Denny Scott
dscott@midwesternnewspapers.com
TEESWATER – After a presentation from representatives of ONE Investment, the only organization permitted by the province to participate in certain investment plans on behalf of municipalities, South Bruce Council approved an investment policy with the group.
During council’s March 25 meeting, Jason Hagan, who handles municipal logistics for ONE Investment, and Keith Taylor, an expert investing with the firm, explained that they offered several different levels of investing, allowing the municipality to create a legacy fund with the funds it received from the Nuclear Waste Management Organization (NWMO).
The municipality, through the hosting agreement it signed with the NWMO, received $4 million for declaring itself a willing host for the proposed Deep Geological Repository (DGR) for used nuclear fuel, which it did last year through a by-election (referendum), and received a $4 million exit payment when the NWMO chose the other site left in the site-selection process, located near Ignace in Northern Ontario.
Previously, council had expressed a desire to invest the funds, allowing the municipality to benefit from the interest while leaving the principal alone.
Hagan and Taylor said that was possible through several different options, though heavily suggested that an investment plan including both more and less volatile investing options would be the best option.
Through such a plan, Taylor said, the municipality could benefit from upswings in the market and also weather times when the market was “naughty” or “misbehaving.”
He pointed out that, usually, when more volatile investing options, like equity, aren’t performing well, the inverse occurs with more stable options like federal bonds, and vice-versa.
Through the presentation, the representatives of ONE Investment said the municipality could possibly draw three per cent of the principal (approximately $240,000) per year to help benefit the municipality without impacting the principle.
After the presentation, councillors had numerous questions, including how reliable the investments were as far as the municipality benefitting from them without having to draw against the $8 million principle.
First, however, Coun. Mike Niesen asked, if ONE Investment was a not-for-profit, would the municipality’s investment require any kind of fee.
Taylor said the fees are “baked into” the investments.
“We have custodians for the funds that need to be paid,” he said. “The firm does not generate profit, and any excess revenue gets plowed back into the municipal sector.”
Niesen asked if the fees are based on the initial investment, or if there is a set rate.
“They are baked into the portfolios themselves,” Taylor said. “They accrue on a daily basis.”
He said those costs are taken off the return, and not invoiced, but are part of the fund itself.
The one exception, according to Hagan, was the High Interest Savings Account, which the municipality could use through the company or on its own, as there are no legal requirements around that.
Coun. Ron Schnurr spoke next, asking which option would make sure the municipality would never lose its principal, to which Taylor said, aside from the high interest savings account, there were no guarantees.
“The principle is not guaranteed,” he said. “We’re structuring it in a way that never needs to be touched. … We suggest, you can, over time, draw down three per cent per annum, and that should not drop below the ‘low water mark’ above the principle. What that means is, with a strong year in the market, you leave the additional funding generated through interest in … providing a buffer for bad years.”
Taylor would go on to say that the City of Kenora ran into a problem where they had to adjust withdraw limits as they invested shortly before COVID.
“They joined and then got close to that ‘low water mark’,” he said. “They didn’t have flexibility [during the COVID pandemic] and had to curtail drawing income until the market recovered. That’s built into the concept. You don’t want to eat into the capital, and, sometimes, you just have to sit on your hands.”
Schnurr then referred to a chart that Taylor had shown during his presentation which indicated funds could grow substantially over just 22 years, and asked if the municipality would see that kind of return.
Taylor said the municipality, drawing its 3% per annum, would likely see some kind of growth, but couldn’t guarantee anything. He said that bonds, over time, will rise above inflation, but equity is where significant growth is in the market.
“Typical equity returns will be well above what you get in bonds,” he said. “You need to take a little bit of risk, but you typically will get more than the 3% being withdrawn.”
Similar to OMERS
Hagan pointed to the Ontario Municipal Employee Retirement System, which uses similar investment strategies. He said that, the 10-year return in the system they are in, as of February of this year, was at 8.96 per cent growth annualized.
Deputy Mayor Nigel Van Dyk said he was fully in favour of the legacy fund, especially given that kind of 10-year return. He asked that, instead of looking at averages, the representatives give an idea of what kind of returns municipality could get on a year-over-year basis.
Taylor said Kenora had a five per cent growth last year, which wasn’t bad, but in a good year, equity growth could be in the high teens while bonds and similar fixed investments would be single-digit increases. By maintaining a blend of those, Taylor said, the municipality would be able to safeguard against most market-based fluctuations.
Coun. Mark Ireland, however, was not in favour of locking the funds in, and asked if that was the case with these kinds of investments.
“If the municipality sees an opportunity to invest in real estate, and that is better suited to the long-term growth of the community, will there be fees to access the money,” he asked.
Hagan said the funds are “fully liquid” and not locked in. Mayor Mark Goetz, however, said if that situation arose, the municipality could take out a loan and use the interest from the investment to make those loan payments.
After the presentation, council turned its attention to the investing policy presented by Director of Finance Kendra Reinhart. Van Dyk said he wanted to remove mechanisms that would allow council to change the agreement, and instead wanted wording that would see unanimous council approval needed to modify the investments in any way.
“With those … changes being made, no council could take out any money of the initial capital investment unless all members of council agreed to make a change to the policy first,” he said.
Reinhart said the term “unanimous” was originally in the document, but it was removed since council makes decisions based on the majority, which allows issues to be moved forward even if there are holdouts against decisions.
Ireland would then again say he wanted to make sure the money was as easy to access as possible so the municipality could use it for investments in the community.
Schnurr said he was against any kind of unanimous requirement, but did ask if, instead of a majority, the municipality could require more than that, pointing to 75 or 80 per cent agreement before a change could be made. Reinhart said that kind of decision was up to council.
In the end neither Van Dyk’s or Schnurr’s suggestions weren’t implemented.
Niesen asked Reinhart if this kind of investment would limit the municipality’s borrowing capacity, to which Reinhart said no, only debt impacts the amount the municipality can borrow.
After further discussion, council voted to approve the creation of the legacy fund policy.
NWMO Multi-Year Funding
Later in the meeting, Reinhart reported that the final multi-year funding report between the NWMO and the municipality had been delivered to the NWMO.
The report reviewed the funding for the final year of the municipality’s involvement with the NWMO site selection process. Through a multi-year funding agreement, the municipality was able to build a team to review the project, fund studies, and engage the community regarding the project. The NWMO will review and return the document to the municipality.
Reinhart said it would be addressed at a future council meeting.
