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The Quiet Revolution Happening in City Hall: How Municipalities Are Reclaiming Their Financial Future
- Jose Alvarez, CFP®, MBA
- 3 days ago
- 6 min read
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The Real Story: Why Cities Leave Money on the Table
I’ve sat in at a number of city board meetings. They’re really fascinating if you like the slow, crushing boredom of local politics, formalities, and finance talk. If they get really exciting, they’ll talk roads, water, park, the library might be a hot topic, or maybe talk of gasp! raising taxes or issuing debt to fund a project.
Those are some of the sexier municipal topics.
Idle asset management?
That’s probably on the less sexy side of it. It doesn’t grab the headlines and doing nothing about it won’t get anyone fired. But what can it do? It can quietly bleed community assets and dampen growth for both families and businesses.
This is a safe space… we can call it what it is:
Inertia…
Laziness… that might be a bit harsh
Discomfort...
Ignorance…
But, let’s be honest, there’s a lot of comfort in doing the things we’ve always done. Again, no one gets fired for leaving money in checking, right? But people will get fired for putting municipal – taxpayer – funds in a high-risk asset that loses 40% “suddenly.” So, across small and mid-sized municipalities across our great states, the money just sits… collecting dusk, withering away, emaciated, and starved of purpose while they wait to be distributed for something and, all the while, taxes continue to go up.
That’s fine, for a while. But at some point, someone will look up and say, “what the hell are we doing with this money?” after 10 years of it just sitting earning 0.10% in a checking account – meanwhile, inflation has been ripping at 2.5% or 5.5% or even almost 9% in 2022.
Suddenly, that “safe” pile of cash doesn’t go as far as you thought even just 5 years ago and, as municipal leaders, we’re back in front of the taxpayers telling them we need to raise their taxes again. Frankly, I think that’s a harder conversation than explaining – or having your asset management partner explain – why the funds were moved, what they’ll be doing and why, and the ultimate benefit to the taxpayer.
The Human Side of Change: Council Debate, Community Pushback, and the Grit to Try Anyway
Here’s the secret we all know about change… it doesn’t always feel good, especially not right away. The first time someone suggests putting money to work, they always get “the look.” You know the look I’m talking about. Loaded with skepticism, their careers flashing before their eyes, the flashbacks of Enron or 2008 or whatever financial ghost is still rattling around in the collective memory.
It takes a more forward-thinking, open-minded person to ask, “what’s the risk of doing nothing?”
That question alone has the power to shift the tone and direction of the conversation in the room because the real risk isn’t in losing all of the city’s money in a pyramid scheme. The real risk is letting your city fall behind year-after-year and then pushing that burden on the taxpayers then patting yourself on the back for “playing it safe.”
Here are a few success stories that every municipal leader should be aware of:
This town put their idle funds to work and, since reporting in 2023, was on pace to earn $2 million in investment income. That’s not just a line on spreadsheet. It’s real impact to the community by way of reduced taxes, better roads, and breathing room in the budget.
A tiny town that had the vision of growing. And it did. It doubled its size by being able to build housing and community amenities that attracted new families and new businesses.
This Minnesota town of 13,000 residents reinvented it’s downtown, increased property values, AND kept taxes stable in the face of a significant threat from reconstruction.
Incredible, this town has been able to turn its finances around by appropriately investing and allocating funds in ways that has resulted in residents not having to pay town taxes SINCE 1981.
These towns all took the leap and started taking their finances seriously and in new ways so they could plow those returns back into their communities. They watched people move back, new homes go up, and new energy pumped into dying communities. No disrespect to those who try but you simply can’t do that with grant money or bake sales.
It’s not just about numbers. It’s about the message you send to your residents, voters, taxpayers. It’s about telling them that you’re putting every damn dollar you take from them to work.
What Stewardship Looks Like: Policy, Oversight, and the Art of Not Screwing Up
I don’t want anyone in municipal leadership to be confused by what I’m saying. I’m not telling anyone to hand over the taxpayer wallet to Wall Street. What I’m saying is that you should have a plan.
Have a Fully Developed Investment Policy Statement
I’ve met with a number of municipalities who either don’t have an IPS or have only a shell because they’ve never needed it given that their funds are primarily sitting in checking. But the meat of these is this: Safety, liquidity, yield. In that order. Always.
Hire a Fiduciary Asset Manager
Not all financial advisors and companies are built the same. RIAs – registered investment advisors – are advisory companies that can be either registered with their state or federally registered with the SEC. These companies are fiduciary-only and fee-only. This means they don’t sell investments for a commission (sales charges). They charge on-going asset management and advisory fee that isn’t tied to the specific investments provided because they don’t sell investments. They provide them as a result of the clients’ need.
While some broker-dealer affiliated companies will have a fiduciary component, they are not fiduciary- and fee-only, as is required for RIAs.
Hire an Asset Manager That Knows Municipal Needs
There’s a lot of reading, understanding, conversation, and experience required for an advisor to service municipal clients. Many financial advisors don’t want to do that. They don’t want to take on the burden of understanding the State’s requirements to service municipal tax dollars. Just because all advisors can provide investments, it doesn’t mean all advisors should – this is especially important when it comes to municipalities.
Again, not all advisors and companies are built the same.
Most importantly, don’t get cute with it. If it sounds too good or feels too good to be true, it likely is. If you stick with what your state allows and if your advisor understands what your state allows and can explain it in plain English, then you can have more confidence in the process.
Ultimately, you don’t need to chase every basis point of yield you can possibly get. You just need to make sure your city isn’t getting left behind while others are moving forward all because the checking account was the safest.
Bottom Line: Don’t Let Fear or Habit Run the Show
Markets will wobble. Some monthly statements will be up, and some will be down. Somebody will question your decision. Headlines might make you question your own decision. That’s life and leadership – especially change leadership.
Municipal investing isn’t about being a hero, rather, it’s about being responsible, being a steward, being a caretaker. This means being willing to act on answer, even if it’s uncomfortable or a little scary.
So, next time someone says, “that’s just the way we’ve always done it,” for the love of your city, don’t let that be the end of the conversation. Your city might actually thank you for it… instead of just yelling at you at townhall meetings for proposing another tax increase.
That’s how you move a city forward.
Jose Alvarez, CFP®, MBA
Financial Advisor
Founder
Harvest Horizon Wealth Strategies
The information presented in this blog is the opinion of the author and does not reflect the views of any other person or entity unless specified. The author may hold positions in any securities discussed in this blog. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. Images included in this blog are created by artificial intelligence. Any resemblance to any existing persons, past or present, is purely coincidental. The information provided is for informational, entertainment, and educational purposes and should not be construed as advice. Advisory services are offered through Harvest Horizon Wealth Strategies LLC, an investment adviser registered with the state of Wisconsin.
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