Investment returns hit an all-time low

Linda Riffe, Island County treasurer, carried somber news with her to an Island County work session earlier this month.

The interest rates on Local Government Investment Pool (LGIP) investments had fallen to an unprecedented low: 0.205 percent.

“Never in the history of the state has it been this low,” Riffe said.

The obvious side effect, she said, “2010 is going to be a difficult year.”

In 2008, LGIP interest earned the county $860,575 in revenue; in 2009, that figure shrunk to $218,309, Riffe said. Figures for 2010 will be lower still, recalling the dire financial straits of the early 1970s.

“The market is volatile in the best of times,” Riffe said, “so you can’t base the budget on it, but this is unprecedented.”

Riffe pointed out that revenue from real estate excise taxes and sales taxes, which the budget is based on, have also plummeted.

“In 2005, real estate excise taxes earned $17.71 million, compared to $6.68 million in 2009,” Riffe said. “It’s ludicrous.”

Riffe hopes the coming months will see rates inching back up, but she has no hopes they’ll reach the highs of several years ago, when the LGIP interest rate hovered around 5 percent in 2007.

Still, the LGIP is one of her only options for investment.

It’s neither legal nor ethical, Riffe said, to risk taxpayer’s money on the open market. This leaves government treasurers with limited options, and government rates are always lower than the private market.

Riffe could put money into certificates of deposit (CDs), but the interest rates for government CDs are even worse than LGIP rates.

“A 30-day CD is getting 0.15 percent,” Riffe said. “I would have to lock the funds in for two years to even get 1 percent, and I can’t do that – if interest rates rise while the funds are locked in, the county loses money.”

Another big advantage of LGIP is that the funds are liquid. A CD isn’t.

“We need to maintain liquidity to cover bills,” Riffe said.

Because of the need for liquidity, the county can’t commit funds to a CD for longer than 30 days, and as awful as the LGIP rates are, Riffe said, they beat the rates for a 30-day CD.

Another problem, Riffe said, harks back to January 2009, when Clark County Bank filed for bankruptcy and left $15.3 million in public money sitting on the table.

For the first time in 40 years, the Washington State Public Deposit Protection Commission rules had to be implemented, and member banks were forced to cover the loss.

As a result, many banks stopped holding public money. They closed their doors to local government, who in turn put most of their money into LGIP, their only viable option.

“It changed the whole investment environment,” Riffe said.

Since then, she added, banks have begun to re-open their arms to government, but with new restrictions and lower interest rates.

Riffe views the coming year with trepidation.

“I want to do the best I can for the citizens of this county,” she said. “I’ve done well over the years, but this is out of anyone’s control.”

Staff Reporter Jeremiah O’Hagan: 629-8066 ext. 125 or ohagan@scnews. com.