HomeMy WebLinkAbout2002-01-28 City Council (5)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:JANUARY 28, 2002 CMR: 124:02
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE SECOND QUARTER, FISCAL YEAR 2001-02
This is an information report and no Council action is required.
BACKGROUND
The purpose 0fthis report is to inform Council of the status of the City’s investment portfolio
as of the end of the second quarter of Fiscal Year 2001-02. 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, 2001
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 31,2001.
The face value of the City’s portfolio is $323.6 million; in comparison, last quarter it was
$321.1 million. Growth in the portfolio of $2.5 million results from a combination of the
effects of the Electric and Gas Fund rate increases, funds received from Northern California
Power Agency (NCPA) for the sale of the City excess load, offset by the City’s effort to
constrain expenditures.
The portfolio consists of $16.3 million in liquid accounts and $307.3 million in U. S.
government agency securities. The $307.3 million includes $133.5 million in investments
maturing in less than two years, comprising 43.4 percent of the City’s investment in notes
and securities. The current market value of the portfolio is 103.2 percent of the book value.
CMR: 124:02 Page 1 of 3
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 2.40 years.
Investments Made During the Second Quarter
During the second quarter, $13.0 million of government agency securities with an average
yield of 5.5 percent matured. During the same period, government securities totaling $11.2
million with an average yield of 4.5 percent were purchased. The City’s short-term money
market and pool account increased by $4.4 million compared to 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. During
the second quarter of 2001-02, the money market and pool account balances were increased
to meet potentially higher Utility obligations.
Availability of Funds for the Next Six Months
The normal flow of revenues from the City’s utility billings, sales and property taxes,
transient occupancy taxes and general user feeg is sufficient to provide funds for ongoing
expenditures. Projections indici~te receipts will be $138.4 million and expenditures will be
$141.0 million over the next six months, indicating an overall decline of the portfolio of
about $2.6 million. The decline is attributable to an increase in infrastructure spending.
As of December 31, 2001, the City had $16.3 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 $40.0 million will mature between January 1, 2002 and
June 30, 2002. 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 2001-02, 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 2001-02 was $4.7 million. As
of December 31, 2001, the yield to maturity of the City’s portfolio was 5.79 percent. This
compares to a yield of 5.88 percent in the first quarter of 2001-02. The City’s portfolio yield
is expected to decrease in the third quarter of 2001-02 as a result ofreinvestment of maturing
securities at lower interest rates. The City’s portfolio yield compares to LAIF’s average
yield for the quarter of 3.26 percent and an average yield on the two-year and five-year
Treasury bond during the second quarter of approximately 2.82 percent and 4.00 percent
respectively.
CMR: 124:02 Page 2 of 3
Yield Trends
The Federal Open Market Committee (FOMC) has decreased rates three times or by 1.25
percent in the last quarter. Since it began cutting the federal funds rate and discount rate in
January 2001, the FOMC has reduced both key rates by 4.75 percent to 1.75 and 1.25 percent
respectively. There is a possibility that the federal funds rate will be lowered another 0.25
percent at end of January 2002.
There is an emerging perception in the marketplace that the economy has stabilized and a
slow recovery will occur by the third quarter of 2002. Fed Chairman Alan Greenspan,
however, has expressed skepticism about this perception. According to Greenspan, despite
the early signs that the economy has stabilized, it is still too early to conclude that a recovery
will materialize. Given lower interest rates and continued uncertainties of an economic
recovery, the yield on the City’s portfolio is expected to decrease in the coming 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). U.S. Bank investments are in money market mutual funds that
exclusively invest in U.S. Treasury securities. CAMP investments are also in money market
mutual funds, banker’s acceptances, 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 December 31, 2001.
A)
B)
e)
PREPARED BY:
ATTACHMENTS:
Consolidated Report of Cash and Investments
Investment Portfolio, as of December 31, 2001
Investment Policy Compliance
T~NARAYAN
Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CARL YEATS
lervices
EMILY HARRIS ON
Assistant City Manager
CMR: 124:02 Page 3 of 3
Attachment A
Consolidated Report
City of Palo Alto Cash and Investments
Second Quarter, Fiscal Year 2000-01
(Unaudited)
Book Value Market Value
City Investment Portfolio (see Attachment B)$326,652,920 $ 337,036,616
Other Funds Held by the City
Cash with Bank of America
(includes general, imprest, and other accounts)
1995 Utility Revenue Bond Proceeds
Fidelity Fund - Treasury Class I
2001 University Ave. Parking Bonds
Fldehty Fund - Treasury Class I
Petty/Working Cash (as of 12/31/01)
Total - Other Funds Held By City
3,640,558 3,640,558
622,053 622,053
3,496,536 3,496,536
7,755 7,755
7,766,902 7,766,902
Funds Under Management of Third Party Trustees *
(Debt Service Funds and Reserves)
US Bank Trust Services **
Golf Course Certificates of Participation
Construction Fund & Lease Payment Fund
Civic Center Certificates of Participation
Reserve Fund & Lease Payments Fund
1999 Utility Revenue Bonds
Construction and Cost of Issuance Funds
California Asset Management Program (CAMP) ***
Golf Course Certificates of Participation
Reserve Fund
Total Under Trustee Management
450,429 450,429
775,793 775,793
341,089 341,089
717,054 717,054
2,284,365 2,284,365
336,704,187 $ 347,087,883GRAND TOTAL
*These fi~nds are subject to the requirements of the underlying debt indenture.
** U.S. Bank investments are in money market mutual funds that exclusively invest ~n U.S. Treasury secur~nes.
***CAMP investments are in money market mutual ftmd which invest in bankers acceptance, certificate of deposit,
commercial paper, federal agency securities, and repurchase agreements.
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ATTACHMENT B
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Investment Policy Compliance
As of December 31, 2001
Attachment C
General Investment Guidelines:
a) Beg. FY 00-01, the max. stated final maturity ofin&wdual securities in the portfolio should be 10 years.
Investment exceeding 10 years maturity. Authorized under investment pohcies prior to FY 00-01.
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 mamtained m securities naaturing in less than 2 years.
Plus two managed pool accounts which provide instant liqmdity.
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 will obtain three or more quot~itions 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) Securmes 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 securitms 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 £ot 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 collaterahzed CDs in any institution.
c) Purchase collateralized deposits only fi’orn 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 (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 portfoho.
b) Not to exceed 270 days maturity.
c) No more than $5 milhon 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 fi’om Moody’s or Standard and Poor’s.
c) Not to exceed 180 days maturity.
d) No more than $3 million with any one institution.
Full Compliance
0.04%
8.17%
Full Compliance
$133.5 million
$16.3 million
103.15%
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Comphance
Full Comphance
0.04%
None Held
None Held
None Held
Investment Policy Compliance
As of December 31, 2001
Attachment C
10
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 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 mdhon 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 mimmum rating of AA from Mood’s and/or Standard & Poor’s.
d) No more than $5 million of the par value may be invested m 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 e~ther 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.
Prohibited Investments:
a) Reverse Repurchase Agreements
b) Derivatives as defined in Appendix B of the Investment Pohcy
All securities shall be delivered to the City’s safekeeping custodian, and held m 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