<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Rethink how sinking funds are managed
</TR><!-- headline one : end --><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Tan Hui Yee
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The wolves are out, baying for blood over the latest revelation that eight of the 14 town councils run by the People's Action Party have invested $16 million of their sinking funds in troubled financial products.
The online forums are brimming with calls for heads to roll and questions on why stricter guidelines could not have been imposed on the town councils.
What doesn't help is the footdragging that preceded the disclosure.
When the issue first surfaced late last month, PAP town councils' coordinating chairman Teo Ho Pin declined to give specific figures to the media.
He would say only that the councils' exposure was limited and their sinking funds - which are used for long-term cyclical repairs or major projects - are 'in safe hands'. But that only fuelled suspicion because it reeked too much of the false reassurances given just before the collapse of financial behemoths like Lehman Brothers.
It took a pointed question by Nominated Member of Parliament Eunice Olsen for the numbers to be revealed before the House a good three weeks later.
The fact that the $16 million in question make up just 0.8 per cent of the councils' investable funds is probably of little consolation to the hundreds of thousands of Housing Board flatowners who contribute regularly to this fund through their service and conservancy payments.
Straits Times forum page contributor Liew Yeng Chee spoke for many when he asked if town councils should be allowed to invest in such risky products. More pertinently, he asked: 'Is there a case to be made for mis-selling, despite the fact that we assume the town council staff who made the investments were talented?'
The questions implied that town councils are run with the precision and efficacy of the civil service, a picture incongruent with that given by Senior Minister of State for National Development Grace Fu during the recent parliamentary session.
The Government, she said, intends to stick to its long-standing policy of 'devolving' local management to town councils. Already, they are required to limit their investments in non-government stocks, funds or securities to 35 per cent of their sinking fund. Ms Fu said 'it is neither practical nor desirable' for the Ministry of National Development to be 'overly prescriptive' about the councils' investments. She added that it should be left to residents to question their town councils' decisions.
The policy goes back 20 years, when such municipal authorities were created to draw a clear link between voters' choice of politicians and their living environment. The idea was that people would think harder before casting a rash vote in case they get an MP who is incapable of overseeing their district for the next five years or so.
Town councillors, in turn, are volunteers drawn from the ranks of resident grassroots leaders. About one-third of each town's councillors are 'non-residents' who live outside the constituency or within the constituency's private estates and are selected by the elected Members of Parliament for their expertise in a particular area, such as auditing or property management.
Together with resident town councillors, they oversee the work of professional estate managers, fund managers and other staff they hire.
This model, however, is worlds away from the layman's perception that the 14 PAP town councils are government bodies run with the uniformity of one professional outfit. The reality is that their directions and levels of expertise vary.
A case in point: The investments in toxic financial products are not spread out among the 14, but concentrated in the portfolios of the Holland-Bukit Panjang Town Council ($8 million) and Pasir-Ris Punggol ($4 million). Among the other 12, at least one had insisted its fund managers guarantee capital protection, which probably lowered potential returns but, in the light of the financial situation now, was a wise call.
Meanwhile, the opposition Hougang and Potong Pasir town councils appear relatively unscathed as they had chosen a more conservative investment strategy.
Going forward, town councils may be forced to open up their books because of the public scrutiny over this affair. Spooked residents will inevitably want to know exactly what their town councils have invested in - something they cannot find in current annual reports.
Beyond that, however, perhaps it is time to review their scope of work, which runs the gamut from maintaining estates to upgrading lifts and managing funds.
The town councils we see today are amalgamated giants of their former selves, having grown alongside the expansion of group representation constituencies. Their number has shrunk from 23 in 1995 to just 16 now despite the fact that Singapore's population has grown from 3.5 million to 4.8 million. Tanjong Pagar Town Council, for example, looks after some 60,000 HDB households in a GRC that extends from Tanjong Pagar up north to Moulmein.
The town councils today are custodians of more than $1 billion in investable funds. This kitty can only get bigger as Singapore's crop of flats ages because a fixed portion of the service and conservancy charges each flatowner pays is set aside in the sinking fund each month.
Are town councils in the best position to manage these funds? Are they perhaps being stretched beyond their capabilities trying to make the best of these sizeable public funds?
Given the complexity of the current financial climate, some quarters in the financial sector are wondering if it may be better for the Government to centralise the management of sinking funds.
After all, devolving authority is never an irreversible process. The screws were recently tightened on the amount of money that Central Provident Fund members can withdraw for investments after it was found that many members were not earning enough returns to beat the CPF rate.
And the fact that town councils - despite having the advice of fund managers - have joined the thousands of investors sitting on toxic structured products means that they are no more immune to the vagaries of the market than the average investor.
Rather than treating this episode as part and parcel of the investment process, should we be looking for more sure ways to protect sinking funds islandwide?
This might require rolling back somewhat on the two-decade long policy of letting the electorate feel the consequences of its choice at the ballot box.
It would require the PAP Government to safeguard the sinking funds of all Singaporean flatowners - including those living in opposition wards - for the greater good. It will also free town councils to focus on their core competency of estate management.
From a political point of view, it may be an unsavoury prospect. But extraordinary times like these call for an equally radical rethink of the ground rules.
[email protected]
<HR width="50%" SIZE=1>
More transparency
Going forward, town councils may be forced to open up their books because of the public scrutiny over this affair. Spooked residents will inevitably want to know exactly what their town councils have invested in - something they cannot find in current annual reports.
</TR><!-- headline one : end --><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Tan Hui Yee
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->
The wolves are out, baying for blood over the latest revelation that eight of the 14 town councils run by the People's Action Party have invested $16 million of their sinking funds in troubled financial products.
The online forums are brimming with calls for heads to roll and questions on why stricter guidelines could not have been imposed on the town councils.
What doesn't help is the footdragging that preceded the disclosure.
When the issue first surfaced late last month, PAP town councils' coordinating chairman Teo Ho Pin declined to give specific figures to the media.
He would say only that the councils' exposure was limited and their sinking funds - which are used for long-term cyclical repairs or major projects - are 'in safe hands'. But that only fuelled suspicion because it reeked too much of the false reassurances given just before the collapse of financial behemoths like Lehman Brothers.
It took a pointed question by Nominated Member of Parliament Eunice Olsen for the numbers to be revealed before the House a good three weeks later.
The fact that the $16 million in question make up just 0.8 per cent of the councils' investable funds is probably of little consolation to the hundreds of thousands of Housing Board flatowners who contribute regularly to this fund through their service and conservancy payments.
Straits Times forum page contributor Liew Yeng Chee spoke for many when he asked if town councils should be allowed to invest in such risky products. More pertinently, he asked: 'Is there a case to be made for mis-selling, despite the fact that we assume the town council staff who made the investments were talented?'
The questions implied that town councils are run with the precision and efficacy of the civil service, a picture incongruent with that given by Senior Minister of State for National Development Grace Fu during the recent parliamentary session.
The Government, she said, intends to stick to its long-standing policy of 'devolving' local management to town councils. Already, they are required to limit their investments in non-government stocks, funds or securities to 35 per cent of their sinking fund. Ms Fu said 'it is neither practical nor desirable' for the Ministry of National Development to be 'overly prescriptive' about the councils' investments. She added that it should be left to residents to question their town councils' decisions.
The policy goes back 20 years, when such municipal authorities were created to draw a clear link between voters' choice of politicians and their living environment. The idea was that people would think harder before casting a rash vote in case they get an MP who is incapable of overseeing their district for the next five years or so.
Town councillors, in turn, are volunteers drawn from the ranks of resident grassroots leaders. About one-third of each town's councillors are 'non-residents' who live outside the constituency or within the constituency's private estates and are selected by the elected Members of Parliament for their expertise in a particular area, such as auditing or property management.
Together with resident town councillors, they oversee the work of professional estate managers, fund managers and other staff they hire.
This model, however, is worlds away from the layman's perception that the 14 PAP town councils are government bodies run with the uniformity of one professional outfit. The reality is that their directions and levels of expertise vary.
A case in point: The investments in toxic financial products are not spread out among the 14, but concentrated in the portfolios of the Holland-Bukit Panjang Town Council ($8 million) and Pasir-Ris Punggol ($4 million). Among the other 12, at least one had insisted its fund managers guarantee capital protection, which probably lowered potential returns but, in the light of the financial situation now, was a wise call.
Meanwhile, the opposition Hougang and Potong Pasir town councils appear relatively unscathed as they had chosen a more conservative investment strategy.
Going forward, town councils may be forced to open up their books because of the public scrutiny over this affair. Spooked residents will inevitably want to know exactly what their town councils have invested in - something they cannot find in current annual reports.
Beyond that, however, perhaps it is time to review their scope of work, which runs the gamut from maintaining estates to upgrading lifts and managing funds.
The town councils we see today are amalgamated giants of their former selves, having grown alongside the expansion of group representation constituencies. Their number has shrunk from 23 in 1995 to just 16 now despite the fact that Singapore's population has grown from 3.5 million to 4.8 million. Tanjong Pagar Town Council, for example, looks after some 60,000 HDB households in a GRC that extends from Tanjong Pagar up north to Moulmein.
The town councils today are custodians of more than $1 billion in investable funds. This kitty can only get bigger as Singapore's crop of flats ages because a fixed portion of the service and conservancy charges each flatowner pays is set aside in the sinking fund each month.
Are town councils in the best position to manage these funds? Are they perhaps being stretched beyond their capabilities trying to make the best of these sizeable public funds?
Given the complexity of the current financial climate, some quarters in the financial sector are wondering if it may be better for the Government to centralise the management of sinking funds.
After all, devolving authority is never an irreversible process. The screws were recently tightened on the amount of money that Central Provident Fund members can withdraw for investments after it was found that many members were not earning enough returns to beat the CPF rate.
And the fact that town councils - despite having the advice of fund managers - have joined the thousands of investors sitting on toxic structured products means that they are no more immune to the vagaries of the market than the average investor.
Rather than treating this episode as part and parcel of the investment process, should we be looking for more sure ways to protect sinking funds islandwide?
This might require rolling back somewhat on the two-decade long policy of letting the electorate feel the consequences of its choice at the ballot box.
It would require the PAP Government to safeguard the sinking funds of all Singaporean flatowners - including those living in opposition wards - for the greater good. It will also free town councils to focus on their core competency of estate management.
From a political point of view, it may be an unsavoury prospect. But extraordinary times like these call for an equally radical rethink of the ground rules.
[email protected]
<HR width="50%" SIZE=1>
More transparency
Going forward, town councils may be forced to open up their books because of the public scrutiny over this affair. Spooked residents will inevitably want to know exactly what their town councils have invested in - something they cannot find in current annual reports.
