Like many investors in a shaky economy, Flathead County is always looking for the best deal for its money. So when interest rates plummeted for the state’s Short-term Investment Pool program, the county pulled its share out.
County Treasurer Adele Krantz said the county had upwards of $35 million in the STIP program at the beginning of the year. The program is a statewide money pool where government agencies must keep their surplus money and cities and counties may invest their surpluses. It is overseen by the State Board of Investments.
Krantz explained that the STIP interest rate has historically been competitive and lucrative for the county’s share, topping 5.3 percent in 2006.
However, once the recession began in earnest in 2008, the rates started dropping. In December of 2007, the investment pool’s interest rate was at 4.83 percent. Currently, the interest rate is 0.31 percent.
“I haven’t seen a STIP rate this low,” Krantz said, who has worked with county investments since 1991.
Krantz said the county kept a close eye on the rates after other counties started pulling their money out at the beginning of the year.
The interest rate then, hovering around 4 percent, was still pretty good, Krantz said. In March, the rate was down to 3.127 percent, at which point the county started transferring its assets to local banks. By July, the county only had $17 million left in the account. Rates continued to deteriorate and the county steadily pulled money out. By September, Flathead County had no shares in the program.
The money was reinvested into local CDs and other accounts making upwards of 2.6 percent, which Krantz said looked good compared to what the STIP program offered. To complicate matters, banks aren’t aggressively bidding on investments like they used to, Krantz said, forcing the county to settle for lower interest rates than they’d like.
Carroll South, the executive director of the Montana Board of Investments, said the STIP rates are so low because they are directly connected to the interest rate levels set by the Federal Reserve. Those rates have been set at zero lately in an effort to curb a possibility of inflation, which is still considered a low risk due to high unemployment levels.
“The STIP rates are the lowest they’ve been in recent history,” South said. “We don’t see interest rates going up until the Federal Reserve sees the economy improving.” And with unemployment numbers topping 10 percent, that probably won’t happen any time soon, South said.
The rest of Flathead County’s investment portfolio looks solid, Krantz said, but the current economy makes a 2 percent interest rate attractive when the county wouldn’t have considered it three years ago. But even in the tough economy, the STIP program is an investment Flathead County will not be making any time soon, Krantz said.
“If that doesn’t come up we wouldn’t reinvest the county’s money in anything that low,” Krantz said.