HomeMy WebLinkAboutStaff Report 399-06City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 23, 2006 CMR: 399:06
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR
THE FIRST 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 first 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 September 30, 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
September 30, 2006.
The par value of the City’s portfolio is $381.3 million; in comparison, last quarter it was $372.6
million. The growth in the portfolio of $8.7 million since the last quarter primarily results from the
timing of cash flows: first quarter payroll expenditures were lower due to the way payroll periods
fell and sales tax revenues were higher than the prior quarter. In addition, the Electric Fund’s cost for
electricity purchases continues to be lower in the beginning of the first quarter due to the greater
availability ofhydropower.
The portfolio consists of $19.0 million in liquid accounts and $362.3 million in U. S. government
treasury and agency securities. The $362.3 million includes $168.9 million in investments maturing
in less than two years, comprising 46.6 percent of the City’s investment in notes and securities.
The current market value of the portfolio is 98.6 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
CMR: 399:06 Page 1 of 3
California, which is the City’s safekeeping agent. The average life to maturity of the investment
portfolio is 2.21 years compared to 2.22 years last quarter.
Investments Made During the First Quarter
During the first quarter, $18.0 million of government agency securities with an average yield of
5.4% percent matured. During the same period, government securities totaling $21.0 million with an
average yield of 5.3% percent were purchased. The City’s short-term money market and pool account
increased by $5.8 million compared to the fourth quarter of 2005-06. 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.
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 those respective funds. Projections indicate receipts will
be $169.0 million and expenditures will be $162.0 million over the next six months, indicating an
overall growth of the portfolio of $7.0 million.
As of September 30, 2006, the City had $19.0 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 $52.0 million will mature between October 1, 2006 and March 31. 2007. On the
basis of the above projections, staffis 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 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 first quarter of 2006-07 was $4.1 million. This total is 5.0
percent higher than what the City received last quarter. As of September 30, 2006, the yield to
maturity of the City’s portfolio was 4.27 percent. This compares to a yield of 4.23 percent in the
fourth quarter of 2005-06. As lower yielding securities are reinvested in higher yielding ones, staff
expects the portfolio’s yield will continue to gradually rise in the coming quarters. The City’s
portfolio yield of 4.27 percent compares to LAIF’s average yield for the quarter of 4.94 percent and
an average yield on the two-year and five-year Treasury bond during the first quarter of
approximately 4.92 percent and 4.85 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.
In its last two meetings, the FOMC indicated that economic growth has moderated. The slowing
housing market, rising interest rates and higher energy costs were cited as contributors to this
slowdown. The FOMC continues to monitor inflationary risks closely and indicated future rate
CNLR: 399:06 Page 2 of 3
changes are dependent on the future course of both inflation and economic growth. The City’s
portfolio yields are expected to rise slowly as lower-yield instruments purchased over the past three
years are re-invested in higher-yield instruments.
Funds Held by the CiW 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 Septembe~ 30, 2006.
PREPARED BY~~ ~;~;~-------~
TARUN N~N
Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
CARL
Director,Services
CITY MANAGER APPROVAL:
ATTACHMENTS:
HARRISON
Assistant City Manager
A)
B)
c)
Consolidated Report of Cash and Investments
Investment Portfolio, as of September 30, 2006
Investment Policy Compliance
CMR: 399:06 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 by the City
Cash with Wells Fargo Bank
(includes general and imprest accounts)
Investment with CAMP (University Ave. Parking Garages)
Petty/Working Cash (as of 09/30/06)
Total - Other Funds Held By City
Book Value
$384,531,129
2,529,028
537,847
13,838
3,080,713
Market Value
$379,057,648
2,529,028
13,838
2,542,866
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
110
2,785
71,180
358,990
244,143
917,969
75,599
110
2,785
71,180
358,990
244,143
917,969
75,599
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
714,598 714,598
806,902 806,902
3,689,932 3,689,932
1,773,074 1,773,074
8,655,282 8,655,282
$ 396,267,124 $ 390,255,796
*These funds are subject to the requirelnents 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.
Investment Repod Altachment~.xl~ Atiachmenl A
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Investment Policy Compliance
As of September 30, 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 million
-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 of 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. Government 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 pu~:chase;
- 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 from authorized City staff.
Banker’s Acceptance Notes:
a) No more than 30 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 percent 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
4.27%
Full Compliance
$168.9 million
$0.9 million
$18.1 million
98.60%
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
19.88%
Full Compliance
1.31%
NoneHeld
None Held
Investment Policy Compliance
As of September 30, 2006
Attachment C
10
11
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:
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):
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.
12 Prohibited Investments:
a) Reverse Repur:chase Agreements
b) Derivatives as defined in Appendix B of the Investment Policy
13 All securities shall be delivered to the City’s safekeeping custodian, and held in the name of the
City, with the exception of :
I - Certificates of Deposit, Mutual Funds, and LAIF
None Held
None Held
None Held
Full Compliance
None Held
Full Compliance