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Council approves broader investment rules for water-system proceeds to reduce reinvestment risk
Summary
After a presentation from the borough’s investment adviser, the council voted to amend the water-system investment policy’s duration and maturity limits so managers may lock longer rates when prudent to protect income for water-system operations.
The Bristol Borough Council on July 13 voted to amend the borough’s investment policy for water-system proceeds, expanding allowable maturities and giving the borough manager, treasurer and investment adviser greater discretion to select maturities based on cash‑flow needs.
The change follows a presentation by Tim, the borough’s investment adviser, who told the council the current maximum weighted‑average duration (2.5 years) leaves the borough exposed to reinvestment‑rate risk. “No specific maturity or duration limitations shall apply to the portfolio or to individual investments provided that all investments are otherwise authorized under the policy and applicable law,” Tim read as recommended language and said such flexibility would help the borough lock favorable rates when appropriate.
Why it matters: the borough’s water fund holds about $24 million but, because of past low‑rate periods and short maturities, the advisor said income the fund generates can fall well short of earlier returns. Tim cited the example of 2014, when differences in interest rates and reinvestment timing produced materially different income levels, and warned that strict short‑duration rules can erode purchasing power over time.
Council members asked how the revised approach would manage risk. Tim said the policy would still emphasize diversification and preservation of capital and that investments must remain authorized under applicable law; he said managers would balance maturity choices with the borough’s projected liquidity requirements. Council President (chairing the meeting) praised the investment performance overall during the discussion, noting the pension portfolios’ multi‑year returns have outperformed stated benchmarks since inception.
Action taken: a motion to authorize amending Section 11 (maturity and duration) of the investment policy for water‑system proceeds was moved, seconded and approved on a voice vote. The council also directed staff and advisers to continue providing cash‑flow projections to inform duration decisions.
Next steps: council staff will finalize ordinance language and the administrative change and provide updated policy documentation and reporting to the council and finance staff.
