An extra $2.2 million will flow into the municipality’s coffers after the investment committee sold 16 financial bonds, although more could be gained if that money is reinvested into other accounts.
City council recently authorized the investment committee and investment manager to sell bonds at a premium and reinvest the money into higher interest Guaranteed Investment Certificates (GICs).
The investment committee and investment manager took more than $47.2 million in bonds and sold them for more than $49.4 million, netting the municipality an extra $2.2 million.
A report from the finance department indicates if the $2.2 million were put into GICs with similar terms as the bonds before the sale, and then held to maturity, an extra $744,000 would be generated.
Furthermore, if the $49 million was put into medium- and long-term GICs, an additional $2.25 million could also be created.
In total, nearly $3 million would be created for the municipality during the next five years from the interest on the GICs.
City council discussed the report from the finance department during the recent June 10 regular meeting.
Council discussion
The municipality could have received more money from some of these bonds if the bonds had been sold at a premium, said Coun. Brian Swanson. The reason bonds at sold at a premium is because people are willing to purchase them at that level.
If the bonds had been held until they matured, then more than $5.5 million in interest could have been generated, he continued. The municipality’s policy of investing in high-quality bonds has done well for Moose Jaw over the years. Abandoning that policy when council is approaching its debt limit is not a good idea, especially when it could still be short tens of millions of dollars.
“We are moving into riskier investments,” Swanson added. “Any claims that this is going to yield us more money is pure speculation. There are no guarantees on that at all.”
“Is the $2.2 million a figment of our imagination?” shot back Coun. Dawn Luhning.
Licensed and trained industry professionals analyzed the bonds and then recommended to the investment committee to sell the bonds since the municipality was in a good position to do so, she continued. It didn’t hinder the risk level of the investment, which eventually generated $2.2 million.
Luhning agreed that the investment committee should have a conversation about the debt level of the municipality. It should consider whether there is an opportunity to allocate some of this “found money” to the debt levels, since they are paying slightly higher interest than they should.
“I would prefer to take advice from people who know what they’re talking about … ,” she said. “There are things that you have to understand in this industry that not the average individual does.”
Luhning added that it’s not a bad idea to move in this direction, particularly since council is “not putting all the reserves on red 5 and gambling it overnight,” nor is it gambling away Moose Jaw’s future.
The next regular council meeting is Monday, June 24.
