Today, city of Chicago Treasurer Kurt Summers announced that his proposed investment policy changes have passed the Chicago City Council. These changes included a new “minimum credit quality” rating for investments, as well as new disclosure requirements.
In the announcement, the Treasurer stated in part that “these changes are modeled on best practices in today’s markets.”
We’ve been calling for more frequent and thorough reporting of state and city government investment results for some time, and welcome the Treasurer’s initiatives in that area. With so many municipal governments facing financial difficulties lately, there can be incentives for managers to take more risk. If the risk sours, taxpayers can face even higher debts, as more than a few lessons from our financial markets have demonstrated.
However, one element of the new risk management policy deserves some monitoring, and perhaps rethinking. The city continues to rely on credit ratings as a means by which “credit quality” is determined, which may or may not represent a best practice in light of the financial crisis of 2007-2010.
A longer story. The whole policy deserves a look.