County’s investment pool takes a dive

Copyright © 2009
Gallup Independent
By Bill Donovan
Staff writer

GALLUP — After hearing that its investments in the state-run Local Government Investment Pool has lost money for the first time, the McKinley County Finance Board decided Thursday to withdraw the remaining $6 million it still has in the pool.

The board — made up of the county’s three commissioners plus the county treasurer — was informed that the county account was $20,000 in the hole, so the board decided not to take any chances and remove whatever is remaining and put it into safer investments.

County Attorney Doug Decker said at any time the county has between $10 million and $15 million that could be put into investments. This peaks in May and December, the deadline for people to pay their property taxes, and the county puts it into investments, taking it out during the rest of the year to pay for the costs of operating the county government.

The pool, which is overseen by the state’s treasurer and the State Board of Finance, was created in 1987 as a way for county and local governments to pool their money to get the best rate of return possible. Governments like it because it’s fairly liquid which allows the governments to withdraw portions of its account without a hassle.

“There has never been a loss reported before now,” Decker said, adding that even during the dot-com collapse the pool reported profits.

The pool is allowed, under its rules, to invest up to 21 percent of its total fund level in stocks, and one of the stocks it had money in was Lehman Brothers, the investment firm that went belly-up on Sept. 15.

Decker said the county would continue to invest in the pool if it would stop investing in the stock market and put it in safer venues, but pool officials have indicated that no changes will be made in its investment strategy.

The county has done well with the pool, making more than it would if it kept its money in banks and treasury bonds.

In fact, up until Sept. 15, when Lehman Brothers tanked, the county was looking at more than $80,000 in profits for this year and after Sept. 15 it was $20,000 in the hole so the county’s losses could be viewed at about $100,000.

While the loss pales in comparison with the county’s total savings, Decker described it as an “ouch” and added that it made county officials worried that keeping it any longer could mean further losses.

The pool currently has assets of more than $1 billion and will pay out requests between $1 and $30 million in 24 hours and between $30 million and $50 million within 48 hours.

The county is therefore expecting to have the money in hand by early next week.

However, while it’s a remote possibility, Decker said the decision by McKinley County to take out its funds may convince other governments to do the same, so there may be a run on the bank so to speak, which may cause the state to freeze the account until everything can be sorted out.

County officials don’t expect that to happen and are now trying to decide where to invest the $6 million where it will get the best return while remaining totally safe from the turmoil that now exists in most of the money markets around the world.

He said the county will look at local banks first but many accounts will have to be established since the FDIC only provides insurance of only $250,000 for each account.