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Water officials investing $100 million

Companies asked to deposit in insured accounts

Posted: January 22, 2009 8:56 p.m.
Updated: January 23, 2009 4:55 a.m.
 

Local water officials want to find new ways of safely investing more than $100 million.

This week, members of the Castaic Lake Water Agency’s Finance and Administration Committee recommended the board revise its policy on how to invest $100 million in its general agency fund.

They want the board to hire a private company to deposit several large sums of the agency’s money in several banks, in an effort to guarantee it’s all insured.

“First of all, we look at investing in ways that are safe,” said Valerie L. Pryor, the agency’s administrative services manager.

“Then we look at meeting our cash flow needs and then, finally, once both those have been met, we go with the option that offers the higher return,” Pryor said Thursday.

“Safety of Principal” tops the investing goals identified by the finance committee as its “foremost objective.”

  • Safety of Principal: Investments should be made in a way that preserves capital in the agency’s overall portfolio.

 

  • Liquidity of funds: A sufficient amount of funds invested must be on hand for the agency to meet all operating requirements and budgeted expenditures with the understanding that “unplanned expenses will be incurred.”
  • Return on funds invested: Before the agency tries making money on its investment, safety and liquidity goals must still be the priority. The goal here is maximize return while ensuring that safety and liquidity objections are not compromised.

If the agency decided the safest way to protect its money was to hide it under a mattress, it would be meeting its most important goal by addressing the principal of safety.

In this case the committee came up with a plan to make sure, first and foremost, that its money is protected.

The Federal Deposit Insurance Corporation insures deposits of up to $250,000 made by agencies such as the Castaic Lake Water Agency.

The corporation increased its basic insurance coverage limit from $100,000 to $250,000, effective until Dec. 31, 2009.

Since the agency must insure $100 million, it considered investing a significant portion of its portfolio in Certificates of Deposit and then assigning staff to research and enter into relationships with several banks.

This way, the FDIC could insure each and every block of the $100 million invested at each bank.

Finance committee members concluded that, “this would be a cumbersome and time-consuming process.”

To that end, they are recommending the agency hire someone to do the job for them, a private CD placement services.

At the moment, the only placement service of this type is the Certificate of Deposit Account Registry Service run by the Promontory Inter financial Network, LLC, based in Arlington, Virginia.

The service would split the agency’s funds into blocks of money not to exceed $250,000, ensuring all deposits are protected by FDIC insurance.

The agency pools all its cash for investment purposes.

Most of its $100 million investment portfolio is contained in several specific funds including:

  • Operating fund: Money budgeted for the operation of the agency.
  • Interest and sinking fund: Money set aside for servicing debt.
  • Capital improvement fund: Budgeted for capital projects such as pipelines.
  • Special revenue fund: Described as “special revenue for special purposes.”
  • Facility capacity fee fund: Money developers paid to the agency.
  • State water project fund: Tax money used to buy water from the state.
  • Reserve fund: Money set aside.

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