Concerned citizens question city about safety of locally invested CD
■ By Taj Shorter / Reporter
There’s a move afoot to recall the Hemet City Treasurer.
In the Valley Chronicle’s May 17 issue, a petition to recall the City Treasurer was published by a group of citizens who are questioning the treasurer’s history of investing the city’s money. The petition highlighted multiple issues revolving around the City of Hemet’s investment practices. The main one concerns the “safety” of Hemet’s taxpayer dollars.
The City of Hemet has about a half million dollars in a certificate of deposit (CD) with the Bank of Hemet that was purchased initially in 2006 at a low rate of return. Hemet resident Sue Savage, who is spearheading the recall, pointed out during a recent city council meeting that the council was not up to date with the City Treasurer’s reports and current figures of investments.
Savage claims the council is unaware of what is going on with the city’s investments because the reports are missing. The City Treasurer is required to file monthly reports as required by Resolution 4588, The Investment Policy of Hemet. Savage was able to point out that recent months did not produce the required reports to city council. City Treasurer Judith Oltman refuted this charge saying that the monthly reports can all be accounted for and that they are just not produced in a timely manner. “It’s a monthly report, but it’s not given every month,” Oltman said, “There’s no missing reports.”
Another issue highlighted in the recall was about the low rate of return the city is getting on their investment portfolio. In March 2006, when the 36-month CD was originally purchased at an interest rate of 0.4, the average rate of return was anywhere from 3.2 and 3.9 percent, depending on the CD’s term. Savage and her group wonder why the City Treasurer has not reinvested the portfolio at a higher interest rate.
Judy Oltman explained to us that she does not believe in churning the investment portfolio, saying it is “not ethical.” Oltman says while it’s not necessarily illegal, auditors don’t like it and it’s “dangerous.” Churning the portfolio means getting rid of the current investment portfolio and reinvesting it right away for a higher rate of return when market rates are up. She further explained that market security goes down when rates go up, so churning the portfolio can be like gambling. Her main goal is to keep the city’s money safe by focusing on “buying and holding” and not the yield. “We buy and hold and we let things mature and then we invest at the current rate,” said Oltman.
According to Oltman, public money can’t be handled by your average bank. The available options that the city had for investing banks were limited due to this fact. The bank in question has to have “special public money insurance” to handle a CD amount beyond the initial Federal Deposit Insurance Corp. (FDIC) insurance maximum, said Oltman. The FDIC maximum insurability is $250,000 per CD. That’s about half as much as the CD in question.
One has to wonder if it’s actually insured to the full amount of the CD. Oltman insists that it is, saying that it is further federally insured by the Bank of Hemet. She explains in her recall answer that the remaining $240,000 is collateralized in the bank at a rate of 110%. If the bank were to go under, public money would be top priority in the payout, she claims.
The supposed low rate of return was the best available option and is actually higher than what was originally offered, says Oltman. The Bank of Hemet CD was supposed to have a 0.3 interest rate and Oltman was able to get it at 0.4.
As of now, Savage and her supporters are still disappointed with the city’s lack of transparency about how the money is being managed and whether or not it is even safe. On Tuesday night, these issues were addressed at a city council meeting when both Oltman and Savage gave their presentations to the public and council.