HomeMy WebLinkAbout2002-04-22 City Council (3)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:APRIL 22, 2002 CMR: 213:02
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE THIRD QUARTER, FISCAL YEAR 2001-02
This is an information report and no Council action is required.
BACKGROUND
The purpose ofthfs 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 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 March 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 March 31, 2002.
The face value of the City’s portfolio is $330.1 million; in comparison, last quarter it was
$323.6 million. Growth in the portfolio of $6.5 million resulted from a combination of the
City’s effort to constrain expenditures, effects of the Electric and Gas Fund rate increases,
and reimbursement of past expenditures from bond proceeds.
The portfolio consists of $20.7 million in liquid accounts and $309.4 million in U. S.
government agency securities. The $309.4 million includes $147.6 million in investments
maturing in less than two years, comprising 47.7 percent of the City’s investment in notes
and securities. The current market value of the portfolio is 102 percent of the book value.
Because the City’s practice is to hold securities until they mature, changes in market price
CMR: 213:02 Page 1 of 4
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 2.3 years.
Investments Made During the Third Quarter
During the third quarter, $17 million of government agency securities with an average yield
of 6.3 percent matured. During the same period, government securities totaling $19 million
with an average yield of 4.2 percent were purchased. The City’s short-term money market
and pool account increased by $4.5 million compared to the second 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 third quarter of 2001-02, the money market and pool account balances were increased to
meet utility commodity purchase obligations and to purchase federal agency securities in a
rising interest rate environment.
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 show receipts will be
$153.8 million and expenditures will be $151.8 million over the next six months, for an
overall growth of the.portfolio of about $2 million.
As of March 31, 2002, the City had $20.7 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 $45.0 million will mature between April 1, 2002 and September
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 third 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 third quarter of 2001-02 was $4.7 million. As of
March 31, 2002, the yield to maturity of the City’s portfolio was 5.63 percent. This
compares to a yield of 5.79 percent in the second quarter of 2001-02. The City’s portfolio
¯ yield is expected to decrease in the third quarter of 2001-02 as a result of reinvestment of
maturing securities at lower interest rates. The City’s portfolio yield compares to LAIF’s
average yield for the quarter of 3 percent and an average yield on the two-year and five-year
Treasury bond during the third quarter of approximately 3.16 percent.and 4.37 percent
respectively.
CMR: 213:02 Page 2 of 4
Yield Trends
The Federal Open Market Committee (FOMC) did not change rates in the last quarter. Since
it began cutting the federal funds and discount rates in January 2001, the FOMC has reduced
both key rates by 4.75 percent to 1.75 and 1.25 percent, respectively.
There is an emerging perception by the FOMC that the economy has stabilized and is on a
slow road to recovery. However, in the short-term, considerable economic uncertainty exists.
Infact, the FOMC has adjusted its outlook to a neutral bias indicating that there will be no
near-term rate cuts and that there may be considerable interest rate increases as the economy.
revives. Continued international conflicts, slower recovery in the high-tech industry, and
fall-out from September 11 and the Enron collapse could delay economic growth and keep
interest rates low.
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, which are also in money
market mutual funds, invest in banker’s acceptance, certificate of deposit, commercial paper,
federal agency securities, and repurchase agreements. The most recent data on funds held by
the fiscal agent is as of March 31, 2002.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of March 31, 2002
C)Investment Policy Compliance
PREPARED BY:~ARA
Senior Financial Analyst
CMR: 213:02.Page 3 of 4
DEPARTMENT HEAD APPROVAL:
CARL YEAT
Director,Services
E~Y ~SON
Assistant City Manager
CMR: 213:02 Page 4 of 4
Attachment A
Consolidated Report
City of Palo Alto Cash and Investments
Third Quarter, Fiscal Year 2000-01
(Unaudited)
¯ Book Value Market Value
$ 333,397,338 $ 340,150,358City Investment Portfolio (se~ Attaclunent B)
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
Fidelity Fund - Treasury Class I
Petty/Working Cash (as of 03/31/02)
Total - Other Funds Held By City
6,085,950 6,085,950
624,748 624,748
2,344,969 2,344,969
7,705 7,705
9,063,372 9,063,372
Funds Under Management of Third Party Trustees *
(Debt Service Funds and ReServes)
US Bank Trust Services **
Golf Course Certificates (ff Participation
Construction Fund & Lease Payment Fund
1992 Civic Center Certificates of Participation (Refinanced)
Reserve Fund & Lease Payments Fund
2002 Civic Center Certificates of Participation
Lease PaYment Fund, Reserve Fund, & Cost of Issuance
2002 Downtown Parking Impvt. Certificates of Participation
Impvt. Fund, Cost of Issuance, Reserve Fund
451,976 453,593
967 967
369,373 369,373
3,444,376 3,444,376
1999 Utility Revenue Bonds
Construction Fund 342,342 342,342
California Asset Management Program (CAMP) ***
Golf Course Certificates of Participation
Reserve Fund
2002 Utility Revenue Bonds
Construction Funds and Reserve Fund
716,109 705,312
20,906,360 20,849,263
Total Under Trustee Management 26,231,503 26,165,226
$ 368,692,212 $ 375,378,956GRAND TOTAL
*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.
00~2.
ATTAC~ENT B
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Investment Policy Compliance
As of March 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 00-01.
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 maintained in securities maturing in less than 2 years.
Plus two managed pool accounts which provide instant liquidity.
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 quotations on the purchase or sale of
comparable securities (excludes new issues, LAIF, City of Palo Alto bondg, 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" areknown 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 collateralized deposits only fi’om 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 fi’om 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 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 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%
4.98%
Full Compliance
$147.6 million
$20.7 million
102.04%
Full Compliance
Full Compliance
Full Compliance
Full Compliance.
Full Compliance
Full Compliance
Full Compliance
Full Compliance
0.05
0.04%
None Held
None Held
None Held
Investment Policy Compliance
As of March 31, 2002
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 million in any one institution.
Medium-Term Corporate Notes:
a)
b)
c)
d)
e)
No more than 10 percent of the par value of the portfolio.
Not to exceed 5 years maturity.
Securities eligible for investment shall have a minimum rating of AA from Mood’s and/or Standard & Poor’s.
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.
If securities owned by the City 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.
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