News Column

St. Pete council may invest city money in stock market

August 22, 2014

By Christopher O'Donnell, Tampa Tribune, Fla.

Aug. 22--ST. PETERSBURG -- City officials are getting ready to play the stock market.

Frustrated at small returns on low-risk investments in U.S. treasury bonds and fixed-income securities, some city council members have been pushing the city to invest some funds in well-established corporations with a track record of paying large dividends.

The first step is likely to be an investment of $20 million from the city's water stabilization fund, an endowment-like fund established from the proceeds of a sale of well fields to Tampa Bay Water. The $80 million principal in the fund earns an average rate of interest of 1.27 percent, a return that effectively means the city is losing money once inflation is taken into account, Councilman Karl Nurse said.

"We have a policy that guarantees that, after inflation, we will always lose money," Nurse said. "There are high-quality dividends that will pay at least three times what we're earning."

Returns on investment would go toward reducing the cost of residents' water bills.

The city likely would use mutual funds to spread investments over a number of companies. Investment decisions would be made by an investment consultant. Guidelines for investments are being reviewed by the city's investment oversight committee and must still be approved by city council.

Of course, as the oft-used disclaimer has it, the value of investments can go down as well as up.

St. Petersburg was one of thousands of investors that took a hit when Lehman Brothers crashed in 2008. The city initially lost about $15 million that was invested in Lehman corporate bonds.

The city sued its then-financial adviser Wachovia Bank and Wachovia owner Wells Fargo in 2010, claiming it was misled to invest in Lehman and that Wachovia took no action to protect the city even after Lehman bonds were downgraded. The city agreed to an $11 million settlement with Wells Fargo in 2013.

City Finance Director Anne Fritz stressed it would be only a small portion of the more than $400 million that the city has tied in low risk investments that would be transferred into higher-yield mutual funds.

"We don't want to put the city at risk if there was some kind of market correction," she said.

Another concern is that future councils may pull the plug on investments and sell their portfolio if share prices take a dive and they receive negative publicity as a result.

"This policy is being adopted knowing that day will come, but hoping a future city council doesn't panic and sell low," Councilman Jim Kennedy said.

The city already invests the principal from its Weeki Wachee fund in equities. Proceeds from the investment are used to pay for enhancements to city parks.

Other funds that could be considered for higher-return investments include the city's insurance fund, which is used for worker's compensation claims.

"We're trying to do it very selectively," Fritz said.

(727) 215-7654

Twitter: @codonnellTBO


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Source: Tampa Tribune (FL)

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