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Sun, Sept. 22

Investment oversight committee approved

KINGMAN - The County Treasurer's Office will now have help in determining where to invest county dollars. After a lengthy discussion, the Board of Supervisors approved the creation of an Investment Oversight Committee by a 2 to 1 vote during its meeting on Monday. Supervisor Buster Johnson cast the no vote.

According to information from the County Manager's Office, the new committed will likely consist of the county manager, the county finance director, the Office of Management and Budget director, the treasurer and the deputy treasurer.

The committee will advise the Board and the Treasurer's Office on how to invest county funds with the help of an investment advisor. The investment earnings would offset the cost of the investment advisor.

"Under what authority do we have to do this," Supervisor Buster Johnson asked County Civil Attorney Bill Ekstrom.

Ekstrom said Arizona Revised Statutes allow the Board general authority to oversee the activities of elected officials.

"The question remains, just how broad that authority is," Ekstrom said. But, he believed the Board could create an advisory committee. It could not, however, usurp the power of the Treasurer's Office.

State statutes give the Treasurer's Office the power to "invest and reinvest public moneys." The committee therefore could not actively invest county money, but it could make suggestions to the Treasurer's Office and the Board.

Johnson said it might be better if the supervisors instead of "line staff" headed the committee.

County Finance Director John Timko suggested that having the Board act as the committee might not be a good idea, since the Board would have to give public notice of any meetings due to open meeting laws.

"It would make it too cumbersome to hold day-to-day meetings," he said.

Johnson also asked what liability the Board would take on with the creation of the committee.

Board Chairman Pete Byers and County Manager Ron Walker said the Board was already liable for county funds.

County Treasurer Lee Fabrizio was not at the Board meeting due to illness. In an e-mail he expressed concern over the creation of the committee, especially since information from the County Manager's Office, which proposed the committee, said the committee would be "charged with the investment of county funds."

"In my opinion to approve this committee as defined would be in violation of state law. The public elected me to do so (invest county funds) and to allow anyone else to have the final decision regarding investments would violate the purpose for which the legislature created this provision in state law, i.e. to separate powers of branches of government," Fabrizio wrote in the e-mail. "To allow bureaucrats to take control of the duties of an elected official in this manner undermines the principals of our representative form of government."

Cindy Cox, who was approved as the new Chief Deputy Treasurer later in the meeting, said she was in favor of the committee.

Timko pointed out that state statutes do not say that the Treasurer shall be the sole authority of how a county is to invest its funds. It just says that the Treasurer is responsible for executing the buying and selling of investments.

The idea of the committee came about after questions were raised earlier this year about how the Treasurer's Office was investing county and other local entities' funds.

The office had created an investment pool, which lumped together funds from some local schools, fire districts, improvement districts and the county.

According to the County Manager's Office, in November and December 2007, the Treasurer's Office invested approximately one-third of the funds into corporate bonds. By September 2008 the bonds had lost around 19 percent of their face value.

Cox reminded the Board during the meeting that that was an unrealized loss. The county would not lose that money unless it sold the bonds right now. Bonds are usually designed to be bought and held for a certain period of time and then they are bought back by the bond issuer. The county wasn't thinking of selling any of its bonds just yet, she said.

Byers pointed out at the meeting that around $5 million had been invested in Lehman Brothers, a firm that recently filed for bankruptcy. The state had also invested some funds into the firm, he said. But he worried that the county did not have the same clout as the state to fight for its money in bankruptcy court.

Cox said the county would have to wait until Lehman Brothers came out of bankruptcy court in order to see what would happen. Right now the bonds were trading at 60 to 80 cents on the dollar, she said.

Byers also said that while the two investment brokers from Merrill Lynch hired by the Treasurer's Office had not charged a fee, they had collected $338,837 in commission by selling the bonds to the county at a higher price.

Cox pointed out that is how brokers make a living, by buying bonds and stocks and then selling them to other investors at a markup.

Timko agreed but pointed out that usually an investor would shop around for the best price from multiple brokers. And the markup should be a contracted amount between the broker and the investor.

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