Work group to develop options for implementing reforms to King County Investment Pool

Council accepts recommendations of Advisory Panel

Read the Advisory Panel's report

Strong recommendations from an advisory panel calling for reforms of the $4.5 billion King County Investment Pool were accepted today by the Metropolitan King County Council, which also created a work group to develop options for swift implementation.

“The County’s stewardship of tax dollars should be transparent to the public and consistent with industry best practices,” said Councilmember Bob Ferguson, who chairs the Council’s Operating Budget Committee and led the creation of the three-member advisory panel that conducted a comprehensive review of the Investment Pool. “We need to move quickly to accomplish these goals, and this legislation is an important first step to implementing needed reforms.”

“Leading financial experts have sounded an alarm that our $4.5 billion investment pool is not operating according to industry best practices and could be putting our investments at risk,” said Councilmember Larry Phillips, chair of the Capital Budget Committee. “We have a responsibility to King County taxpayers as well as nearly 100 public agencies who invest in the pool to heed the panel’s warning and act quickly.”

The Council formally accepted or supported many of the recommendations in the 75-page report from the King County Investment Pool Advisory Panel. The Pool invests the cash reserves for all King County government agencies and nearly 100 other taxing districts, including school, fire, sewer, library, water and other districts within King County. The Panel reviewed the investment pool’s policies, structures, and systems to ensure that they are sufficiently robust for the continued prudent investing of public funds in today’s rapidly evolving financial markets.

Among the specific recommendations accepted by the Council are those to:

• Hire an external fund manager to assist the county in the management of its investment function, contingent on any changes necessary to state law.
• Create a governing board that includes representation from both County and non-County participants, and industry experts.
• Add advisory representation from non-County participants to the Executive Finance Committee that currently governs the Pool.
• Clearly define investment goals and adopt a comprehensive set of metrics to track and manage risk and performance.
• Improve the operational infrastructure of the pool by:
     o updating technology to automate portions of the daily investment process,
     o consolidating assets with a single custodian bank,
     o creating an internal capacity to analyze credit for investment risk, and
     o adding sufficient staff to eliminate operational risk.
• Improve accounting procedures and institute an annual outside audit.
• Review the structure of fees charged to participants for investment services.
• Improve communications, including an improved monthly report and Web site and an annual meeting for participants.
• “Bifurcate” the investment pool to ensure accurate accounting for impaired investments, and hire a qualified investment manager to advise County on management of impaired investments.

The legislation also creates a joint Council/Executive work group that by July 15 would establish an action plan for bringing the Investment Pool in line with industry best practices for a governmental investment pool. By September 1, the work group would report back to the Council with options for implementing needed reforms in four areas: external management, governance, investment goals and metrics, and infrastructure.

The work group will be co-chaired by the County Council’s Policy Staff Director and the County’s Director of Finance and Business Operations. Members of the group will include:

• Director of the Office of Management and Budget
• Lead Staff to the Council’s Operating Budget, Fiscal Management, and Select Issues Committee
• King County Auditor
• the County’s Chief Accountant
• the County’s Chief Economist.

The King County Investment Pool invests in low-risk, highly-rated securities including certificates of deposit, U.S. Treasury obligations, federal agency obligations, municipal obligations, repurchase agreements and commercial paper. Since 1995, participants have averaged 5 percent annual returns on their investments. The pool has historically outperformed the state Investment Pool, with $195 million of extra earnings for county pool participants since 1995 or $15 million per year.

County Councilmembers at the start of today’s meeting formally recognized the three members of the King County Investment Pool Advisory Panel – John Rose, John Dobrowolski and Mary Ellen Mullen –and thanked them for their more than six months of research into the operations, policies and governance of the pool, which included interviews with County staff, review of written records, consultation with outside experts, and their own professional expertise and experience.