At a time when shares in some of the world’s biggest investment banks are selling for pennies on the dollar, and Canadians have seen the Toronto Stock Exchange index and the value of the dollar plunge by as much as 25 per cent, conservative investment strategies are paying off for local governments and charitable foundations.
At the Resort Municipality of Whistler, where property tax revenues are invested until they’re needed, the impact so far has been minor.
Lisa Landry, general manager of economic viability for the RMOW, says the municipality recently changed its investment strategy.
In the past the RMOW would handle its own investments, which she says was time-consuming and complicated. This year the RMOW switched to the Municipal Finance Authority of B.C., where most local governments put their money into pooled investments managed by Vancouver-based Phillips, Hager and North Investment Management.
The municipality put roughly $16 million of tax revenues into the pooled money market fund, which is actually seeing some growth during the economic crisis. Another $20 million was invested in their Bond Fund, which saw a decline in value of roughly five per cent from July to September. Another portion, roughly $10 million was put into a term deposit at a fixed interest rate, and will go to the provincial tax bill in 2009.
Overall, Landry says the RMOW has been isolated from the worst of the economic crisis.
“I should make a point that a lot of the bad investments that people are reading about in the media are asset-backed securities, and I can say the RMOW has never owned any asset-backed security in their investment portfolio,” said Landry. “The brokers were offering them to us, but we never bought in.”
It’s unknown what the final impact might be to municipal finances, if any, by the time the RMOW’s investments are cashed in.
In 2007, the RMOW earned roughly $4.02 million in interest on its investments, approximately $700,000 more than predicted in the budget. That’s up from $2.72 million in interest from the 2006 financial year. The 2008 financials will be reported in August 2009.
Landry says the municipality has generally shunned higher risk investments and potentially higher returns. “When it comes to preservation of capital versus higher returns, we always come down on the side of preservation of capital,” she said, adding that the Community Charter doesn’t allow local governments to make certain types of risky investments. “The impact has been pretty minor in comparison to what’s gong on out there.”
As for the RMOW’s reserve funds, she says they are pooled in safe investments, and she has slowly been converting those investments to the Municipal Finance Authority. Most of those investments are long-term, in fixed income accounts, but she says there may have been minor short-term impacts on earnings.