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CD cash-out stirs conflict

A failure to communicate cost Pierce County a $13,000 penalty when a certificate of deposit was cashed in early to cover end-of-year bills, according to some sources.

But the man who was county treasurer at the time disagrees. In the end, he said, an investment experiment he initially questioned made money for the county despite the penalty.

"We were headed for pretty thin ice, so I had to break a CD," said former treasurer Lee Skog Friday. "I don't think I erred in doing what I did."

With unknown bills on the horizon and a payroll around the corner, he had no choice but to cash in a $1 million CD in late December, said Skog.

"I, of course, wasn't going to be around. I couldn't leave Paula (Knutson) with a negative balance, so there was no choice," said Skog.

The penalty could have been avoided if Skog had alerted her, said Finance Director Julie Brickner. She said she and Knutson, who became treasurer in January, will work together to make sure this doesn't happen again.

"Had I known, I think I could have worked with it," said Brickner. She said she could have held some bills briefly or, in one case, arranged to pay a large bill quarterly rather than in one payment.

The cash-flow problem, although it was only for a short time, looked too large to deal with that way, said Skog. "There was no choice to be made but to cash in $1 million."

"It was a trial run and it was a very expensive one," said Skog. "I went into it (the CD purchases) reluctantly because I could see this happening possibly."

While Skog worked with the finance committee early in the year to find the best place to hold money in a CD, he renewed deposits last August "without discussing it with anybody," said Administrative Coordinator Curt Kephart.

In February 2006, the finance committee agreed to invest $4 million in six-month CDs at Bank Mutual. The committee was told the money wouldn't be needed until August and at the 4.91 percent rate the bank was offering, the county could earn about $97,000--$10,000 more than if it kept the money in the usual money market account.

When the CDs matured in August, the county didn't need the full amount to pay taxes to other jurisdictions, so Skog cashed out $2 million and rolled over the other $2 million for an even better interest rate of 5.42 percent, said Knutson.

Skog cashed in one of the $1 million CDs in late December. Because the CD didn't mature until Feb. 14, the county paid an early-withdrawal penalty of about $13,000.

Knutson said the investment would have earned $27,000 if left until maturity, but instead earned only about $14,000.

Because property tax receipts began coming in January, the county's checkbook was only short for a few days, said Knutson. She agreed the cash-flow problem was short term and could probably have been avoided by holding payment of some bills.

The county "lost investment opportunity," summarized Kephart. "We still got more out of it, but didn't get as much as we could have gotten if the money had been in more liquid investments."

"I had no knowledge of this until the middle of January 2007," said Brickner. "It could have been prevented with proper communication."

"I don't see the checkbook. That's kind of the division here," said Brickner. While the finance director sends out payments, the treasurer collects taxes, handles investments and oversees the checkbook balance.

"I had no signal, no warning up front," said Skog of the action he took once he saw the pending shortage.

Still, he said, "Even though we took that hit, we probably did OK."

He concluded, "Even though the penalty was horrendous, we still got a good rate."