MANSFIELD — Context is everything when it comes to looking at public finances.
Inflation at a 40-year high has slowed Richland County sales tax revenue in 2022.
But the Federal Reserve Board’s raising of interest rates to slow that inflation has helped fuel a marked increase in the county’s investment income.
That was the gist of an investment advisory board meeting Thursday with county Treasurer Bart Hamilton, county commissioners and Jim McCourt, director of advisory services at Meeder Investment Management in Columbus.
County sales tax revenues through the first half of 2022 were $425,191.92, according to Hamilton, who had a set of a goal of $550,000 for the entire year. Interest income during 2021 was $751,085.
“We are easily going to make (goal) this year,” Hamilton said, whose investments returned $1.3 million in 2020, $1.8 million in 2019 and $1.2 million in 2018.
The problem is investment income is a much smaller portion of general fund revenue than sales tax.
“In 2021, interest earnings accounted for 1.78 percent of general fund revenue,” Commissioner Tony Very said. “Sales tax accounts for 55-60 percent of general revenue. There is no close second (revenue stream).”
Hamilton agreed.
“A county’s income is based on sales tax. That’s the way the (state) legislature wanted it to be and that’s the way it is. The earnings we make from investments are way down the list compared to sales tax,” the treasurer said.
Hamilton said investment revenues didn’t hit his goal in 2021.
“I thought the Fed would raise rates last year and they didn’t,” he said. “And they really should have. It would have slowed some of this (inflation) down.”
The Fed has raised rates multiple times in 2022 in an attempt to slow inflation, which hit a 40-year high of 9.1 percent in June before slowing to 8.5 percent in July.
McCourt said the Fed hopes the interest rate increases are working, though additional increases may be coming in September.
According to a story by Bloomberg published Thursday, the Federal Reserve hasn’t yet raised interest rates to levels that are weighing on the economy and may have to take them above 4 percent for a time, Kansas City Fed President Esther George said.
The problem, according to McCourt, could come if interest rates are raised too high and slows the economy, perhaps leading to a recession.
“We are seeing cracks in the economy,” he said.
By traditional metrics, the U.S. economy is already in a recession with two consecutive quarters of negative real (inflation-adjusted) GDP growth.
Other economists and Biden administration members deny there is a recession, claiming other indicators — including a strong jobs market — provide evidence to the contrary.
Hamilton said the county’s rate of return on investments in the first half off 2022 was 1.08 percent with an average maturity of 2.26 years. The county only invests in “safe” funds, he said.
“Safety, liquidity and return (are the investment goals) … in that order,” the treasurer said. “We can’t buy anything where we could lose principle.”
The county’s investment portfolio allocations are in U.S. Treasury Notes, negotiable certificates of deposit, municipal bonds, money market funds, foreign government bonds, commercial paper, agency bonds and STAR (State Treasury Asset Reserve) Ohio.
