INVESTING OUR MONEY WITH CARE
By Dave Rosenberg
Yolo County Supervisor, District Four
Yolo County's five Supervisors take very seriously our role to set policy and oversee Yolo County‚s investment portfolio. It‚s a big job. At any given time, Yolo County may have over $170 million in investments. This represents not only the money entrusted to us through county government, but also funds provided by other governmental entities in Yolo County. Ultimately, this is our money as taxpayers.
We can't and we won't take risks with these investment dollars.
Following the Orange County investment debacle (when it was found that Orange County's independently elected Treasurer had invested the county's money in junk bonds and other risky endeavors) which led Orange County to the brink of bankruptcy, California state law was changed so that Boards of Supervisors were charged with direct oversight of county investment dollars.
Yolo County's Board of Supervisors took this new charge very seriously.
Upon the retirement last year of Yolo County's former treasurer, and with the leadership and assistance of Yolo County's Auditor-Controller, Sally Franchi, a CPA, the Board of Supervisors embarked on the following strategy:
1. Reduce Yolo County's investments in Japanese banks (at times, over 60% of Yolo County's investment funds had been placed in the hands of Japanese banks) to zero. That was accomplished. As of several months ago, Yolo County does not invest in Japanese banks.
2. Retain financial and investment advisors to assist the county in its investments. This was also accomplished. Yolo County retained Public Financial Management, a firm which has helped Yolo County achieve financial security and excellent returns.
Yolo County's financial investments are now on a straight and steady course, notwithstanding a wildly gyrating market in stock and bond prices. The County's investment portfolio is now diverse (the maximum expense to any single non-governmental issuer is less than 6.5%), and (by lengthening the average maturity) Yolo County is on the road to long-term stability.
During the fourth quarter of 1998, the United States Treasury yield curve was flat, with long-term rates sometimes actually below short-term rates. However, the spread (or yield difference) between federal agency/corporate securities and United States Treasuries remained much wider than historical averages. For example, the yield difference between"AA" rated corporate notes and United States Treasuries for 2-year maturities was about 40 basis points (0.40%) for the first 8 months of 1998, widening to about 70 basis points (0.70%) in the fourth quarter of 1998. Capitalizing on attractive yields in these sectors, Yolo County added $5.8 million of high quality corporate obligations to the portfolio. In early December, the County purchased $2 million Merrill Lynch corporate notes, maturing October 1, 2001. These notes are rated "Aa3" by Moody's Investor Service and "AA-" by Standard & Poor's, thus classifying as high quality. An additional $2 million Merrill Lynch notes (maturing April of 2000) were subsequently purchased at 80 basis points (.80%) over comparable maturity Treasuries. This will result in additional earnings of over $20,000 over the life of the investment. Further, Yolo County added $1.8 million Ford Motor Credit Corporation notes, maturing December of 2002, capturing a yield of 5.65% with a remarkable yield spread of 95 basis points (.95%) over Treasuries. This will result in additional earnings of over $68,000 over the life of the investment.
The total rate of return on Yolo County's entire portfolio for the six-month period ending December 31, 1998 was 5.62%. This return is actually 38 basis points higher than the Merrill Lynch D-12 Month Treasury Bill Index.
Working through the team of Yolo County's five elected Supervisors, the elected Auditor-Controller Sally Franchi, newly-elected Treasurer Paul Lester, the County Administrative Officer Vic Singh and assisted by our investment advisors (Public Financial Management), Yolo County citizens can be assured that our investments are sound and secure and are achieving a good value.