Interest rates are falling across the board, affecting not only residents but local governments as well.
In a recent meeting of the Clay County Board of Finance, Clay County Treasurer Debbie James said rates have dropped into the basement.
"In 2007, the average rate on the county's investments was 5 percent, and in 2008, it was down to 2.87 during the course of the year," James told The Brazil Times Thursday. "However in December, the rate was down to 0.67 percent."
James added while the rate has increased slightly this month (0.85 percent), it is putting a small strain on county funds, and the impending effect of the property tax caps won't make things easier.
"Even though there are additional regulations on government investments -- for more protection of the money because they are public funds -- it is indicative of the economy in general because all interest rates are dropping," she said. "But it will tighten things up some and we are going to have to find some more money somewhere."
According to figures provided during the meeting by James, there was an almost $250,000 difference in the amount of interest received on the county's Certificates of Deposit (CD's) alone (see chart).
"We also had less principal received during 2008," James said. "If we had the same amount to invest as we did in 2007, at the average 2.87 percent rate, we could have received an additional $155,267 in interest."
However, even with the potential interest the county could have made with the additional investments, it still would have been $92,950.28 less than it received in 2007.
James said rates have dropped this low before, but the county was able to make it through the tough times.
"This happened about 20 or 25 years ago," she said. "Rates fell to about the same levels, maybe a little lower, and things were tight like they are now."
Because area banking institutions had been offering lower interest rates than those outside of Clay County, the Clay County Commissioners passed a resolution in May 2008 to allow James to seek investment opportunities in other areas.
However, James has not needed to invest outside of the county since then.
"After the resolution passed, local banks bumped up their rates similar to those out of the county and I haven't needed to use them," James said. "One thing the county likes to have the extra interest for is to cover shortfalls. It is like a little reserve for us and it is not used unless it is needed."
Because the City of Brazil has been in a tight financial situation, they have not felt the effects of the drastic decrease in interest rates.
"Right now, we have no CD's or outside investments," Brazil Clerk-Treasurer Karen McQueen told The Brazil Times. "However, we have been working hard to fix the current financial status of the city and are almost back to the point where we can start making investments again."
McQueen added the city did have one CD at the beginning of 2008, but had to use it to help pay costs incurred from the sidewalk project.
"CD's are good to have in times where a government entity needs to cover the cost of bonds so they don't go into default," she said. "But at this point, our funds are kind of like checking accounts."
Effect of falling interest rates
The following chart outlines how falling interest rates have affected the amount Clay County has received from Certificate of Deposit investments and how much Principal it received from 2007 to 2008:
|Year||Average rate||Interest from CD's||Principal received|