HomeMy WebLinkAbout2003-04-21 City Council (14)TO:
FROM:
City of alo Alt
C ty Manager’s Report
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
APRIL 21, 2003 CMR: 232:03
CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE THIRD QUARTER, FISCAL YEAR 2002-03
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 2002-03. The City’s investment policy
requires that staff report 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. 2003
The City’s investment portfolio is detailed in Attachment B. It is gouped by investment type
and includes the investment issuer, date of maturity, current market value, the book and face
(par) value, and the weighted average maturit?, of each type of investment and of the entire
portfolio as of March 31, 2003.
The face value of the City’s portfolio is $341.3 million; in comparison, last quarter it was
also $341.3 million.
The portfolio consists of $25.6 million in liquid accounts and $315.7 million in U. S.
government treasury and agency securities. The $315.7 million includes $117.8 million in
investments maturing in less than two years, comprising 37.3 percent of the City’s investment
in notes and securities. The current market value of the portfolio is 105.1 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
CMR: 232:03 Page 1 of .~
Union Bank of California, which is the City’s safekeeping agent. The average life to maturity
of the investment portfolio is 2.49 years.
Investments Made During the Third Quarter
During the third quarter, $26.3 million of government agency securities with an average
yield of 4.3 percent matured. During the same period, government securities totaling $26.8
million with an average yield of 4.0 percent were purchased. The City’s short-term money
market and pool account increased by $2.5 million compared to the second quarter of 2001-
02. Investment staff continually monitor the City’s short-term cash flow needs and adjust
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. Projections indicate receipts will be
$!48.7 million and expenditures will be $148.3 million over the next six months, indicating
an overall growth of the portfolio of about $0.4 million.
As of March 31,2003, the City had $25.6 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 $21.4 million will mature between April 1,2003 and September
30, 2003. 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 third quarter of 2002-03, staffcomplied 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 2002-03 was $4.3 million. As of
March 31, 2003, the yield to maturity of the City’s portfolio was 4.91 percent. This
compares to a yield of 5.00 percent in the second quarter of 2002-03. The City’s portfolio
yield is expected to decrease further in the fourth quarter of 2002-03 as a result of
reinvestment of maturing securities at lower interest rates. The City’s portfolio yield of 4.91
percent compares to LAIF’s average yield for the quarter of 1.99 percent and an average
yield on the two-year and five-year TreasurT bond during the third quarter of approximately
1.65 percent and 2.87 percent, respectively.
Yield Trends
The Federal Open Market Committee (FOMC) did not change the federal funds rate in the
third quarter. Since it began cutting the federal funds and discount rates in January 2001, the
FOMC has reduced both key rates by 5.25 percent to 1.25 and 0.75 percent, respectively.
CM~: 232:03 Page 2 of 3
At its last meeting, the FOMC did not provide its usual economic outlook. Previously, its
outlook was neutral. The neutral outlook revealed an expectation that the economy is on its
way to recovery, albeit slowly. Due to the considerable geopolitical uncertainties, the FOMC
decided to leave rates unchanged until additional events unfold. At this time, the market is
expecting the FOMC to reduce rates by 0.25 percent at its May meeting. The City can expect
declining yield on its portfolio if interest rates continue to drop and the economy remains
soft.
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 Bank of America. The bond proceeds, bond resetwes, and debt setwice 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
Progam (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, certificate 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 March
31 _00~.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of March _~ 1. _00~
C)Investment Policy Compliance .
PREPARED BY: . /~’,’7/~------
" TARUN NARAY,~
Senior Financial4Cinalyst
DEPARTMENT HEAD APPROVAL:~~
’T ~ Services
CD~AL~ative
CITY MANAGER APPROVAL:
Y HARRISON
Assistant City Manager
CMR: 232:03 Page 3 of,5
Attachment A
Consolidated Report
Ci~’ of Palo Alto Cash and Investments
Third Quarter, Fiscal Year 2002-03
(Unaudited)
Book Value Market Value
Citx Investment Portfolio.(see Attachment B)346.841,592 $364,599,966
Other Funds Held by the City
Cash with Bank of America
(includes general, imprest~ and ottaer accounts)
1995 Utility Revenue Bond Proceeds
Fidelity Fund - Treasury. Class I
PettyAVorking Cash (.as of 03/31/03)
Total - Oflaer Funds Held By City
5,216,220 5,216,220
448,229 448,229
9,305 9,305
5.673,754 5,673,754
Funds Under Manauement of Third Party Trustees
(Debt Service Funds and Reserves)
US Bank Trust Senices **
Golf Course Certificates of Participation
Construction Fund & Lease Payment Fund
2002 Civic Center Certificates of Participation
Lease Payment Fund, Reserve Fund, & Cost of Issuance
2002 Downtown Parking Impvt. Certificates of Participation
Impx~.. Fund, Cost of Issuance, Reserve Fund
192,494 192,494
350,217 350,217
2,775,721 2,775,721
1999 UtiligRevenue Bonds
Cons~uction Fund 300,228 300,228
California Asset Mana~_ement Pro,,ram (CAMPt **~
Golf Course Certificates of Participation
Reserve Fund
2001 University. Ave. Parking Bonds
Impvt. Fund, Cost of Issuance, Reserve Fund
2002 Universi~ Ave. Parking Bonds
Impvt, Fund, Cost of Issuance, Resen’e Fund
2002 Utili~ Revenue Bonds
Construction Funds and Reserve Fund
738,540 738,540
1,335,865 1,335,865
23,918,487 23,918,487
13,603,045 13,603,045
Total Under Trustee Management 43.214,596 43,214,596
395,729,942 $ 413,488,316GIL&ND TOTAL
*These funds are subject to the requirements of the underlying debt indenture.
** U.S. Bank investments are in money market mutual ffmds that exclusively invest in U.S. Treasu~" securities.
*** CA.\ IP investments are in mo ~e.v market mutual fund which invest in bankers acceptance, cert ficate of deposit,
commercial paper, federal agency securities, and repurchase agreements.
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ATTACHi!ENT B
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Attachment C
Investment Policy Compliance
As of March 31, 2003
General Investment Guidelines:
a) Beg. FY 00-01, the max. stated final maturi~’ of individual securities in the portfolio should be 10 years.
Investment exceeding t 0 years maturity that \~ere authorized under investment policies prior to FY 00-C
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 Ci~ 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 t\so managed pool accounts which provide instant liquidiD~:
-Local Agency Investment Fund (LAW) - maximum investment limit is $40 million
-Fidelity Investments
e) Market value of the portfolio will exceed 95 percent of the amortized cost basis oftt~e portfolio.
d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3)
~orking days before pricing.
i) Whenever possible, the City will obtain three or more quotations on the purchase or sate 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 ?’ears 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 purchase;
- the interest rates at which they "step-up" are known at the time of purchase; and
- the entire face value of the securi~ is redeemed at the call date.
-No more than 20 percent of the par value of portfolio.
b) Beginning FY 00-01, securities x~ill not exceed 10 years maturity.
Investment exceeding 10 years maturi~’. Authorized under im estment policies prior to FY 00-01.
Certificates of Deposit:
a) Nla.~ not exceed 20 percent of the par value of the portfolio;
b) No more than t0 percent of the par value of the portfolio in collateralized CDs in any institution.
c) Purchase cotlateralized deposits only from federally insured large banks that are rated by
Mood.~’s or Standard & Poors.
d) For non-rated banks, deposit should be limited to amounts federally insured (FDIC)
e) Rollovers are not permitted without specific instruction from authorized Ci~ staff.
Banker’s Acceptance Notes:
a) No more than 30 percent of the par value of the portfolio.
b) Not to exceed 270 days maturity.
c) No more than $5 million with an)’ 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 M0ody’s or Standard and Poor’s.
c) Not to exceed 180 days maturity.
d) No more than $3 million with an.’,’ one institution.
Full Compliance
0.03%
10.81%
Full Compliance
$117.8 million
$24.8 million
$0.8 million
10 .13%
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
16.41%
0.03%
None Held
None Held
None Held
Investment Policy Compliance
As of March 31, 2003
Attachment C
7
t0
11
12
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.
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 an.v 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 Mood’s and/or Standard & Poor’s.
d) No more than $5 million of the par value ma5 be invested in securities of any’ single issuer, other
than the U.S. Government, its agencies and instrumentality.
e) If securities turned by the City’ are downgraded by either rating agencies to a level belo~ AA it
sha!l 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
None Held
None Held
None Held
Full Compliance
None Held
Full Compliance