Members of the Romulus City Council heard some good news and a word of caution during their virtual meeting last week.
Auditor Brian Quinn explained that the coronavirus pandemic had a serious effect on financial markets and the results of that effect were coinciding with the quarterly financial report for the city.
He explained that during times of financial stress in the stock markets, securities become more and more desirable to investors who tend to pull their funds from riskier investments.
“There is a flight to quality and investors take money out of the U.S. stock market to treasury bonds which bumps up the price as they are more desirable,” he explained. Added to that is the reduction in interest rates by the Federal Reserve and the purchase of securities by the federal government, which becomes the safety net for investors. Those factors, he said, provoke a higher rate of interest paid on securities, which become more in demand, and affect the city portfolio.
“There will be a significant impact on the city interest earnings,” he told the council. “The city is practicing safe investing,” he said, “but there are wild swings in market value which have to be a record,” Quinn said.
“The city will see a significant gain on the June 30 report and $402,000 will hit the income statement,” he said.
He explained that because of the market swings, part of that income could disappear in the next quarter because of the wild swings the financial markets are experiencing.
“You can't plan on that money,” he told the council members, “it could evaporate.”
Quinn told the council members that he wanted to explain the large gain to them personally before the quarterly report was submitted for their review.
