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Bill would allow cities, counties to play the market
Heather J. Carlson, hcarlson@postbulletin.comFeb 8, 2017 Updated 16 min ago
Bob Bendzick, Olmsted County
ST. PAUL — Olmsted County is backing a bill that would allow larger cities and counties to invest
some taxpayer dollars in the stock market.
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Sen. Dave Senjem, R-Rochester, is sponsoring a billthat would allow cities and counties with a
population of more than 100,000 or a AAA bond rating to invest in mutual funds. Olmsted County
Chief Financial Officer Bob Bendzick supports the move. He said the county has missed out on an
estimated $10 million in interest it could have earned since 2009.
"Everybody has the same concerns. The stock market goes up, the stock market goes down. That's
scary. But it's also scary to be locked out of investments that would help reduce taxes," Bendzick
said.
Senjem's bill would allow Olmsted County to invest up
to $21 million into mutual funds.
The push for increased investing flexibility comes as
cities and counties are required to put more money
aside to cover long-term liabilities. In the case of
Olmsted County, that means having enough savings
to take care of the county landfill for 100 years once it
closes. It also covers post-employment benefits for
employees like vested vacation. Under current law,
cities can invest those dollars in investments such as
treasury bills and Certificates of Deposits. But those investments have led to paltry returns in recent
years.
"The cash we've set aside (for the liabilities) doesn't grow as rapidly as the liability does," Bendzick
said.
That means local governments must either raise taxes or cut costs to have enough cash to cover the
ever-rising cost of their liabilities.
Senjem's bill includes several measures aimed at reducing the potential risk to taxpayers. For
starters, city councils and county boards would have to approve any investments made in the stock
market. The bill also limits counties and cities to investing up to 15 percent of its cash for long-term
capital plans or long-term obligations into mutual funds. Lastly, the bill would not allow local
governments to buy individual stocks with the money. Rather, the money would have to be invested
in mutual funds indexed to Standard & Poor's 500 or the Dow Jones United States Total Stock or with
the Minnesota State Board of Investment.
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"It really represents a new financial tool, I think, for local units of government of certain populations or
certain bond ratings to invest in higher-yield instruments," Senjem told members of the Senate Local
Government Committee on Tuesday.
During the past 20 years, the average yield of a two-year treasury note has been 2.88 percent. By
comparison, the 20-year average return for the State Board of Investment has been more than 8
percent, according to Bendzick.
Representatives from both the League of Minnesota Cities and the Metropolitan Inter-County
Association spoke in favor of the bill. No one testified against the measure. The committee approved
the bill on a voice vote, sending it to the State Government Finance and Policy and Elections
Committee. A similar bill has been introduced in the House by Rep. Tony Albright, R-Prior Lake.
Some senators did express hesitation about taxpayer dollars being invested in the stock market. Sen.
Charles Wiger, R-Maplewood, questioned whether the bill should require supermajority approval by
city councils and county boards before these investments are allowed.
"I have confidence in local government, but putting money into the market does have risk," Wiger
said.
Senjem said he favors leaving the decision to a simple majority of local elected leaders.
Sen. David Osmek, R-Mound, asked why larger cities and counties are being given the option to
make these types of investments and smaller ones are not. Senjem said the idea was to grant the
authority to communities that are used to dealing with large amounts of money. But he said he is
open to changing the bill.
"It's just a matter of where you draw the line, and this is totally flexible," Senjem said.
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