At Manager Matt Morton’s 1st Workshop, Palm Coast Hears Results of a Year’s
Market Investments

Palm Coast government earned $224,000 from its investments in the fourth quarter up from $146,000 at the end of the third quarter in 2017, with rising income at every quarter since, according to the city’s latest investment report.

Scott Stitcher, a director at PFM Asset Management, which invests the city’s $44 million portfolio, summarized the city’s investments for the Palm Coast City Council this morning, as the company does once a year. He reassured the council that the city should still be earning money in 2019, even though a key indicator is pointing toward a recession–but not just yet–and income in 2019 may not be as robust as it has been previously.

The city’s investment report may be dull to most. In fact, it reflects what many residents on fixed income and in any way reliant on market vagaries may experience on their own account. So the city’s health can be seen as somewhat of a mirror of its residents’ financial health. Twenty-seven percent of the city’s population is 65 or older, compared to 20 percent in Florida and nearing 17 percent in the United States.

The presentation was part of this morning’s council workshop, the first attended by Matt Morton, the new city manager, who started work Monday.

“We have a good story to tell for your portfolio,” Stitcher told the council. “The forecast still says the US economy should continue to grow but at a slower pace, so not stellar growth that we saw this past year, but continued growth nonetheless, and I point that out mainly because you’re starting to hear a lot of talking about a recession, and we along with most of the economists in the United States don’t think it’s imminent in 2019.”

Over the past year, the city’s portfolio earned over 3 percent–the first time in more than a decade that that type of portfolio could earn that high a return.

He said one indicator is “a yellow warning signal” about a possible recession: the inversion of the Treasury yield curve, which means that long-term rates are below short-term rates. That happened on March 22, when the 10-year Treasury note fell to 2.42 percent, lower than the rate on three-month bills for the first time in 12 years. The last six times that happened, going back to the 1960s, a recession has followed. But about 15 months elapsed on average between the inversion and the last five recessions. To reassure the council, Stitcher said the economy is nowhere near where it was in 2008.

Yet “the fourth quarter was not for the faint of heart,” he said, with the inversion, trade tension, a government shutdown and a 14 percent selloff in the market–activity that flows into fixed-income markets and affects Palm Coast’s large pool of retired residents. As for the city, “we think you will receive I’ll say positive returns in 2019, respectable returns in 2019, and the majority of that will come from the income portion of your portfolio,” Stitcher said, even though interest rates could fall in 2019.

State law requires government’s investments to have a large proportion of funds in safe investments. Half of Palm Coast’s investments are in Treasuries, asset-backed securities and federal agency securities, or so-called government-sponsored enterprises. But the city also owns small portions of corporate stocks–among them Apple, IBM, John Deere, Toyota, American Express, Disney, Exxon, Pfizer, Coca Cola, Home Depot, Walmart, Hyundai, and UPS, among others. The city also invests in five international banks devoted to development in poorer countries.

Mayor Milissa Holland asked Stitcher whether he saw policies “as us amending to provide more of a return on investment.” But in 2015 and 2016, the city added the sort of investment sectors that worked to that end. “Right now there’s nothing we would recommend as far as an enhancement to the policy,” he said.

Morton’s first meeting was uneventful, his first few official items of discussion even less so: he introduced a $194,000 plan to replace the city’s phone system with a cloud-based voice over IP phone system, the result of a bid process that produced 14 bidders. Verteks Consulting of Ocala won the bid. Annual servicing will cost $40,000, about $3,000 less than current costs. The project is part of the city’s information technology priorities. Morton also briefed the council on the annual agreement with the East Flagler Mosquito Control District for coming chemical bombardments, and sod replacement at Indian Trails Sports Complex. Notably, Morton, who tends to speak at Mach speed, presented the item as if he were as conversant with them as any of the city staffers in the room.

Morton was otherwise more of an observer than a participant at Tuesday’s meeting–at least until the meeting’s last third–as he sat at the end of the V-shaped table arrangement reconfigured at Holland’s request several months ago, with Holland sitting at the head of the inverted V. When he was the manager until last fall, the notoriously controlling Jim Landon had positioned himself in such a way that he appeared to be at the command center of the table arrangements, with the council members fanning out in two side wings.

Discussions got more animated in that final third of the meeting when the council, at Councilman Nick Klufas’s prompting, returned to the discussion about the city’s FiberNet, or broadband, system, the city’s data management and what direction it should take.

The city issued a release on Monday describing Morton’s first day, which he spent “mostly in meetings, learning about issues and services and getting to know staff from every department.”

“I’ve been doing my homework, reading codes and ordinances, listening to the Council meetings, studying Palm Coast’s history, talking with Council Members, and getting a feel for the vision,” Morton was quoted as saying. “My aim is to hit the ground running.” The city issued a photograph of Morton in his new office, with a small Nemo-like fish (a replica, of course) sitting on his keyboard. He could not explain what it was doing there: he found it there when he took over. The one book on his computer console behind his desk: Craig Hickman’s “The Oz Principle: Getting Results Through Individual and Organizational Accountability.”

Morton, who is married and has two children, will be renting for about a year before the family decides on a local property.

Palm Coast’s 2019 Investment Report

Click to access palm-coast-investments-2019-report.pdf