Treasurer wants more investment flexibility

Borucki says city's policy is too restrictive amid PERS requirements.

November 16, 2010|By Melanie Hicken,

CITY HALL — City Treasurer Ron Borucki today is expected to ask the City Council to open a "terribly restrictive" investment policy up to include more corporate players, such as the Walt Disney Co. and McDonalds.

The request to change the policy comes as the city's investment portfolio ended the fiscal year at $400 million, down $48 million from the end of last year. The majority of the hit stemmed from the city's $25-million pre-payment to the California Public Employees Retirement System, according to Borucki's report on the first quarter of the new fiscal year.

From July through September, the portfolio generated about $1.6 million in earnings, compared with $1.9 million in interest earned in the three months prior, according to the report.


The lagging earnings continue a downward spiral during the protracted recession, officials said.

After dropping by more than a percentage point in 2009, the city's rate of return on investments dropped an additional 0.91% to 1.89% last year.

During the first quarter of this year, the return rate dropped even further to 1.53%.

"It's a reflection of what's happening out there in the marketplace," Borucki said. "This really is no surprise. I'm not exactly sure when we can expect to see some light at the end of the tunnel."

The city's current policy limits investment in corporate bonds to those with credit ratings of "AA" or better — bonds that have become very limited in the current economic climate. To expand the pool of potential buys, Borucki will be asking the City Council to allow him to invest in bonds with an "A" rating.

"What we've done effectively over the past two years is we've shut ourselves off from the U.S. companies that are household names," Borucki said, pointing to companies such as Disney, IBM and McDonalds as examples of corporations not allowed under the current policy.

Officials hope broader investment options would boost earnings at a time when the city is desperate for additional revenue.

Facing increased retirement costs and another year of stagnant revenues, city officials are forecasting a General Fund budget shortfall of $8 million or more next year.

"We do have concerns with revenues being flat, our costs going up from PERS. Our interest earnings are still way, way down," Finance Director Bob Eliot said last week. "It's just concerns from a lot of different fronts."

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