RPB Council OKs Changes To Its Investment Policy

The Royal Palm Beach Village Council amended its investment policy Thursday, March 3 to pay off its existing loan to develop Royal Palm Beach Commons Park, and reinvest existing revenue from the sale of its water utility and wastewater treatment plant property to reflect the anticipated future market.

On the recommendation of Finance Director Stanley Hochman on Feb. 18, the council had directed its investment manager to make changes to the policy that would pay off the Commons Park loan of about $15 million and leave about $70 million to invest.

At that meeting, Hochman said that since the village was paying more in interest on the park loan than it could get in investment returns, it might be a good time to pay off the loan.

At the council’s March 3 meeting, Steven Alexander of Public Financial Management explained that the recent recession has changed the market, including the amount of bond issuance and federally insured home loans.

“The amount of availability has diminished over the last five or six years,” Alexander said. “The availability is just not the same as it used to be. Part of my responsibility is to design an investment policy that ensures that you have the right tools going forward.”

The old policy served the village well during the recession, with no losses or downgrading of bonds, he said.

“It’s important to look forward to the future now, and what we’ve done with your investment policy is make a series of changes that will put your policy in a relevant standpoint going forward the next five or six years,” Alexander said. “Policies are reviewed on an annual basis, but we think this is a point in time where you need to make a number of changes.”

He explained that the changes will add important tools to the village’s portfolio.

“We’re adding some investment types that will give you flexibility going forward, as well as we’ve added some language that makes sure we’re coinciding with state statutes,” Alexander said.

The new policy adopted by the village will meet requirements for national certification by the National Association of Public Treasurers of the United States and Canada. “That was also part of the goal of this draft,” he said.

The new policy will assure both safety and liquidity to assure that the village has money to cover the village’s obligations, as well as a return to the village, he said, adding that new bond rating policy has downgraded most AAA bonds to A bonds.

Councilman Fred Pinto asked whether the investment policy relates to the village’s bond rating, and Alexander said not directly, but agencies are spending more time looking at the asset management than they have in previous years, given the problems that cropped up during the recession.

He said that the policy was designed using a cash flow model that looks at what assets are available for longer-term and short-term investments that will allow liquidity for accounts payable and payroll when necessary. The returns are measured against a national benchmark that is used by investors throughout the world, he explained.

“We do use global standards in calculation of these numbers and the presentation of these numbers,” he said. “That’s very important, because in the investment world, people will throw numbers out there, throw yields out there to make themselves look good, but we have a prescribed method of global calculation so everything is measurable,” he said.

Pinto made a motion to approve the amended investment policy, which carried 5-0.