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Treasurer expects to recoup "paper" losses

May 28, 2014 - By Meg Peters

Review Staff Writer

In a recent audit report released to Orion Township almost $700,000 in unrealized losses in municipal mutual fund investments were reported at the end of 2013.

As of today, those losses have shrunk to about $128,800 in unrealized gains, according to Township Treasurer Mark Thurber.

The final audit will be public in June.

"I have a guess as to where the $700,000 figure came from. I'll bet this was the difference between the highest point in 2013 and the lowest point, not from the original principle," Thurber said.

An unrealized loss is not actualized because it has not been sold back. Until the investment is sold, the loss is a virtual loss.

"Yes, there were these losses on the books, but they certainly weren't the worst losses we've ever had," Thurber said. "Even if you do a running return of all the numbers it wasn't particularly bad but when you take them out of context and say 'oh my God we have $700,000 in losses', that's just a very rash comment."

The three municipal mutual funds in question are FKUSC, FTTMX and EANAX, or Franklin U.S. Government Secs A, Franklin MI Tax Free INC A and Eatan Vance National Municipal Income Fund respectively.

"I would like to get rid of these but 2013 was not the year," Thurber said.

He had an opportunity to sell them when he first got into office in the last few months of 2012 but he wanted to analyze the trends for a few months before taking action.

Thurber points to the Eatan Vance fund, the most volatile of the three mutual funds the township is currently invested in.

"Approximately $61,000 is the unrealized loss of the principal as of today, but during this whole period of time (2006-present) we have earned $684,347 in dividends," he said.

Thurber said the township spends the dividends as part of the general fund on bills and projects.

Also part of the township's portfolio are bonds, checking accounts, and CDs, or Certificates of Deposit.

CDs are like bonds, Thurber explained, because the township is guaranteed the original principal value when the term expires.

A majority of the CDs invested use township water and sewer funds in Multi-Bank Securities, INC. Multi Bank Securities is a broker dealer that purchases certificates of deposits at various banks around the United States. With the CDs, the returns are fixed, and there is no fluctuation in value.

Up to $250,000 is completely insured per CD under the federal government through FDIC insurance that guarantees the $250,000 if the bank went under.

Currently $250,000 is invested in MBANK Manistique of Michigan, accruing an annual estimated income of $3,000 at 1.2 percent. "There is absolutely no risk as long as we fulfill the terms of the contract in getting the original money back," he said.

Thurber said in order to eliminate exposure on his returns he is spreading his money around in many different banks to ensure the funds are covered. "It's a lot of work," he said.

Thurber has also invested $600,000 in both JP Morgan Chase Bank in Columbus and Wells Fargo Bank in San Francisco from the township general fund.

Why would he take the risk for that money if only $250,000 is insured?

"Because they are the biggest banks in the country. If it were a bank of Frankenmuth or something, absolutely not," he said.

"Look at these returns, they go up to five and seven percent, that's unheard of now," he said. "Bank accounts pay about 0.1 percent."

According to Public Act 20, the statute that dictates township investment requirements, treasurers are also permitted to invest money in CDARs. A CDAR, a Certificate of Deposit Account Registry Service, is a financial institution that insures any amount invested.

When investing in a CDAR with a bank, that bank distributes the funds across several other banks so that no one bank has more than $250,000 invested. For this reason an investor can invest any amount because the bank breaks up the money into smaller deposits.

Independence Township Treasurer Paul Brown said he would never invest more than $250,000 in a CD, only in a CDAR. Brown has a $3 million CDAR with Flagstar Bank.

"It's like a CD that's 100 percent insured, I only have to manage it with one bank so that's helpful to me because I don't have to manage all these different kinds of statements," Brown said. "For me the rate of return on CDs is really bad now anyway with low interest rates so I just put them all into one."

Thurber said he would not invest in a CDAR because it is giving his work to other people.

Both Thurber and Brown have investments with the Oakland County Investment Pool. In April Orion Township was paid at a ten percent interest rate, which fluctuates monthly, and earned nearly $300,000 in realized returns.

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