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Home My WebLink AboutStaff Report 210-07City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: SUBJECT: APRIL 23, 2007 CMR: 210:07 CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR THE THIRD 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 third 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 March 31, 2007 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 March 31, 2007. The par value of the City’s portfolio is $392.4 million; in comparison, last quarter it was $386.6 million. The growth in the portfolio of $5.8 million since the last quarter primarily results from the timing of cash flows. This includes delayed sales tax ("triple flip") and in-lieu vehicle license fee tax payments received in January and May 2007 and the timing of payroll periods. The portfolio consists of $17.6 million in liquid accounts and $374.8 million in certificates of deposit, and U. S. government treasury and agency securities. The $374.8 million includes $164.3 million in investments maturing in less than two years, comprising 43.8 percent of the City’s investment in notes and securities. The investment policy requires at least $50 million shall be maintained in securities maturing in less than two years. CMR: 210:07 Page 1 of 3 The current market value of the portfolio is 99.1 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 2.56 years compared to 2.52 years last quarter. Investments Made During the Third Quarter During the third quarter, $30.5 million of government agency securities with an average yield of 4.9% percent matured. During the same period, government securities totaling $30.0 million with an average yield of 5.0% percent were purchased. The City’s short-term money market and pool account increased by $6.3 million compared to the second quarter. Investment staff continually monitors the City’ s short-term cash flow needs and adjusts liquid funds to meet those needs and take advantage of investment opportunities. Staff is gradually increasing liquid fund deposits in anticipation of Council’s approval to transfer approximately $26.5 million in retiree medical funds to a PERS trust fund and because short-term interest rates are higher than long-term instrument yields. Availability 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 these respective funds. Projections indicate receipts will be $172.1 million and expenditures will be $165.6 million over the next six months, indicating an overall growth in the portfolio of $6.5 million. As of March 31, 2007, the City had $17.6 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 $49.8 million will mature between April 1, 2007 and September 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 CiW Investment Policy During the third 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 third quarter of 2006-07 was $4.4 million. This total is 4.8 percent higher than what the City received last quarter. As of March 31, 2007, the yield to maturity of the City’s portfolio was 4.37 percent. This compares to a yield of 4.35 percent in the second quarter. As lower yielding maturing securities purchased during the prior years low interest rate period 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 4.37 percent compares to LAIF’s average yield for the quarter of 5.18 percent and an average yield on the two-year and five-year Treasury bonds during the third quarter of approximately 4.77 percent and 4.65 percent, respectively. CMR: 210:07 Page 2 of 3 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 two quarters. These rates currently are 5.25 and 6.25 percent, respectively. Although the consensus is that the FOMC will not lower rates in the near future, there is an emerging view that rates may rise if current inflation rates persist or rise. The FOMC indicated that "moderate" economic growth is expected to continue. However, increasing inflationary pressures and the residentiifi housing market changes are of concern. As in past pronouncements, the FOMC continues to monitor these 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. 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, and repurchase agreements. The most recent data on funds held by the fiscal agent is as of March 31, 5007. PREPARED BY:.---".;~~-~. TARUN NAIL~~ Senior Financial Analy" ’~ ’ st DEPARTMENT HEAD APPROVAL: CARL YEATS Director, Services CITY MANAGER APPRO ,VAL: -’~~/’~ ]’~/ ?) ~MILY’HX~RISO~.... Assistant City Manager ATTACHMENTS: A)Consolidated Report of Cash and Investments B)Investment Portfolio, as of March 31, 2007 C)Investment Policy Compliance CMR: 210:07 Page 3of3 Consolidated Report City of Palo Alto Cash and Investments Third Quarter, Fiscal Year 2006-07 (Unaudited) Attachment A City Investment Portfolio (see Attachment B) Other Funds Held by the City Cash with Wells Fargo Bank (includes general and imprest accounts) Union Bank of CaliFornia Investment with CAMP (University Ave. Parking Garages) Petty/Working Cash (as of 03/31/07) Total - Other Funds Held By City Book Value $394,925,272 Market Value $391,459,779 1,751,862 1,75 !,862 2,037,500 2,037,500 561,387 12,238 12,238 4,362,987 3,801,600 Funds Under Manal~ement 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 Payment and Reserve Funds 2002 Downtown Parking Impvt. Certificates of Participation Lease Payment, Improvement, and Reserve Funds Escrow Account for Partial Defeasance of Bonds 2002 Utility Revenue Bonds Debt Service Funds 55 55 2,894 2,894 44,439 44,439 359,926 359,926 244,783 244,783 923,949 923,94~ 31,368 31,368 Calitbrnia Asset Management Prod;ram (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 7t2,928 712,928 813,445 813,445 3,631,397 3,631,397 1,759,921 1,759,921 Total Under Trustee Management GRAND TOTAL 8,525,105 8,525,105 $ 407,813,364 $ 403,786,484 *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. 00000 143 ATTAC~ENT B ooooooooooooooooooooooooooooooooooooooooooooooooooo~o dMddd# ~ddKdddd~dd.d oooooooooo@oooooooooooooooooooooooooooooooo~ooooooooooooooooooo0oo d d d 0 d d ~ ~ d ~ ~ d ~ d d d 0 d d d d d d d d d d d d d d d d oooooooooooooooooooooooooooooooooq q q q 0 0 q q q q q q q q q q q q ~ q q q 0 q q q q q 0 ~ q q qooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooqq qq qqqqqqqqqqq q qqqq qqqqqqq qqqq qq oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo 0 -- oooooooooooooooooooooooq q qq qq qqq q q qq qq q qq qq q q q ~ ~ ~ ~ ~ ~ ~ ~oooo .... oo~oooo~o~ooo~oo~~~ ooooooooooooooooooooooooooooq q q q q q q q q q q q q q q q q q q q q q q q q q q q ~ ~ ~ ~ ~ ooooooooooooooooooooooooooooooooodd dddddddddddddddddddddddddddddddooooooooooooooooooooooooooooooooo ddd~dddKd~d~dd~ddddd~d~dd~ddddK oooooooooooooooooooooooooooooo’oooqqq£q qqqqqqqqqqqqqqqqq qqqqqq qq%qq 0ooooo~ooo~oo~o0o00~00o~o~~ ~ ~ £ £~ q q qq u ~ ~ ~ qq£qq qq.q q q qq ~ t q u q[ q ~ ooooooooooooooooooooooIIIIIIIIIIIIIIIIIIIIII oooooooooooImIImIIIIII 0 0(J 0r- ooooooooooooooooooooooooooooooooo oo~ooooooooo ooooooo EEEEEEE oooooooooooooooooooooq q ~ q q q q £ q q q q q q ~ q ~ q q q ~ ~J ooooooooooooooooooooo ~d dd d d d ddddd dddd ddddd~ ~:ooooooooooo~oooooooo oooooo oqqqqqq,£ zzzzzzzzzzz~ ~ ~ ~ ~ ~ ~ ~ 0 = 0 0= OL3E,o o~ ~ ~. < o o ~ o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o oo o o o o o o o o o o o o o o o oo o o o o o o o o o o o o o o u0 uo o ooOOOEEE EEEEEEE oooooooooooooooooooooooooooooooooq q q q q q q q q qqq q q qq q q qqq q q q q qq qq q q q q ooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo oooooooooo~oooooooooooooooooooooo qq~qqq~%~q~kkqqqqqqqqqqqq~qqqqq£ o oooooooooooooooooooooooooooq q q q q q q q q q q q q q q q q q q q q a q q q q q ~ ~ ~ ~ ~ ~ oooooooooooooooooooooooooooooooooooooo ........ ooo ..... ~~q q q q q q q qq q q q q q q q q q q q q q q qqq q q q q q qq oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo ~oooooooo .....oooooo Y~g~oo ooooooooooooooooooooooooooooooooo oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo~qqqq~qq~qqq~q qqqq~q~qq~qqq~qq oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo ooooooooooooooooooooooooooooooooo oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo ooooooooooooo~ mmmmmmmm mmmmmmmmmmoooooooooooo ooooooooooooooooooooooooooooooooo ooo~oooooooo~oooooooooo~oooooooooooo~oooooooo~oooooooooo~ooooooooo oooooooooo o~ o° o° o° o° o° o° o° o° o° o° 0° 0° o° o° o° o° oo 8 oo oO 8 oo o o c3 o o o o o o o o o o o o o o o o o o oqq qqqqqqqqqqqqqqqqqq q q’oo oo oo oo oo oo oo oo 8 oO 8 ~ oo oo oo oo oo 8 oo oO~#: ooooooooooo~~o6~ zzzzzzzzzzz~ ~ ~ ~ ~ ~ ~ ~ oo0~ ~ ooooo 0 Investment Policy Compliance As of March 31, 2007 Attachment C General Investment Guidelines:" a) The max. stated final maturity of individual securities in the portfolio should be 10 years.Full Compliance b) A max. of 30 percent of the par value of the portfolio shall be invested in securities with maturities beyond 5 years.13.52% c) The City shall maintain a minimt, m of one month’s cash needs in short term investments.Full Compliance d) At least $50 million shall be maintained in securities maturing in less than 2 years.$164.3 million Plus two managed pool accounts which provide instant liquidity: -Local Agency Investment Fund (LAIF) - maximum investment limit is $40 million $16.5 million - Fidelity Investments $1.1 million 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 of holding securities to matnrity.99.14% d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3) working days before pricing.Full Compliance f) Whenever possible, the City will obtain three or more quotations on the pnrchase or sale of comparable securities (excludes new issues, LAIF, City of Palo Alto bonds, money market accounts, and mutual funds).Full Compliance U.S. Government Securities:Full Compliance a) There is no limit on purchase of these securities. b) Securities will not exceed 10 years maturity. U.S. Government Agency Securities:Full Compliance 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;Full Compliance - the interest rates at which they "step-up" are kno~vn at the time of purchase; and Full Compliance -the entire face value of the security is redeemed at the call date.Full Compliance - No more than 20 percent of the par value of portfolio.19.83% b) Securities will not exceed 10 years maturity. Certificates of Deposit:Full Compliance a) May not exceed 20 percent of the par value of the portfolio;0.99% 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 amonnts federally insured (FDIC) e) Rollovers are not permitted withoat specific instruction from authorized City staff. Banker’s Acceptance Notes:None Held a) No more than 30 percent of the par valne of the portfolio. b) Not to exceed 180 days maturity. c) No more than $5 million with an5, one institution., Commercial Paper:None Held , a) No more than 15 percent of the par value ofthe portfolio. b) I laving 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 ofauy one institution, whichever is lesser. Investment Policy Compliance As of March 31, 2007 Attachment C 10 11 Short-Term Repurchase Agreement (REPO):None Held 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 Full Compliance a) Liquid bank accounts which seek to maintain a net asset value orS1.00. 12 i Prohibited Investments: ~a) Reverse Rept, rchase Agreements i b) Derivatives as defined in Appendix B of the Investment Policy 13 All securities shall be delivered to the City’s safekeeping castodian, and held in the name of the City, with the exception of : -Certificates of Deposit, Mutual Funds, and LAIF Mutual Funds:None Held a) No more than 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): "None Held 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:None Held 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. Full Compliance None Held Full Compliance