Orange City School District officials are expecting a drop in earnings on the system’s $31.5 million investment portfolio since the Federal Reserve Bank cut its benchmark interest rate in late July. The Fed cut the rate by 0.25 percent, the first decrease since 2008, according to Orange schools Treasurer Todd Puster.
Portfolio manager Ryan Nelson of Redtree Investment Group reviewed the portfolio with Mr. Puster, Superintendent Lynn Campbell and Board of Education members Jeff Leikin and Melanie Weltman during the Audit and Finance Committee meeting on Aug. 8. Mr. Nelson said that the economy is experiencing a “global slowdown,” due in part to President Donald Trump’s trade war with China.
“Interest rates have collapsed over the past several months,” Mr. Nelson said.
He has worked with Orange since 2015 and explained that the school district has a variety of investments with his firm, including local bank products, certificates of deposit, Star Ohio, U.S. treasuries and U.S. government agency securities and commercial paper. The maximum maturity on any investment is five years, Mr. Nelson said. In a written report, Mr. Nelson noted that 54 percent of Orange’s assets are U.S. agency notes, 19 percent are commercial paper, 17 percent are certificates of deposit and 10 percent are U.S. treasury notes.
As of July 31, the portfolio includes assets from J.P. Morgan, Toyota Motor Credit and American Express National Bank, according to his written report. Since January, Orange has earned $306,924 from its investments, Mr. Puster said. The district also pays Mr. Nelson’s firm about $2,000 per month to manage the portfolio.
When a school district chooses to invest its funds, Mr. Nelson said that there are three main objectives—the safety of the principal, liquidity and the market rate of return. Mr. Puster explained that safety is always a priority to ensure that the district does not lose valuable tax dollars.
“We are constantly on top of this,” Mr. Puster said on Friday. “We want [the taxpayers] to know that we are very respectful of how we use their money and how we protect it from loss.”
The district is seeking liquid assets so they can be easily converted into cash if needed. The market rate of return, Mr. Puster said, relates to the treasury market, not the stock market. He said that school districts are not allowed to invest in the stock market or long-term corporate bonds.
Mr. Nelson said that the average maturity for securities in Orange’s portfolio is 1.7 years, and last year the average was one year. He said that his firm started buying securities with a longer term last year and would like to see the average maturity reach two years. The adviser said that Orange’s average yield is 2.3 percent, which Mr. Puster noted is a competitive rate for the types of securities that the district can invest in.
“We still want to be cautious,” Mr. Nelson said.
He added that certificates of deposit are insured by the Federal Deposit Insurance Corporation up to $250,000. Therefore, his firm often buys up to $248,000, leaving room for any accrued interest, so that the investment is covered. In the future, Mr. Puster said that the portfolio will likely have more certificates of deposit because of the higher interest rates.
“Commercial paper is not as attractive of an investment as it was a couple years ago. Over time we’ll shift the portfolio away from it,” he said. “It’s based on the current conditions. It’s better to shift into certificates of deposit.”
Dr. Campbell suggested hosting a meeting for the public to attend in the future to review the district’s investments and finances. The audit and finance committee meetings are also open to the public and financial records can be found at www.orangeschools.org/TreasurerReports/aspx.