Municipal treasurers in the South Bay and elsewhere say their own written investment policies--and personal philosophies--preclude them from getting involved in the kind of investment that wound up costing Lawndale more than $1.6 million.
Nevertheless, a number of them acknowledge that changes in state law that allow them to put funds into a wider assortment of investments have made their jobs not only more challenging, but potentially more perilous.
"In the good old days you bought Treasury bills or savings accounts," said Hank Stern, deputy treasurer for the City of Lakewood and an officer in the Southern California chapter of the California Municipal Treasurers Assn. "But now we have a myriad of products. You can choose from any one of a dozen products."
Barred From Stock Market
State, county and city treasuries have long been barred under state law from investing in the stock market. And until the early 1970s, the treasuries were restricted to investing in what Torrance Treasurer Thomas Rupert calls "tight-fisted, prudent" investments--government notes and bank time deposits.
But in last 15 years, state law has been broadened to allow cities to place funds in other types of investments, with varying restrictions. Municipalities can now invest in mutual funds dealing in government securities, medium-term corporate notes, certificates of deposit issued by banks, credit unions and savings and loans, not to mention such esoteric devices as commercial paper, banker's acceptances and repurchase and reverse repurchase agreements.
Treasurers say the changes have come about partly at the urging of the financial community, including large brokerage firms seeking a share of the millions of dollars that local governments have to invest. But the changes have also been promoted by some municipalities seeking more flexibility and a higher return on their investments.
Orange County Treasurer Robert Citron, who manages a $2.5-billion portfolio and has worked on the state level to expand the types of investments municipalities can get involved in, said the changes have permitted treasurers to seek a higher yield on taxpayers' money. Treasurers who believe the changes pose too much risk "are saying . . . they are not competent to invest in some of those investments," Citron said.
But Rupert, who has served as Torrance's treasurer for 23 years and is legislative analyst for the California Municipal Treasurers Assn., disagrees. "I think (the new investments) have been bad overall," he said. "I don't believe public agencies should speculate with the public's money."
Rupert contends that the changes, while not inherently risky, can pose special risks for small city treasurers who may not spend as much time at their jobs as those in larger cities and may not be as well versed in the intricacies of some types of investments.
Rupert raised another point that was echoed by Anaheim Treasurer Mary Turner, president of the Municipal Treasurers Assn. of the United States and Canada. They said that as some cities tightened their budgets in recent years, many have eliminated the post of finance director or treasurer, thereby doing away with an important double-check. Rupert estimates that more than 75 cities and counties statewide have eliminated one of the two posts since 1978, when Proposition 13 put a crimp on city finances.
The two treasurers also say that as the types of investments that cities and counties can deal in has grown, treasurers have found themselves courted by securities brokers with alluring sales spiels. Turner, for instance, guesses that she gets 30 telephone calls a day from brokers hoping to interest her in some type of investment.
"Before, you might get a call from a Merrill Lynch type and some of the big guys," Turner said. "But now you get calls from all over the place. You are bombarded."
Carson Treasurer Mary Louise Custer said she, too, gets calls from brokers, some of whom "imply that they can do a better job with our money than we can. My closing remarks to them are: 'Don't call me, I'll call you.' I think it takes a certain amount of toughness not to cave in to a fast-talking broker."
Some South Bay city treasurers said their contact with brokers is minimal, probably because their written investment policies give them little leeway on what types of transactions they can undertake. The state required municipalities to file such policies after San Jose in 1984 lost $60 million when city officials there invested in long-term bonds.
In Palos Verdes Estates, for example, city officials have decided to put almost all of the $5 million the city presently has to invest in the Local Agency Investment Fund (LAIF) administered by the state treasurer's office. The pool, established by the Legislature in 1976, provides what many treasurers consider a competitive rate of return, and the money can be retrieved instantly if it is needed.