Huon Valley Guessing Games: First, the (possibly) good news: Huon Valley Council may be about to get back half of the $4 million it lost by gambling with its cash reserves just prior to the 2008 global meltdown.
Second, the still-very-bad news (in triplicate): if recovery — via an out-of-court settlement — of $2 million of council’s lost $4 million is, in fact, about to happen, the reality remains that (i) council has still blown $2 million of its investments in collateralised debt obligations (CDOs); (ii) it possibly faces a huge legal bill (even if it is sharing legal costs with other councils that also squandered public money); and (iii) there is no way the people of the Huon Valley will ever recoup the interest losses on that $4 million had it been invested conservatively (i.e., responsibly). Even at a modest (and secure) 3% per annum, that would have amounted over five years to a simple-interest gain of $600,000.
So, whichever way you look at it, in the mid-2000s, council (under the stewardship of Mayor Robert Armstrong) leapt aboard the booming big-bikkies-are-a-beckoning freight train, and poured about a third of its cash reserves into risky, exotic financial products.
At the time of the revelation that council had blown its money (late 2008), there were suggestions that the expectation when the investments were made was of a return of about 10%. Nice work if you can get it. Usually you don’t.
What made a tragic situation a tad laughable at the time the losses became apparent was that it turned out that council even got wrong the maturity date of one of its CDO investments.
The picture that emerged then was of a council that — eyes wide open — had guilelessly accepted an “adviser’s” advice and gone for broke. No second opinion. No consideration that it all might be just too good to be true.
If you are investing your own money, it’s OK to take a gamble — but when it’s public money, or someone else’s, that you are playing with . . .
Something that has rarely been considered — except possibly by a tiny minority of Huon ratepayers who actually believe that local government should be made answerable for all the monies it handles — is this: what on earth was a council that forever cries poor doing with a spare $4 million sloshing around — and then proceeding to treat it in such cavalier fashion?
I did ponder the prospect of the mayor providing his long-suffering municipality with an explanation at Wednesday night’s (April 17) monthly council meeting. So, to give him a chance, I asked him this during public question time:
My question is to the mayor. In light of recent media items, is it a fact that Huon Valley Council, as a result of an out-of-court settlement, is to be reimbursed half of the $4 million of ratepayers’ money that council lost by investing in CDOs?
What was the response of the mayor you have when you are not having a leader? He ducked the question, leaving the job of answering it to Acting General Manager Simone Watson (not on council staff when the CDO investments were made).
She responded in the respectful and efficient manner she has displayed since stepping in when then-GM Glenn Doyle stood aside last October pending investigation of bullying and harassment charges against him by one of his managers. (Doyle, cleared by a council-arranged inquiry, resigned late last month, and Watson is continuing in her acting capacity (see http://oldtt.pixelkey.biz/index.php?/article/glenn-doyle-goes-questions-linger/ ).
Watson, in her reply to my question, said that negotiations relating to the lost money remained subject to litigation and that she knew of no out-of-court settlement.
So, there we have it: TT’s equivalent of the bush telegraph is hearing (as are people elsewhere) about a deal that would retrieve half of HVC’s lost capital, yet Huon Valley Council, Sergeant Schultz-like, is saying, “We know nothing”!
How can it know nothing? What is certain is that it is saying nothing to those whose money it lost. Not once in the more than four years since the losses became apparent has it given valley ratepayers an update on the progress of joint-council negotiations with the receivers of Lehman Brothers, or, more vitally, CBA, which, it seems, gave council the idea of CDO investments.
Should the rumour mill prove correct, whichever way you look at it, a 50% return will amount not to a victory for council but only to a near halving of the CDO disaster. Such a deal (certain to be commercial-in-confidence) would simply confirm that at least $2 million of taxpayers’ money (plus interest over several years, plus presumably substantial legal costs) is irretrievably down the gurgler.
Whoever authorised those CDO investments, as soon as the losses came to light, should have resigned or been sacked — whether they were staff or elected — for having breached public trust by investing public money in risky financial products.
When you are investing public money, the only way to go is to put it into the safest levels of investment and to settle for the modest interest such products offer. Gambling with public money is just not on.
How Robert Armstrong has since been able to countenance continuing to offer himself for public office — as mayor or councillor — is beyond my comprehension. Along with the general manager, a mayor jointly leads a council — and the buck should stop with them. (In the year after the losses were revealed, council, for undisclosed reasons, did not renew the contract of long-time general manager Geoff Cockerill.)
On the brighter side, just how would council react should it find itself with a $2 million windfall? Perhaps Deputy Mayor Mike Wilson — who backed the folly that was the Huon Valley Water Scheme, which ended up costing Southern Water nearly twice the cost of initial estimates of about $18 million; who voted to spend the better part of a quarter of a million dollars on the ugly public toilet block that now disfigures Cygnet’s main street; who is backing a $500,000 ill-designed car park that is not in keeping with the Cygnet Township Plan — might no longer question the expenditure of a few hundred dollars on staging the council’s five annual township forums, or question even consideration of spending $5000 on assessing valley buildings of local heritage significance.
Why, with a lucky extra $2 million in council’s hands, Cygnet Town Hall could have a lift to its Supper Room before year’s end (instead of about 2021-22, as envisaged by council); Dover could have solar state-of-the-art street lighting (discussed at council’s meeting on April 17); Cygnet could have a road along the back of the shops to the east of Mary Street (as envisaged in the township plan), with, it would be hoped, a re-working of council’s present inappropriate car park design; the Ranelagh-Huonville walking/cycling track could be put in; Geeveston’s tree-planting program could be completed; the foreshore program at Franklin could be advanced; a skate park in Cygnet’s Burtons Reserve could be built; the Geeveston skate park could be upgraded . . . and Councillor Wilson could still have the “balanced” budget he constantly goes on about.
The mind truly boggles at what could be done with a lost-then-found two million bucks. — Bob Hawkins
