To help ensure the continued prudent investing of public funds, the Metropolitan King County Council today created an advisory panel with three members to be named to conduct a comprehensive review of the $4 billion King County Investment Pool.

“Recent events have exposed vulnerabilities with our $4 billion investment pool,” said Councilmember Bob Ferguson, who chairs the Council’s Operating Budget and Fiscal Management Committee, and represents the Council on the Executive Finance Committee. “This independent examination of our investment pool policies will help to ensure that these taxpayer investments are sound.”

“Inviting additional experts to help the County navigate difficult financial markets can only help us further protect precious taxpayer dollars,” said Councilmember Jane Hague.

“Many local governments within King County count on the investment pool to securely and strategically invest their scarce public funds,” said Councilmember Dow Constantine. “We have an excellent record of managing this money professionally and prudently to the benefit of taxpayers across the county. This system of independent review will help us to maintain and even improve this fund’s performance.”

The King County Investment Pool was established in 1989 and invests the cash reserves for all King County agencies and nearly 100 other public entities in the county, including school, fire, sewer and water districts. It is one of the largest investment pools in the State of Washington.

Creation of the Investment Pool Advisory Panel reflects expectations expressed at the Council’s Citizen Engagement forums earlier this year. Citizens voiced desires that they have real input into the direction that the County was heading and insisted on greater fiscal accountability when taxpayer dollars are involved. The panel will consist of citizen experts who will help the County direct responsive and prudent financial investment policies.

Members of the King County Investment Pool Advisory Panel will be experts in the financial industry, selected for their knowledge of financial markets and instruments, public investment pools, and macroeconomics. The advisory panel will review the King County Investment Pool for best practices in five areas:

• The investment goals of the Pool, including risk tolerance, liquidity targets, and rates of return.

• The membership goals of the Pool, including the size of membership, the value of maintaining a high credit rating with a national rating agency, and the roles and responsibility of members in sharing risks and returns.

• The investment policies of the Pool, including maturity, duration, liquidity, and diversification policies, as well as the types, creditworthiness, and limits on the securities held by the pool.

• The portfolio of the Pool, including how well investment goals are maximized and policies are followed.

• The management structure of the Pool, including how day-to-day operational and investment decisions are made and the role of the Executive Finance Committee. The pool’s structure shall be reviewed for its inclusion of financial expertise and the availability of objective advice when establishing investment policies and practices.

The advisory panel will also examine whether other financial experts should be available to help guide the policy and operational decisions of the Pool, and will review the county’s written investment manual.

“Increased scrutiny through these extra sets of expert eyes will benefit taxpayers from King County and all the many other local jurisdictions who rely on a healthy investment pool,” said Councilmember Larry Phillips. “Successful risk management and maintaining the pool’s strong financial ratings are imperative.”

“I am pleased to support the creation of the Investment Pool Advisory Panel,” said Councilmember Pete von Reichbauer. “The panel will be made up of financial industry experts and will help provide better oversight to ensure the stability of King County’s investments of public funds.”

The Council set a date of October 29, 2007, for appointment of the three panel members. The advisory panel will convene by December 3 and present a work program to the council by December 14, with a final report due back to the Council by March 3, 2008.

The County last month learned of downgrades to Mainsail, a commercial paper investment that represents $53 million of the $4 billion portfolio. Since the downgrades had the potential to impact the pool’s high credit rating, the County Executive Finance Committee segregated Mainsail from the rest of the pool’s investments. In doing so, the County assumed complete responsibility for recovering the principal of the Mainsail investment, thereby protecting pool members and the County’s overall pool rating.

At the time, Councilmember Ferguson agreed that Mainsail should be segregated to protect the pool. However, he was the sole vote against the County assuming complete liability for any potential Mainsail losses, arguing that a limit should be placed on the amount of loss the County would sustain on behalf of the other pool members.

Read more about this legislation on the King County Council’s LEGISEARCH system.
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