by Brad Parsons
Staff Writer
Financial advisers to John Peyton’s transition team say the mayor-elect will present new City investment and borrowing policies to the City Council July 15, which will employ financial tactics usually reserved for banks and other private financiers.
JEA managing director and transition team co-chair Walt Bussells said Tuesday that recent federal tax cuts and a favorable City credit rating provided the incoming administration with an opportunity to make safer investments that would stretch every tax dollar.
“We’re not going to recommend the City invest in hedge funds,” said Bussells during the Transition Committee’s Financing Efficiency meeting. “We can invest conservatively, reduce the cost of borrowing and still get a higher return on our tax dollars.”
The Financing Efficiency Committee’s purpose is unique within the Peyton team’s 13-committee structure. Rather than recommend structural and personnel changes within City departments, the financing committee, chaired by Rock Creek managing director Ashton Hudson, seeks to change the City’s borrowing and investing strategies.
Bussells said many current investments were tied to specific ordinances, preventing the City from responding flexibly with its money to constantly evolving tax laws and credit market fluctuations.
“We want to match up investment and borrowing as part of a cohesive plan rather than have dozens of investments reliant on some ordinance that made sense 20 years ago,” said Bussells.
By increasing the rate of return on its invested money, Bussells said the City could realize a significant revenue stream, which could provide for improved services despite Council demands for a balanced budget.
Hudson encouraged the committee, a collection of mostly private business leaders, administrators and accountants, to think outside the realm of traditional government finance. He offered New York City’s recent use of private contractors to build an emergency response building as an example of private sector financial techniques applied to government. The contractors leased the center back to the City after fronting the $25 million development cost.
“We want conceptual ideas, if they require tweaking of policy or legislation, the mayor-elect’s staff is equipped to do the blocking and tackling necessary to implement them,” said Hudson. “We want to respect existing policies, but not let them limit our thinking.”
Under Peyton, the City will look to take advantage of tax cuts and good credit to bolster its finances. Bussells said low-risk borrowers such as the City looked particularly attractive to lenders in the wake of recent corporate accounting scandals and bankruptcies. He said the City was well-rated, credit-worthy and able to command low rates as a borrower. The City does not pay federal tax on borrowed money.
After borrowing tax-free at low rates, Bussells said the City could invest money in taxable markets with traditionally higher rates of return.
Committee members will also target new opportunities for the City to take advantage of its January 2002 federal designation as an empowerment zone. Federal tax breaks make investing and hiring within the zone more lucrative and offer incentives for companies to relocate within.
Businesses within the zone are rewarded with $3,000 tax credits for employees and new hires who also live within the zone. The federal government also rewards zone businesses who hire employees off the welfare rolls and provides a $2,400 credit for hiring 16-to-24-year-olds.
The committee will meet once or twice weekly in an effort to have its recommendations ready for Peyton’s July 15 budget presentation to the Council. If adopted, Bussells said the committee’s recommendations could impact the City’s 2004 budget process.