HomeMy WebLinkAbout2003-10-27 City Council (13)TO:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 27, 2003 CMR: 479:03
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE FIRST QUARTER, FISCAL YEAR 2003-04
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 2003-04. 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 September 30, 2003
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, 2003.
The par value of the City’s portfolio is $353.9 million; in comparison, last quarter it was
$351.3 million. Growth in the portfolio of $2.6 million since the last quarter primarily comes
from several one-time payments such as a real estate transfer tax payment.
The portfolio consists of $15.7 million in liquid accounts and $338.2 million in U. S.
government treasury and agency securities. The $338.2 million includes $120.1 million in
investments maturing in less than two years, comprising 35.5 percent of the City’s investment
in notes and securities. The current market value of the portfolio is 104.0 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
Union Bank of California, which is the City’s safekeeping agent. The average life to maturity
of the investment portfolio is 2.82 years.
CMR: 479:03 Page 1 of 4
Investments Made During the First Quarter
During the first quarter, $34.5 million of government agency securities with an average yield
of 4.4% percent matured. During the same period, government securities totaling $34.5
million with an average yield of 3.7% percent were purchased. The City’s short-term money
market and pool account increased by $2.6 million compared to the fourth quarter of 2002-
03. 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.
Availabili _ty of Funds for the Next Six Months
The normal fiow 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
$148.1 million and expenditures will be $145.3 million over the next six months, indicating
an overall N’owth of the portfolio of about $2.8 million.
As of September 30, 2003, the City had $15.7 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 $32.2 million will mature between October 1, 2003 and
March 31, 2004. 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 income on an accrual basis for the first quarter of 2003-04 was $4.2 million. As of
September 30, 2003. the yield to maturity of the City’s portfolio was 4.65 percent. This
compares to a yield of 4.75 percent in the fourth quarter of 2002-03. The City’s portfolio
yield will decrease further in the second quarter of 2003-04 as a result of reinvestment of
maturing securities at lower interest rates. The City’s portfolio yield of 4.65 percent
compares to LAIF’s average yield for the quarter of 1.64 percent and an average yield on the
two-year and five-year Treasury bond during the first quarter of approximately 1.53 percent
and 3.10 percent, respectively.
Yield Trends
The Federal Open Market Committee (FOMC) has not changed the federal funds rate in the
first quarter of 2003-04. The last rate cut was on June 25, 2003 by .25 percent. Since it
began cutting the federal funds and discount rates in January 2001, the FOMC has reduced
the federal funds rate by 5.50 percent and discount rate by 5.25 percent to 1.00 and 0.75
percent, respectively.
CMR: 479:03 Page 2 of 4
At its September 20 neeting, the FOMC maintained 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 continues to be cautiously optimistic
about economic growth due to the rising stock market, tax rate cuts, and low interest rates.
However, the FOMC is concerned about the lack of job growth. The FOMC is expected to
leave rates at the current level at its next meeting and in the near future. The City can expect
declining yields on it portfolio given current and potential near-term interest rates.
To somewhat offset the steady and dramatic drop in interest rates, staff has been purchasing
securities with longer maturities. As stated, the average life to maturity has increased from
2.27 years in 2001-02 to 2.82 years in the first quarter of 2003-04. In addition, staff
continues to purchase the maximum amount of callable securities allowed under the City’s
Investment Policy. This strategy, which is possible given the size and stability of the City’s
portfolio, has kept the City’s yields relatively strong. Nevertheless, as older investments
continue to mature, overall yields will fall in future quarters.
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
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, 2003.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of September 30, 2003
C)Investment Policy Compliance
PREPARED BY:¯TARUN NARAYANf
Senior Financial Analyst
CMR: 479:03 Page 3 of 4
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CARL
Director,
Assistant City Manager
Services
CMR: 479:03 Page 4 of 4
Attachment A
Consolidated Report
City of Palo Alto Cash and Investments
First Quarter, Fiscal Year 2002-03
(Unaudited)
Book Value Market Value
City Investment Portfolio (see Attachment B)$361.152,367 $ 375,521.682
Other Funds Held bv the City
Cash with Bank of America
(includes general, imprest, and other accounts)
PeW/Working Cash (as of 09/30/03)
Total - Other Funds Held By City
2.220,390 2,220.390
9.805 .9,805
2.230,195 2.230.195
Funds Under Management of Third Party Trustees *
(Debt Service Funds and Reserves)
US Bank Trust Services **
Golf Course Certificates of Participation
Construction Fund & Lease Pa.wnent Fund
2002 Civic Center Certificates of Participation
Lease Payment Fund. Reserve Fund, & Cost oflssuance
2002 Downtown Parking lmpvt. Certificates of Participation
Impvt. Fund, Cost of Issuance. Reserve Fund
5.754 5.754
350.163 350,163
1.957.842 1.957.842
1999 Utilib’Revenue Bonds
Construction Fund 250.!95 250.195
2002 UtiliU Revenue Bonds
DebtService Account 35.308 35.308
California Asset Manao.ement Proo_ram (CAMP~ ***
Golf Course Certificates of Participation
Reserve Fund
2001 University.’ Ave. Parking Bonds
lmpvt. Fund. Cost of Issuance. Reserve Fund
2002 University Ave. Parking Bonds
lmpvt. Fund. Cost of Issuance. Reserve Fund
2002 Utility.- Revenue Bonds
Construction Funds and Reserve Fund
715.158 715.158
515.638 515.638
12.624.109 12.624.109
12.318.308 12.318.308
Total Under Trustee Management 28.772.474 28.772.474
GRAND TOTAL $ 392,155,036 $ 406,524,351
*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.
0
z
< o
o o o
ATTACHMENT B
qqqqqqqqqqqqqqqqqqqqqqqqqq
o ~oooo~oooooooo-o ~g
~~oooooooooooooooooooooooooo
00~000000000000000000000000000000
00~000000000~0~0000~000000000~00
000000000000000000000000000000000
000000000000000000000000000
~oooooooooooooooooooooooooo
0
qqqqqqqqqqqqqqqqqqqqqqqqqqqq88~SS
o
000000000000000000000000
~~888ooooooooooooooo
ZZZZZZZZZZZZZZ~ZZZZZZZZ~
Investment Policy Compliance
As of September 30, 2003
Attachment C
1 General Investment Guidelines:
a) Beg. FY 00-01, the man. stated final maturity ofindividua! securities in the portfolio should be 10 years. Full Compliance
Investment exceeding 10 years maturity that were authorized under investment policies prior to FY 00-C 0.02%
b) A max. of 30 percent of the par value of the portfolio shall be invested in securities with maturities
beyond 5 years.18.45%
c) The City shall maintain a minimum of one month’s cash needs in short term investments.Full Compliance
d) At least $50 million shall be maintained in securities maturing in less than 2 years.$120.1 million
Plus two managed pool accounts which provide instant liquidity:
-Local Agency Investment Fund (LAW) - maximum investment limit is $40 million $14.9 million
- Fidelity Investments $0.8 million
e) Market value of the portfolio will exceed 95 percent of the amortized cost basis of the portfolio.103.96%
d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3)
working days before pricing.Full Compliance
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).Full Compliance
2 U.S. Government Securities:Full Compliance
a) There is no limit on purchase of these securities.
b) Securities will not exceed I0 years maturi~’.
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 will not exceed 10 ,’,’ears 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 aW institution.
c) Purchase collateralized deposits only from federally insured large banks that are rated by
Moods’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 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 Moody’s or Standard and Poor’s.
c) Not to exceed 180 days maturity.
dl No more than $3 million with any one institution.
Full Compliance
Full Compliance
Full Compliance
Full Compliance
18.08%
0.02%
None Held
None Held
None Held
Investment Policy Compliance
As of September 30, 2003
Attachment C
7 Short-Term Repurchase Agreement (REPO):None Held
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.
8 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.
9 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.
10 Medium-Term Corporate Notes:None Held
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 Ci~, 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.
11 Prohibited Investments:Full Compliance
a) Reverse Repurchase Agreements None Held
b) Derivatives as defined in Appendix B of the Investment Policy
12 All securities shall be delivered to the City’s safekeeping custodian, and held in the name of the Full Compliance
City, with the exception of :
-Certificates of Deposit, Mutual Funds, and LAIF