Trent Ernst, Editor
“I’m passionate about this job, and I want to do good by it, but sometimes it comes out in the wrong way.”
That’s Councillor Will Howe, apologizing after a discussion about the District’s Investment turned heated at the September 2 meeting of Council.
Since being elected, Howe has been concerned about the way the District has been managing its investments. “When the new council was elected and sworn in around the first week of December, I immediately started asking where our money was,” wrote Howe in an August 22 post on his Facebook page. “We were told many times our money was invested in the MFA making about 2.25 percent annual return. Turns out it wasn’t.”
Howe says that he’s concerned that the District’s money isn’t being invested wisely. “All the District’s money was removed from the Lake View Credit Union in or around June 2014,” wrote Howe. The money was transferred to the Municipal Finance Authority of BC (MFA), and put in a Money Market Fund (MMF).
“The Municipal Finance Authority Money Market Fund rate of return for the year turns out to be 1.02 [percent] from July 31 to July 2015,” said Howe at last Wednesday’s meeting. “Effectively, we’ve made next to nothing. If their [Lake View’s] High Interest Savings Account rate was 1.05 [percent], we would have made more just by leaving it right where it was. Where the money comes from [with the MFA] comes from the MFA Bond Fund, which has an annual rate of return of 3.4 percent. Had we put the $20 million we took out [of Lake View] into that, we would have made a difference of 2.4 percent, or about $480,000.”
Of course, says CAO Barry Elliott, you can’t drop all your money into long term savings, or else you can’t actually use it to pay for anything, as Bond Funds have a minimum investment period of 18 months. “I can tell you the funds were reinvested at a better interest rate,” he said. “Could we have got more? Yes.”
However, that was not the concern of Council when the money was originally withdrawn from Lake View, says Elliott. “We had an instruction from Council in June of last year to invest the money in a certain manner,” he says. “That was to put all of it into one account, a money market fund with the MFA. The intent at that point, all of the dialogue that went on at the time, was to make sure Lake View remained in town. What it led to, was a closed meeting of Council in October, at which we had a consultant come in and speak about the options to make money with the District funds.”
From that, the District put out a Request For Proposals (RFP) for banking services, which closed on December 5. There were five different proponents, including Lake View.
Mayor Don McPherson was on the previous Council. He says at the time, the Council wasn’t so much worried that they were making the best return on their money, but that there would be some sort of financial institution in town, period. “[Lake View] decided they were going to change the way it was operating, and the Council of the day didn’t like that,” he says.
So Council of the day directed staff to take money out of Lake View and put it into the MFA. “We weren’t concerned about the interest rate we were making,” says McPherson. “We directed staff to put the money in the MFA. If there’s any responsibility here, it falls on the last Council, which I am part of, Councillor Mackay was part of, and Councillor Caisley was part of. As far as I am concerned, we didn’t lose any money. We didn’t make as much as we could have, but it was all directed from this Council Chamber as to where this money was put.”
The MFA Money Market Fund is a short term, pooled investment fund for Municipalities, “to provide participants with a competitive level of current interest income by investing primarily in the highest quality money market instruments with maturities of 366 days or less….The performance objective of the MMF Fund Manager is to exceed the DEC 30 Day Treasury Bill Index by 15 basis points.”
The rate was better than what was offered at Lake View at the time, says Financial Manager Chris Leggett. “The rate on the high interest savings account [at Lake View] was .95; the rate at the MFA at the time was 1.1, or 15 basis points.”
A basis point, he explains, is one hundredth of a percent, so 15 basis points works out to 0.15 percent.
However, Councillor Howe says Lake View told him the rate was 1.05, not .95. “We have to clarify that, because that’s the information I received.”
But being a Money Market Fund, the rate of return fluctuates. The MFA MMF has only made 1.02 percent in the last 12 months (as of July 31), leading to Howe’s assertions the District would have been better off just to leave the money where it was.
Howe says the District’s funds effectively did nothing from June of 2014 to March 2015. “Hundreds of thousands of dollars have gone missing,” he says. “We’ve got a problem here. We should have had somebody step up and say ‘we’ve had this money sitting on the sidelines for nine months. We need to start investing this money.’”
Elliott doesn’t agree with the assessment that the District lost money. “Did we lose money? Well, we didn’t gain the money we would have if we had [invested] it then. We could have taken a portion of those funds and invested in the long-term bond with the MFA, which was paying a bit more. Once we finished the RFP, Lake View came forward and offered 2.25 percent on a GIC.”
But again, that wasn’t the instructions that Council had given to staff. McPherson says Council was more worried about keeping some sort of financial institution in Tumbler Ridge than how much interest they were making. At the time, the District was worried that Lake View was going to pull out of Tumbler Ridge. Then-Mayor Darwin Wren and Councillor Mackay made a number of trips down to Vancouver to try and encourage another financial institution to open a branch in Tumbler Ridge. They were ultimately unsuccessful.
Elliott says there were other things happening at the time, too. “First of all, we had clear instructions to put [the money] into the Money Market Fund, where it sat as we continued discussions with Council, as we finished a review, which Council initiated, of banking options and a request for proposals of banking services. The instructions were initiated with the previous Council. This Council inherited this review partway through the process.”
Once that process was done, Elliott says, the District began strategically investing its funds. There was also a great deal of financial uncertainty. “At the time, we didn’t deem it appropriate to lock away the funds into a less than liquid fund. Because of the change in the economy—right around then, Peace River Coal made its final announcement concerning the shutdown. There was great concern from the Council of the day that we didn’t know what our cash intake would look like in the New Year.”
Which is why, says Elliott, staff allowed the process of the RFP to play itself out, which didn’t finish until March. “That’s when Council sat down and gave staff a redirection on at least a portion of the funds. At that time we began the process to move $10 million back to Lake View. $3 million was invested into a GIC. The remainder stayed at the MFA. And we started the process of the transfer of funds into higher yield funds, including Lake View’s GIC and the MFA Long Term Bond Fund.
They also opened an account with North Peace Savings and Credit Union, who said they would offer 1.75 percent in a “fully guaranteed and liquid” bank account. Lake View was unable to match this rate, and on July 22, Council resolved to enter into a banking relationship with North Peace Savings and Credit Union.