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City's portfolio value shrinks

Council members call for review.

November 18, 2011|By Brittany Levine, brittany.levine@latimes.com

When Mayor Laura Friedman called City Treasurer Ron Borucki to the podium during this week’s City Council meeting Tuesday to give his quarterly investment report, she asked for good news.

“One of these days,” Borucki said. “We keep on wishing and a-hoping.”

“I’ll keep asking that until I get a ‘yes,’” Friedman replied.

Instead of the positive news Friedman sought, Borucki’s report included a familiar refrain: Glendale’s portfolio ended the fiscal quarter down millions of dollars, prompting two council members to call for a review of the city’s investment policy.

Glendale ended the first fiscal quarter at $398 million, down $11 million from the previous period, according to Borucki’s report. The rate of return for the quarter fell from 1.37% to 1.19%. And interest earnings slid $181,000 to about $1.2 million for the quarter ending Sept. 30.

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“We are at historically low rates. We are at historically low rates for the longest time ever,” Borucki said.

The harsh investment market has been a persistent thorn in Borucki’s side, but this time he added in an extra downward push: Standard & Poor’s downgrading of U.S. government debt.

“Ironically, it had the effect of reducing rates as nervous investors turned around and fled to safety and they went into our marketplace and bought up treasuries, pricing them up and decreasing the yield,” Borucki said.

A yield is the annual rate of return of an investment.

Much of the city’s portfolio is made up of government bonds, but there are also some corporate holdings, such as Toyota and General Electric. Government bonds are typically less risky and have less of a return than their corporate counterparts.

Councilman Frank Quintero said he’d like the city to consider changing the ratio of government to corporate notes. State law allows municipal investment portfolios to hold 30% corporate notes, Borucki said. But as a matter of policy, Glendale allows 15%.

“Well, it’s too bad,” Quintero said, referring to the 15% ceiling. “I would like to just talk overall about our investment strategy. It’s not like this is going to go away. We’re going to be in this predicament for quite a few years.”

Councilman Rafi Manoukian echoed Quintero’s call for a review.

Borucki said the ratio of government-to-corporate bonds depends on one’s appetite for risk. Nearly 10 years ago, Glendale held no corporate bonds, Borucki said, something he changed after first getting elected.

But given the way the market is now, the difference between the two is almost negligible, Borucki added.

“There’s very little difference between the different sectors,” he said. “It’s coming along slowly because the market is so compressed. Rates are on top of rates.”
 
 

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