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Manley's crusade against Apopka's Investment/Portfolio Policy: A solution looking for a problem


In the realm of municipal finance, the age-old adage of not putting all your eggs in one basket holds true now more than ever. Traditionally, municipalities have relied heavily on local banks for their investment needs, but there's a compelling argument to be made for diversifying their portfolios. Embracing diversity in investment strategies can yield a multitude of benefits for municipalities, ranging from increased liquidity to enhanced risk management and community development.

In 2023, the Apopka City Council took the first steps toward transitioning from a local bank-heavy portfolio to a more diversified investment plan. The previous policy, written in 1995, called for the City to use banks with a presence in Apopka. But Apopka is a different city now, with a population of almost 60,000 compared to 19,000 in '95. 

In the early stages, council members, city staff, business leaders, and the public expressed no concerns, questions, or debate about amending the 28-year-old policy.

Then, at its December 6th meeting, the Council met its first pushback - from two local banks, two members of the Council, and the Apopka Area Chamber of Commerce.

Ultimately, the Council voted 3-2 to amend its investment/portfolio policy. The vote was successful despite last-minute pushback from the Apopka Area Chamber of Commerce President and CEO Cate Manley, two local banks, and surprising dissent from Commissioner Alexander Smith and Mayor Bryan Nelson.

About a month later, Manley and Nelson were again critical of the amended policy. Manley wrote a letter to the editor of The Apopka Chief, while Nelson sent a text message to The Apopka Voice outlining their concern.

Finally, at the February 7th Apopka City Council meeting, Glenn Scott of the Colorado-based Morgan Stanley Investment firm, the consultant hired by the City, updated the Council on its portfolio.

"You implemented a new investment policy, so now we are just taking a look at where we are with markets and coming up with some small steps... incremental steps transitioning the portfolio to have a little bit more diversification, particularly in terms of duration."

He recommended diversifying the portfolio with US Treasury Bonds. It's an extremely safe investment that municipalities may choose for several reasons:

Treasury bills are backed by the full faith and credit of the U.S. government, making them one of the safest investments available. Municipalities prioritize safety when investing public funds. They are also highly liquid, meaning they can be easily bought and sold in the financial markets. This liquidity ensures municipalities can access funds quickly for unforeseen expenses or cash flow management.

And while treasury bills typically offer lower yields than other investments, they still provide income that can be used to fund public projects or services.

Overall, investing in treasury bills provides a city like Apopka with a balance of safety, liquidity, and income generation, making them a common choice for managing public funds.

But Scott explained there was not a sense of urgency.

"We're not compelled here to do anything immediately. But we do think your timing is good to start taking a look at pushing the portfolio out a little bit."

According to the City Council packet for the meeting, city staff recommended approval of the Investment Program's long-term goal and authorization to transfer funds accordingly.

But the City Council wanted to tap the brakes on any immediate changes.

"We still want to partner with our banks that are here," said Commissioner Nick Nesta. "And they're giving us great rates too.. so I want to make sure that we're being good partners in that. How do we partner correctly with the banks that we have now? What would you suggest?"

"I think you're doing a great job," Scott said. "You continually negotiate with the banks about the rates. And it's a very, very competitive rate the banks are paying. We manage money for municipalities all over the country. And just to be clear, we're a fiduciary to you, which means our contract is a public record; we're paid on the total assets. We don't get paid for selling US Securities; we're paid a fixed fee in the contract."

In other words, no Apopka money will end up in a Morgan Stanley bank in Colorado.

Commissioner Diane Velazquez had listened to many presentations and opinions before this decision, but now she wanted to know what Blanche Sherman, the Apopka Finance Director, thought.

"So, as the CFO, what do you feel comfortable with?

"We've got to diversify at some point," Sherman said. "We do have good rates now with our local banks. They are standing up for us, no doubt. But if you want to diversify this portfolio, this is the approach. I think we need to take, as you and I discussed, some baby steps towards that and monitor it very closely. But at some point, you know, we're going to have to take a step"

Velazquez explained that Sherman walked her through the process in a meeting held previously.

"I sat with our CFO yesterday," Velazquez said. "I truly appreciate how you broke this down for me. I just wanted to know that you felt comfortable with this investment. It is important for us as we're growing as a city. We have very big projects coming up, and we have the public safety building. And I feel like diversifying our finances would give us that much more so that we can spend without having to go into debt."

Nelson, who voted against the amended portfolio, was still skeptical of the process.

"Okay, one overriding question is: Should we punish Morgan Stanley if rates go down? " Nelson asked.

But Scott again explained Morgan Stanley's role as an adviser.

"Well, okay, firstly, you're not investing with Morgan Stanley," Scott said. "So when you say punish, what we will do is when we finish the investments and the movements, we will do kind of what we were talking about a moment ago, which is a breakeven analysis, which will be the date and time given a schedule of likely fed cuts, and we can do a Bloomberg market consensus... third party, well regarded national prediction of how many cuts the Feds gonna do, whether it's four, six, wherever it's going to be this year, and then a date at which there will be breakeven and once the securities are bought, that's a mathematical calculation. It's it's a matter of fact."

Not satisfied with Scott's response, Nelson rephrased the question.

"The question, I guess, is, if the Fed fund rates go down, is that your fault? Or is it our Finance Directors' fault? Or is that the bank's fault?

"No," said Scott. "And a central tenet in the best practice of investing public funds is we do not invest public funds for purposes of speculation. We're not taking the public portfolios for any city and investing in them speculatively. We invest against non-cash flow schedules, we invest against state statutes and seek to earn a market rate of return with minimal risks. It's that kind of public investing."

After the discussion ended, Sherman called for a consensus to move forward, but the Council was not quite ready to act.

"And if we do nothing today, what advice would you give us?" Becker asked.

"Well, we would come back at some future point," Scott said. "You would instruct us to do so and do another updated analysis, and we would add the additional information."

"I struggle with saying 'we're saying we commit to this today,' we're actually going to be punitive to us in terms of return on that investment," Becker said. "Yes, we're well within the parameters of our investment policy, but why would we not just let it ride and kind of float with the fed funds?"

Nesta agreed, not wanting to make a decision without talking to the banks.

"We have great rates with local banks right now," Nesta said. "We're not going to get better anywhere else right now. We're making great interest. So I don't hate it. But I know it's... you're gambling a little bit without locking in the future. So we're making a great income now. But we're not locking in that better-preferred rate in the future. So, I understand that trade-off right now. But I'd really love to hear from our banking partners as well. More specifically, I want to know where their heads are and how we can partner in the future."

Nesta made a motion to table the decision for two weeks, Smith seconded it, and the Council voted 5-0 in favor.

Despite what appeared to be a thoughtful presentation and endorsements by the staff and Sheman, Manley still expressed concern. She sent another letter to the editor of The Apopka Chief  (her third in about two months) and the following statement to The Apopka Voice:

“It is time for the City of Apopka to operationalize equity. The December 6, 2023, investment policy approved by council to allow City of Apopka investment funds to be transferred to Morgan Stanley, an out of state firm with their own deficits in inclusive operating practices (as reported in the WSJ), highlights the need to protect local Apopka businesses now! 

The Apopka business community deserves an Inclusive Procurement and Purchasing policy to protect all local businesses in Apopka, now and tomorrow, regardless of who or how the city is led in the future. 

Local, competitive, and qualified businesses should have bid opportunity preference over out of state bidders. Community and city leaders across the nation are highlighting equity in their practices when working with, and selecting investment banks, asset managers, and deposit institutions, placing emphasis on these to ensure that the banking teams they work with reflect the residents they serve, as noted in a recent National League of Cities article, How City Leaders Are Using Public Finance for Racial Equity, S. Pedrosa (1/26/2024). 

Apopka City government needs to adopt an Inclusive Procurement and Purchasing Policy, and operationalize equity for local, small, minority, veteran, women, and disabled-owned businesses. 

An equity informed procurement and purchasing policy is an entry point for city leaders to broaden and memorialize equity practices, while quickly making strides and positive local economic impact through municipal infrastructure projects, and supportive service needs throughout all city departments and projects. 

The Apopka Area Chamber of Commerce stands united in support for Apopka operationalizing equity and local inclusive economic development policies for all Apopka businesses. Increase local bid opportunity preference and adopt an inclusive procurement & purchasing bid opportunity preference policy. Support the local business community. Join us for our next Business Expo and Construction/Trades Social, April 18. 4-8 pm. Register on apopkachamber.org” 

To start, Manley's statement needs a clarification. Scott repeatedly made it clear that they would not transfer any funds from Apopka into any investment with Morgan Stanley. His presentation focused on Treasury bills.

Her call to "operationalize equity" and an "Inclusive Procurement and Purchasing policy"  seems to be in the Diversity, Equity, and Inclusion lane and is admirable, especially given the struggles of the Apopka DEI Committee to be relevant in its community. Perhaps it could have been an addition to the policy if it didn't enter the discussion at the last possible moment

Manley's crusade to change the investment/portfolio policy back to its 1995 reading seems like a desperation Hail Mary pass that came well after the clock read 0:00. And given the pragmatic approach of the Council, staff, finance director, and adviser, it seems like a solution searching for a problem.

Opinion, Apopka City Council, Analysis, Apopka Banks, Morgan Stanley, Treasury Bills


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