CITY INVESTMENTS EARN MONEY, BUT AROUSE CONCERN

CAPE GIRARDEAU -- A new city investment policy last year helped the city earn more interest income by investing tax dollars in financial institutions nationwide than if the money had been invested only locally.

Assistant City Manager Al Stoverink said that in the last six months of 1990, the city earned an additional $15,000 in interest income with the new policy.

The city funds included $5.85 million in excess revenue available for investment, and during the entire year, the city invested $2.3 million in out-of-state financial institutions.

The money is invested outside Missouri when interest rates at those institutions exceed local rates, Stoverink said.

But critics of the policy, including some local bank officials, say they think city revenue should remain invested in the local economy.

Stoverink said the investment policy was adopted in 1989 by the City Council and endorsed last year by the city's Investment Committee.

Members of the committee include Stoverink, City Councilman David Barklage, retired banker Richard Swaim and Jim Wente, Southeast Missouri Hospital administrator.

The policy allows the city treasurer, John Richbourg, to invest a portion of excess city funds in certificates of deposit throughout the nation.

None of the deposits exceed the federally insured $100,000 threshold, said Stoverink, which helps to assure that the taxpayer dollars are secure.

"We've invested very conservatively, according to the investment policy adopted by the City Council," Stoverink said.

"Every dollar of city money is guaranteed with federal securities and insurance, so there really is, in essence, no risk. The federal government would have to go bankrupt, in effect, for us to lose money."

Stoverink said the money is invested only in financial institutions that are rated "above average" by a computer-rating service to which the city subscribes.

But critics of the policy have said that there's a "definite relationship" between risk and return. Some bank officials have said that many struggling savings and loans across the country offer better interest rates, but also involve less security for their depositors.

According to city financial records of Dec. 31, $595,000 of the $2.3 million was invested in six Southern California savings and loans. Another $495,000 was invested in four California savings banks and a Maryland savings bank.

Locally, $369,000 was invested in Farm and Home Savings and Loan; First Exchange Bank; Southeast Missouri Bank; and AmeriFirst Bank.

Gene Huckstep, Cape Girardeau County presiding commissioner, said the county commission invests all excess county revenue locally. "We bid our banking contract every two years," he said. "It's a depository agreement, and all the funds have to go to that bank."

The county's depository agreement has been awarded to Cape County Bank (now Capital Bank) for the past eight years, Huckstep said. He said he's wary of sending taxpayer dollars to other regions to get a higher rate of return.

"In these troubled times of savings and loans, especially, and even in banks, I would be opposed to it even if the county could do it," he said.

"Even when the accounts are guaranteed, it could take a good while to get the money and you'd lose your interest. Unless there's a good point spread there, I don't think the benefits would outweigh the risk."

Carl Talley, Jackson city administrator, said Jackson also deposits its excess revenue locally.

"The policy in the past has been to invest it in local banks within the community in (certificates of deposit)," Talley said.

"As of late, the market has not presented itself, so we've gone to government treasury bills. We keep our daily cash flows on pass book accounts, so all our money's invested as it's deposited."

Talley said the city must follow certain state laws that dictate investment policies. He said Jackson's adoption of a policy like Cape Girardeau's is "always a possibility," but that the city has always tried to "live within the spirit of community.

"We feel our money working in the community is better than our money working somewhere else," Talley added.

One bank official, Jim Limbaugh, president of Boatmen's Bank here, contends that should any of the savings and loans where the city has invested go bust, Cape Girardeau taxpayers would be billed for a portion of the bailout.

Limbaugh said that while the principal likely would be returned, the city would lose accrued interest. Also, the money would be "tied up" in the resolution proceedings, possibly for months, and couldn't be used for city projects.

Boatmen's was the successful bidder on the city's banking services contract and last year had about $2.65 million of city funds deposited there.

But Stoverink said the city was able to secure an 8.366 percent average rate of return on the investments outside Boatmen's. In contrast, the city would have received a 7 percent return if that money had been invested in Boatmen's, he said.

Stoverink said the city already has more than half of its excess revenues deposited at Boatmen's. He said that the investment policy helps everyone involved: the city administration, taxpayers and Boatmen's.

"We have had a very positive effort in seeing the maximum return, while maintaining security and keeping tax dollars local," Stoverink said.

Since 1987, Stoverink said the income earned on excess city revenue has nearly doubled, while cash balances have remained essentially the same. From June 1989 to June 1990, interest income totalled $924,000.

The city also earned about $30,000 in interest income on public facilities bonds.

"During the '80s we had good revenue growth and also very conservative budgeting," Stoverink said. "We're fortunate, I think, through the result of a lot of hard work, good management and a good local economy, we're in as sound financial condition as we've been in the last 10 to 12 years."

Stoverink said he could "appreciate" Limbaugh's position, and that of other banks in the community. But he said he thinks the city's investment policies are fair.

Stoverink praised Boatmen's for going "the extra mile" to provide good service at a reasonable charge.

"They offer an excellent rate of return," he said. "It was the best when we bid it and it continues to be the best. But it's not going to be able to make the rates across the country."

City Manager J. Ronald Fischer, who's also a member of Boatmen's Board of Directors, said his position on the board makes it hard for him to get "too involved" with the city's banking policies.

"As city manager, though, the involvement I have is to be sure that these funds are handled in a fair and equitable way," Fischer said.

"My number one priority is to see that these funds are invested in a proper manner and that every bit of the money is secure."

Fischer said he's convinced the city's money is secure, but he also said he could see Limbaugh's point of view that the money should be invested locally.

"I can see Jim Limbaugh's side, as far as keeping the funds in the community or in the state, and I can see Al Stoverink and John Richbourg's view to try to earn as much interest as they think they can," he said.

"I'm sure a lot of people would support both sides."

Fischer said that if there was a clear shortage of money available to the local economy, the council and city staff would require that city funds be invested in Cape Girardeau.

"I don't know that there's a shortage of money available for people to invest in their businesses or buy homes or whatever," he said.