LOCAL BANK OFFICIALS QUESTION CITY PLACING FUNDS OUT OF STATE

CAPE GIRARDEAU -- Three local bankers object to city-government funds being invested nationally, arguing that the money should be invested locally to benefit the Cape Girardeau economy.

But another local banker has no objections to the city's investment policy.

Al Stoverink, Cape Girardeau assistant city manager, said that $2.3 million of the city's excess revenue available for investment last year went to out-of-state financial institutions. He said the city had $5.85 million available for investment.

The money was invested outside Missouri when interest rates at those institutions that were "rated" secure exceeded local rates, Stoverink said.

In light of the city's investment policy, some local bank officials have raised the question of whether Cape Girardeau tax dollars should remain in the local economy rather than in out-of-state financial institutions.

O.J. Miller, president and chief executive officer at Mercantile Bank, said the $15,000 added income to the city from the out-of-town investment practice is "insignificant" for a town the size of Cape Girardeau. Miller said he favored keeping the funds in local financial institutions.

"The money made by financial institutions is used to hire people in the area and used to invest in the area's economy in new loans, and so forth," he said. "So it improves the whole quality of life in the area.

"I don't think that's worth the small amount of difference you'd get in (interest rates) by going out of the area."

Miller said that unless the city was able to make an additional "six figures" in interest income by investing out of the area, they should keep the money in local institutions.

"Traditionally, public institutions try to keep the money invested in the areas they're located," he said. "It seems to me their loyalties should be in the community where the money's coming from."

Jim Limbaugh, president of Boatmen's Bank in Cape Girardeau, which has the city's local banking-services contract, said the deposits at banks across the nation benefit those communities while taking funds away from the local economic base.

"I'm passionate about the philosophy of investing excess revenue among local banks because it, in turn, provides a basis for economic growth in the community," Limbaugh said.

Boatmen's was the successful bidder two years ago on the city's five-year banking-services contract. As of Dec. 31, the city had $2.65 million deposited at Boatmen's.

Limbaugh said he doesn't expect the city to invest all its money at Boatmen's.

"If you've got to take it out, take it out, but keep it local," he said. "I'm not an enemy of the city. But at this point, it's a matter of principle.

"We want the money invested locally. It provides part of the lending base for this area for all banks."

Limbaugh said the community's banks have a long history of contributing to city projects and improvements. He said that by investing the city's money elsewhere, local institutions and their officers likely won't be as willing in the future to continue their donations to the city.

"You won't get that kind of cooperation, time, effort and resources from out-of-state sources," he added. "What value do you put on the subjective kinds of contributions made by the various local institutions over the years?"

Bill Stanfield, president and chief executive officer of First Exchange Bank, said he thought the city's investment policy was "totally unreasonable. He also said the city often looks to local banks for donations and contributions toward city projects.

"They always look to local service organizations and the banks to do everything in the community," Stanfield said. "Then for them to turn and invest out-of-state is totally unacceptable."

Stanfield said financial institutions often are the first source from which the city seeks donations for special capital improvements projects and other city plans.

"They always want banks to share in the costs because it's for the good of the community," he said. "We're glad to do it because we're civic-minded people.

"But it's just incomprehensible for them to invest funds, even in St. Louis, as far as I'm concerned, and especially out-of-state. They should get the best rate locally and keep the funds here."

But Charles Daniel, president of Capital Bank, said he didn't think the city's policy was cause for concern.

"It's a double-edged sword," Daniel said. "I personally don't have any concern with the city investing where it can get the best rates.

"I'm sure the taxpayers want the most reasonable return you can get without risk."

Daniel said that most Cape Girardeau banks don't have sufficient securities available to make high-interest bids on city funds profitable.

"I wouldn't expect them to keep that money here if they could get a better rate of return elsewhere," he said. "I think then the question would be, `Why is the city doing this, and why aren't they getting the highest return in the taxpayers' best interest?'"

Limbaugh said that investing in banks rated "secure," in amounts not to exceed federally insured levels, doesn't necessarily shield the money from risk.

"I'm even more passionate against the idea of investing amounts just at the FDIC threshold in savings and loans scattered across the country purely for (higher interest rates)," he said.

"After all, there's a definite relationship between risk and return."

Limbaugh said the rating network the city uses likely doesn't take into account that some savings and loan accounting practices have proven to be "suspect." He said financially strapped thrifts often use "smoke and mirrors" to compile numbers that reflect their financial strength.

"The idea of risk and return is even more relevant in recessionary times," Limbaugh said. "Then your investment decisions deserve even higher scrutiny when dealing with taxpayers' dollars."

Percy Huston, president of Southeast Missouri Bank, and Pat Donaldson, vice president of Amerifirst Bank, both declined to comment on the city's investment policy.