Two vie for Hermosa Beach treasurer’s post
David Cohn and John Workman
Cohn says Workman presides over a city portfolio with very little diversification and does not make the city enough money. Workman counters that he invests the city’s money with safety uppermost, and gets the highest yield that is safe from Hermosa’s small portfolio.
“Yield to maturity is the ultimate measure of performance,” said Cohn, who promises that he can make the city $300,000 a year more than Workman does, without sacrificing safety.
“Safety is the first heartbeat of our investment policy,” said Workman, who says that Cohn cannot do better than the $12.6 million he has made the city over his 18-year tenure, without sacrificing safety.
Cohn said the treasurer can predict the dips in the treasury, and the city’s expenses, accurately enough to know how much can be invested in medium-term and long-term instruments and “never be missed” as cash flow.
Cohn said the treasurers of neighboring cities have been making more money, because they are more willing to diversify their portfolios by finding investments that Workman overlooks.
Cohn worked up a spreadsheet showing Hermosa’s investment portfolio earning a .37 percent yield to maturity as of Oct. 17, compared to a 1.88 percent return for Redondo as of Oct. 18 and a 1.24 percent return for Manhattan Beach as of July 31.
Cohn also pointed to the cities of Torrance, Gardena, Huntington Beach, Beverly Hills and Laguna Nigel, which he said have similar governmental structures to Hermosa’s, and boasted yields at maturity from .81 percent to 2.9 percent.
The reason for the lower yield in Hermosa, said Cohn, is that Workman had all but $500,000 of the city’s $21.8 million in the Local Agency Investment Fund, a pool managed by the state.
The other cities on the spreadsheet were heavily invested in the LAIF pool as well, but also held medium-term corporate notes, federal government issues and some other investment instruments.
“What does a city treasurer do? All city treasurers are responsible for getting a decent yield on investments, and at the same time being safe, not making reckless investments,” Cohn said.
“I don’t know any investment manager that would put all his investment money in one fund,” he said. “…What does the treasurer do, if he’s not making investment decisions?”
Workman countered that nearby cities getting higher yields than Hermosa have larger portfolios to invest.
In the city-to-city comparison that Cohn offered, Hermosa’s $21.8 million portfolio was dwarfed by Gardena’s $40.8 million, Manhattan’s $56.5 million, Redondo’s $63.2 million and Torrance’s $163.1 million. The other cities had portfolios four times to nearly eight times larger than Hermosa’s.
In addition, Workman said, the other cities made long-term investments before the economic downturn, which are now maturing. With no similar yields to be found in longer term investments, the treasurers will probably now put that money in LAIF, he said.
“All these guys will be in LAIF, I know they will,” he said.
“He [Cohn] knocks LAIF, but he doesn’t know what LAIF can do for us,” Workman said.
Workman said he was in a similar position when he first became treasurer, appointed by the City Council to serve the remainder of a term left vacant by a resignation. The economic downturn of the 1990s was under way, and investment returns were low.
“You can’t get a better return [than LAIF] while you’re waiting for something to happen,” he said.
Meanwhile, Workman said, he does make other investments when they look good, such as an AA-rated instrument he bought in May that will mature at 1.4 percent.
Workman said a municipal treasurer’s first priority is safety, the second is liquidity and the third is yield. He said this is the industry standard.
The three-pronged approach can be found in many cities’ investment policies, and the code of ethics adopted by the California Municipal Treasurers Association begins with the item, “To protect, preserve and maintain intact cash, investments and other assets placed in trust with the treasurer on behalf of the residents of the community.”
The code does not emphasize attaining a high yield.
Workman said Cohn would have to “encumber the entire portfolio” of Hermosa to get $300,000 more out of it each year.
Cohn countered that safe, profitable investments outside the LAIF pool can be found.
“You have to get busy, you have to get to work to find this stuff,” he said.
Workman said a key feature of LAIF is its liquidity, which allows him to withdraw funds at a day’s notice to pay the city’s bills.
Cohn said Workman’s focus on LAIF for liquidity is misguided. “If all the John Workmans – all the city treasurers in the state – decided to take their money out of LAIF on Monday, there would not be enough money [to meet all those obligations],” Cohn said.
Cohn and Workman also have tussled over the safety of investment instruments offered by banks. Cohn says they’re safe, and Workman is leery.
Cohn pointed out that the FDIC guarantees deposits up to $250,000 in the event of bank failures, and he said the FDIC has a $100 billion line of credit with the U.S. Treasury, so it doesn’t matter whether it sometimes shows a negative balance.
He said nearly 800 banks have failed in the U.S. this year, “and nobody lost a nickel” because of FDIC insurance.
Workman said the FDIC’s coverage is not a sure thing.
“We have lost almost 800 banks this year, and since mid-August the FDIC has accrued about $3 billion in unsettled claims,” he said.
“I don’t trust the banks,” he said.
Cohn wants a finance committee formed to aid the treasurer, with two rotating City Council members and two residents with financial backgrounds, and the treasurer. He said similar panels meet in Manhattan and Redondo.
Workman said such a committee would not provide significant help to the treasurer.
Cohn said Workman’s salary and benefits, which would be about $28,000 if he accepted all of it, is money poorly spent, considering the simplicity of his investment strategy.
On the subject of compensation, Workman said he has never accepted a pay raise, and collects only about half of his potential salary. He said he pays his own way to conferences.
Cohn, 71, has lived in Hermosa for 14 years. He has served on a number of corporate, hospital and charitable boards, and teaches certification courses in corporate finance at Pepperdine and DePaul universities. He ran for a City Council seat in 2003, finishing last in a seven-candidate field with 161 votes, or 3 percent of the total.
Workman, 73, was born inHermosa Beachand has lived in the city for the past 44 years.
He was involved in Hermosa Rotary for 33 years and delivered meals on wheels for Salvation Army for 10 years, and in 1989 was named Man of the Year by the Hermosa Beach Chamber of Commerce for his volunteer work.
Workman is supported by the two incumbents in the City Council race, Peter Tucker and Michael DiVirgilio, and Cohn is supported by the two challengers, Hany Fangary and Steve Powers.