Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, December 15, 1994 TAG: 9412150042
SECTION: VIRGINIA PAGE: C-1 EDITION: METRO
SOURCE: DAN CASEY STAFF WRITER
DATELINE: LENGTH: Medium
Unlike their counterparts in Orange County, Calif., Roanoke-area residents can rest assured that their tax money isn't being gambled on the investment equivalent of a roulette wheel.
The wealthy California county south of Los Angeles last week declared bankruptcy after disclosing that risky investments by its treasurer had led to losses of more than $2 billion.
That isn't likely to happen here. A survey of local government officials in Western Virginia shows that, when it comes to managing public funds, financial stodginess is in style and risky investments are an anathema.
Governments in the Roanoke Valley have hundreds of millions of dollars invested in various financial instruments or funds. But almost all of it is in conservative state-run fund pools, U.S. government securities or local banks, treasurers and other financial officers said.
"I'm very careful what I do with the taxpayers' money," Bedford County Treasurer Norma Edwards said.
"I'm more concerned about the return of capital rather than the return on capital," Roanoke County Treasurer Fred Anderson said. "I don't go around chasing rates."
That philosophy is also at work in Roanoke, city Finance Director Jim Grisso said. The city has about $29 million in day-to-day surplus cash invested in U.S. Treasury bills; short-term, high-grade commercial loans brokered by local banks, or in what amount to interest-bearing savings accounts.
Roanoke's $162 million employee pension fund is run by professional pension fund managers who by contract are forbidden to make high-risk investments or to buy too large a stake in any single stock, Grisso said. The city also has $42 million in unspent bond proceeds that are deposited in a state-run holding fund.
Anderson said all of Roanoke County's $25 million in idle cash is invested in top-quality bank notes, overnight savings accounts or in a state-administered investment pool. Some localities, such as Bedford and Franklin counties, invest only in banks or in a state pool.
The city of Salem has about $5 million in U.S. government securities - the safest investment possible - and another $5 million on deposit at Salem Bank & Trust, Finance Director Frank Turk said.
"Virginia is probably a much more fiscally conservative state than most states are. I think investments of a highly speculative nature probably go against our grain," Turk said.
Montgomery County Assistant Treasurer Freda Johnson did not return a call to her office Wednesday afternoon.
The conservative philosophy also reflects state law, which limits the ways public funds can be invested. Localities, such as Roanoke and Salem, often adopt investment guidelines that are even more conservative than the state's.
In Orange County, Treasurer Robert Citron's mistake was entering the complex financial world of investment derivatives. Some financial analysts have called the trading instruments the "high-yield junk bonds of the '90s." Junk bonds were popular in the 1980s and are highly speculative, high-return loans to start-up companies with little track record.
In the financial world, derivatives are like side bets in a street-corner craps game. Used judiciously and in small amounts, they can act as a hedge against losses on large investments in stable securities when there are big swings in the financial markets.
But 60 percent of Orange County's surplus cash was invested in what amounted to a wager that interest rates would continue on a downward spiral. For a while, the strategy worked, and the county saw double-digit returns on its investments. When rates began to rise, the county took a bath on mortgage derivatives.
Orange County isn't alone. Officers of other municipal governments, either unaware of or ignoring state and local laws regarding investing public funds, also have been stung in the derivatives market.
They include Cuyahoga and Sandusky counties in Ohio and Dakota County in Minnesota.
A deputy treasurer in Charles County, Md., was fired this fall after the county lost $7 million on $31 million in derivative investments he ordered after getting a telephone pitch from a small California brokerage house.
Similarly, silver-tongued salesmen call local government financial officers here frequently. To some, they are a nuisance.
"I get them every day, practically one or two a day," Bedford County's Edwards said.
"They come in all the time, from these out-of-state brokers," Anderson said. "Finally, I have to get nasty and tell them, 'What part of no don't you understand?'"
by CNB