OKTIBBEHA COUNTY – With about $30 million in net proceeds expected from the sale of OCH Regional Medical Center, Oktibbeha County supervisors must now decide how to use the money.
Options currently range from immediately spending the proceeds on needed local projects to investing the funds in a long-term fund, using the gains to fund projects for the county in perpetuity.
Board Attorney Rob Roberson is urging supervisors to invest the money in a trust, similar to the approach Lowndes County took nearly two decades ago after selling its hospital for $30 million.
What would that process look like? What benefits would it pose? What other options are at play?
Roberson told The Dispatch the county has not yet studied the details of investing funds. But if that’s the route it takes, he believes the process would closely mirror Lowndes County’s.
“My knee-jerk reaction is that it’s going to be very similar to what Lowndes County did, if that is what is determined,” Roberson said. “I really hope that’s what they do. To me, it just makes good sense for the future of our county. It’s a large chunk of money that hopefully we can put up and let it have the ability to continue working for the community.”
How can counties invest their money normally?
State law only permits counties to invest in short-term, low-risk, conservative options like certificates of deposits, government bonds and insured bank accounts, which must be backed by the federal government or The Federal Deposit Insurance Corporation insurance, all of which offer low returns on investment.
This low return investment led Lowndes County to find avenues to more aggressively invest funds.
Lowndes County placed $30 million from the sale of its hospital into a certificate of deposit in 2006, but after federal interest rates dwindled from 5.2% to 0.19%, supervisors pushed for legislation to allow it to invest funds in a way that would offer the possibility of a better rate of return, Board President Trip Hairston told The Dispatch.
“We had $30 million, and one year we made less than $60,000,” Lowndes County Board Attorney Tim Hudson told The Dispatch.
How did Lowndes County establish its trust?
Lowndes County drafted legislation in 2013 to establish the Lowndes County Reserve and Trust Fund to invest the $30 million in instruments other than accounts backed by United States treasuries.
Then-Gov. Phil Bryant signed Senate Bill 2702 into law that year, authorizing the county to invest the money in stocks and bonds through the reserve and trust fund. House Bill 1508 was passed the following year with revisions to the fund. Since then, the fund has grown to about $40 million, with the county having already pulled more than $10 million for capital projects.
The trust is divided evenly between two management companies: Renasant Wealth Management and Stifel. The county’s internal policy gives the management companies a target of investing 2% of the funds in cash, 58% of the funds in bonds and 40% of the funds in stocks, though each investment strategy has an allowable range the companies’ can adhere to.
State law says no more than 70% of the fund balance can be invested in stocks.
Both companies give the board of supervisors an annual report of the status of the investments.
Why does a trust matter?
Investing in the stock market offers the county the potential for a higher rate of return, meaning more money on average is generated annually to go toward capital projects.
Edward Jones’ published the average rates for FDIC-insured certificates of deposit. It lists a one-year certificate deposit at 3.75% average percentage yield. Conversely, the S&P 500 Index, a list of 500 of the largest public companies in the U.S., has had an average annual growth rate of about 9% over the last 10 years, according to financial services company Bankrate.
If Oktibbeha County were to invest $40 million into a certificate of deposit with the current average rate of 3.75%, it would see an annual return of about $1.5 million. If invested in the stock market at about 9% a year, it would return about $3.6 million.
“The investment strategies that we have are safe strategies,” Hairston said. “We put the funding plan in place to where … there’s risk, of course, when you’re in the market, but there’s safe strategy funding, so we can do a mix of bonds and stock instruments that actually give a better rate of return than what the (certificate of deposit) was going to give.”
How could it benefit Oktibbeha County?
Lowndes County supervisors can withdraw up to 3% of the total fund balance annually, as long as that withdrawal doesn’t cause the fund to fall below what is called the corpus.
The corpus is determined by the initial investment, plus growth over time that has not been withdrawn. As of this month, that amount had grown to more than $40 million.
This year, a roughly $1 million withdrawal will go toward servicing the debt from the construction of the BankFirst Yards sportsplex off Highway 82 west of Columbus.
Over the years, withdrawals have funded several capital improvement projects in Lowndes County, including renovating the health department building on Lehmberg Road, the Justice Court building on Martin Luther King Drive and the E-911 Center next to the courthouse.
Roberson said he could see a trust providing Oktibbeha County with steady annual funding for similar infrastructure projects.
“The beauty of this would be once it started earning some interest … we would have a couple million dollars a year that we could put into a fund,” Roberson said. “And for arguments sake, there could be a road that it could be used for or … at some point we’re going to need a new jail or justice complex and we could start using that money … to help pay for those projects.”
What other options are on the table?
Not all supervisors favor a trust. During the board’s Sept. 15 meeting, District 2 Supervisor Orlando Trainer suggested dividing the full $40 million equally among the five districts to address immediate needs.
District 1 Supervisor Ben Carver proposed splitting $15 million among the districts while reserving the rest in an endowment.
While he favors investing the funds, Roberson said it’s up to the board to decide what to do with the money.
“I’m sure the board members have projects they might want to try to get done now, and so I can’t say that their projects aren’t important too,” Roberson said. “They could take it, put the money into the regular account and just use it to pave some roads if that’s what they wish to do. … I just think that in the long run, (the trust) would be a good move for future generations,” he added.
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