The idea behind Wellington North’s investment policy is to make money – not lose the investment.
Earlier this month, township Treasurer John Jeffrey presented what he described as a simplified wording for the investment policy – first to the township finance committee and later, to council.
Jeffrey explained the township accumulates surplus cash at times for different reasons and those are held, depending on how they may have been acquired, for periods as short as a few days to several years. They are the result of annual operating surpluses, deposits into the township reserve funds, and township trust funds.
The Municipal Act allows the township to invest the cash balances and provides guidelines that should be followed in doing so. Jeffrey’s report included a draft investment policy to be used as a guide for township staff when investments of cash surpluses are contemplated. An overriding criteria that is incorporated in this policy is the "security of capital", he said.
The policy is also necessary to permit the township to borrow funds from its reserves to fund capital expenditures in the 2010 budget.
He said monies are being borrowed in that manner and supported by a promissory note to allow flexibility in the repayment of the debt earlier than would be allowed by issuing long term debentures. “As well, interest paid on the debt would essentially be paid to ourselves.”
Jeffrey said, “As indicated in the report, we accumulate surplus amounts of cash both in our operating and reserve funds.”
As for reserve funds, he explained the municipality holds onto those longer than the operating funds. “One of the things that we would like to do with the surplus cash is to be able to invest it so it doesn’t just sit there. We can invest it to earn some income, so that amount can grow.”
He referred to longer term funds that could grow over time, and perhaps match the level of inflation, for a purchase that might happen over the next five years.
“In order to give staff guidance, on how to approach the investment of the surpluses – the Municipal Act gives us permission, but provides guidelines and strong recommendations that council adopt and investment policy.”
The policy would outline what types of investments could be made “to ensure we don’t lose the original investment.”
Jeffrey said the investment policy lays all that out.
“A reasonable rate of return is almost secondary to that of preserving the capital. That prevents us from taking a flier on a good stock tip. You might be lucky and make all kinds of money, but the prospect of losing it all is too great to pursue that type of investment.”
He said the policy provides criteria to make potential investments.
“It also directs staff to make regular reports to council on what investments are at a given point, and indicate if the investment policies were followed.”
Jeffrey said the policy does not preclude the occasional time when there might be a reason to invest other than the recommendations of the policy, but it clearly states a specific council resolution is needed to do that. “Essentially the investment policy restricts them to very safe investments.”
Finance chairman Dan Yake said Jeffrey put in a lot of time and effort to develop the policy.
“It’s been at the finance committee a few times, where he was asked to refine it. This is well worded and easy to read. This is something we certainly need to have in place.”
“It makes common sense. You can’t risk taxpayers’ money,” said councillor Ross Chaulk.
Council adopted the policy as recommended by its finance committee.
