SLO criticized over poor investment return rates

May 9, 2014


The city of San Luis Obispo is earning less than $300,000 annually in return on its $90 million investment portfolio. Even so, several city staffers are battling to leave the assets in highly liquid low rate of return investments.

San Luis Obispo is currently earning an approximately .3 percent return on the assets in its portfolio.

Meanwhile, the city of Santa Barbara touts an investment rate of return almost four times that of San Luis Obispo while the city of Paso Robles is earning approximately double that of San Luis Obispo, according to financial records updated on Jan. 31.

Municipal investment advisors say the city of San Luis Obispo could significantly increase its yield without adding much risk and while maintaining compliance with state law. California code allows the city to invest in “A” rated assets, but city policy mandates that all investments have “AA” ratings or better.

At a quarterly investment oversight committee meeting Thursday, two municipal investment advisors recommended that the city lower the AA credit rating it requires on the corporate securities it purchases.

“Your policy tends to be a little conservative,” said Chandler Asset Management analyst Jason Schmitt, who manages much of the city’s portfolio.

Executive director of J.P. Morgan Securities, Nick Witry, who participated in Thursday’s meeting by phone, agreed with Schmitt. Witry, too, said the city should lower it ratings requirement to A, and by doing so, it would not necessarily risk losses.

“You’re giving the city the opportunity to invest in far more different sectors and spread the risk among far more different companies,” Witry said.

The state investment code is very conservative, and the city’s policy is even more conservative, Witry said.

But, Assistant City Manager Michael Codron, who is a member of the investment committee, said lowering the rating requirement would put the city at risk.

“Over time, investing in A versus AA is going to involve risk and losses,” Codron said.

Schmitt, like Witry, said the proposed change might not add risk because it would allow the city to diversify its investments across more industries.

During a presentation he gave Thursday, Schmitt showed a chart he compiled comparing San Luis Obispo’s investment portfolio to other California cities of comparable size. Out of nine cities on the list, San Luis Obispo is one of just two that require AA rated corporate securities. San Luis Obispo and Davis, the other city that mandates the AA rating, have the two lowest yields of cities examined.

Public member of the investment committee Steve Barasch said there is no reason that the city cannot earn a higher return on its investments.

“Nothing precludes us from getting higher yields,” Barasch said. “I think we can do a lot better than we are doing now.”

Barasch proposed buying shares in a local credit union as one way to increase returns. A five-year deposit of at least $10,000 in CoastHills Federal Credit Union assures an annual yield of 1.81 percent, according to a letter written by the CoastHills president that Barasch presented Thursday.

Another factor limiting the city’s investment returns is the speed at which its assets mature. Of the cities analyzed in Schmitt’s report, those which permitted investing in assets that take longer to mature tended to earn higher yields than those with very liquid investments.

San Luis Obispo has maintained a policy of prioritizing safety, as well as liquidity, over yield. The city’s current portfolio consists of assets which, on average, mature in a little more than one year.

City management says it prefers highly liquid investments because they tend to offer security, but critics have said that management desires readily available money to backfill expenses.

“We have cash-flows that are taking place,” Schmitt said. “You want that road paved more than you want five more basis points on your portfolio.”

The investment oversight committee consists of the city finance director, city manager, assistant city manager, city finance operations manager and an independent auditor. Last year, a member of the city council, Mayor Jan Marx, and a citizen representative, Barasch, joined the committee as it became a public body. No minutes exist of committee meetings or decisions prior to the restructuring.

The committee can propose changes to the city’s investment policy, but it must gain city council approval for the new policies to take effect.
City Manager Katie Lichtig said staff would bring data to the next meeting on the possibility of investing more in the local economy. Both Barasch and Marx advocated that the city invest more locally.

Lichtig did not indicate, though, whether staff would ask the committee to vote on proposed changes to city investment policies. It remains unclear whether a majority of the committee is in support of altering the policies in order to generate a higher return on investments.

The next investment committee meeting is scheduled for August 14.


I think the first question is,

“Why does the City of SLO need to keep $90M of their Citizens money?”

Second question is,

“Really? Can’t you do better than 0.3% return on the Citizens money w/o substantially increasing risk? Really?”


There is some other possibilities for the low returns: 1) the current investments include assets in which the principal varies… such as stocks and bonds.

Holy Heritage Financial, hopefully there are no mortgaged backed securities in the mix??…


Of course Michael will express the pre-set rhetoric. He is more concerned about the activities of his band, getting Katie Coffee, Picking up Katie’s cleaning and covering up his friend’s misconduct at the City. Lets step back for the issue at hand and look at the big picture – fund and expenditure management. Let’s start with expenses – cut the salaries of these over paid government employees. These are the highest paid government employees in the tri-counties overall. Reduce salaries by 30%. Katie makes over $220k and the City Manager of Atascadero makes just under $160k, thus a salary reduction is in order across the Board.


Okay folks,

Most of us would like the best return on our invested dollar as is prudent. However, the motivations of politicians is always a bit suspect and there is a rather surprising reason.

As an example, why do you think a politician or administrator would like to have a high return for funds designated for… say, employee pensions? The reason is simple; this is all about generating a certain level of cash flow. If you need say for your investments to yield $300,000 annually, you need $90,000,000 at the current stated interest levels. If you are able to obtain a 13.0% return on investments… you only need $2,300,000 in the bank. The difference is a temptation for administrators and politicians to divert for their favorite issues… but not a great idea for those who need the resources down the road.

This is one of the major reasons many cities and states have run into big problems…. oh yeah, the commission on such a redeployment of investments is not insignificant.

Bottom line: Will Rogers said it best,” I am not looking so much on the return ON my investment as I am in the return OF my investment.”


The big problem Roger, is that inflation is reducing that $90,000,000 each year much greater than the paltry $300,000 they are earning. The CPI for 2013 was 1.7%; in average years, it is closer to 3%. Losing 1.7%, like they did last year, is a loss of $1,530,000 in value which means that the fund is really now worth $88,770,000 in 2013 dollars. So the current “safest” way to invest the money is proving to be one of the unsafest ways-and “not a great idea for those who need the resources down the road.”


U.S. Treasury bonds yield 2.7% – 3%. How in the hell can you only yield 0.3%. That less than the rate of inflation. The county is actually loosing money each year. This plan will go broke and future tax payers will have to foot the bill. STUPIDITY


The article is about the city and they are lose more than this every time the city manager collects a paycheck