenues." tee.Speaking on behalf of the•13,000-mem- Consider Baton Rouge, La. The,city ;:ru;
<br /> sti-. . While numerous states,North Carolina ber Government Finance Officers Associa follows a very conservative investment ,,pn
<br /> and Georgia among them,have laws that tion,Mr.McDougle told the committee that approach largely dictated by state lain, :.,mi
<br /> Cu. restrict public investments to conservative a GFOA.survey of its members found that which limits investments to fully collatera-
<br /> 1 is' instruments like government securities only 4% said they were knowledgeable' lized bank certificates of deposit and US. rfil
<br /> ces and top rated corporate bonds,others are about derivatives;20%felt they only knew Treasury securities. Of the city's $207 ,ru
<br /> the more liberal. Like California, Texas, for the basics;76%said they had only some or million investment pool, about 39% is in co
<br /> uld example,recently loosened its investment no knowledge of derivatives. ,. CDs,59%is invested in government securi- .;;co
<br /> ing laws to allow local governments to expand Mr.McDougle went on to catalog some ties and the balance is in interest-bearing , ;th
<br /> to their investments to include derivatives.In of the losses state and-local governments checking accounts."We're very conserve- _..ul
<br /> the Alabama, Mr. Bronner says his pension have sustained because'of derivative in- five in our approach," a city official says. ,Bi
<br /> inc. plan only recently promulgated guidelines vestments. Eighteen Ohio municipalities McAllen, Texas,'population,104,000,-is .th
<br /> in that require him to vet'derivative like have claimed losses of$14 million,he said. similarly invested, earning a mere 3.5% n,;in
<br /> hey investments with his pension board.But at The Louisiana state pension fund esti annually from its $60 million portfolio,
<br /> a point last year when Wall Streeters were mates its losses at about$50 million. City which is entirely in T-bills or Fannie Mae ,',es
<br /> its visiting his office trying to coax him into Colleges of Chicago is seeking to recover and Ginnie Mae securities. , se
<br /> pies- derivatives, he could have invested with- $96 million,virtually its entire investment Mike Perez,the city manager,says city :*se
<br /> >zen out asking a soul. portfolio. portfolio managers are instructed to un- iv.
<br /> ion. There is also peer pressure and political 'The D Word' derstand that"this is not your money.This ;.'
<br /> ;thy pressure to do so. "I remember a group "I call it the D word now,"Mr..McDou- is the public's money,and all you are is a y
<br /> ors, outing two years ago with the Orange gle said in an interview. Because most of steward of the public." . w
<br /> out County people," recalls Mr. Bronner. the nearly 40,000 local governments have Alfred Lomeli, treasurer of Contra f.W
<br /> gest "They were very boastful about how well populations of less than 10,000, they can't Costa County,Calif., says he stays away
<br /> iter- they were doing — and how antiquated I afford skilled investment experts to handle from derivatives in the county's $500 mil- 4.11
<br /> Is of was." (Mr. Bronner, however, is by no their funds. Moreover, sellers of these lion portfolio, which includes funds from P'.tl
<br /> ther means a conventional retirement-fund financial products "have some good sales the county,public schools,junior colleges
<br /> ifect of golf courses, othernrieal estate and the pitches and we are a lucrative market." and oneithing,and don'trunderstandh em ` `
<br /> On the other hand,Mr.McDougle said " •
<br /> was financing of a corporate takeover.) derivatives can be useful.He has put half all," says Mr. Lomeli. "I don't have the , ;�
<br /> ton, High Yields, High Risk staff the equipment or the sophistication,
<br /> latt, of Limas investment portfolio in deriva
<br /> and there's no point in leveraging a portfo-
<br /> lio Age Harlan Boyles, North Carolina's state fives and hasn't been burned.yet. when there's no need." , 'd
<br /> on if treasurer,says in recent years he has been For a long while, derivatives seemed Still,Mr.Lomeli feels a certain sympa-
<br /> pressured by some of the state's local like the place to be. Consider Escambia thy for Robert Citron, the Orange County
<br /> y re- governments-under pressure themselves County,Fla.,which has about 15%of its$45 ',.' t
<br /> p fund manager who lost his job over 11e
<br /> nsol to fund more police and other services—to million portfolio invested in derivatives, county's unrealized losses, reported to be ";a
<br /> o the push for looser investment regulations says Joseph Flowers,the comptroller. about $1.5 billion. He knows Mr. Citron ,
<br /> mid- there. Since the Depression, investments The panhandle county,population 225,- well and though he himself never followed ,`
<br /> come by the state and local governments have 000, first invested in derivatives in late Mr.Citron's investment p hiloso p
<br /> philosophy,"I feel ,. p
<br /> they been limited to relatively safe, but low- 1992—after fielding four or five calls-a day sorry.He's been the guru of the California ,:':f
<br /> et its yielding, instruments like U.S. Treasury from brokers. Escambia was raking in treasurers. For about 10 years everybody ',"r
<br /> aeets bills."I'm always asked why our yields are returns of 6%to 7%on its derivatives,while ''--Id
<br /> loved him; now everybody's saying he
<br /> not as high as some other states,"says Mr. its other investments, mostly Treasury made a mistake." ",F
<br /> r the Boyles."My response is that yields usually notes, took in just 5.5%. Its derivatives On the other hand, says Mr. Lomeli, 1
<br /> edict track risk." were all based on conservative govern- "My first duty is to preserve the princi- i
<br /> apter Still,Mr.Boyles says he fields at least a ment-agency bonds such as Freddie Mac pal." Today, his portfolio yields 4.95%. .'t
<br /> could dozen calls a month from brokerage houses and Ginnie Mae. The county would trade Roughly half is in government T-bills,with •'
<br /> them whenever it saw a chance to make a "^_t
<br /> all over the country hoping to sway his the biggest block in six-month T-bills.His
<br /> listed views."It's a constant pressure,"he says. profit— as often as once or twice a week, other big investments are non-negotiable .'(
<br /> s in- "They'll call and say, 'Let us show you says Mr.Flowers.It occasionally made as CDs, commercial paper and other conser- -"''\
<br /> 'orpo- what we did in California.'Thankfully,our much as$50,000 a trade. vative investments. "A lot of districts [in -4-1
<br /> ist of General Assembly has never been in- But then, this spring, interest rates Contra Costa] said, `Gee whiz, you're not `• i
<br /> Bank dined" to liberalize the investment laws, started going up, and the picture soured. making a lot of money,' " recalls'Mr. - ':
<br /> ;and he adds. Now, Escambia County's derivatives are Lomeli. But "we're in business to protect 3;'
<br /> ., $54 Mr.Bronner, though a man known for worth 70%of their original value,portend- the principal's safety, liquidity and yield.
<br /> his ego, was at least humble enough to ing a loss if the county sold them now. Yield is the very last thing; some people r.
<br /> ntrib- admit derivatives were over his head.But Instead, Escambia plans to hang tough, had a hard time believing it,but they will
<br /> many aren't so humble,or lucky.Expertise hoping to recoup its investment when now,won't they?" i •
<br />
|