Marana Municipal Complex

After nearly 20 years of business as usual, the Town of Marana may soon update its policy for public investments.

The last time Marana changed the policy was in February 2000. Town staff presented some policy suggestions at last Tuesday’s council study session, to reflect two decades of changes in Arizona investment law, changes within the market and best practices set by the Government Finance Officers Association.

The biggest proposed change to the policy, according to the town’s Finance Director, Yiannis Kalaitzidis, is what types of investments the town can make.

The current policy only allows for investments in US treasuries and agencies, as well as Local Government Investment Pool funds from the state, for only three years at a time.

The new policy opens up the door to other types of investments, specifically ones allowed by an Arizona Revised Statute, such as certificates of deposit, high-rated bonds, notes, corporate debt, other municipal bonds, commercial paper and more.

The new policy would allow these investments to mature for up to five years, and allow the money to be invested in the town’s new Self-Insurance Trust Fund, in addition to all other funds the town operates.

“These proposed changes, we anticipate, will enhance the portfolio’s diversification and the total return we receive from that portfolio,” Kalaitzidis told the council.

The town uses these investments to make quick disbursements such as payroll and make payments on long-term debt, among other uses, said Town Manager Jamsheed Mehta.

While investment decisions usually fall under Mehta’s responsibility, the new policy would allow Kalaitzidis to work on it under Mehta’s direction.

Luke Schneider, the director of Marana’s investment advising firm PFM, told the council these proposed changes would improve the diversity of the town’s investment portfolio and likely improve the expected return in the future.

Specifically, he said corporate securities have been more profitable than other types of investments in years past.

Considering historical defaults of different investments, Schneider said the new policy would move the town toward AA-rated securities, which has a collective default rate of 0.7 percent, while the current A-rated category has a default rate of 1 percent.

“We’re not relying on historical returns to repeat themselves, however we can look at metrics in the market like the yield offered by those types of securities today and we’re confident that they’ll continue to add value to the portfolio,” he said.

Schneider believes these types of considerations will create an investment portfolio that is more conservative than what state law allows local governments to do, since town staff will need time to get comfortable working with the new material.

“The policy we’re proposing is more restrictive than state code and includes additional safeguards and diversificationary requirements for the town, which is in line with what we think is prudent to manage a portfolio like the town’s,” he said.

Council member Roxanne Ziegler asked if PFM would take another look at the investment policy in the future, and potentially revise it to be “less conservative.”

 “I’m ‘Republicanly,’ very conservative,” she said. “Money-wise, I like to see us make money.”

Kalaitzidis responded that the finance staff plans to review the policy periodically, depending on changes in the market.

Mayor Ed Honea clarified that both the principal and the interest would be at risk in some of these new investments. Currently, the town’s two types of investments are fully covered because they’re backed by the government.

“I’m concerned about the five-year liquidity of investment,” Honea said. “I’m a pretty conservative guy when it comes to investing the citizens’ money.”

He expressed concern about a potential loss in investment, if the town someday needed to liquidate a large amount of assets for an emergency need. Kalaitizids said the town maintains an adequate amount of funding in their LGIP state fund. Last year’s ending balance was around $19 million.

“LGIP is highly liquid,” Kalaitzidis added. “So it would cover not just our ongoing needs but even those surprises that might come up. We have full faith that if we manage our portfolio correctly … we shouldn’t have a need to ever liquidate those investments and take a loss.”

As of June 30, the Town of Marana has roughly $78 million in cash and investments. Mehta said the town council will likely vote to approve or reject the new investment policy in early October.

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