Halfway into the fiscal year and things look grim for gains in Glendale’s investment portfolio.

“Where I thought that the bottom was last year, let’s just say that these certainly are challenging times,” said City Treasurer Ron Borucki during a City Council meeting Tuesday.

Historically low interest rates — which determine the city’s returns on investments — are far from bottoming out, causing Borucki to second-guess his original projection of a $4-million gain by the end of the fiscal year on June 30.

By the end of last fiscal year, the city made $4.3 million from its investments.

Borucki said he’s now waiting until fiscal year 2014-15 for interest rates to rise.

The Federal Reserve has been keeping interest rates low to spur borrowing and to kick-start the economy, but what’s beneficial for home buyers or businesses looking for a loan is a drag on the city’s $382-million portfolio.

Before the financial meltdown of 2008, the city was averaging 4% annual returns, or about $16 million, Borucki said.

This year, the city’s portfolio ended the second quarter on Dec. 31 at $382 million, an increase from $372 million at the end of September. However, the $10-million jump comes from an injection of property taxes into the portfolio, according to a city report.

Not only were earnings hampered by federal monetary policy, the city has been keeping a portion of its portfolio — $40 million — in short-term investments, which tend to bring in considerably lower returns.

The money has to be kept liquid because it is slated to be transferred to Sacramento this spring as state officials continue the dissolution of redevelopment, Borucki said.

The redevelopment program that allowed the city to receive higher property taxes from projects such as the Americana at Brand ended last year when state officials decided to take those tax revenues to fill a multibillion-dollar budget gap.

While losing $40 million may drive down the portfolio’s total, it will lift the earnings drag because the city will be free to put its money into long-term investments that will generate higher returns, Borucki said.

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