HomeMy WebLinkAboutStaff Report 401-07City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:
DATE:
SUBJECT:
CITY MANAGER
OCTOBER 29, 2007
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 401:07
CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR
THE FIRST QUARTER, FISCAL YEAR 2007-08
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 first quarter of fiscal year 2007-08. 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 September 30. 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
September 30, 2007.
The par value of the City’s portfolio is $397.5 million; in comparison, last quarter it was $398.4
million. The decline in the portfolio of $0.9 million is attributable to the higher utility commodity
costs. In the coming quarters, the City’s portfolio is expected to steadily decrease. This will result
from placing approximately $30 million currently in a City-controlled retiree medical reserve into a
trust fund; and from higher electric commodity costs.
The portfolio consists of $13.0 million in liquid accounts and $384.5 million in U. S. government
treasury and agency securities and certificates of deposit. The $384.5 million includes $165.6
million in investments maturing in less than two years, comprising 43.1 percent of the City’s
investment in notes and securities. The investment policy requires at least $50 million be maintained
in securities maturing in less than two years.
CMR: 401:07 Page 1 of 3
The cm~ent market value of the portfolio is 100.2 percent of the book value compared to 98.5
percent in the last quarter. 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 2.82 years compared to 2.74 years last quarter.
Investments Made Durin~ the First Quarter
During the first quarter, $24.3 million of government agencY securities with an average yield of 4.6%
percent matured. During the same period, govermnent securities totaling $23.0 million with an
average yield of 5.2% percent were purchased. The City’s short-term money market mad pool account
increased by $0.4 million compared to the fourth quarter of fiscal year 2006-07. 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.
Availability of Funds for the Next Six Months
Normally, the 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 $178.9 million and expenditures will be $189.3 million over the next six months, indicating
an overall decline in the portfolio of $10.4 million. As stated previously, the decrease is primarily
attributable to higher electrical commodity costs and budgeted drawdown in electric reserves.
As of September 30, 2007, the City had $13.0 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 $37.0 million will mature between October 1, 2007 and March 31, 2008. 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 first quarter of 2007-08, staff complied with all aspects of the investment policy except
the 20 percent callable limit on U.S. government agency securities. Due to a drop in the portfolio’s
assets, callable securities now are 20.2 percent of the portfolio. The investment policy states that an
overage in this category that is due to a reduction in the portfolio’s size is not a violation of the 20
percent callable restriction. The callable percentage limitation will be restored as callable
investments mature or if the portfolio gows. Staff will not invest in callable securities until they fall
below the policy’s 20 percent limit. Attact~rnent C lists the restrictions in the City’s investment
policy compared with the portfolio’s actual performance.
Investment Yields
Interest income on an accrual basis for the first quarter of 2007-08 was $4.5 million. As of
September 30, 2007, the yield to maturity of the City’s portfolio was 4.45 percent. This compares to
a yield of 4.43 percent in the fourth quarter of 2006-07. As lower yielding securities purchased in
prior years mature and are reinvested in slightly higher yielding ones, staff expects the portfolio’s
yield to slowly rise in the coming quarters. The City’s portfolio yield of 4.45 percent compares to
LAIF’s average yield for the quarter of 5.25 percent and an average yield on the two-year and five-
CMR: 401:07 Page 2 of 3
year Treasury bonds during the first quarter of approximately 4.37 percent and 4.49 percent,
respectively.
Yield Trends
The Federal Open Market Committee (FOMC), after a year of not changing rates, decreased the
federal funds and discount rate rates by 0.50 percent and 1.0 percent, respectively. These rates
currently are 4.75 and 5.25 percent, respectively. Though the consensus is that further rate cuts are
likely, the FOMC may decide to maintain or raise rates if inflation picks up. The FOMC continues to
monitor inflationary and credit risks closely. Even though interest rates have declined in recent
months, the City’s portfolio yield is expected to slowly increase in the coming quarters due to the
mix of investments.
Funds Held bv 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 pa?anents 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 Pro~am (CAMP). Bond funds v,,ith 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 a~eements. The most recent data on
funds held by the fiscal agent is as of September 30, 2007.
PREPARED
DEPARTMENT HEAD APPROVAL:
CARL YEATS
Director, Admini~trati/ve-Se~ces
CITY MANAGER APPROVAL:
EMILY HARRI-S-ON\ .....
Assistant City Manager
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of September 30, 2007
C)Investment Policy Compliance
CMR: 401:07 Page 3 of 3
Consolidated Report
City of Palo Alto Cash and Investments
First Quarter, Fiscal Year 2006-07
(Unaudited)
Attachment A
City Investment Portfolio (see Attachment B)
Other Funds Held bv the City
Cash with Wells Fargo Bank
(includes general and imprest accounts)
Investment with CAMP (University Ave. Parking Garages)
Petty/Working Cash (as of 09/30/07)
Total - Other Funds Held By City
Book Value
$ 399,237,411
Market Value
$ 399,751,081
2,083,837 2,083,837
565,309 565,309
12,338 12,338
2,661,484 2,661,484
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 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
204 204
857 857
25,991 25,99!
355,068 355,068
243,833 243,833
887,807 887,807
54,862 54,862
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
711,273 711,273
746,168 746,168
3,266,667 3,266,667
1,759,996 1,759,996
8,052,726 8,052,726
$ 409,951,621 $ 410,465,290
*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.
z
ATTACHMENT B
n° ~~
0000000000000~0~000000000~000~000
000000000000000000000000000000000000000000000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000
000000000000000000000000000000000
Er,"
qqqqqqqqqqqqqqqqqqqqqqq
000000000000000000000000000000000000~000000000
0 o ~o
0 ~~
0000000~0
Investment Policy Compliance
As of September 30, 2007
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.
None Held
Full Compliance
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:
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 instrumentaliD,.
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 Repurchase Agreements
b) Derivatives as defined 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
Full Compliance