Official: Game is protecting what cities have

CITY HALL — Glendale’s sizable municipal investment portfolio, hampered by anemic federal interest rates, ended the fiscal year at $483 million, according the city treasurer’s 2008-09 annual report.

The city’s portfolio is almost entirely tied to investments that depend heavily on interest rates set by the Federal Reserve, which means the historically low rates have cut into returns.

Still, the portfolio generated $12.4 million in earnings for the general fund, and ended fiscal year 2008-09 up $14 million compared to the year before, although most of that was due to one-time repayments, according to the report.

The rate of return dropped 1.37% to 2.8%, which is still higher than the 2.18% achieved by the main state investment fund. The report is scheduled to be presented to the City Council tonight.

Overall, the year end report is a reflection of the continuing financial turmoil in the markets and resulting recession, City Treasurer Ron Borucki said.

“It’s difficult to find any positive words to describe what we went through,” he said. “Everyone was affected by what happened in the financial marketplace.”

The Federal Reserve last week released a statement that cited recent economic activity as a possible indication that the economy was “leveling out.” But federal policymakers predicted that the economy would remain weak for some time, and that the agency would likely keep the benchmark short-term interest rate between zero and 0.25% for “an extended period.”

That will likely mean “more of the same” for Glendale’s portfolio for a while, Borucki said. Nearly 50% of the city’s portfolio, or about $238.7 million, is invested in federal bonds.

Because rates have remained so low for the past year, Glendale’s rate of return on the portfolio is off $7 million compared to previous fiscal year, according to the report.

“It’s very difficult to earn a rate of return of any significance when rates are so low,” Borucki said.

Still, he noted that the actual portfolio didn’t lose money, and that the city’s investments were still safe, sound and nimble.

City Finance Director Bob Elliot said that, given the state of the economy and financial markets, the game has been more about protecting what cities have, and if they can turn a small profit, all the better.

But with California’s depressed fiscal situation, cities like Glendale have an even greater challenge.

If the state moves forward with plans to swipe redevelopment money from municipalities, Glendale could lose out on $11 million, Elliot said. And that’s on top of the $3.9-million loan to the state, although that money has to be repaid, with interest, within three years.

“We still have to weather the California economy and the California government,” he said.