The run on Montana’s Short Term Investment Pool in the final week of November – when local governments and school districts across the state withdrew $247 million in the span of a few days – appears to be tapering off. But that isn’t to say it has stopped completely: Missoula County withdrew $15 million last week, while Gallatin County and its airport pulled out a combined $31 million.
Local governments and school districts in the Flathead acted quickly when the run broke on Nov. 28. Flathead municipalities with funds in STIP reacted to the panic in a variety of ways, ranging from Flathead County, which kept its roughly $40 million invested, to Whitefish, which withdrew more than $2.5 million, about everything it had. For now, officials plan to sit tight until it becomes clear what yields STIP is likely to continue to generate.
Things may have calmed down some, but that wasn’t the case during November’s panic, when concerns about subprime loans prompted Yellowstone County to withdraw $72 million from the fund, with other local governments following suit. According to Flathead County Treasurer Adele Krantz, the jitters made for a few frantic days.
“It was very, very stressful,” she said.
The run was set off by a national article in Bloomberg Markets magazine, which said Florida and Montana had some public money invested in risky funds. Montana’s STIP is a kind of money market fund where the state government, state agencies, local governments and school districts can invest funds in order to gain a high rate of return and quickly liquidate money. Local governments are restricted in what they can do with taxpayer money, and usually can’t invest in anything not backed by pledged securities or the government. STIP offers a better interest rate than municipalities might find on the open market, though that rate has been declining for weeks. As of Dec. 7, STIP’s balance stood at $2.1 billion.
The Bloomberg article ran shortly before the rating downgrade triggered a liquidation of Axon Financial Funding Debt, in which Montana had a $90 million investment. The following week, the structured investment Orion Finance suffered a downgrade, in which the STIP owned $50 million – prompting state Sen. Dave Lewis, R-Helena, to ask Gov. Brian Schweitzer to call a special session of the Legislature to grapple with the financial losses.
When the state of Florida suspended the ability of local governments to withdraw from its investment pool, the Montana Board of Investments quickly issued a press release pointing out that in Montana, unlike Florida, state agency funds make up 71 percent, or $1.6 billion, of its STIP. That core of state money serves as an anchor, the statement said, and no suspension of withdrawals would occur in Montana. A withdrawal suspension would have caused colossal problems in the Flathead, where local governments regularly withdraw money from STIP for payroll and other routine expenses.
The city of Kalispell withdrew about half the money it had invested in STIP, pulling out $7 million on Nov. 29, with $6.6 million remaining in the fund.
“We were a little nervous, so we decided to pull some of it out,” said Amy Robertson, Kalispell’s finance director. “We didn’t want to panic and pull everything out.”
Robertson downplayed worries about the state fund, saying it got caught in a bad investment, and with less than 1.5 percent of STIP’s portfolio affected by subprime lenders, it continues to be a good place to keep money. The $7 million withdrawal came at a time when she was taking money out to use for payroll anyway, and Kalispell currently has less money in STIP than usual because the city is paying the bond for the expansion of the wastewater treatment plant. Montana STIP’s interest rate may drop, but it has been among the top three in the nation, she said. “I think that the state will keep us whole and I don’t see us losing any principle.”
Todd Watkins, business manager for Kalispell schools, withdrew $1 million from STIP, but he said the money was a standard withdrawal to pay the bill for construction at Flathead and Glacier high schools.
“It was a regularly scheduled draw; it had nothing to do with what you’ve seen in the paper,” Watkins added. Kalispell schools currently have no money invested in STIP.
Columbia Falls made no drastic moves, withdrawing $65,000 from STIP on Nov. 30, with a balance of $4 million as of last week.
Whitefish, however, pulled nearly all the money it had in the fund, $2.6 million, on Dec. 3, leaving a nominal balance of about $25,000. City Manager Gary Marks said he is not too concerned about the state fund, but didn’t want to sit and do nothing while other local governments pulled out their money.
“I don’t think this is a justified panic, but still, it’s happening,” Marks said. “When things look stable again, we’ll probably look to get back into the fund.”
Krantz decided not to make any large withdrawals of Flathead County funds, but isn’t investing any more in STIP either, since investing almost $16 million on Nov. 19. As of last week, Flathead County had $41.6 million invested. Krantz did not make the decision lightly, and spent days consulting with advisers and local brokers: “They all felt confident that we should still have the confidence level that we did, and that’s why we stayed.”
State Sen. Dan Weinberg, D-Whitefish, is the Senate liaison to the Board of Investments, and believes the recent panic is indicative of a larger issue: the Legislature pressuring the BOI to get big returns on its investments.
“It’s the wrong thing to do to be chasing these very high returns,” Weinberg said. “By definition, the risk is going to go up.”
The BOI, Weinberg said, should develop a portfolio that is more conservative, and more socially responsible.
Republican Sen. Greg Barkus, a senior vice president at the Kalispell branch of investment firm D.A. Davidson, agrees that the BOI may be too aggressive with its investments, and praised municipalities for acting prudently with taxpayer money. While he doesn’t anticipate a special session, Barkus said the legislative audit committee will be monitoring the situation.
“We’re going to have to take a good, hard look at this thing,” he added. “I don’t know what’s going to happen, but I’m glad that the fears have abated somewhat.”