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Santa Cruz invests locally

September 27, 2005

The following is an article from the Santa Cruz Sentinel, to visit the Santa Cruz Sentinel web site, click here.

Santa Cruz invests locally City puts funds to work in CDs By SHANNA McCORD Sentinel staff writer SANTA CRUZ  In a low-risk move for the city that could pay off big for the community, nearly $600,000 of city funds are being invested in local banks. Of the citys approximate $80 million investment portfolio, made up of its cash balance at any given time, a $96,000 certificate of deposit has been purchased at Santa Cruz County Bank and $500,000 is earmarked for a certificate of deposit at Bay Federal Credit Union, Finance Director Dave Culver said. The certificate of deposits are based on five-year terms earning interest rates of 4.15 percent at Bay Federal and 4 percent at Santa Cruz County Bank, Culver said. Its the first such move by Santa Cruz, though investing in local financial institutions is common in other cities such as Watsonville, which invested $4 million between two local banks in 2003, said Watsonvilles Assistant City Manager Marcela Tavantzis. Traditionally, Santa Cruz funds are parked in U.S. treasuries, federal agency securities, such as the Federal National Mortgage Corp., and the Local Agency Investment Fund. Federal agency securities, the earnings benchmark for the city, would draw about 3.9 percent a year compared with the local bank rates, Culver said. The idea to put city money in local banks was proposed by Councilman Ryan Coonerty, who sits on the board of directors of Santa Cruz County Community Credit Union. Coonerty discussed the idea with Watsonville City Manager Carlos Palacios, also a member of the Community Credit Union board of directors. Believing, such an investment would benefit the local economy in a big way, Coonerty pitched the idea to Culver and City Manager Dick Wilson in May. "Its one of those win-win situations because youre keeping resources here in the community," Coonerty said. "The money you put here is money that gets lent out in small business loans, home loans and car loans. "That kind of work helps make the local economy work better." Since then, Culver has been working to ensure that investing locally complies with government guidelines, protects the principal, allows easy access to the cash and returns a decent yield. "Id be happy to look into it as long as I could fulfill my fiduciary responsibility," Culver said. "I have a responsibility to make sure the citys investments are safe." Culver hired the San Diego-based Chandler Asset Management group for $2,000 to help with the process. Chandler, which specializes in managing investment grade fixed-income portfolios, made recommendations to the city about the conditions they should require for their deposits. Santa Cruz County Bank President John Rossell, whose institution loans money only to local residents, said the citys deposit is "significant" and "good for both of us." "Well put the money to work by giving loans," Rossell said. "That will make the money turn over here before going somewhere else." Bay Federal told the city it uses its earnings to provide lower loan rates, higher deposit rates and better service, Culver said. Santa Cruz County Community Credit Union did not offer the city an interest rate consistent with recommendations by Chandler, the citys consultant. Plus, it is illegal for the city to make deposits in institutions where a member of its governing body also sits on the board in a policy-making role, which Coonerty does. Contact Shanna McCord at smccord@santacruzsentinel.com

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