More than $3 million in interest earnings will be taken from the City of Moose Jaw’s investment portfolio next year to fund areas such as transportation and parks and recreation.
During a recent special budget meeting, city council voted 6-1 to approve the withdrawal of $3,067,341 from the investment portfolio for use in 2020. Coun. Brian Swanson was opposed.
Report background
More than $100 million in reserve money is being managed by professional portfolio managers on behalf of the municipality, explained finance director Brian Acker. There is more than $70.9 million in the long-term portfolio and more than $30 million in the medium-term portfolio.
The expected returns in the long-term investment portfolio are six per cent; 4.25 per cent in returns is expected in the moderate term investment portfolio, and; inflation is expected to be two per cent.
Since the municipality uses the investment interest to fund programs and services, it is necessary each year to estimate the required drawdowns and incorporate them in the proposed budgets, Acker continued.
For example, $1.5 million in interest is being withdrawn from the capital expenditure fund equity and $658,465 is being taken from the land development funds — for a total of $2.61 million — to use in the general capital budget.
Similarly, $130,000 in earnings is being withdrawn from the perpetual care fund to fund cemetery maintenance, while $161,300 is being withdrawn to fund the Southeast Industrial Park subdivision.
If there are any shortfalls arising from the 2020 withdrawals due to poor portfolio performance, the amounts taken will be adjusted in the 2021 drawdown request, Acker said, adding these proposed drawdowns have been discussed with the investment committee.
Council discussion
Swanson was in favour of using the interest from reserve money to fund core infrastructure. However, he suggested that that reserve money was being played in the stock market and thought the six-per-cent return was unrealistic since the stock market could return higher or even negative returns.
Instead, Swanson wanted to see interest earnings withdrawn based on what was earned in the previous year. He suggested the worst-case scenario that could be faced in 2020 is a negative interest rate return, which he said history has shown to be possible.
Coun. Dawn Luhning, a member of the investment committee, pushed back against Swanson’s “harsh and just not true” comments, saying the committee was not gambling with the municipality’s money.
“This is not doom and gloom with what the investment committee has done. This could be very good for the City of Moose Jaw over a long, long time,” she added. “It’s a long-term investment.”
So far there has been $2.19 million in interest generated from the invested funds, which is substantial, said Acker. This provides some comfort that the money is being invested properly.
Swanson’s suggestion of waiting nearly a full year to see what the reserve accounts generated in interest would put a $2.6 million hole in the 2020 capital budget, he continued. It has been well-documented that a balanced portfolio that invests money in a prudent manner produces good fruit.
Acker added that the interest is withdrawn throughout the year and not all on Jan. 1.
Council’s intention has been to reduce the tax burden on residents, and while there are many projects that could be considered gold-plated, council needs to wisely steward its finances, said Mayor Fraser Tolmie. This ensures money can be maximized and provide better benefits for residents by ensuring yearly budgets are properly funded.
“We have to be optimistic …,” he added. “There will be dips. But as we all know when we go to financial advisors, we have to ride the storm.”
The final budget meeting is Wednesday, Dec. 11.
