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Prudent Investor Update, September 26, 2018

Introducing the ONE Investment Board

ONE Investment is developing new investment options so that all Ontario municipalities – regardless of size or capacity - can benefit from the broader investment powers of the prudent investor standard. Part of that preparation has involved incorporating as a not-for-profit, with its own ONE Investment Board of Directors. The Board will lead us as we develop new offerings and services to help municipal governments earn more for their communities. Please join us in welcoming some familiar faces and newcomers to the ONE Investment team:

Ken Nix, Chair
Treasurer, Town of Whitby

Gary McNamara, Vice Chair
Mayor, Town of Tecumseh

Jeff Lehman
Mayor, City of Barrie

Jean-Pierre Ouellette
CAO/Clerk, Town of Cochrane

Jim Pine
CAO/Clerk, County of Hastings

Trevor Pinn
Deputy Treasurer, Municipality of Clarington

James Ridge
City Manager, City of Burlington

Julie Stevens
Commissioner of Finance and Corporate Services, District Municipality of Muskoka

Nancy Taylor
Treasurer, Regional Municipality of Durham

Sandra Zwiers
Treasurer, County of Essex

Investment revenues can help balance budgets, meet long-term needs

By now, municipal governments are deep into budget planning for 2019. However, no budget is ever for just one year. Long-term financial planning and capital plans are critical to the budgeting process and the success of any community.

As we’re looking at how much we need to operate services, maintain infrastructure and determine tax rates, we cannot forget about the revenue potential of a smart investment strategy, noted Whitby Treasurer Ken Nix, who is also Chair of the ONE Investment Board.

There’s been growing recognition by all levels of government that long-term asset management planning is essential to keep up with needs and maintain a state of good repair. There’s also been growing appreciation that tax revenues and provincial transfers aren’t going to be enough to build and maintain infrastructure. New revenues sources are needed.

Investment income should be one of those revenue sources says Nix. He notes that with solid financial planning, municipal governments can use their Asset Management Plans to map out a detailed cash flow analysis. Based on how much revenue is needed and when, municipal governments can choose different investment options with the right maturity rates and optimal rates of return. This can help offset infrastructure costs, so that a municipality can do more with the same funds.

Whitby recently revamped its investment policy and hired in-house investment expertise to help drive a more proactive approach to investing. A well-diversified portfolio can help manage risk, while helping on the revenue side.

Nix notes that keeping too much long-term money in GICs and savings accounts is risky, as their rates of return can be lower than inflation. Municipalities are actually losing money over the long run in that scenario. Few municipal governments can afford not to be more proactive with their investments.

While that can seem complicated, ONE Investment has been providing turnkey investment solutions for municipal investors for 25 years.

Under the current prescribed list of municipal investments, there are numerous options that can deliver better returns over the longer-term. For example, in 2017 the ONE’s Universe Corporate Bond Portfolio performed better than its benchmark with a year added value of 63 basis points before fees. The Canadian Equity Portfolio delivered a one-year total return of 10.02% - slightly outperforming the S&P/TSX Composite Index, as well as the large-cap index, the S&P/TSX 60 Index.

And the potential for better returns is compelling, especially with new prudent investor powers around the corner. ONE Investment is busy preparing for this new framework, to ensure that all municipal governments, regardless of size and capacity, can benefit from broader investment options

Nix acknowledges that beyond the Asset Management Plan, the future is challenging to predict. Councils can differ in their priorities and favoured projects, as well as how they want to manage tax increases. As an election year, Treasurers may be presenting budgets to newcomers on Council. Their priorities and personalities are still unknown.

Then there are the larger economic factors at play that can drive (or derail) growth and change the fiscal landscape – not to mention the provincial politics at play.

Nix used to leave about two-thirds of his total portfolio in shorter-term investments that he could cash out within a year to manage these unknowns. But he’s now looking at adjusting that to just about one-third of the portfolio, so the Town can earn more on behalf of taxpayers.

Councils get on board as well, says Nix, if they can see that it will reduce pressure on the tax base.