The Gazette covers City Hall, now a flood-damaged icon on May's Island in the Cedar River

What’s a couple million when a community confronts a billion-dollar disaster?

In Cedar Rapids/Linn County Solid Waste Agency, City Hall, Floods on August 19, 2008 at 2:45 am

The ugly has gotten a little less ugly.

And even as the picture had been turning prettier anyway. Prettier because the Cedar Rapids/Linn County Solid Waste Agency has had a gigantic infusion of business and revenue from fees paid to bury all the debris from June’s historic flood in the agency’s two landfills.

Earlier this year, though, no one dreamed there would be a flood, and so there was plenty of time to make note that the Solid Waste Agency had taken a hit in a troubled $6-million investment. The investment was in something called Rhinebridge LLC. Rhinebridge LLC, a European investment product created in the summer of 2007, was a kind of investment called “commercial paper,” which Iowa law permits local governments to invest in.

The Solid Waste Agency, which is multijurisdictional entity with a board comprised of Cedar Rapids and Linn County officials and a Marion representative, depends on the city of Cedar Rapids to make its investments, and it was the city, with the help of a Wells Fargo broker in an investment bidding process, that landed on the Rhinebridge turkey.

Earlier this year, the Solid Waste Agency board couldn’t help by reveal the problem. The $6 million represented about a fourth of its cash reserves.

By late spring, the board announced that it received $930,000 of the $6 million investment as part of a cash payout. By then, the agency had lost an additional six-figure amount in lost interest by not having the rest of what it invested in Rhinebridge to invest in something else.

In recent days, Karmin McShane, the executive director of the Solid Waste Agency, reported better news. At an auction sale on July 31, the troubled Rhinebridge investment returned 47.94 percent of its value. This allowed the Solid Waste Agency to recoup an additional $2.430 million to go with the earlier payment of $930,000, putting its final loss at $2.639 million.

It remains to be seen if a court can retrieve more of the money. The city of Cedar Rapids has sued the brokerage firm to recoup what it can of the final loss. The city claims the Rhinebridge LLC investment should never have been offered to the city as an investment.

Rhinebridge LLC, a European investment product created in the summer of 2007, signaled it was having difficulty in September 2007 before it went into default in October 2007. It had too few assets, many backed by problem mortgages, to pay off those who had invested in it.

The city of Cedar Rapids, on behalf of the Solid Waste Agency, had invested $5.921 million of agency funds in Rhinebridge LLC in July 2007. The expectation was that the fund would pay out $6 million to the agency 90 days later, on Oct. 24. But the fund couldn’t.

The investment’s rate of return of 5.4 percent was slightly better than the 5 to 5.3 percent that could have been earned with certificates of deposit, Sue Vavroch, the city’s treasury operations manager, has reported.

Earlier this summer, Vavroch provided documents to note that the city of Cedar Rapids had successfully invested in other commercial paper on several occasions in the last nearly two years.

One of those investments, a $2 million investment of city funds in something called Golden Key Ltd., also failed. At last word, the city had written off the loss.

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  1. In the article it states

    “The city of Cedar Rapids has sued the brokerage firm to recoup what it can of the final loss. The city claims the Rhinebridge LLC investment should never have been offered to the city as an investment.”

    Who ultimately made the decision at the governmental level to invest? Don’t they have the responsibility to verify what a broker is selling them?

    Looks like this was a task outsourced to private enterprize and look what happened. I would be interested to know if the broker had “skin in the game” and if they also lost money. I suspect there was no “skin in the game” and the broker simply made a fee at the time of the sale.

    Why is the City buying anything other than US Government guaranteed investments? Tell the City to stop gambling with the money!

    Someone should ask the “Downtown District” for a comment.

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