TRAVERSE CITY — The last time Grand Traverse County updated its investment policy, Bill Clinton was president and “Titanic” won 11 Oscars at the Academy Awards.On Wednesday, nearly 26 years later, the county commission approved a comprehensive new policy for those investments, capping an effort started last summer by former county treasurer Heidi Scheppe.The policy was finalized by Sarah Gum, the new county treasurer who took office in late January.“Our investment policy was so old that it made sense to do it all at once rather than piecemeal,” Scheppe said.“With the Work Day software the county is now using, they can get good numbers in real time and have a much better handle on cash flow.” On any given day, Grand Traverse County has about $14 million invested in more than 40 accounts, mostly government bonds and bank CDs.
Officials said this money isn’t “surplus” cash sitting around for a rainy day.Rather, it’s almost all designated to specific county functions, such as ongoing operations, debt payments, grant-restricted initiatives and capital projects.In Michigan, counties must comply with Public Act 20 of 1943, which strictly limits the type of investments they’re allowed to use.That means no crypto-currency, no stock options, no “junk bonds” and no secret slush funds.The goal of the county’s new investment policy is to minimize risk (the chance of loss), maximize liquidity (availability) and pursue a favorable yield (return).
“Safety always comes first,” said Scheppe.“We don’t want to risk the county’s money for an extra half-point of yield.” Officials hired Greg Prost of Robinson Capital, a Detroit-area independent investment firm that specializes in fixed income securities such as government bonds and CDs, to update the policy.
Prost presented highlights of his plan at Wednesday’s county board meeting.Right now, well over half of the county’s money is invested in shorter-term bonds and CDs that will mature in the next five years or so.The average value of the portfolio’s 42 investment accounts is $380,000 with an average yield of 2.51 percent.All told, the county is earning about $393,000 per year from its investments, which have an average quality rating of Aa1, according to Proust.
We live in unusual economic times right now that warrant additional caution, Prost said, particularly when public money is involved.For example, he said, the economy is experiencing an “inverted yield curve” which means short-term bonds are actually paying higher yields than long-term bonds – the opposite of what usually happens.About 80 percent of the county’s bond portfolio is in so-called “callable bonds,” which means the issuer has the right to pay customers the total amount due (to date) before a bond reaches maturity.If interest rates fall, bond issuers can then save money by selling new bonds at a lower yield.
That’s good for them but not so good for the investors.
Whether or not that will happen soon is an open question.Other major concerns on the horizon, Prost said, include the rise of artificial intelligence in investing, the collapse of some major banks in 2023 (such as Silicon Valley Bank), currency volatility and turmoil in various global debt markets.Balancing cash flow needs with the desire to earn a return on cash that isn’t needed right away is a challenge for government organizations, Prost said.The Work Day software integrates data from all active accounts to more accurately predict when cash will be needed for specific payments, as well as when additional cash might flow in from sources like millage payments and special assessments.This will help Prost and county officials “ladder” investments so that money isn’t locked up too long, potentially leading to a cash flow crunch, he said.Robinson Financial also gives Gum’s office regular reports on the status of the investment portfolio.“We take our responsibility very seriously,” Gum said.
“That’s our job.”.
