Where does City Hall sock your tax dollars when it doesn't need them?

At any given time, millions of dollars sit idle in City of Sault Ste. Marie tax coffers.

The current strategy at the Civic Centre for investing funds when they're not immediately needed can hardly be described as 'aggressive.'

'Virtually nonexistent' would be closer to the truth.

"We haven't done a lot of investing," concedes Shelley Schell, city treasurer and chief financial officer. "Basically, all that's been invested is our cemetery trust funds."

That's a $4-million trust account for care and maintenance of the four city-operated cemeteries. 

It's managed by Anthony Pucci at the 432 Great Northern Rd. branch of RBC Dominion Securities Inc., which last year invested the cash in 22 fixed-income bonds.

"The principal of the trust can never be accessed or used by the city," says Schell. "Only the interest can be used for cemetery operations and maintenance."

In 2018, the city earned about $6,300 a month in cemetery-fund interest – 2.04 per cent.

"That interest goes into our operating and helps manage the cemeteries," Schell told a meeting of the city's finance committee last week. 

All other surplus cash languishing in city accounts is pretty much camped in the city's savings account.

"Bank interest on the main general account for 2018 was $1.35 million – approximately a 2.05 per cent return," Schell says.

Few people would consider a bank's savings account to be any kind of serious investing.

But Schell points out the provincial government imposes so many restrictions on municipal investments that our managed cemetery fund and our savings account deliver remarkably similar results.

"They were pretty much the same return," she says.

Earlier this year, the Ontario government significantly increased investment opportunities available to municipalities with minimum investment balances of $100 million or net financial assets balances more than $50 million.

Groups of municipalities that collectively meet the $100 million standard may jointly establish an investment board, and municipalities may use the investment board of another municipality (or group of municipalities) to invest on its behalf.

"The city's actually eligible to do this on its own, but the governance requirements will be very difficult for us to manage," Schell told last week's finance committee meeting.

"You have to have an investment board and the only person who can sit on that investment board within the city is the treasurer. It can't be any officers, employees, members of council. So it's all external experts. And once you're included in an investment, you can't get out. So basically you can't withdraw investments unless certain conditions are met. There is a wider range of securities and investment vehicles but you have to exercise different skills, diligence and judgment that are over and above what we're doing now." 

The new regulations require participating municipalities to adhere to the 'prudent investor' standard, meaning they must exercise the care, skill, diligence and judgment that a prudent investor would use in an investment decision.

Schell is reluctant to move into 'prudent' investing just yet.

But she does want to revise the city's investment policy and start investing more under the old list of allowed securities that existed before this year.

"I'm suggesting we start with baby steps," she says. "We do want to look at some different strategies. There is a potential. I'm not talking huge potential, but anything we can do to increase our investment income is better."

"We'll start there. We're going to look at doing some diversification. We're going to do some cash planning. We're going to look at short-term versus long-term. Our current needs – we're going to try to keep it behind a savings account. Very liquid. You get a better return. We're going to look at some short-term requirements, as long as 24 months. We'll get some different investment strategies there."

Last week, finance committee members approved a new draft investment policy that will be presented to City Council later this year.

It ranks the primary objectives of city investments as follows:

• adherence to legal requirements
• preservation of capital
• maintaining liquidity
• earning a competitive rate of return

"The most important risk that we want to manage is timing of the investment returns versus cash needs," Schell says.

"We also need a lot of flexibility, as the time frame may easily change. All of a sudden when a new project comes up and we have our funds locked in long-term, we can't get that out and we end up borrowing and that costs us more money."

"This is going to be a staged thing," Schell says. "Going forward, I could see, even three to five years down the road we might start looking at an investment manager depending on what our cash flow looks like and our funding."

Ward 1 Coun. Sandra Hollingsworth was supportive of trying to generate more investment income for the city.

"I also like your idea about shopping around and looking at other banks," Hollingsworth told Schell. "They may give us a bonus if we have done business with them before. They may give us a half a percentage more because they want our business and they might think they may get more future business."

Schell replied to this, indicating the city's current bank "can't go lower." 

"We may never go into 'prudent' investing. It may not be feasible for us. We may find just as good returns otherwise. But we do have the opportunity to monitor some of these returns that they're doing, like the joint investment board, to see where it stands over the next couple years," she said.

Ward 2 Coun. Luke Dufour disclosed that he's been quietly promoting his own investment strategy in recent months.

"We have half a million dollars that's in the budget every year for growth projects. If we were willing to tolerate a slightly higher level of risk for a greater potential of returns, we could take that budget line and make it floating. So instead of just half a million dollars a year, if that's used to ameliorate the risk of the portfolio, some years it could be $550,000 if our investments did well. If our investments don't do well, then that fund goes down to $450,000. Because we use the growth fund mostly for one-time projects, I thought there might be some sense to be made for using it this way," Dufour said.

"This way, we're protecting the taxpayer from any volatility in the market with respect to the levy at the end of the day. But we're also protecting the taxpayer on the other end in not foregoing gains that we otherwise would have made if we able to take on risk."

"It makes a better political argument for why we can justify more risk. With a moderate level of risk, sometimes you can double your rate of your return," Dufour said.

Schell wasn't ready to go there immediately.

Neither was Ward 2 Coun. Lisa Vezeau-Allen.

"Let's see how this prudent investing is going. We can look at other municipalities and see what's going on.... Maybe it turns out to be a horrible thing and then we know it's not something we should go into," Vezeau-Allen said.

The finance committee agreed to ask City Council to approve a revised investment policy, and to recommend it be reviewed by December, 2020 to determine if other changes are advisable.

"This is a really important conversation for us to having around this table, because it's a pretty big deal," Coun. Dufour said. "Not only is it level of acceptable risk, but it's also level of potential gains that the community could be making."