HomeMy WebLinkAbout2004-10-25 City Council (11)City of Polo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 25, 2004 CMR: 447:04
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE FIRST QUARTER, FISCAL YEAR 2004-05
This is an information report and no Council action is required.
BACKGROUND
The purpose of this report is to inform Council 0fthe status of the City’s investment portfolio
as of the end of the first quarter of fiscal year 2004-05. 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, 2004
The City’s investment portfolio is detailed in Attachment B. It is grouped by investment
typeand 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, 2004.
The par value of the City’s portfolio is $369.6 million; in comparison, last quarter it was
$368.9 million. Growth in the portfolio of a slight $0.7 million is primarily due to utility rate
increases.
The portfolio consists of $31.6 million in liquid accounts and $338.0 million in U. S.
government treasury and agency securities. The $338.0 million includes $109.8 million in
investments maturing in less than two years, comprising 32.5 percent of the City’s investment
in notes and securities. The current market value of the portfolio is 101.4 percent of the book
value. 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
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Union Bank of California, which is the City’s safekeeping agent. The average life to maturity
of the investment portfolio is 2.85 years.
Investments Made During the )irst Quarter
During the first quarter, $19.0 million ofgovermnent agency securities with an average yield
of 5.5% percent matured. During the same period, government securities totaling $13.5
million with an average yield of 4.4% percent were purchased. The City’s short-term money
market and pool account increased by $6.2 million compared to the fourth quarter of 2003-
04. 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 wilt be $140.6 million and expenditures will be $139.1 million over the next
six months, indicating an overall growth of the portfolio of about $1.5 million.
As of September 30, 2004, the City had $31.6 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 $23.7 million will mature between October 1, 2004 and
March 31, 2005. 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 2003-04, 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 incomeon an accrual basis for the first quarter of 2004205 was $4.0 million. As of
September 30, 2004, the yield to maturity of the City’s portfolio was 4.21 percent. This
compares to a yield of 4.23 percent in the fourth quarter of 2003-04. Even though interest
rates are slowly increasing, the City’s portfolio yield will decrease further in the second
quarter of 2004-05 as a result of continued reinvestment of maturing securities at lower
interest rates. The City’s portfolio yield of 4.21 percent compares to LAIF’s average yield
for the quarter of 1.66 percent and an average yield on the two-year and five-year Treasury
bond during the first quarter of approximately 2.54 percent and 3.50 percent, respectively.
Yield Trends
The Federal Open Market Committee (FOMC) has increased the federal funds rate and the
discount rate three times in the last two quarters by 0.75 percent to 1.75 and 2.75 percent,
respectively.
C1VIR: 447:04 Page 2 of 3
At its Septelnber 2004 meeting, the FOMC continued to maintain a "balanced" outlook on
the economy. This outlook reveals an expectation that the upside and downside risks
associated with sustaining economic growth are equal. The FOMC has acM~owledged that
inflation remains under control and that, despite a major increase in energy prices, the
national economy and the labor market continue to improve, albeit slowly. Silicon Valley
continues to lag the national and state economic recovery and job growth here has been
modest at best. The FOMC is expected to increase rates further this fiscal year. The City can
expect the declining yields on its portfolio to plateau in the near future; it can also expect
yields to increase gradually if the FOMC continues to raise interest rates.
Funds Held by the Ci_ty 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 Bank of Alnerica. The bond proceeds, bond 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 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 September 30, 2004.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of September 30, 2004
C)Investment Policy Compliance .~.-~"
PREPARED BY: /~i~-->a-~
TARUN NARAY~-
Senior Financial’Analyst
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
Director, ~~inistrative Services
EMILY HARRISON
Assistant City Manager
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