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.

slo Fact Finder

The more we tax, the less we spend on the those that pay the taxes here in SLO !


I sat on a governing board in this county a few years ago and they had the same mentality as the SLO City Clan. I recommended we move $4 million to a 6% bearing triple A+ rated tax free financial asset and they said no. The reply was as a government entity we all participate in this other 2% return investment portfolio with other cities, towns, counties etc.

Two years after I left the board I was on they did move $2 million to what I recommended.

But by then the terms had been lowered, still better then what they had.

This is happening in many different communities in our county and the tax payer is to busy to even stop and take a peek on what is going on.


Thank goodness we FINALLY have an investment oversight committee and someone outside the bureaucracy (Steve Barasch) with real-world business experience.

It is appalling to think of all the money we have LOST because obviously no one at city hall has been paying any attention to this. SLOBIRD is right – it’s kept liquid to backfill the general fund. Obviously the council and staff don’t care about return on investment. These numbers are appalling! I can do better at a credit union or local bank. Or perhaps they should be paying off some of their debts with interest rates that far exceed the interest they are earning.

What was not mentioned was how much Chandler takes off the top for their so-called “advice.”

Wake up City Council! Do any of you have a clue? When you let staff run the show and there is no accountability this is what you get.

I will NEVER support Measure Y nor any other tax increase/fee increase/surcharge/tax by any other name in SLO until this money is better managed, we get someone there who understands finances, and we pay down the PERS debt of almost $100,000,000.

If you support Measure Y you are an utter fool.


CoastHills has one checking account that pays 0.75% on deposits of $50,000 or more and all deposits up to $500,000 are insured. These deposits are both liquid and safe!


The deposits wouldn’t be safe because they are only insured up to $250,000. Plus such a small bank doesn’t have a AAA rating.


You don’t want to make too much money on your investments of $90 MILLION DOLLARS because then you would not be able to justify the Measure Y More Tax Initiative.

It is interesting to notice that the fish wrap yesterday stated yesterday that two local groups are backing the City in reissuing the tax, Downtown Association and Chamber of Commerce. And what two groups in San Luis Obispo have the most to gain with more money, business groups. What a joke the incestuous group of businesses and city officials are…


Needing have all the funds liquid is BS. They could leave say 20 million liquid and invest the rest longer term for a better rate.


Another example of poor risk assessment by our city leaders who have no business experience or do not understand the laws of probability. Michael Codron is a great example of this lack of reason and understanding. Our elected officials are willing to take on the high risk of promising and paying high salary and pension benefits for city employees but yet they are unwilling to take on the low risk of offering lower salaries or pensions comparable to those offered in the private sector to get qualified applicants. Just look at the business experience of most of our city council. It is easier to overspend, not think, and fool yourself that you are getting a better quality product than to think and use logic.


That argument can be applied all the way up the political ladder. The further up you go the more removed from financial reality they are.


Why take any market risk? As long as 65% of the voting fools are willing to increase their own taxes with Measure Y.

I wouldn’t take any risk with my retirement portfolio if every time I needed more money I knew that I could confiscate it from my neighbors.


Well, just ONE more thing to add to the list that makes this city the Happiest Place on Earth.