With passage of the capital facilities tax to finance Powell’s new aquatic center in 2006, voters also authorized  $2 million for an endowment fund which pool planners hoped would finance annual operating costs from investment returns.

It hasn’t even come close, and one of the reasons is current investment rules prevent the City of Powell from getting the most bang for its buck on its endowment fund investments.

Efforts are underway across Wyoming to change the rules for endowment fund investments, but when millions of dollars are on the table, everyone is playing their hand as carefully as possible.

Basically, the idea is, there is power in numbers; so merging Powell’s endowment fund with the rest of the funds the state invests means more investment power with potentially greater returns.

“We would love to merge endowed funds,” Powell City Councilman John Wetzel said. “That is my plea, to not muddy the waters with reserves and general fund money. We aren’t trying to reinvent the wheel.”

What’s the problem?

There’s about a $250,000 difference between revenues and expenses on the Powell Aquatic Center’s budget for next year, said Powell City Administrator Zane Logan. An endowment fund is in place to help limit that gap, but the investment returns need to muscle up in order to lessen the financial blow.

Reserve funds for all of the city departments are invested locally with a lower rate of return, not even a tenth of the endowment fund’s return rate, Logan said. But, the endowment fund’s returns pale in comparison to what the state is able to do with its investments.

As it currently stands, Powell’s endowment fund brings in about $35,000 annually. But, with the state’s help, those returns could increase to about $100,000, Logan said.

“Far from closing the gap on expenses verses revenue for the pool — but it would help significantly,” Logan said.

The endowment fund is earning less than one-half of 1 percent rate of return. Meanwhile state investments are earning between 5-6 percent, Wetzel said. Paying the state to manage the fund would cost about half a percent, still leaving a much larger rate of return for the aquatic center.

Operating the pool is expensive and even with support from the community and schools, it needs some help in order to keep membership prices low, Logan said.

“We need to keep the cost down to where people can afford to use it,” Powell Mayor Don Hillman said.

The facility was restaffed and restructured in an effort to cut costs and make it as efficient as possible, Logan said. The city also entered into a maintenance contract for the building’s boilers and HVAC to reduce costs.

But, it’s going to take legislative action to really make an impact on the aquatic center’s finances.

Gears are starting to turn

The entire process is “very preliminary,” said Wyoming State Treasurer Mark Gordon. During the previous Legislature, Gordon asked for the Joint Revenue Interim Committee to talk about how to do a better job of improving investments for local municipalities.

Now city, county and state leaders are starting to turn the gears on drafting the legislation to present at the 2016 Legislature.

Currently, local governments can only invest within the guidelines of state statutes for low return and low risk securities. Meanwhile, the State Loan and Investment Board has a consultant and more leniency — which means broader investment options, including corporate bonds.

Essentially, the state gets the full menu of investment options and local governments are limited to the appetizer menu.

“That has been tough for local governments (in terms of total return),” Gordon said.

What’s currently being looked at is having the statute for local governments reference the state’s master investment policy — expanding that appetizer menu into something with more options and more earning potential.

Endowment funds 101

In 2006, local voters approved the capital facilities tax which helped build the Powell Aquatic Center and establish the $2 million endowment fund to help maintain the facility.

It took a couple of years for the community to see the benefit of the tax as the pool opened in May 2010.

“There is some misunderstanding that cities collect it, but it is really collected on a county basis,” Logan said. “Then it is sent to the state and they return a portion of it.”

State statute allows each county to have a one cent optional tax or a one cent capital facilities tax — some even do both, Logan said. The difference is the capital facilities tax has to say what it will be used for and remains in place only long enough to accomplish the stated purpose.

Park County used the capital facilities tax for Powell’s pool, renovations on the county library in Cody and renovations to Meeteetse’s pool as well.

Powell’s piece of the tax pie was $7 million for the aquatic center’s construction and $2 million for the endowment fund. The endowment fund was intended to be invested with just the returns used to help with keeping the aquatic center open while leaving the $2 million untouched.

But, the economy took a downturn around that time, meaning Powell’s investment returns for the endowment fund weren’t as high as anticipated.

Half a million dollars also came from the Powell Charitable Foundation, formally known as the Moyer Foundation, Logan said.

What’s the plan?

Legislative changes are needed so municipalities can make the same types of investments the state does, Logan said.

If the change is made, cities would have to pay the state for the administrative expenses associated with managing their investments — but those costs would more than made up for with the higher rates of return, Logan said.

Other municipalities are interested in being able to have the state invest their endowment funds on their behalf too, Hillman said.

Reserve funds for other city departments will remain the same, efforts are only being made to change investment approach for the pool’s endowment fund, Logan said.

“We want to make sure people understand it is not our other reserves,” Hillman said. “It is strictly endowment money.”

A revenue rendezvous in Rawlins

Councilman Wetzel attended the Joint Revenue Interim Committee meeting in Rawlins on April 19. During that meeting, representatives from across the state discussed possible future legislation — including the possibility of the state investing municipal endowment funds.

Wetzel said he spoke about Powell’s situation and willingness to tax themselves to create the endowment, but ongoing economic circumstances only yielded low return rates.

Overall, the meeting in Rawlins went well, Wetzel said. A motion was made to move to the Legislative Services Office to draft legislation for the 2016 session, he said.

“There will be difficulty in making sure everyone is clear what we are asking for,” Wetzel said. “We are not asking for county clerks investing willy nilly.”

The process is complicated because everyone involved wants to make sure there is no ability for reckless investments to be made with city funding and that it only pertains to endowment funds, Wetzel said.

“The conversation and discussion all made sense to me, so I’ll trust they will come up with something good,” Wetzel said. “There was a lot of discussion and a lot of smart people were there talking about it.”

The Wyoming Association of Municipalities (WAM) is also playing a role in getting the rules changed. Changing the statute requires a bill with sponsors and WAM will draft a resolution to support the change, Hillman said.

“Then they will testify and do what is necessary to go through the normal legislative process,” Logan said.

Minimizing the risks

Currently, the state doesn’t run the investments. Instead, it has a firm manage their investments to keep risks low and returns high, Gordon said.

“But, we are a large client, so our fees are very low,” Gordon said. “That is one of the great things with Wyoming being as successful as it is, we can negotiate favorable fees.”

If the proposed legislation goes through, it would create a separate local government pool, Gordon said. Powell’s $2 million endowment would be pooled with others.

Like any investment, there is a certain level of risk, which is why general funds and other accounts aren’t invested that way and caveats are in place to ensure safe investment, Wetzel said. They have a lower rate of return, but a much lower risk as well.

“There is always risk in investing,” Gordon said.

The Wyoming Community Foundation does the same thing with the Boys and Girls Club and other organizations that don’t have the staff to manage investments, Wetzel said.

“We believe this deal to be a safe investment, especially with what the state is proven capable of doing,” Wetzel said.

Tying Powell’s endowment fund to the state’s master investment policy would bring in a third-party consultant to make sure it does not get invested in “junk bonds where it is a high degree of risk,” Gordon said.

“We would design the program to be sure it was sufficiently prudent and protective,” Gordon said.

This approach worked out well when the recession hit in 2008-09, Gordon said. Wyoming lost money along with the majority of the country, but the impact was less intense and the recovery was faster.

“We are simply trying to diversify what we can do for the state and the local governments,” Gordon said.

By diversifying investments, the risk is minimized since it’s unlikely all of them will drop at the same time, he said.

“We don’t necessarily have the most phenomenal performance,” Gordon said. “We don’t go as high as everyone else, but we sure as heck don’t go as low.”