Gain from new policy: $106K in 4 months

COVINGTON, Ky. - City Hall’s adoption of an expanded and strategic investments policy earlier this year after the arrival of its new Finance director has proved a financial windfall for Covington taxpayers.
For the four-month period ending Oct. 31, Covington earned more than $106,000 for its General Fund by investing working capital on hand in staggered-term CDs (certificates of deposit) and overnight investment vehicles.
“This isn’t brain science,” Finance Director Muhammed Owusu said. “It’s actually the opposite of that - ‘no-brainer’ stuff. This is just us opening our eyes to making sure our working capital works for the taxpayers.”
The investments neither put taxpayer money at risk nor posed problems with cash flow, Owusu said. “This is just ‘plain vanilla,’ simple stuff,” he said.
The City Commission approved the expanded and updated investments policy developed by Owusu and his Finance staff in a vote June 12. The previous policy, created in 2014 in response to an unfavorable investigation by the state Auditor’s office, was a bare-bones authorization that sent officials to Kentucky Revised Statutes for guidance and was never really implemented.
Shortly after his hire in late April, Owusu said he was astounded to learn that the City was losing money on a net basis each month because of fees charged by banks for holding the City’s funds.
“Effective cash management is essential to good fiscal management,” Owusu told the Commission when he presented the new 17-page policy.
The City’s short-term investment earnings have come primarily through two vehicles: 
  • $106,675.47 was earned collectively in the months of July, August, September, and October by “sweeping” the City’s accounts each night of “excess” funds and investing those in overnight money market accounts. Minus the fees for those investments and the City’s accounts in general, the City’s net gain for that four-month period was $86,336,39. 
  • $20,070 has been earned as of Oct. 31 from 15 CDs (and one recently purchased “commercial paper” investment) bought during the four-month period. To keep from tying up too much money for inordinate amounts of time, the terms of the CDs range from six months to five years. 
The collective net gain from these various investments thus was $106,406.39.
“Taxpayers should know we are being good stewards of their money - and that includes making that money grow,” Owusu said.
Further down the road, the City might consider more sophisticated investments, he said.
The earnings from the investments are going into the City’s General Fund to help Covington absorb large budget blows:
One, the departure of the Internal Revenue Service’s paper-processing facility in late 2019 will remove an estimated $1 million a year in payroll tax revenues from the City’s books.
And two, wanting to reduce the state’s unfunded liability in its public pension systems, the Bevin administration drastically increased the cost to local governments. In Covington, that assessment amounts to $755,000 in the current budget cycle and will gradually increase over a few years to $3.2 million a year in additional public pension costs.
“Going forward, we need to find money under every rock,” Owusu said.
The strategic investments policy is among a series of strategic steps taken within the Finance Department under Owusu to stabilize Covington’s finances, safeguard money, improve procedures, and expand transparency. The Department: 
  • Hired a revenue collection manager and two tax auditors to maximize tax collection and segregate revenue and expenditure duties as a deterrent to fraud. 
  • Created a procurement officer position to streamline the procurement process. 
  • Consolidated bank accounts to save money and made all remaining accounts interest-bearing.
  •  Increased financial reporting to elected officials. 
  • Instituted “positive pay,” a fraud deterrent service offered by banks that creates another level of monitoring for checks written on public accounts. 
  • Is creating policies related to debt, procurement, and the Rainy Day Fund. 
  • Is creating a five-year financial planning and budgeting model. 
  • And is working with credit-rating agencies to try to raise the City’s rating for any future bond issuances. 
“Our Finance Department has some strong and dedicated employees but it was lacking stable leadership,” City Manager David Johnston said. “In Muhammed, we knew we were hiring a person with 30 years’ experience managing money and overseeing public spending. Taxpayers should be thrilled with the strategic and aggressive transformation that has been occurring in the Finance Department.”

 Muhammed Owusu took over as Covington's Finance Director on April 30.

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