County investments holding their own so far

Some decline in earnings expected

By LYNNETTE HINTZE/Daily Inter Lake

Interest earned from Flathead County's pooled investment program has grown steadily over the years, but the national economic meltdown that intensified about a month ago eventually will affect the county's investments, Treasurer Adele Krantz said Tuesday.

"It really hasn't hit us quite yet, but it will," she cautioned.

Krantz laid out the figures for the county commissioners during her quarterly investment report, showing that the interest rate on the short-term investment pool run by the state averaged 2.52 percent in September.

"Last year at this time, percentage-wise we were making 5.5 percent in the STIP," Krantz said.

The short-term investment pool, as the name implies, acts as an easily tapped account to pay major bills.

In the sweep account - the account in which the county takes all the excess available money at the close of each business day and invests it in overnight interest-bearing instruments such as money market mutual funds or repurchase agreements - the interest rate is now at 3 percent, compared to 5.57 percent last year.

Krantz said last quarter's top investment rate was 3.75 percent, down from 5.8 percent the same time last year. But to illustrate the unsettled nature of the financial markets right now, she pointed to one investment made last week for 5.375 percent.

"This week it's back down to 4 percent," she added.

Krantz noted, though, that governments are bound by a number of regulations to safeguard investment programs. Flathead County's investment policies limit investments to the safest types of securities and require diversifying the investment portfolio so that the impact of the potential losses from any one type of security are minimal.

As county treasurer, Krantz invests money from the county, local school districts and other districts, such as fire and rural special-improvement districts, in a variety of short- and long-term funds, then distributes the interest back to those entities. Interest revenue from investments has climbed steadily, reflecting not only robust county growth but also a solid financial market in recent years.

In fiscal 2005, Flathead County distributed $1.6 million in interest from its investments. In 2006, interest earnings jumped to $3.5 million; followed by $4 million in fiscal 2007. For the 2008 fiscal year that ended June 30, the county received $4.1 million in interest from investments.

So far this fiscal year, the county collected $168,789 in interest from investments during July; $246,288 in August and $175,477 in September. The county currently has $89.4 million in the pooled investment program.

A local governing body may invest public money not necessary for immediate use in a limited number of eligible securities, including U.S. Treasury bills and agencies such as the Federal Home Loan Bank, Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Farm Credit Bank.

County money also is deposited in local financial institutions, but the county requires those institutions to "pledge" or secure the full amount of the investments.

State law dictates that counties cannot directly invest in securities maturing more than five years from the date of purchase, Krantz said.

The county's quarterly investment register listed Glacier, Rocky Mountain, First Interstate, Three Rivers and Valley banks - all local institutions - for certificate-of-deposit investments.

D.A. Davidson has invested county funds in Freddie Mac and Fannie Mae, along with other eligible securities, but Krantz said residents shouldn't worry when they hear county money has gone into those securities that ran into financial trouble a few weeks ago.

"These are government securities and are safe because the government says they're 100 percent backed," Krantz said. "The government stepped in to back them."

Freddie and Fannie are stockholder-owned, government-sponsored enterprises chartered by Congress decades ago to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle-income Americans.

Other investment institutions currently investing Flathead County money include Merrill Lynch, Buchanan Capital and Smith Barney.

Features editor Lynnette Hintze may be reached at 758-4421 or by e-mail at lhintze@dailyinterlake.com