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HomeMy WebLinkAbout1996-01-18 City CouncilCity of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:JANUARY 18, 1996 CMR:117:96 SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR THE SECOND QUARTER, FISCAL YEAR 1995-96 REQUEST: The purpose of this report is to inform Council on the status of the City’s investment portfolio as of the second quarter of the 1995-96 fiscal year. RECOMMENDATIONS: This is an informational report and no Council action is required. POLICY IMPLICATIONS: This report does not propose any changes to existing City policies. EXECUTIVE SUMMARY Background As a result of the problems last year with Orange County investment practices, State legislation was enacted that requires public agencies to report detailed information on portfolio holdings to their respective governing bodies on a quarterly basis. The new law is effective January 1, 1996. In addition to the details on specific securities, agencies are also required to disclose the current market value of the investment portfolio. This market value information would draw attention to any substantial variance between the market value of the securities and the book (i.e., purchase) value of those securities. CMR:117:96 Page 1 of 4 SB 866 (Craven), Chapter 784, places restrictions on the types of investments which can be made by local agencies (Attachment A). These restrictions require no change to the City’s investment policy, because it already utilizes the prudent investor standard and recognizes preservation of the safety of principal and maintenance of liquidity for current expenditures, before rate-of-return or yield considerations. The City currently utilizes a third-party safekeeping custodian, to assure that investments are clearly in the City’s name and title, and not commingled with the brokers’ portfolio. Current City policy does not permit investment in inverse floaters, or like instruments; reverse repurchase agreements are specifically prohibited. Repurchase agreements (short term investments) are permitted by the policy. However, they have not been utilized in many years and would require the specific approval of the Deputy City Manager, Administrative Services, prior to any investment in this medium. SB 564 (Johnston), Chapter 783, requires the treasurer or chief fiscal officer to submit an annual statement of investment policy to the legislative body and requires the submittal of a detailed quarterly listing of all securities, a statement of compliance with the adopted policy and a statement of the ability to meet the next six months’ expenditure requirements. The City has had an adopted investment policy since 1984, which has been reviewed annually as part of the budget process. For the past two years, staff has provided Council with a monthly report that contains a general summary of the portfolio and a discussion of the monthly activity. Staff will continue to provide the monthly report, but will provide a full report on a quarterly basis with a detailed listing of investments, including information on the current market value. Second Quarter Investment Report The Cit3~’s investment portfolio is detailed in Attachment B, as required by the new laws. It is grouped by investment type and includes the type of investment, date of maturity, current market value as well as the book and face (par) value, and the weighted average maturity of each type of investment and of the entire portfolio, as of December 31, 1995. The face value of the City’s portfolio is $192.5 million, which consists of $143 million, or 74.3 percent, maturing in less than two years. Most of the investments, $167 million, or 86.8 percent, are in United States governmental securities. Investments Made During Second Quarter During the second quarter of the fiscal year, staff replaced $21 million in U. S. Treasury bonds, having yields of around 5 percent, with U. S. Agency, securities with m~ average yield of 5.9 percent. Of a $6 million certificate of deposit which matured on December 27, $4 million was placed in a money market mutual fund. The total portfolio declined by $2 million as of the end of the second quarter. This is due in part to the cyclical nature of CMR:117:96 Page 2 of 4 revenue receipts, as the bulk of property taxes are not received until the second half of the year. In addition, the State withheld almost $1 million dollars for the Varian sales tax adjustment. The current market value of the portfolio is 100.57 percent of the book value and the average life is 1.49 years. The recent reduction in the Federal Funds rate resulted in an increase in the value of the securities held in the City’s investment portfolio. This is a normal occurrence whenever interest rates drop. The market valuation is provided by Bank of California, which is the City’s safekeeping agent. The Bank obtains this information from a number of sources, but primarily from Interactive Data Service, Inc. Availability of Funds for the Next Six Months Due to the size and liquidity of the portfolio, and given predictable infusions of other cash, primarily from the State, County and utility billing receipts, there will be more than sufficient funds available to meet cash flow requirements until the end of the fiscal year. As of the end of the second quarter, projections indicate receipts will be $100.8 million; expenditures will be $100.9 million and securities totaling $24.5 million will mature between January and June, 1996. On the basis of the above projection, there are sufficient funds to meet Palo Alto’s expenditure requirements for the next six months. Compliance with City. Investment Policy During the second quarter of fiscal year 1995-96, staff complied with all aspects of the investment policy. Presently, investments in callable securities and multi step-up securities have reached the maximum allowable percentage within the portfolio. Attachment C lists the different restrictions in the City’s Investment Policy compared with the portfolio’s actual compliance. Investment Yields Interest income on an accrual basis for the second quarter of 1995-96 was $2.9 million. For the first six months of the 1995-96 fiscal year, interest totaled $5.6 million, or exactly 50 percent of the 1995-96 budget of $11.2 million. The effective rate of return for the fiscal year is 6.03 percent. This compares to Local Agency Investment Fund’s yield of 5.77 percent, and the yield on the two-year Treasury bond of 5.21 percent. FISCAL IMPACT: This is an informational report with no fiscal impact resulting. ENVIRONMENTAL ASSESSMENT" There is no environmental assessment required for this report. CMR:117:96 Page 3 of 4 ATTACHMENTS: A)New Investment Laws B)Investment Portfolio, as of December 31, 1995 C)Investment Policy Compliance PREPARED BY: Linda Craig, Senior Financial Analyst DEPARTMENT HEAD APPROVAL: (., , ,, Emily Harrison Deputy City Manager, Administrative Services CITY MANAGER APPROVAL: ur~Fleming City Manager CMR:117:96 Page 4 of 4 ATTACHMENT A NEW INVESTMENT LAWS effective January 1, 1996 Local ,Agency ,Investments SB 866 (Craven), Chapter 784 places restrictions on the types of investments made by local agencies. The following provisions apply to cities: 1) Each person or governing body investing public funds, is a trustee and therefore a fiduciary, subject to the prudent investor standard. 2) Provides that when investing public funds, the primary objective is to safeguard principal, the second objective is to meet the liquidity needs of the depositor, and the third objective is to return an acceptable yield. 3) Requires that the delivery of any security purchase or obtained by a local agency shall be by either a book entry, physical delivery or third party custodial agreement. 4) Prohibits investment in inverse floaters, range notes, interest only strips that are developed from a pool of mortgages, or any security that could result in zero interest accrual if held to maturity. 5) Provides that investment in repurchase agreement may be made on any investment authorized by statute when the term of the agreement does not exceed one year.. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. 6) Provides restrictions on investment in reverse repurchase agreements Reporting Requirements for Local Agency Investments SB564 (Johnston), Chapter 783 imposes certain reporting requirements on state and local agencies, as follows: 1) Requires the treasurer or chief fiscal officer of a local agency to submit an annual statement of investment policy to the legislative body. This report shall be considered at a public meeting. 2) Requires the treasurer or chief fiscal officer to submit a quarterly report to the legislative body containing detailed information on all securities, investments, and moneys of the local agency. It also requires a statement of compliance of the portfolio with the statement of investment policy and a statement of the Local agency’s ability to meet the expenditure requirements for the next six months. The legislative body may elect to require this report to be made on a monthly basis instead of quarterly. ATTACHMENT B 01/09/1996 City of Palo Alto FI -1 Investments by Type CFA ACCRUAL DECEMBER 31, 1995 IN~JESTMENT PURCHASE STATED ....YTM ....MATURITY DAYS ~,IBER ISSUER DATE BOOK VALUE FACE VALUE MARKET VALUE RATE 360 365 DATE TO MAT M~NAGED POOL ACCOUNTS i58 Fidelity Investments 159 Local Agency Invest. Fund 5,500,000.00 5,500,000.00 5,500,000.00 5.780 5.701 5.780 20,000,000.00 20,000,000.00 20,000,000.00 5.770 5.691 5.770 1 1 SUBTOTALS and AVERAGES 25,500,000.00 25,500,000.00 25,500,000.00 5.693 5.772 FEDEP-~L AGENC~f ISSUES - COUPON 154 Federal Farm Credit Bank 07/27/95 3,000,000.00 3,000,000.00 3,008,430.00 5.750 5.671 5.750 08/01/96 213 129 Federa! Home Loan Bank 02/27/95 4,001,424.77 4,000,000.00 4,005,000.00 7.145 6.513 6.603 01/26/96 25 130 Federal Home Loan Bank 02/28/95 4,001,429.12 4,000,000.00 4,005,000.00 . 7.145 6.513 6.603 01/26/96 25 13!Federa! Home Loan Bank 02/09/95 2,000,000.00 2,000,000.00 2,003,760.00 7.130 7.032 7.130 02/09/96 39 132 Federal Home Loan Bank 05/18/94 2,512,011.30 2,500,000.00 2,517,975.00 7.750 6.031 6.115 04/25/96 115 i33 Federa! Home Loan Bank 05/09/94 2,995,995.27 3,000,000.00 3,004,590.00 5.760 6.095 6.1S0 05/03/96 123 134 Federa! Home Loan Bank 05/11/95 3,000,000.00 3,000,000.00 3,008,430.00 6.105 6.021 6.105 05/16/96 136 135 Federa! Home Loan Bank.06/17/94 3,000,000.00 3,000,000.00 3,006,570.00 5.835 5.755 5.835 06/17/96 168 136 Federa! Home Loan Bank 05/24/94 2,518,854.95 2,500,000.00 2,536,725.00 7.100 6.007 6.090 10/25/96 298 i37 Federa! Home Loan Bank 10/25/94 3,000,000.00 3,000,000.00 3,032,580.00 6.700 6.608 6.700 10/25/96 298 i38 Federal Home Loan B~nk 03/07/94 4,995,069.44 5,000,000.00 4,990,~50.00 5.180 5.271 5.344 03/07/97 431 139 Federal Home Loan Bank 06/16/95 2,000,000.00 2,000,000.00 2,015,620.00 5.890 5.809 5.890 06/16/97 532 140 Federa! Home Loan Bank 06/19/95 3,000,000.00 3,000,000.00 3,023,430.00 5.890 5.890 5.971 06/16/97 532 141 Federa! Home Loan Bank 08/02/94 3,004,138.63 3,000,000.00 3,047,820.00 6.525 6.334 6.422 07/11/97 557 142 Federal Home Loan Bank 09/26/94 3,975,812.03 4,000,000.00 4,071,240.00 6.530 6.839 6.934 09/02/97 610 142 Federal Home Loan Bank 10/20/95 1,000,000.00 1,000,000.00 1,008,390.00 5.950 5.950 6.033 04/20/98 840 144 Federal Home Loan Bank 10/20/95 2,000,000.00 2~000,000.00 2,016,780.00 5.950 6.332 6.420 04/20/98 840 145 Federa! Home Loan Bank 08/07/95 5,000,000.00 5,000,000.00 5,040,250.00 6.250 6.697 6.790 08/07/98 949 146 Federal Home Loan Bank 02/18/94 2,000,000.00 2,000,000.00 1,985,620.00 5.380 5.496 5.572 12/14/98 1,078 147 Federa! Home Loan Bank 02/14/94 2,000,000.00 2,000,000.00 1,985,620.00 5.380 5.496 5.572 12/14/98 1,078 148 Federal Home Loan Bank 02/09/94 2,000,000.00 2,000,000.00 1,985,620.00 5.380 5.496 5.572 12/14/98 1,078 149 Federa! Home Loan Bank 02/10/94 2,000,000.00 2,000,000.00 1,985,620.00 5.380 5.496 5.572 12/14/98 1,078 150 Federal Home Loan Bank 02/11/94 2,000,000.00 2,000,000.00 1,985,620.00 5.380 5.496 5.572 12/14/98 1,078 151 Federa! Home Loan Bank 04/13/94 4,150,000.00 4,150,000.00 4,181,789.00 5.700 5.700 5.779 04/13/01 1,929 152 Federal Home Loan Bank 04/15/94 2,925,000.00 2,925,000.00 2,947,405.00 5.700 5.700 5.779 04/13/01 1,929 153 Federa! Home Loan Bank 04/14/94 2,925,000.00 2,925,000.00 2,947,406.00 5.700 5.700 5.779 04/13/01 1,929 166 Federa! Home Loan Bank 11/16/95 4,994,012.12 5,000,000.00 5,028,150.00 5.667 5.628 5.706 11/09/98 1,043 167 Federal Home Loan Bank 12/27/95 2,996,450.67 3,000,000.00 2,996,370.00 6.250 6.195 6.279 12/27/00 1,822 !25 Fed Home Ln Mort Corp 05/03/94 2,991,965.88 3,000,000.00 3,000,930.00 5.515 6.342 6.430 03/17/97 441 126 Fed Home Ln Mort Corp 05/04/94 2,991,953.94 3,000,000.00 3,000,930.00 5.515 6.431 6.521 03/17/97 441 127 Fed Home Ln Mort Corp 03/21/94 2,000,127.31 2,000,000.00 2,004,380.00 5.470 5.389 5.464 03/21/97 445 164 Federal Land’Bank 01/20/77 500,000.00 500,000.00 510,780.00 7.350 7.249 7.350 01/20/97 385 109 Fed Nat Mortgage As~n 03/17/95 5,000,000.00 5,000,000.00 5,013,550.00 6.460 6.372 6.460 03~27/96 86 i!0 Fed Nat Mortgage Assn 04/18/95 2,000,000.00 2,000,000.00 2,006,580.00 6.430 6.430 6.519 04/18/96 108 iii Fed Nat Mortgage Assn 07/14/94 5,040,419.87 5,000,000.00 5,067,200.00 8.000 6.249 6.336 07/10/96 191 !12 Fed Nat Mortgage Assn 08/25/94 8,088,473.68 8,000,000.00 8,182,480.00 7.600 6.414 6.504 01/10/97 375 113 Fed Nat Mortgage Assn 01/12/87 2,000,2~8.44 2,000,000.00 2,045,620.00 7.600 7.580 7.685 01/10/97 375 114 Fed Nat Mortgage Assn 01/25/94 1,997,572.03 2,000,000.00 1,982,200.00 4.380 4.487 4.550 01/21/97 386 !15 Fed Nat Mortgage Assn 04/27/95 4,006,139.50 4,000,000.00 4,073,560.00 6.770 6.547 6.638 04/14/97 469 City cf Palo Alto FI -2 Invesmaents by Type CRA ACCRUAL DECEMBER 31, 1995 Ih~ESTMENT NUMBER ISSUER PURCHASE STATED ....YTM ....~.UITURITY DAYS DATE BOOK VALUE PACE VALUE MARKET VALUE RATE 360 365 DATE TO ~,LAT FEDERAL AGEN~f ISSUES -COUPON 1!6 117 118 119 120 121 122 123 124 165 155 Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Fed Nat Mortgage Assn Student Loan Mktg. Assn SUBTOTALS and AVERAGES 08125/95 08/16195 06108/95 08/15/95 01111/93 01/11/93 01/12/93 lO/OS/95 lO/O6/95 i!/is/gs os/o2/gs 4,000,000.00 4,000,000.00 4,045,320.00 6.110 6.026 6.110 08/25/97 602 4,213,845.77 4,000,000.00 4,275,000.00 9.550 6.049 6.133 09/10/97 618 3,023,953.57 3,000,000.00 3,062,730.00 6.450 5.918 6.000 12/08/97 707 4,240,673.65 4,000,000.00 4,295,000.00 9.550 6.085 6.170 12/10/97 709 999,809.74 1,000,000.00 1,009,690.00 6.050 5.978 6.061 01/12/98 742 1,999,619.48 2,000,000.00 2,019,380.00 6.050 5.978 6.061 01/12/98 742 1,999,619.27 2,000,000.00 2,019,380.00 6.050 5.978 6.061 01/12/98 742 4,001,434.97 4,000,000.00 4,058,120.00 5.950 5.854 5.935 09/28/98 1,001 4,001,399.48 4,000,000.00 4,058,120.00 5.950 5.854 5.935 09/28/98 1,001 5,343,564.25 5,000,000.00 5,371,900.00 9.550 5.513 5.590 11/I0/97 679 4,048,922.35 4,000,090.00 4,108,760.00 7.875 6.566 6.657 02/03/97 399 157,484,981.48156,500,000.00158,584,070.00 6.074 6.159 635 TREASURY SECURITIES - COUPON 105 U.S. Treasul-~.-02/18/93 106 U.S. Treasury.02/16/93 107 U.S. Treasur~.12/01/93 108 U.S. Treasur~.°11/17/93 SUBTOTALS and AVERAGES 2,000,135.22 2,000,000.00 1,998,760.00 4.625 4.503 4.566 02/15/96 45 4,000,128.54 4,000,000.00 3,997,~20.00 4.625 4.534 4.597 02/15/96 45 1,997,138.60 2,000,000.00 1,985,620.00 4.375 4.489 4.551 11/15/96 319 1,999,043.22 2,000,000.00 I~985,620.00 4.375 4.373 4.434 11/15/96 319 9,996,445.58 I0,000,000.009,967,520.00 4.487 4.549 155 GINNIE M~’S !62 160 Fed Home Ln Mort Corp 07/05/83 Fed Home Ln Mort Corp 02/16/79 Go%~. Natl. Mortgage Assn 01/26/87 SUBTOTALS and A~RAGES TOTAL II~VESTMENTS and AVERAGES 59,687.44 58,231.65 73,681.23 12.450 11.875 12.039 09/15/09 5,006 129,825.25 132,109.65 143,801.35 I0.000 10.120 10.261 02/01/09 4,780 340,724.71 330,499.87 352,177.42 9.000 8.449 8.566 Ii/15/16 7,624 530,237.40 520,841.17 569,660.00 9.244 9.372 6,633 192,520,841.17 193,511,664.46 194,621,250.00 5.951% 6.033%543 Definitions : Book Value : Face Value: The cost of an investment, adjusted for amortization of purchase premiums or discounts, as of the date of the report. The value of the security at maturity; also known as the par value. Market Value: Stated Rate: The recorded market value as of the date of the report. The interest or coupon rate, or the yield on a security purchased at a discount. Yield to Maturity: Calculated yield to maturity on a 360 and a 365 day basis, according to the principal invested over the life of the investment. ATTACHMENT C Investment Policy Compliance as of December 31, 1995 No more than 10 percent of the portfolio in collateralized C~rtificates of 0.00% Deposit (CDs) of any institution. No more than 30 percent of the portfolio in negotiable CDs.0.00% - No more than $2 million with any one institution,n/a -No negotiable CDs with maturities beyond 90 days.n/a No more than 30 percent of the portfolio in Banker’s Acceptance Notes.0.00% - No more than $5 million with any one institution,n/a No more than 15 percent of the portfolio in Commercial Paper.0.00% - No more than $3 million with any one institution,n/a Limit investments exclusively to those stipulated under types of investments (specifically, there will be no investments involving Reverse Purchase No exceptions Agreements). No more than 10 percent of the portfolio in Farm Credit Securities.1.56% No more than 2 percent of the portfolio in the Guaranteed Portion of Small 0.00% Business Administration Notes. No more than 15 percent of portfolio in Mutual Funds.2.86% No more than 10 percent of portfolio in callable agency securities.9.87% No more than 10 percent of portfolio in government agency Multi-Step-up 9.35% securities. Liquidity enough to meet one month’s cash needs.$33.5 million At least $50 million maturing in less than 2 years.$143 million No more than 20 percent of the portfolio shall be in investments maturing in 5.46% more than five years. Market value of the portfolio will exceed 95 percent of the cost basis of the 100.57% portfolio.