The surge in interest rates over the past 12 months has been a good news, bad news scenario for the City of Kelowna.
On the negative side, higher interest rates means higher payments on loans for larger capital projects but, on the flip side higher interest rates mean a higher return on city investments.
Unlike personal investment portfolios, municipalities are legislated as to what they can, and cannot invest in.
“We are restricted to, broadly speaking, investment vehicles which are offered through the Municipal Finance Authority. The next option is government issued securities, in essence federal and provincial debt. The third option is any form of investment vehicle guaranteed by the Federal Deposit Insurance Program,” says city finance director Joe Sass.
He says the city’s portfolio was able to do fairly well in 2022 due to the mechanisms in which the city invests.
“A good chunk of our investments before last year were in investments that were paying very little interest. What we did was have very low interest investments mature and because of the new interest rate environment we were buying those back at a higher rate.
“So we would have an investment mature at one per cent then buy it back at three per cent. The interest rates we were buying into last year were much higher than what was maturing from previous years.”
At the end of 2022, the city’s investment portfolio was valued at $792.2 million. It is likely higher today.
The city’s overall portfolio is split into short-term (29%) and long-term (71%) investments.
The short-term investments are bonds which can be converted to cash right away to pay the bills.
The city’s invests revenue from development cost charges collected from developers, provincial and federal grant monies and taxation.
