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INVESTING-
by
Robert R. Toalson
and
James E. Welsh
(Editors note: This article represents an idea, it is recommended that you contact your attorney and treasurer in developing a policy for your particular district.) Thousands in additional income is lost to park and recreation agencies annually because of poor or in some cases non-existent investment practices by park and recreation practitioners. In today's inflationary spiraling economy, park and recreation agencies must constantly obtain additional income to meet the damands, and therefore maximum investment of funds is a must. An example of what can be done is shown in the following examples from the Champaign Park District:
Two main keys to maximum investment returns are know-how and organization. As park and recreation professionals do not have sufficient knowledge to make the proper investments, it is necessary to obtain the services of a good investment counselor or agent. This might be the treasurer for the park district, but in any case, obtain a counselor who knows investments and let the counselor do the investing. The job of the agency administrator is to get the maximum amount of funds to the treasurer or financial advisor for investing. This is where organization comes in. The administrator must organize the budgetary and accounting operations so that minimum amounts of funds are kept on a cash basis with all other funds placed in investments. This organization is basically a matter of proper timing and account projecting of income and expenses. The following hints will assist in this effort. Pay Period Dates 1. Organize payroll periods so that all payrolls fall on the same date (every two weeks, etc.). Don't have one payroll on one day and other payrolls on another day as this gives less flexibility in having funds for investing. 2. Schedule the actual payday on a Thursday or Friday if possible. Many of your investments will be in U.S. Treasury Bills and these bills mature on Thursdays, therefore, with a payday on Thursday or Friday you don't have to hold funds over a period of days in order to meet the payrolls, thus losing interest for those days. Paying of Bills If possible schedule a payment of all bills on one date such as the 15th or 20th of the month. This again allows for funds to remain invested until that date when they will be needed for payments. Bond Amortization Payments Many times bonds for large capital developments are held by banks in the large cities such as Chicago or St. Louis. These require that payments be made on a certain date. If these are large sums, interest can be lost if the check is written several days early and placed in the mail. A better solution is to make arrangements with a bank who either has an account with the paying bank or can transfer through the Federal Reserve system to the paying bank and have the transfer made by telephone on the date the payment is due. A few more days of investment can accumulate many dollars over a period of 10 or 20 years. Projections A good administrator should be able to project within a few hundred dollars for each payroll and bill payment needs. As payroll and bills kept on the same time sequence will run very close from year to year the administrator should keep payrolls records for several years to assist in this projecting. Income is a little harder to project as tax collection dates may vary and the income from swimming pools, golf courses, etc. vary according to weather conditions, etc. However, this can be estimated fairly closely based on records for several years. The object then is to utilize the records from previous years, adding new information such as Illinois Parks and Recreation 6 May/June, 1974 increased payroll costs or an inflation factor for bills, to project the funds available and the amount needed to meet obligations. The funds not needed are invested accordingly. Combining Funds The administrator should also keep in mind the fact that amounts from various funds can be combined for one $10,000 Treasury Bill. For example: $6,000 from the recreation fund and $4,000 from the general operating fund can be combined. However, when the Treasury Bill matures the $6,000 including interest must be returned to the recreation fund and the $4,000 including interest returned to the general operating fund. Promote Advance Income As much as possible, promote advance income possibilities such as the sale of season swim tickets, early payment of athletic league fees, etc. In otherwords, get the money early and invest it to get the interest return. It is also important to develop a good relationship with the county treasurer who collects and distributes the taxes. If possible, make sure your agency is at the top of the list for tax distribution as early distribution means additional days of investment and more interest income. It is customary for the Board of Park Commissioners or the city administration, as the case may be, to establish an investment policy for park district funds. In the Local Government Act, Section 902, it defines the investment of public funds. Some park districts invest in either U.S. Treasury Bills or Certificates of Deposit. Treasury bills are available in minimum denominations of $10,000 but as mentioned above, money from various funds can be combined to reach this minimum. The advantage to treasury bills is their relative high interest rate the last few years and the availability to sell them on any day in case funds are needed. Current interest rates on treasury bills are between 7% and 8%. In making a purchase of treasury bills, you buy the bills at a discount and then receive back face value upon maturity. Since bills are a direct obligation of the U.S. Government, the park district funds are safe. The other form of investment used is Certificates of Deposit issued by banks, which have in recent months on amounts of $100,000 or better, paid a higher rate than treasury bills. However, these certificates are not as flexible since to cash them before maturity you forfeit three months interest. In addition, banks are only insured up to $20,000 so if certificates exceed that amount, it is necessary to ask the bank to secure these certificates. We will accept U.S. Government securities and State of Illinois municipals rated "A" or better at 80% of market value. At the present time, banks can pay 5% on a certificate of 30 Continued on Page 15 Illinois Parks and Recreation 7 May/June, 1974 INVESTING . . . Continued from Page 7 days, but less than 90 days; 5 1/2% on 90 days but less than one year; 6% on one year but less than 30 months and 6 1/2% for 30 months or more. In addition, certificates are available with a maturity of four years or more and most banks pay between 7 and 7 1/4%. The minimum deposit in this type of certificate is $1,000. On a deposit of $100,000 or more there is no maximum rate of interest presently prescribed. Therefore, when you have this amount to invest, invite the five local banks to submit sealed bids for these deposits. In recent months, rates of interest have varied between 7.25% and 8.75%. In your invitation to the banks to bid on these deposits, we emphasize that they must be secured. Interest rates during the past year have fluctuated widely when you consider that the prime rate on January 1, 1973 was 6 1/4% and the prime rate on December 31, 1973 was 10%. However, these high rates have given the park district and other public bodies an opportunity to make their money grow very handsomely. The outlook for interest rates appears to be that rates will be down appreciably by late spring or early summer. The prime rate since the end of December and as of February 27 has dropped three times and now stands at 8 3/4%. Therefore, on certificates in which we have invested during recent weeks with funds that will not be needed for six to nine months, we have used a maturity of six to nine months rather than take the short maturity figuring that although the immediate short term interest is higher, in the long run we will average out ahead. A park district, by employing a person familiar with investments to handle their money, will find that they will have many more dollars with which to provide services to their park district. Illinois Parks and Recreation 15 May/June, 1974 |
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