Shelton City Council studies joining stateseparately managed accounts to invest city funds

At a study session, the Shelton City Council heard a presentation from the Washington State Treasurer's Office on the office's separately managed accounts (SMA) program and discussed whether to move part of the city's cash into an SMA; the council took no formal action.

Amanda Hudson of the Washington State Treasurer's Office, who directs the team that manages state and local government short- and intermediate-term portfolios, described SMAs as "intended to look like the state's core portfolio," a hands-off, intermediate-term option that gives each municipality a separately managed subaccount at the custodian. Hudson said the program began as a pilot in 2018, was standardized in 2019, and now includes 16 portfolios and about $1.25 billion in assets.

Terry Schnitzer, Shelton's finance director, introduced the presentation and told the council Shelton currently has roughly $26,700,000 in the state's Local Government Investment Pool (LGIP), about $1,500,000 in longer-term holdings at U.S. Bank maturing later this year or in February 2027, and approximately $4,000,000 in checking. Schnitzer said the city could meet the SMA minimum and leave a remaining balance in the LGIP for upcoming projects.

Hudson said SMAs use a standard interagency agreement and an identical investment-policy exhibit for all participants, and that custody and reporting are provided by Northern Trust. She described fees as taken from earnings and estimated a range of about 2 to 4.5 basis points annually: "So, from a practical standpoint, if Shelton were to put $10,000,000 in an SMA portfolio, that would be 350 to $400 a month." She emphasized there are no formal withdrawal gates but cautioned that SMAs function as a core portfolio and work best when balances remain relatively stable.

Sean Koval, the treasurer's office senior portfolio manager, reviewed the office's current market outlook and portfolio positioning. Koval said the office had been positioned for interest-rate cuts late last year but has moved to a more neutral stance as markets have repriced for higher short-term rates given resilient labor data and recent inflationary pressures. "We were set up in the portfolios for additional interest rate cuts by the Fed," he said, but market conditions have shifted and the office has reduced interest-rate sensitivity accordingly.

Council members asked operational and risk questions, including what would happen in an emergency withdrawal that reduced an SMA below the $10 million minimum and how the SMA would affect the city's flexibility. Council members expressed interest in diversifying some funds while keeping adequate liquidity for projects and utilities. One council member said the program "doesn't put us in any more risk than we are now" and another noted the management fee appears modest relative to returns.

Council members asked for time to review the materials; one member requested one to two business days to analyze the proposal before making a decision. Staff said they would collect additional questions for the treasurer's office, can brief council members in a follow-up, and will schedule the item for a future council meeting if the council directs staff to do so. No motion or vote to join the SMA program was taken at the session.

The council adjourned the study session after the presentations and follow-up discussion.