Interest rate cut costing county
Published 6:13 pm Wednesday, November 27, 2002
By By Paul Keane
BREWTON – While cutting the federal interest rate is advantageous to borrowers, Escambia County Commissioners found out Monday that it can be devastating to municipalities.
Commissioners learned during their Monday morning meeting that a certificate of deposit purchased two years ago will mature on Thursday, meaning the money must be re-invested. Dan Britton with the South Alabama Trust Company told the commission that interest rates to earn money on that CD aren't nearly as rosy as it was two years ago when it was purchased.
"The Fed lowered its rates again, making it the lowest I've seen in 30 years of doing this," Britton said. "You have a $1 million CD that matures on Thursday, and local banks have submitted bids on what a CD would earn."
Britton told the commission the best it could hope for is an interest rate around 1.5 percent, a huge drop from the 6 percent interest earned on the original CD. That drop in interest will mean a loss of $50,000 a year in revenue for county coffers.
"This CD was earning 6 percent when it was purchased two years ago," Britton said. "The banks have submitted bids that are all at a variance of 1 percent. We can put this money into the Treasury market and do better, and that's the first time in a long time we've had that opportunity."
Britton added that the State Treasurer's Office has established a "safe program" that most banks participate in. That program helps keep rates fairly stable while also allowing municipalities the chance to allocate other revenue and funds – such as the Oil and Gas Fund – to interest-bearing accounts.
"I would recommend that the revenue from the Oil and Gas Trust Fund be written in a way to include it into the safe program," Britton told the commissioners. "Of course, that is a long-term plan."
Commission Chairman Larry White agreed, saying procedures had already been put in place to make that happen.
"The one CD dropping in interest rate means a shortfall of about $50,000 each year," he said. "We have on our planning agenda to get some of the restrictions and policies changed so that we can move funds into these programs to help us."
Commissioners approved Britton to take the money from the maturing CD and find a Treasury note or bond that will produce interest in the range of 1.59 percent or higher, and that the term on that be in the 18-24 month range or less, if possible.
"Hopefully, we will see an upward tick in interest rates in the near future," Britton said. "That's why I would recommend finding the best rate possible at the shortest term possible so that we are in a position to take advantage of higher interest rates in the future."
In other action, the Commission: