Manny Ortiz: Bernalillo County treasurer.
Copyright 2013 Albuquerque Journal
Timing the market can be tough. And most investment advisers will tell you not to try it.
But that’s the route County Treasurer Manny Ortiz has been following in an attempt to extricate the county from the problematic bond portfolio he and his investment adviser put together over the last year.
Unfortunately for the county and its taxpayers, he’s been losing.
In February, the Treasurer’s Office purchased $5 million worth of Federal Home Loan Bank bonds in hopes the agency would call the bonds by July.
The bonds weren’t called or redeemed by the Home Loan Bank, so the county sold them in September at a loss of more than $160,000 according to documents the Journal obtained through an Inspection of Public Records Act request.
In June, investment adviser Patrick Padilla " who preceded Ortiz as county treasurer " purchased $5 million in Federal Home Loan Bank bonds from Mutual Securities at a higher price than similar bonds offered by a competitor.
“Better chance of being called,” was written on the bid sheet to justify buying the slightly higher priced bonds.
Procedures outdated
Records obtained by the Journal through a records request show procedures used by the Bernalillo County Treasurers Office for the purchase and sale of millions of dollars in bonds havent changed in decades.
Bond transactions are still recorded on paper.
The Treasurers office seeks to buy and sell bonds by seeking bids via telephone and doesnt use an electronic platform to seek bids and confirm purchases.
The county investment policy requires a minimum of two bids, but other government agencies, like the State Treasurer, seek a minimum of three bids and prefer more.
— Journal Staff Report
There was no “call,” and those bonds were sold at a loss in August. Records showing the exact amount of the loss on that transaction were not among the hundreds of pages released in response to the Journal’s records request.
Padilla also missed on his appraisal of another $5 million bond in May, this time involving Fannie Mae bonds that Padilla assessed as “very liquid should be very profitable,” according to notes on the bid sheet he signed.
On September 25, the Treasurer’s Office sold those bonds for a loss of more than $100,000
These are among the transactions examined by the Journal that have cost the county nearly $800,000 in actual cash over recent months.
Those losses are realized only when the bonds are sold. But paper losses on bonds still in the county’s portfolio range from $17 million to $22 million depending on the daily bond market. On Friday, for instance, the paper loss was more than $19 million.
The county and other governments collect tax money and invest it. The goal is to earn additional money that can help pay for the cost of government operations.
Longer terms
In pursuit of higher interest rates over the last year, Ortiz bought longer-term bonds extending the average maturity of the bonds from just over two years to more than 11 years.
The percentage of the portfolio invested in bonds also increased to more than 86 percent of the entire portfolio that ranges in value from $250 million to more than $300 million during the course of a year.
The problems with the bond portfolio caused the county to cut its budget by $12 million.
Now, officials are looking for a way out. Any exit strategy is likely to be painful. How painful remains to be seen.
Deputy County Manager Teresa Byrd, who has been at odds with Ortiz, said the county is hiring a professional financial adviser to minimize losses by developing a strategy for restructuring the county’s investment portfolio " knowing that longer-term bonds held by the county will have to be unloaded but can only be sold at a loss in the foreseeable future.
“With the right expertise, we hopefully minimize those losses,” she said.
The request for proposals for an investment adviser will go before a special subcommittee of the county’s Board of Finance on Monday.
Ortiz, who did not return telephone messages seeking comment for this story, is reportedly on board with bringing in additional expertise.
“Hopefully, this will move very quickly,” Byrd said.
Ortiz has agreed to a moratorium on bond purchases for the first six months of next year, which Byrd said should help the cash flow problems the county experienced this summer.
The investment adviser will also be asked to study the county’s cash flow so the restructured investment portfolio matches the county’s need to pay bills and build projects.
Byrd said county officials are hoping to avoid using “tax anticipation notes” to help with its cash flow, calling the short-term borrowing a “last resort” for the county.
Ortiz said in a letter to County Manager Tom Zdunek last month that he intended to ask for authority to seek “tax anticipation notes” in next year’s budget.
The county would have to pay a high interest rate on the notes, which Commissioner Wayne Johnson described as a form of “payday loan” for government.
Zdunek dismissed the idea as “not cost effective.”
The county’s cash flow became a problem earlier this year when the percentage of bonds in the portfolio went from around 60 percent to more than 86 percent. Those bond purchases tied up a lot of the county’s cash that in the past was readily available because it was invested in certificates of deposits or similar investments.
At a minimum, it appears Bernalillo County will be dealing with its problematic bond portfolio for at least the next year and perhaps longer.
Ortiz has insisted his office is in good shape and blames some problems on the County Commission shortchanging budget requests for improvements over the years.
The Treasurer’s Office has been undergoing an audit by the State Auditor and the county’s contract auditor, Moss Adams. The State Securities Division has also been looking at the bid documents.
State Auditor Hector Balderas has ordered the county to hire a special auditor to review the county Treasurer’s operations.