HomeMy WebLinkAbout2003-07-27 City Councilof Palo Alto
C ty Manager’s Report
TO:
FROM:
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
JANUARY 27, 2003 CMR: 125:03
CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE SECOND 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 second quarter of FiscalYear 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 December 31. 2002
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 December 31, 2002.
The face value of the City’s portfolio is $341.3 million; in comparison, last quarter it was
$331.4 million. The increase in the portfolio of $9.9 million primarily results from utility rate
changes, the City’s effort to constrain expenditures, and the fact that county property tax
receipts for the new fiscal year are not received until the second fisc!l quarter.
The portfolio consists of $23.1 million in liquid accounts and $318.2 million in U. S.
government treasury and agency securities. The $318.2 million includes $111.0 million in
investments maturing in less than two years, comprising 34.9 percent of the City’s investment
in notes and securities. The current market value of the portfolio is 105.5 percent of the book
value. Because the City’s practice is to hold securities until they mature, changes in market
CMR: 125:03 Page 1 of 4
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 2.44 years.
Investments Made During the Second Quarter
During the second quarter, $33.4 million of government agency securities with an average
yield of 5.0 percent matured. During the same period, government securities totaling $40.1
million with an average yield of 3.6 percent were purchased. The City’s short-term money
market and pool account increased by $3.2 million from the first quarter of 2001-02.
Investment staff continually monitors the City’s short-term cash flow needs and adjusts its
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
$153.1 million and expenditures will be $ t 52.4 million over the next six months, indicating
an overall N’ox,~<h of the portfolio of about $0.7 million.
As of December 31, 2002, the City had $23.1 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 $22.2 million will mature between January 1, 2003 and
June 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 second quarter of 2002-03, 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 second quarter of 2002-03 was $4.3 million. As of
December 3 !, 2002, the yield to maturity of the City’s portfolio was 5.00 percent. This
compares to a yield of 5.22 percent in the first quarter of 2001-02. The City’s portfolio yield
is expected to decrease further in the third quarter of 2002-03 as a result of reinvestment of
maturing securities at lower interest rates. The City’s portfolio yield of 5.00 percent
compares to LAIF’s average yield for the quarter of 2.33 percent and an average.yield on the
two-year and five-year Treasury bond during the second quarter of approximately 1.88
percent and 2.98 percent respectively.
CMR: 125:03 Page 2 of 4
Yield Trends
The Federal Open Market Committee (FOMC) decreased rates by 50 percent in November
2002. 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 0.75 percent.
At its last meeting, the FOMC changed its economic outlook from negative to neutral. This
reveals an expectation that the economy is on its way to recovery, albeit slowly. In other
words, the FOMC saw no reason to reduce rates further to stimulate the economy. This
translates into a low yield environment for the types of investment the City makes and lower
yields on the City’s portfolio in the future. With significant uncertainties ahead such as war
~¥ith Iraq and corporate reluctance to spend on capital equipment and workers, the FOMC
may reverse direction and lower rates further.
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 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
Pro~am (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’s money market
mutual fund are invested in banker’s acceptances, certificates of deposit, comrnercial paper,
federal agency securities, and repurchase a~eements. The most recent data on funds held by
the fiscal agent is as of December 31, 2002.
ATTACHMENTS:
c)
Consolidated Report of Cash and Investments
Investment Portfolio, as of December 31, 2002
Investment Policy Compliance
CMR: 125:03 Page 3 of 4
PREPARED BY:
TARUN NARAYAN ys~tSenior Financial Aria
DEPARTMENT HEAD APPROVAL:
CARL
Director,
CITY MANAGER APPROVAL:
Assistant City Manager
Services
C~,fi:~: 125:03 Page 4 of 4
Attachment A
Consolidated Report
CiD’ of Palo Alto Cash and Investments
Second Quarter, Fiscal Year 2002-03
(Unaudited)
Book Value Market Value
Cit~’ Investment Portfolio.(see Attachment B)$345,626,267 $364,536,611
Other Funds Held by the City
Cash with Bank of America
(includes general, imprest, and other accounts)
!995 Utility Revenue Bond Proceeds
Fidelit3, Fund - Treasuu’ Class I
Pett3./Working Cash (as of 12/31/02)
Total - Other Funds Held By City.
4,724,700 4,724,700
446,986 446,986
9,305 9,305
5,180,991 5,180,991
Funds Under Management of Third Partw Trustees
(Debt Sen’ice Funds and Reserwes)
_US Bank Trust Sen, ices **
Golf Course Certificates of Participation
Constroction Fund & Lease Pa.vment Fund
2002 Civic Center Certificates of Participation
Lease Payment Fund, Resen’e Fund, & Cost of Issuance
2002 Downtown Parking Impvt. Certificates of Participation
Impvt. Fund, Cost of Issuance, Reserve Fund
336,414 335,418
351,476 351,476
3,211,389 3,211,389
1999 Utilib’ Revenue Bonds
Construction Fund 299,642 299,642
California Asset Manaaement Prod_ram (CAMP) ***
Golf Course Certificates of Participation
Reserve Fund
2001 Universi~’ Ave. Parking Bonds
Impvt. Fund, Cost of Issuance, Reserve Fund
2002 University.’ Ave. Parking Bonds
Impvt. Fund, Cost of Issuance, Reserve Fund
2002 Utility.’ Revenue Bonds
Construction Funds and Reserve Fund
Total Under Trustee Management
724,527 755,646
1,517,213 1,567,472
28,152,858 28,364,698
15,335,670 15,438,048
49,929,190 50~323,790
GtLANDTOTAL $ 400,736,447 $ 420,041,392
*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. Treasuu securities.
*** C~M\,IP investments are in money market mutual fund which invest m bankers acceptance, certificate of deposig
commercial paper, federal agency securities, and repurchase agreements.
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Investment Policy Compliance
As of December 31, 2002
Attachment C
General Investment Guidelines:
a) Beg. FY 00-01, the max. stated final maturity’ of individual securities in the portfolio should be 10 years.
Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-0!.
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 Ciu 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) Market value of the portfolio will exceed 95 percent of the amortized cost basis of the portfolio.
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 ~ill 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 purchase;
- 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) Beginning FY 00-01, securities will not exceed 10 years maturity.
Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-01.
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 cotlateralized deposits only from federally insured large banks that are rated by
Moody’s or Standard & Poors.
d) For non-rated banks, deposit should be limited to amounts federally insured (FDtC)
e) Roltovers 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 270 day, s 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 porttblio.
b) Having highest letter or numerical rating from Moody’s or Standard and Poor’s.
c) Not to exceed 180 days maturi~’.
d) No more than $3 million with any one institution.
Full Compliance
0.03%
2.38%
Full Compliance
$111 million
$22.4 mi!lioni
$0.8 million
105.47% ,
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
17.73%
0.03%
None Held
None Held
None Held
Investment Policy Compliance
As of December 31, 2002
Attachment C
10
I1
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 any one institution.
Negotiable Certificates of Deposit (NCD):
a) No more than 10 percent of the par value of the po,tfolio.
b) No more than S5 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 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 dox~ngraded by either rating agencies to a level belox~ AA it
shall be the City’s policy to revie\~ the credit situation and make a determination as to x~hether
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 Ci~"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