Investment Activity MemoCity of Kalispell
_ Past Office Box 1997 - Kalispell, Montana 59903-1997 -Telephone (406) 758-7000 Fax - (406) 758-7758
REPORT TO: Honorable Mayor and City Council
FROM: James H. Patrick, City Manager
SUBJECT: City of Kalispell Investment Activity
MEETING DATE: January 7, 2008
BACKGROUND: At the last Council meeting there was a question concerning the transfer of
funds from the State's Short Term Investment Pool (STIP). The concern revolved around the
transfer of $7 million from STIP to the City's checking account on September 28, 2007.
Earlier in the November, the news carried a story from Florida where the State STIP had
invested heavily in structured investment vehicles (SIVs) which are "among the sub prime
mortgage debt filled contrivances that have blown up at the biggest banks in the world. Sub
prime loans are those made to borrowers with inferior credit." Florida's STIP was heavily
invested in SIVs and the sub prime market. As a result, there was a run on the STIP by local
governments and the State had to freeze funds.
SIVs are a part of Montana's STIP which invests money for other local governments. Of the
$2.5 billion invested in Montana STIP, about one -fifth ($550 million) is or was invested in SIVs.
Of those SIV investments, only $15.7 million was/is tied to sub prime mortgages. Another
difference in Montana is that the State is also heavily invested in STIP. However, as news
concerning state STIPs and their investments in SIVs started being reported across the United
States, many local governments started to remove funds from their state accounts and states were
starting to freeze accounts instead of having a run on the invested funds.
The City had over $14 million in the Montana STIP since we get the highest interest rate on our
money and it is accessible and can be moved within 24 hours on a normal basis. Staff tracks the
City's investments on line several times a week. Just prior to November 28th there appeared to
be the start of a run on the Montana STIP by Yellowstone County and others. The City has most
of our short term operational funds in this account due to the interest rate (then 5.5%) and ease of
transferring the funds to our checking account. With the threat of a run on STIP and the need to
insure cash flow, the decision was made to move half of our assets or $7 million into our
checking account at Glacier Bank after verifying that all of these funds would be insured. The
$7 million was withdrawn from STIP to insure the City had cash flow in case of a run on the
STIP program causing the State to freeze the account (as in Florida). These funds were needed
for operations.
Withdrew
$7,000,000
Payroll transfer 12/12 $461,470
Claims 12/5 $1,915,024
Purchase of FHLB 5.28% - 1 year call $1,746,378
(after the crisis was over)
Balance remaining $2,877,128
Transfer back to STIP on 12/17 $2,500,000
On December 17, 2007, the City received the following wires into our operating account:
Flathead County taxes $3,514,936
State Entitlement $ 552,881
DNRC—reimbursement WWTP $1,136,326
Total revenue 12/17 $5,204,143
Transferred to STIP 12/18 $5,000,000
The City's end of December claims were in excess of $1,500,000 since the wastewater treatment
plant is consuming approximately $1 million per month. The City also wired out about
$1,000,000 for bond payments the end of December. As can be seen, it is not unusual for staff to
move large amounts of money between STIP and the operating account. Council adopted the
Investment Policy of the City and Staff adheres to that policy. Should Council want to know
every time that funds are transferred then staff needs to be directed as to the wishes and desires
of Council and the amount that would trigger such a notification. Council is given monthly
financial reports, Council and citizens can track the daily buys and sells for the City, County or
any other government participant in STIP.
The City's investment policy states that the city reserves the option of investing in US
Treasuries, qualifying securities guaranteed by the US Government or State Investment Pool
(STIP). The policy also states that "IF" repurchase agreements are used, securities will be
purchased by the City of Kalispell subject to repurchase by the investing institution. In the past
we have bid repurchase agreements, however, response was limited to one or two banks and the
rates have always been lower than STIP.
On November 281h, Staff acted appropriately to protect the City's short term money and cash
flow by moving money into the checking account to insure continuity of operations.
Should anyone on Council have further question or concern regarding this matter, please contact
me at your earliest convenience.
Respectfully submitted,
James H. Patrick, City Manager