Tie council vote results in lower return on investment
By Lori Lindner
North Liberty Leader
TIFFIN– Some on the Tiffin City Council don’t agree with putting most of the city’s eggs in one basket, even if it is the best basket around.
At the council’s Feb. 13 meeting, a tie vote shot down City Administrator Michon Jackson’s suggestion to amend the city’s investment policy in order to keep a balance of about $7 million in Solon State Bank until bond proceeds designated for capital improvement projects could be spent down. The current policy puts a cap on deposits of no more than $2.5 million in any one of three local financial institutions.
It’s designed to diversify and keep the city’s cash assets safe, liquid and as profitable as possible.
Solon State Bank is currently offering a .5 percent rate of return on the city’s funds, Jackson explained, and after contacting three other area financial entities and the statewide Iowa Public Agency Investment Trust (IPAIT), she could find no comparable rate.
“Everyone else was offering .25 percent or less,” Jackson told the council. If the council wished for her to transfer the $4.8 million it would take to get Solon State Bank’s balance down to $2.5 million, it would result in a loss of over $1,000 per month to the city.
Created in 2011, the investment policy was to be reviewed every two years, so Jackson brought it before the council Jan. 9. The policy was first amended to require its review every year. Subsequent discussion was impetus for city council member Royce Phillips to express concern about the city’s money being situated in a Solon State Bank interest bearing money market account, where the bank’s manager is also Tiffin’s mayor, Steve Berner.
At that January meeting, stating a desire to avoid the appearance of conflict of interest, Phillips moved to change the policy so that no city funds could ever be deposited in a financial institution whose employee(s) also held an elected office in the City of Tiffin.
Berner countered that he had sought legal advice, and was told no conflict of interest existed.
“I have a letter from the board of ethics sent from their legal director,” Berner said. “I have no ownership in Solon State Bank. I made that clear when I ran for office. If it appears to be a conflict of interest to Mr. Phillips, it is his opinion. It is documented that it is not.”
Supporting Berner’s remarks is the opinion of Megan Tooker, executive director and legal counsel of the Iowa Ethics & Campaign Disclosure Board. During Berner’s campaign for mayor, he sought Tooker’s opinion on whether or not his concurrent bank employment and service as mayor presented a conflict of interest under Iowa law. Tooker’s informal position stated that if Berner did not use the city’s resources to further his employment, refrained from taking any official action with respect to the city’s decision on which bank to use, and assigned a councilperson to chair the city’s finance committee, the situation would not constitute an unacceptable conflict.
“As long as you publicly disclose your employment with Solon State Bank, I believe this course of action would constitute sufficient remedial action to alleviate the potential conflict of interest in Iowa Code section 68B.2A(2)(b),” Tooker wrote.
Last month, two council members publicly questioned Phillips’ motives for suggesting the city remove all its funds from Solon State Bank.
“It sounds vindictive,” said council member Mike Ryan. “We have one bank in a town of less than 3,000 people. The mayor is not putting anything in his pocket out of this deal. I think it’s a bunch of hooey and I don’t agree with it.”
Councilor Jo Kahler posed her remark directly to Phillips.
“In other words, you don’t trust Steve?” she asked.
Council member Peggy Upton spoke up in support of Phillips’ concerns.
“I do think it treads on gray area,” Upton said. “I think we should try to avoid even the appearance of impropriety. I’m not saying there is any whatsoever, but that would seem to be a prudent step.”
Phillips’ January motion was defeated in a 3-2 vote, with Kahler, Ryan and council member Jim Bartles voting no.
However, since the city’s bank balance was still in conflict with its approved policy, Jackson revisited it this month, asking for direction on either changing the policy to allow the money to remain there for up to one year, or moving the money at a potential loss to the city’s coffers.
The balance consists of about $4.8 million in bond proceeds that will pay for a water main to the city’s industrial park, a new water tower, construction on Ireland Avenue and a new city hall, as well as approximately $2 million in savings comprised of a combination of general funds, TIF revenues, water and sewer revenues, Berner said. Tiffin also has three CDs with the University of Iowa Community Credit Union totaling about $1 million, and about $250,000 in Hills Bank, where the city conducts its general credit card activity for utility payments.
Last week, Phillips asked why the 2011 policy had not been followed to begin with. Jackson said as a new administrator, she had only found the policy recently, and just noticed the $2.5 million cap when the council reviewed it last month.
Kahler’s motion to amend the policy and allow the funds to remain at Solon State Bank resulted in a 2-2 vote– and therefore, failure.
Jackson later estimated it will be a loss to the city of approximately $14,000 per year, based on having to divide the large balance between Solon State Bank, Hills Bank and IPAIT, and using the lower interest rates Jackson was quoted last week.
Phillips wasn’t convinced.
“I question that number because I’ve had people tell me rates that are better than that,” Phillips said.
Upton described the choice as “both lousy options,” lamenting that the bond proceeds had been sitting in the account too long already because of lengthy delays on the designated capital projects. Both Phillips and Upton voted against the policy amendment.
The failed measure drew a heated response from audience member Mark Peterson, who served on the city council from 2002-2010 and continues to attend meetings.
“So the city is going to lose $1,000 a month,” Peterson said, then directed his remarks to Upton and Phillips. “Unbelievable. That’s the most arrogant thing I have ever heard in my entire life.”
After the meeting, Peterson said his reaction and comments stemmed from past difficulties with the same issue.
“As a former council member, I have been involved with the investment program for a long time. At that time, there were previous council members and our former mayor who didn’t want to switch all our investments to Solon State Bank, instead leaving the money in other depositories making less interest than our hometown bank was giving. I told them, ‘If you feel you have a grudge against our hometown bank, then we need to find out who offers the same interest rate.’ But there were no depositories out there that would match it.”
Like then, Peterson said his problem with Upton’s and Phillips’ recent decision is simple economics.
“What they have done has caused the taxpayers and city of Tiffin a $14,000 loss of income,” Peterson said. “I think it is childish and unprofessional. We have council members in place to look after the welfare of taxpayers, and those two individuals are not doing that if they are not willing to work with our hometown bank because of personal reasons, which shouldn’t be part of the discussion at all.”