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HomeMy WebLinkAboutStaff Report 116-07City of Palo Alt TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:JANUARY 22, 2007 CMR: 116:07 SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR THE SECOND QUARTER, FISCAL YEAR 2006-07 This is an information report and no Council action is required. BACKGROUND The purpose of this report is to inform Council of the status of the City’s investment portfolio as of the end of the second quarter of fiscal year 2006-07. The City’s investment policy requires that staff report quarterly to Council on the City’s portfolio composition compared to Council-adopted policy, portfolio performance, and other key investment and cash flow information. DISCUSSION Investment Portfolio as of December 31, 2006 The City’s investment portfolio is detailed in Attachment B. It is grouped by investment type and includes the investment issuer, date of maturity, current market value, 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, 2006. The par value of the City’s portfolio is $386.6 million; in comparison, last quarter it was $381.3 million. The growth, in the portfolio of $5.3 million since the last quarter primarily results from the timing of cash flows. Initial property tax receipts, for example, are received in the second quarter. The portfolio consists of $11.3 million in liquid accounts and $375.3 million in certificates of deposit, U. S. government treasury and agency securities. The $375.3 million includes $194.0 million in investments maturing in less than two years, comprising 51.7 percent of the City’s investment in notes and securities. Investment Policy requires at least $50 million shall "be maintained in securities maturing in less than two years. The current market value of the portfolio is 98.7 percent of the book value. It is important to note that because the City’s practice is to hold securities until they mature, changes in market price do not affect the City’s investment principal. The market valuation is provided by Union Bank of California, which is the City’s safekeeping agent. The average life to maturity of the investment portfolio is 2.52 years compared to 2.21 years last quarter. CMR: 116:07 Page 1 of 3 Investments Made Durin~ the Second Quarter During the second quarter, $22.5 million of government agency securities with an average yield of 3.8% percent matured. During the same period, government securities totaling $35.4 million with an average yield of 5.0% percent were purchased. The City’s short-term money market and pool account decreased by $7.7 million compared to the first quarter. Investment staff continually monitors the City’s short-term cash flow needs and adjusts liquid funds to meet those needs and to take advantage of investment opportunities. Availabili _ty of Funds for the Next Six Months The normal flow of revenues from the City’s utility billings and General Fund sources is sufficient to provide funds for ongoing expenditures in those respective funds. Projections indicate receipts will be $174.2 million and expenditures will be $163.6 million over the next six months, indicating an overall growth in the portfolio of $10.6 million. As of December 31, 2006, the City had $11.3 million deposited in the Local Agency Investment Fund (LAIF) and a money market account that could be withdrawn on a daily basis. In addition, securities totaling $89.5 million will mature between January 1, 2007 and June 30, 2007. On the basis of the above projections, staff is confident that the City will have more than sufficient funds to meet expenditure requirements for the next six months. Compliance with City Investment Policy During the second quarter of 2006-07, staff complied with all aspects of the investment policy. Attachment C lists the 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 2006-07 was $4.2 million. This total is 2.4 percent higher than what the City received last quarter. As of December 31, 2006, the yield to maturity of the City’s portfolio was 4.35 percent. This compares to a yield of 4.27 percent in the first quarter. As lower yielding maturing securities are reinvested in higher yielding ones, staff expects the portfolio’s yield will gradually rise in the coming quarters. The City’s portfolio yield of 4.35 percent compares to LAIF’ s average yield for the quarter of 5.12 percent and an average yield on the two-year and five-year Treasury bond during the second quarter of approximately 4.72 percent and 4.58 percent, respectively. Yield Trends After two years of increasing the federal funds and discount rate by 4.25 and 4.50 percent, respectively, the Federal Open Market Committee (FOMC) has left rates unchanged in the last quarter. These rates currently are 5.25 and 6.25 percent. The FOMC indicated that economic growth has slowed and inflationary pressures have moderated. The slowing housing market was cited as a contributor to the economic slowdown while contained energy costs help reduce.d inflationary pressures. The FOMC continues to monitor inflationary risks closely and indicated future rate changes are dependent, on the future course of both inflation and economic growth. The City’s portfolio yield has gradually increased and is expected to continue this trend for the next few quarters. CMR: 116:07 Page 2 of 3 Funds Held by the City or Managed Under Contract Attachment A is a consolidated report of all City investment funds, including those not held directly in the investment portfolio. These include cash in the City’s regular bank account with Wells Fargo. The bond proceeds, reserves, and debt service payments being held by the City’s fiscal agents are subject to the requirements of the underlying debt indenture. The trustees for the bond funds are U.S. Bank and California Asset Management Program (CAMP). Bond funds with U.S. Bank are invested in federal agency and money market mutual funds that consist exclusively of U.S. Treasury securities. Bond funds in CAMP are invested in banker’s acceptance notes, certificates of deposit, commercial paper, federal agency securities,jand repurchase agreements. The most recent data.on funds held by the fiscal ~ber 31, 2006. PREPARED B~/.~"/~/~’~,-~~ TAR~~~~yA_~N~ Seni~3C~inancial Analyst DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: EMILY SON Assistant City Manager ATTACHMENTS A) B) C) Consolidated Report of Cash and Investments Investment Portfolio, as of December 31, 2006 Investment Policy Compliance CMR: 116:07 Page 3 of 3 Consolidated Report City of Palo Alto Cash and Investments Second Quarter, Fiscal Year 2006-07 (Unaudited) Attachment A City Investment Portfolio (see Attachment B) Other Funds Held by the City Cash with Wells F.argo Bank (includes general and imprest accounts) Investment with CAMP (University Ave. Parking Garages) Petty/Working Cash (as of 12/31/06) Total - Other Funds Held By City Book Value $389,619,871 4,998,836 544,197 12,238 5,555,271 Market Value $384,596,569 4,998,836 12,238 5,01 !,074 Funds Under Management of Third Party Trustees * (Debt Service Proceeds) US Bank Trust Services ** 1995 Utility Revenue Bonds Debt Service Fund 1998 Golf Course Certificates of Participation Debt Service Lease Payment Funds 1999 Utility Revenue Bonds Construction and Debt Service Funds 2002 Civic Center Certificates .of Participation Lease Paymem and Reserve Funds 2002 Downtown Parking Impvt. Certificates of Participation Lease Payment, Improvement, and Reserve Funds Escrow Account fbr Partial Defeasance of Bonds 2002 Utility Revenue Bonds Debt Service Funds 55 2,894 44,439 .55 2,894. 44,439 359,926 359,926. 244,783 244,783 923,R49 923,949 31,368 31,368- California Asset Management Program (CAMP) *** 1998 Golf Course Certificates of Participation Reserve Fund 2001 University Ave. Parking Bonds Improvement, Reserve, and Admin. Funds 2002 University Ave. Parking Bonds Improvement, Reserve, and Admin. Funds 2002 Utility Revenue Bonds Construction and Reserve Funds Total Under Trustee Management GRAND TOTAL 706,079 706,079 807,915 807,915 3,611,537 3,611,537 1,762,016 1,762,016 8,494,961 8,494,961 $403,670,103 $ 398,102,604 *These funds are subject to the requirements of the underlying debt indenture. ** U.S. Bank investments are in money market mutual funds that exclusively invest in U.S. Treasury securities. *** CAMP investments are in money market mutual fund which invest in bankers acceptance, certificate of deposit, commercial paper, federal agency securities, and repurchase agreements. 0 0 ~ O~EE ATTACHMENT B ooogogg~oooggoooog oooooooooooooooooooooooooooooooooooo ooooooooooooooooooooooooooooooooooooooooooooooooooo~o oooooooooooooooooo -~ ,~ .~ .~ ,~ .~ ~ .~ E S E E E E E E E E oooooooooo~ooooooooooooooooooooooooooooooooooooooooooooooooooooooo oooooooooo~oooooooooooooooooooooooooooooooo~oooooooooooooooooooooo oo~ooo~~o-oooooooooo~o~~ o o o o o o ~ o ~o o o o o o d d d dd ~ d d~d d ~ d d ~ d d~ o ~6>o o ~ ~u oooooooooooooooo o o o o o o o o o o o o o o o o d d d d d d d d d d d d d d d d dooooooooooooooooooooooooooooooooo oooooooooooooooo oooooooooooooooooooooooooooooooo oooo 00000000000000000000000000000~ImIII!IIII!IIIIIIIIIIIIIIIImI oooooooooooooooooooooooooo~o~ooooooo~~~~ oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo oooooooo~o~oooooooooooooooooooooo ooooooooooooooooooooo.oooooooooooo oo~ooo ~;~~~~ oo~oooooooooooooq q ~ q qqqqq Z q q q qqq 8 ~ ~ ~ ~ 8 ~ ~ 8 ~ 888 ~ 8 ~8 oooooooooooooooooooooooooooooooooo~~~~~ ooooooooooooooooooooooooooooooooo 0000000 EEEEEEE 0 ooooooooooooooooo ooooooooooooooooo oooooooooooooo~ ooooooo~oooooo~ ~ 0 oo O. | Investment Policy Compliance As of December 31, 2006 Attachment C General Investment Guidelines: a) The max. stated final maturity of individual securities in the portfolio should be 10 years. b) A max. of 30 percent of the par value of the portfolio shall be invested in securities with maturities beyond 5 years. c) The City shall maintain a minimum of one month’s cash needs in short term investments. d) At least $50 million shall be maintained in securities maturing in less than 2 years. Plus two managed pool accounts which provide instant liquidity: -Local Agency Investment Fund (LAIF) - maximum investment limit is $40 millior~ -Fidelity Investments e) Should market value of the portfolio fall below 95 percent of the book value, report this fact within a reasonable time to the City Council and evaluate if there are risk &holding securities to maturity. d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3) working days before pricing. f) Whenever possible, the City will obtain three or more quotations on the purchase or sale of comparable securities (excludes new issues, LAIF, City of Palo Alto bonds, money market accounts, and mutual funds). U.S. Government Securities: a) There is no limit on purchase of these securities. b) Securities will not exceed 10 years maturity. U.S. Governm ent Agency Securities: a) There is no limit on purchase of these securities except for: Callable and Multi-step-up securities provided that: -The potential call dates are known at the time of purchase; - the interest rates at which they "step-up" are known at the time of purchase; and - the entire face value of the security is redeemed at the call date. -No more than 20 percent of the par value of portfolio. b) Securities will not exceed 10 years maturity. Certificates of Deposit: a) May not exceed 20 percent of the par value of the portfolio; b) No more than 10 percent of the par value of the portfolio in collateralized CDs in any institution. c) Purchase collateralized deposits only from federally insured large banks that are rated by a nationally recognized rating agency (e.g. Moody’s, Standard & Poor’s, etc.). d) For non-rated banks, deposit should be limited to amounts federally insured (FDIC) e) Rollovers are not permitted without specific instruction fromauthorized City staff. Banker’s Acceptance Notes: a) No more than 39 percent of the par value of the portfolio. b) Not to exceed 180 days maturity. c) No more than $5 million with any one institution. Commercial Paper: a) No more than 15 perce~t of the par value of the portfolio. b) Having highest letter or numerical rating from a nationally recognized rating service. c) Not to exceed 270 days maturity. d) No more than $3 million or 10 percent of the outstanding commercial paper of any one institution, whichever is lesser. Full Compliance 10.49% Full Compliance $194 million $8.7 million $2.6 million 98.72% Full Compliance Full Compliance Full Compliance Full Compliance Full Compliance Full Compliance Full Compliance 19.61% Full Compliance 1.44% None Held None Held Investment Policy Compliance As of December 31, 2006 Attachment C 10 11 12 13 Short-Term Repurchase Agreement (REPO): a) Not to exceed 1 year. b) Market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities. Money Market Deposit Accounts a) Liquid bank accounts which seek to maintain a net asset value of $1.00. Mutual Funds: a) No more thah 20 percent of the par value of the portfolio. b) No more than 10 percent of the par value with any one institution. Negotiable Certificates of Deposit (NCD): a) No more than 10 percent of the par value of the portfolio. b) No more than $5 million in any one institution. Medium-Term Corporate Notes: a) No more than 10 percent of the par value of the portfolio. b) Not to exceed 5 years maturity. c) Securities eligible for investment shall have a minimum rating of AA from a nationally recognized rating service. d) No more than $5 million of the par value may be invested in securities of any single issuer, other than the U.S. Government, its agencies and instrumentality. e) If securities owned by the City are downgraded by either rating agencies to a level below AA it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities. Prohibited Investments: a) Reverse Repurchas~ Agreements b) Derivatives as definecl in Appendix B of the Investment Policy All securities shall be delivered to the City’s safekeeping custodian, and held in the name of the City, with the exception of : -Certificates of Deposit, Mutual Funds, and LAIF None Held Full Compliance None Held None Held None Held Full Compliance None Held Full Compliance "