On April 6, Loveland’s Executive Financial Adviser Alan Krcmarik told the city council that something the city needs to take a look at is investing in German and Brazilian government bonds. see story
Cities typically invest in U.S. Treasury Bonds as they have a AAA rating and represent the safest (although historically lower returns) than corporate bonds or other types of investments which cities also buy. However, recent news that the U.S. Government may lose that AAA rating has sent an alert to fund managers of municipalities and state governments whose investment policies require they keep some percentage of the portfolio in AAA bonds.
Unlike private investing, local governments cannot accept much risk to principle in exchange for higher returns. Local and state governments investment goals are quite modest when compared to individual investors and private entities but current economic forecasts may change the notion of what constitutes a risk. Krcmarik, who served previously as the city’s Finance Director, is concerned both about the potential for the U.S. Treasury rating to drop and the specter of future inflation that could substantially erode the value of city reserves if they are invested in low-yielding long-term bonds.
The excerpt from Bloomberg below describes what Krcmarik was alluding to when addressing the city council last week;
While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.
Whether Loveland’s Citizen Finance Advisory Committee (CFAC) will be consulted on any future decisions regarding a change in Loveland’s portfolio to include foreign debt remains to be seen. It is an odd circumstance in this country when municipalities don’t trust the backing of the U.S. Treasury as the safest place to invest public funds. When both the value of the dollar and credit worthiness of the U.S. Government are in potential jeopardy looking overseas may seem like a prudent step.
If you were advising the City of Loveland would you suggest placing some of the $191 million (mostly restricted) city reserves into German or Brazilian government bonds instead of U.S. Treasuries?
Any thoughts?
Yes, I would advise the city to invest some money elsewhere outside the United States. They key word is “some”. A well diversified portfolio is a wise thing to do. Are you suggesting the city should keep all of its fund in one US basket of investments?
I think what your story is missing is the fact a collapse of the dollar and credit rating plunge of the US Treasury will create bigger problems all around the world.
The US is 28% of the world’s goods and services produced each year. When our stock market plunged in 2008 the Russian stock market crashed by a much steeper drop. Equities in many parts of the world are tied to the world economy that is greatly influenced by our economic situation.
Gold and other precious metals plus real estate are the optimal choice when diversifying a portfolio. If Loveland bought gold they could store it in a local bank and do well over the next 5-10 years.
Steve you are right about the need to diversify but i see the city’s investment policy as too restrictive for that. They can’t buy commodities, gold or even real estate as a reserve investment tool isn’t that true mr. moderator?
As long as they don’t invest in that McWhinney Centerra metro plan bond thing. Those would be much riskier than Brazil for sure. The only people making money from those deals is McWhinney.
I am absolutely NOT okay with these guys buying Brazil’s government debt with Loveland tax dollars. Are you kidding me? Brazil IS NOT rated anywhere close to U.S. Treasury Bonds no matter what that joker says. Is Centerra debt shakier than Brazil? I don’t know Mr. “I live on Horse Shoe Lake” but Brazil is not American and Centerra is at least an American investment! I think the McWhinneys only left Key Bank holding the bag for something like $100,000,000 on that shopping mall but Brazil walked on BILLIONS in unpaid loans and nothing to show for it! That is a lot more zeros and at least Key Bank gets to keep a great outdoor mall if they can’t sell it when the banks that invested in Brazil got nothing..
Maybe they need to think about not over-collecting so many taxes to invest but instead let us use our own money a little longer? Maybe we will decide to invest in Brazil or not but it won’t matter because it will be our private funds. Would you please stop calling it Loveland’s reserve? It isn’t the City of Loveland that earned the money it was you and me who gave them the privilege of managing it when we pay the city.
If the leaders of Loveland wanted to do something worthwhile they would encourage business inside Loveland, and to do that would require cutting taxes across the board. I know for a fact Loveland recently lost a business that has a street value of five BILLION dollars-plus because the senior management of said company took a look at Loveland and decided the taxes were too high.
Until Loveland becomes a pro-business city it is doomed to failure.
Steve,
to answer your question – no.
Jim,
the Centerra Metro District bonds versus Brazilian bonds is an interesting point we did not think of for the story. It does beg the question that if McWhinney’s metro district paid over 10% in fees alone in 2008 for their first $57 million debt refinance while the city cannot achieve even 3% return in their portfolio lots of money is just walking out of Loveland through expensive public debt and anemic returns on invested city reserves.
The city might consider instead just returning the CEF’s it collected to build infrastructure that it is now postponed indefinitely due to the lack of growth and Don Williams using it to buy vacant land on the I-25.
If that some $44 million were returned to area builders they could certainly use it to create jobs and investment in the community thus generating more use taxes which can be used in the general fund.
At the same time a modest 2% growth reserve account could be added to the operating budgets of certain city departments to put money aside for future fire stations and other capital improvements when needed.
DO YOU GUYS NOT KNOW WHAT TODAY IS? WHY DO YOU THINK PEOPLE ARE PROTESTING?
LET ME GET THIS STRAIGHT. PEOPLE ACROSS LOVELAND LOSE THEIR HOMES TO FORECLOSURE (LACK OF MONEY) WHILE THE CITY OVER COLLECTS UTILITY FEES AND OTHER QUASI TAXES AND SOCKS IT AWAY IN A BIG FAT $200,000,000 PORTFOLIO EARNING ALMOST NO INTEREST?
THAT IS OUTRAGEOUS!!!!!!! RETURN PEOPLE THEIR MONEY FOLKS. WHO DOES THE COUNCIL THINK THEY ARE KING GEORGE?
Pro Business? Ask the McWhinney’s how pro business we are. We cave in and give anything they ask. At least we used to. Probably still will since the “old guard” has 5 seats on the council still.
Hello, you must be mistaken. Only a few people were out today, and according to The Reporter-Herald, which only reports fact and truth, anyone who does not support the BO administration is a racist, a radical, and against the United States of America.
Guest, I am afraid you are making the false argument of the McWhinney supporters.
McWhinney has not been a pro-business influence in Loveland. On the contrary, McWhinney’s lobby efforts are contrary to the interests of the private business community in general and certainly not in favor of free enterprise.
McWhinney promotes Mercantilism. Mercantilism is what King George of England practiced when he told American colonists that tobacco, corn and of course tea could only be bought or sold through the King of England’s public/private partnership approved companies or pay punitively high special taxes.
In Loveland, property owners near the I-25 outside Centerra were not given special sales tax rebates, fee waivers and a rebate of 98.8% of property taxes for the next 25 years if they developed their land outside Centerra. That meant they couldn’t compete and were forced (economically) to sell their land to McWhinney for the highest return.
Now, if they sold to the city’s public/private partner, McWhinney, than the land could benefit from all the lower taxes, fee waivers and property tax rebates under the “flex” urban renewal plan and Centerra Metro District both controlled by McWhinney.
For those who say we wouldn’t have development in that area without all those special favors — look across the street! The Southeast corner of I-25/US 34 developed without an Urban Renewal plan but in the city limits of Johnstown. Many high-quality businesses pay regular property taxes outside Centerra in Johnstown to the county while McWhinney doesn’t.
Please explain to me how the owner of Schmidt’s Bakery in Loveland is different than an early American colonist who had his property seized by the King for not paying tarriffs for trading with non-crown approved traders? It was the inequity in tax law that drove them to cheat. Many people thought the 14th Amendment to the constitution fixed this problem but apparently not in Loveland.
If Schmidt’s bakery had simply sold his business to Chad or Troy McWhinney or moved into their Centerra development to lease from McWhinney he wouldn’t have the same tax problems. The city would have been happy to collect only 60% of the sales taxes from his taxable sales and let McWhinney keep the rest in their metro district.
Of course, the price would be giving up his dream of owning the land his business operates on and began paying rent to McWhinney’s Centerra.
What part of this public/private partnership scheme do you call “pro-business?”
Loveland’s council is not divided between Democrats and Republicans. Instead we have 5 councilors who are McWhinney loyalists (McWhinneycrats) and defend Mercantilism and 4 who don’t.
Please tell me one GENERAL business tax McWhinney ever fought against? No, I didn’t think you could. Just like the corrupt companies living off the power of the British Crown, McWhinney doesn’t want an even playing field in business in Loveland but instead one that has barriers of entry for all their competitors who actually pay money to support local services they use.
Thanks for that explanation because it tells me where you are coming from.
I hate to tell you this but even the 4 people you say are not McWhinneycrats are really just up there for the ride. They don’t seem to be setting any direction for the city or bringing up new items.
Maybe Loveland council is too big. The county staff must react to any commissioner because with only three it is easy for any of the 3 to get agreement with 1 other on a new initiative or idea to go forward.
Loveland has 9 councilors who don’t really respect each other in a sincere way but sit around and compliment each other on attending meaningless public events or attending advisory meetings run mostly by staff. 1 councilor with an initiative has to get agreement from 4 more and that almost never happens without staff support and approval.
Citizens who work with staff (like the Rialto addition proposal) have more power to bring items before the city council than do its own members who will tear apart anything another brings forward from jealousy and with help from staff that wants to discourage such initiative.
Williams and any city manager who follows will have the power since the council is so big 1 person cannot get the others to follow. The leader, Cecil, wasn’t elected by the council so having a generally elected mayor doesn’t make sense since he is now in the minority on his own council. The city charter was a terrible mistake.
McWhinney doesn’t promote anything unless it is just for their immediate benefit. But you don’t recognize the fact that without McWhinney initiatives nobody would be proposing anything valuable for business to go forward in this town.
The neutered council waits for staff to tell them what is important so citizens get bored with meaningless campaigns by folks who can’t get anything past their own colleagues let alone the powerful staff who really make all the decisions.
McWhinney isn’t Loveland’s problem the city charter is the problem. Until a group of serious people run who can control staff it will be more of the same. Maybe you are jealous because only McWhinney understands how to get things done in this town.
Nick has raised important issues.
There are all sorts of models for local government across the nation, but they essentially come down to two: strong mayor (elected executive) and strong manager (appointed bureaucrat).
Both have pros and cons.
This might be a good time for Loveland to have the debate, since the current city manager is on his way out the door.
Changing our form of city government is not something to be taken lightly.
Here’s a suggestion to council: appoint a charter review commission to provide a stuctured forum for discussion, with emphasis on exactly the issue Nick has raised.
Even when we disagree on specific points, I do believe all of us want to make Loveland a better community. Don’t have a poll on that; but I do believe the ongoing experiment in self-government is not a static thing.
There is, I think, an opportunity now that doesn’t come along too often.
Tony Benjamin,
Loveland