Low interest

rates affect

city budget

Yield decreases

$337,000 in year

By RON LARSEN

Journal Staff Writer

NEW ULM -- Even if you've only got a few bucks squirreled away in a bank, you've discovered that the amount of interest you get right now from your little nest egg stinks.

As city officials have learned in the past year, it doesn't really matter whether you've got a couple hundred bucks invested or $23.7 million as the city and New Ulm Public Utilities have, the yield on either investment still stinks.

Utilities Director Gary Gleisner, who previously served as the city's clerk/treasurer for 6 1/2 years, pointed out the obvious at the commission's December meeting.

"I just wanted to point out to the commissioners the investment portfolio report. (The 2.99 percent average yield) is the first time below 3 percent since I've been here," he said.

That meant the city is gleaning a total of $1,943.58 a day in interest on a $23,747,845.04 portfolio, as of Dec. 17, 2003, with a weighted average yield of 2.99 percent and a weighted average coupon rate of 2.97 percent. Sad to say, in December 2002, the city was raking in $2,743.72 a day in interest on a $22,578,963.03 portfolio as the result of a 4.44 percent average yield and an average coupon rate of 4.24 percent. So, over the course of a year, the average yield rate sank 1.45 percentage points, a 32.7 percent drop.

In other words, one year ago, the current portfolio's $23.7 million investment would have produced an annual yield of $1,044,905.10. Today, its annual yield would amount to $707,463.12, a drop of $337,441.98.

Of course, that's a hypothetical loss because the drop was graduated over a period of 12 months. Still, the interest revenue decline was significant enough to rate mention by City Manager Brian Gramentz as one of the "key 2004 budget impacts" during 2004 budget deliberations.

However, Gramentz admits the extent of the impact is hard to quantify.

"It's not something that you can point to and say that's how big of an impact it had (because it's spread throughout the budget)," Gramentz said.

"You have to remember, too, that the lower investment rates results in far better bond rates," City Clerk/Treasurer Reginald Vorwerk added.

"Yah, it's a case where it might be kind of a wash," Gramentz agreed.

Fortunately for the city's portfolio, there's still a significant amount of money invested for 10 years or more back in 2000 and 2001 when the city could get a 6 or 7 percent yield. Otherwise, the portfolio really would be struggling.

Most investments in the past two years have ranged from a high of 2.89 percent to a low of 1.2 percent. Only a handful of investments drew a yield exceeding 3 percent during that period.

However, Vorwerk noted the really low rates are associated with the city's investing cash on a really short-term basis that may be needed for meeting payrolls, for example.

The city was able to invest $200,000 or $300,000 at 4 percent as late as May 2003, but that was for a 15-year term. Unfortunately, by July, the rate for such long-term investments had slipped to 3 percent.