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Regional library investing dollars for rainy day

“There’s nothing precluding us from investing in the stock market, it’s just, is it desirable?” Ronald Sheppard, director of PRL

Ponoka News Staff

A forward thinking strategy has allowed central Alberta’s Parkland Regional Library (PRL) network to productively use and grow a residual fund into a major asset base, which can now provide operational spending for the regions libraries up to a full year.

In 1998, the PRL was restructured and how it received funding changed; but after the change, some money from the previous funding scheme was left over. Rather than spend it, the PRL board at that time decided to invest it and there is now approximately $652,000 in the account.

“It was in very conservative Canadian type funds,” explained Ronald Sheppard, director of PRL.

The PRL is made up of 50 member municipalities, including the Town of Ponoka, but an executive committee, made up of 10 people, directs Sheppard.

He says much of the funding the PRL receives is from grants provided by the Government of Alberta and through municipal levies or fees charged to municipalities, but this money was not part of those fees.

Ponoka town councillors have recently questioned the purpose behind PRL investing money and some have wondered whether that can be done. Some councillors were under the impression that money was unable to be invested as they were under the impression the money came from PRL member municipalities.

“We do not budget any money for reserves anymore. It’s purely operating dollars,” Sheppard said, in relation to the question.

He suggests some of the confusion comes from the Municipal Government Act (MGA), which does not allow equity investments with taxpayers’ dollars. Municipalities can however, invest in instruments such as bonds and debentures or other items that do not put that money at risk. The PRL is actually governed by the Libraries Act, which falls under different legislation.

Why does the PRL invest its money?

“Apart from our operating grants from the provincial government and from the levies that we place on municipalities, we don’t have any source of income,” explained Sheppard.

This means if a set of boilers need to be replaced at the PRL building and the cost is $40,000, they foot the bill. Any services they offer, the PRL is responsible for and Sheppard says major capital costs would have to come from this fund. In other areas, the PRL would need to dip into its reserve if operating grants from the province are reduced, which has occurred before.

If the PRL were to find itself with no provincial funding, it would be able to operate for one year.

Sheppard says the board at that time wanted to ensure interest earned from the investments was greater than the rate of inflation. If the inflation rate is higher than the rate of return, then that investment may not be doing as well as intended, he said.

“You’re actually losing buying power from the money that you possess,” said Sheppard.

Dealing with economic ups and downs

With the economic downturn in 2008, PRL lost the equivalent of profit from its original investment, but not the principal. Sheppard says those stocks recovered some months later.

In an effort to avoid a loss, the board switched its portfolio during 2010 and 2011 to bonds. “We got out of the equity market.”

Rather than request money from municipalities and the province each time a large capital project is needed, the PRL uses this money to pay for large items. Sheppard says the account balance fluctuates as the PRL uses money for different projects.

He says the only money they invest is the legacy dollars from when they were restructured in 1998.

“All we’re trying to do is protect our funds from inflation,” he added.

Their goal is to manage their funds effectively. “That’s a proper business plan.”

In the world of agencies that rely on government funding, some tend save their money and then scramble at the end of their fiscal year spending money in fear if there is money left over, their budget will be reduced.

Executive committee looks at investing again

Recently, Sheppard says the executive committee instructed him to research the potential for re-investing in the equity market. However, that request was met with strong opposition from a small group within the executive committee.

“There’s nothing precluding us from investing in the stock market, it’s just, is it desirable?” Sheppard asked.

He met with the executive committee Thursday, Oct. 9 to provide his recommendation, which is to keep the money in bonds until 2015 is over.

Sheppard says he researched economists’ predictions for 2015 who expect a recession in the United States and he feels keeping the status quo until economic tides turn is advisable. “Until we’ve gone through at least the first two quarters of 2015 and then re-assess.”

While the majority of the board has indicated a desire to invest in equity markets, there are also strong critics. Sheppard says despite these strong feelings within the executive committee, he feels they should heed analysts’ advice and stay the course with bonds.

“There’s no pressing reason why we should,” said Sheppard.

He researched financial news from the Associated Press, financial magazines and from financial sites to try and formulate an educated recommendation.

“A lot of it has to do with the sluggish European economy at the moment and the huge debt load that the United States is under,” explained Sheppard.

The decision of the executive committee was not available at press time but Sheppard says he will follow the direction of the committee.