GRAND RAPIDS — Kent County Treasurer Ken Parrish said a year ago that he felt the return rate on county investments for 2001 would drop from the previous year. He was right, and it cost the county about $1.4 million.
The county earned close to 6.5 percent on its many investments two years ago, but for last year that rate fell to 5.19 percent.
Parrish made his prediction for a falling payoff in March 2001 as he watched the Federal Reserve Board cut the lending rate. When he made his remark the Fed had cut interest rates three times. Eight more cuts came after his report to commissioners. Usually when the Fed lowers interest rates, the return on fixed-income investments drops.
“The rate in January of ’01 was 6.4 percent. In December it was down to 4.1,” said Parrish last week. “This week we bought a CD at 2.25. The rates continue to fall, so the pool rate will continue to come down.”
Still, the county earned $6.6 million in interest for the general fund account last year, up slightly from the $6.3 million received for 2000.
But the hit came in the payout for the overall investment pool. The county earned $21.1 million on those investments two years ago. For last year that return fell to $19.4 million, a difference of roughly $1.7 million.
On the whole, the county earned $25.9 million of investment income last year, compared to $27.3 million for 2000.
As for its holdings, the county had $100.6 million invested in government securities at the start of the year, another $1 million in pool funds with MBIA Class, and $231.7 million in certificates of deposit with 19 area banks.
“One of the components of the investment policy says that, other than governmental securities, we’re not allowed to invest any more than 25 percent of the pool in any one institution,” said Parrish.
“We are well under that,” he added. “The largest investments we have are with Standard Federal and we’re trying very hard to maintain diversification within the pool.”
The county has $40.9 million in CDs with Standard Federal, which merged with Michigan National Bank last year. The previous year the county had CDs worth $23.2 million with Michigan National and $22.6 million worth with Standard Federal.
The county also has a cash account of $9.3 million.
Overall Kent County had $342.7 million in cash and investments on Jan. 1, 2002, up by $9.3 million from the $333.4 million it had at the start of 2001.
“I think the 5.19 percent is amazing, especially with the nature of the marketplace,” said Kent County Commission Chairman Steve Heacock.
Parrish said the county held some longer-term, higher-yield investments last year that helped drive up the overall rate of return.
When Parrish invests county funds, safety, liquidity and yield are the priorities he follows.
“The first thing we look for is not to lose any money,” he said.
Parrish also tries to invest with every local bank. The county had $184.9 million in CDs at 19 banks. Last week, Parrish reported that the county had $231.7 million worth of CDs at 19 local banks.