- March 10, 2025
Although Palm Coast may be opening its policies to allow for investing in bonds with lower credit ratings, officials say the change will not compromise the stability of its money.
The Palm Coast City Council heard at a Nov. 27 workshop proposed changes to its investment plan that would expand permissible investment ratings for corporate and government bonds to include A-rated securities. Currently, the city invests only in securities with ratings of AA or higher.
Palm Coast invests about $26 million in its three different investment portfolios, which are divided into short- and long-term investments.
The city will have more investing options with this change, Scott Stitcher said at the workshop. Stitcher is a senior managing consultant at PFM Asset Management, a financial adviser to Palm Coast.
“The main reason we’re recommending (allowing) single-A investments is that the corporate environment has changed so much recently,” Stitcher said. “There are fewer and fewer investment opportunities in the AAA to AA range.”
Currently, there are only eight AAA corporate notes available as one- to three-year investments, and just 44 AA-rated corporate notes.
“Dipping down into a single-A rating will increase the opportunities for investing by 184 names,” Stitcher said.
Expanding investment options to include A-rated securities wouldn’t pose much threat to Palm Coast, said Chris Quinn, the city’s financial director, noting that Palm Coast’s own securities are A-rated. He said the rating is still considered strong.
“Plus, we wouldn’t look just at ratings; we’d do further analysis to decide where to invest,” he said.
Palm Coast’s current investment plan allows a maximum of 15% of its portfolio to be invested in corporate or governmental bonds, and any one issuer is limited to 5% of the total portfolio. These limits have not changed with the proposed revisions.
In addition to the drop in rating limits, the proposed changes to the investment plan would reduce the city’s allowable investment in the Florida Prime Fund from 100% of its investing dollars to 25%. This is an attempt to avoid the credit crisis that arose in Florida at the same time as the national credit crisis, Stitcher said.
Several years ago, Florida’s State Board of Administration invested money on behalf of municipalities throughout the state, with the understanding that the investment was as secure as a bank account.
The SBA invested in illiquid securities that were rated AAA, but actually weren’t. As 2008’s credit crisis unfolded, the SBA experienced a run on its assets. It had to freeze the money municipalities had invested into it, causing problems for agencies who were depending on their SBA funds to make their next month’s payrolls, Stitcher said.
The Florida Prime Fund is essentially the new SBA, said Chris Quinn, the city’s financial director. Limiting the amount of money Palm Coast invests into it will keep its funds more secure.
“We have to be conservative and we have to have liquidity in our investments,” he said. “Investment returns take a backseat to stability.”
