County Commission changes investment routine

Published 3:52 pm Monday, August 8, 2011

Escambia County Commissioners took a quick lesson in investments Monday when a change in customary procedure was made in relation to oil and gas severance trust funds for the county.

Typically, county officials have invested the principal funds in certificates of deposit at financial institutions in the county. Bids are submitted to the Escambia County Commission from each participating bank and commissioners then choose which bank to place the funds with on a 12- to 18-month basis.

Christy Black with BankTrust addressed the Commission with a recommendation to make changes in the investments of the funds with the latest CD maturity.

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“I don’t like the rates submitted this time,” Black told Commissioners. “We can’t even get a half of a percent for 12 months. We do have other options for investing.”

Black told Commissioners that government bonds may be a suitable option for those investments.

“Government bonds is something I feel is best suited for investing at this time,” Black said.

Commission Chairman David Stokes said the option to invest in government bonds is one that may be best for county funds.

“This option does fall within the guidelines of what we can do,” Stokes said. “According to regulations, this may be out best bet.”

Black told Commissioners her recommendation would show breaking up the $1 million principal into three accounts rather than investing the lump sum into one bond area.

“I recommend investing $500,000 in a six-year step-up bond,” Black said. “The interest rate increases over the life of the bond to be at 4.25 percent at maturity.”

Black suggested investing $250,000 each in a four year and five year bond for maturity. All bonds will be held by Federal Home Loan Bank.

Commissioner Larry White asked to table a vote until banks typically submitting bids for interest rates could be contacted to see what could be offered for the longer-term investments.

“I want to be fair to the banks in this county,” White said. “We’ve never tied up the funds for more than two years. If we are going to go for four, five and six years, I’d like to see what they would do for that length of time. If we can keep it in a local CD, that’s what I’d like to see.”

Black excused herself from the meeting in an effort to contact banks that had submitted the most attractive bids on the current investment plan. When she returned, the rates were much the same as when she left.

The investment in question during Monday’s meeting was a $1 million certificate of deposit that had reached maturity and was due to be re-invested. Escambia County Bank in Flomaton was the holder of the certificate of deposit.

In the initial submission, Escambia County Bank offered .32 percent on a 12-month CD. Other banks offering the best bids for the re-investment of the funds included First Exchange Bank at .40 percent; BankTrust at .30 percent and Bank of Brewton at .25 percent.

After Black contacted the submitting banks for yields offered on four, five and six year terms, none of the banks were able to meet the interest offered through the government bond program.

“Escambia County Bank would go for that long,” Black said when she returned to the meeting. “Bank of Brewton would give 1.5 percent for five years; and BankTrust could offer 1.28 percent for four and five year investments.”

Under the current plan, Commissioners opted to move forward with an investment into the government bond program as recommended by Black.

In the investment plan, a bond of $250,000 will bring 1.88 percent on a five-year maturity; 2.0 percent on a six-year maturity; and a six-year step-up program with 1.5 to 2013; 1.75 percent to 2014; 2.5 percent to 2016; 3.25 percent to 2017 and 4.25 percent to maturity.

The commission agreed to the investments as recommended by Black.