HomeMy WebLinkAbout2002-07-22 City Council (16)City of Palo Alto
City. Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
JULY 22, 2002 CMR: 345:02
CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE FOURTH QUARTER, FISCAL YEAR 2001-02
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 fourth 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 June 30, 2002.
The City’s investment portfolio is detailed in Attachment B. It is grouped by investment type
and includes the investment issuer, date 0fmaturity, 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 June 30, 2002.
The face value of the City’s portfolio is $339.7 million; in comparison, last quarter it was
$330.1 and last year it was $326.1 million. Growth in the portfolio of $9.6 million quarterly
results from reimbursement of past expenditures from Utility bond proceeds and from Utility
revenues.
The-portfolio consists of $24.4 million in liquid accounts and $315.3 million in U. S.
government agency securities. The $315.3 million includes $128.1 million in investments
maturing in less than two years, comprising 40.6 percent of the City’s investment in notes
and securities. The current market value of the portfolio is 103.6 percent of the book value.
Because the City’s practice is to t/old securities until they mature, changes in market price do
CMR: 345:02 Page 1 of 4
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 2.27 years.
Investments Made During the Fourth Quarter
During the fourth quarter, $23.0 million of government agency securities with an average
yield of 6.4 percent matured. During the same period, government securities totaling $31.5
million with an average yield of 4.3 percent were purchased. The City’s short-term money
market and pool account increased by $3.6 million compared to the third quarter of 2001-02.
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
$155.3 million and expenditures will be $154.4 million over the next six months, indicating
an overall growth of the portfolio of about $0.9 million.
As of June 30, 2002, the City had $24.4 million deposited in the Local Agency Investment
Fund (LAIF) and a mone~, market account that could be withdrawn on a daily basis. In
addition, securities totaling $43 ~8million will mature between July 1, 2002 and December
31, 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 fourth 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 fourth quarter of 2001-02 was $4.7 million while
the total for the fiscal year was $18.8 million. This is 5.6 percent more than the 2001-02
adjusted budget of $17.8 million. The increase in the size of the portfolio contributed to the
higher than expected earnings. As of June 30, 2002, the yield to maturiU, of the City’s
portfolio was 5.39 percent. This compares to a yield of 5.63 percent in the third quarter of
2001-02 and 5.92 percent in June 30, 2001. The City’s portfolio yield is expected to decrease
in the first quarter of 2002-03 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
2.8 percent and an average yield on the two-year and five-year Treasury bond during the
fourth quarter of approximately 3.20 percent and 4.39 percent res ~ectively.
CMR: 345:02 Page 2 of 4
Yield Trends
The Federal Open Market Committee (FOMC) did not change rates in the last two quarters.
The federal funds and discount rates remain at 1.75 and 1.25 percent, respectively. The
financial community does not expect the FOMC to raise or reduce rates in the near future.
The FOMC views the economy as continuing to recover but at a slower pace than originally
expected. The weakness in the stock market, international tensions, and continuing
accounting and corporate improprieties have contributed significantly to a weak economy.
Staff expects interest rates to remain low, resulting in lower yields on the City’s portfolio in
2002-03.
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
heldby 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 invefit in U.S. Treasury securities. CAMP investments, which are also in money
market mutual fund, 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.June 30, 2002.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of June 30, 2002
C)Investment Policy Compliance
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PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
Senior Financial Analyst
CARL YEAT~
Director, Administrative Services
EMIL-~ HARt~S ON ...... :: ....
Assistant City Manager
CMR: 345:02 Page 4 of 4
Attachment A
Consolidated Report
City of Palo Alto Cash and Investments
Fourth Quarter, Fiscal Year 2000-01
(Unaudited)
Book Value Market Value
City Investment Portfolio ,(see Attachment B)$.343,!29,506 $ 355,586,042
Other Funds Held by the Ci,ty
Cash with Bank of America
(includes general, imprest, and other accounts)
19.95 Utility Revenue Bond Proceeds
Fidelity Fund - Treasury Class I
Petty/Working Cash (as of 06/30/02)
Total - Other Funds Held By City
4,809,816 4,809,816
443,592 443,592
9,905 9,9~5
5,263,313 5,263,313
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
2002 Civic Center Certificates of Participation
Lease Payment Fund, Reserve Fund, & Cost of Issuance
403,805 405,422
370,732 370,732
2002 Downtown Parking Impvt. Certificates of Participation
Impvt. Fund, Cost of Issuance, Reserve Fund 3,439,713 3,439,713
1999 Utility Revenue Bonds
Construction Fund 297,799 297,799
California Asset Management Program (CAMP) ***
Golf Course Certificates of Participation
Reserve Fund
2001 University Ave. Area Off-Street Parking Assess. Dist.
Construction, Reserve, and Capitalize Interest Funds
2002 University Ave. Area Off-Street Parking Assess. Dist.
Construction, Reserve, and Capitalize Interest Funds
2002 Utility Revenue Bonds .
Construction Funds and Reserve Fund
712,435 721,532
2,361,709 2,382,902
35,342,329 35,381,540
17,506,296 17,768,110
Total Under Trustee Management 60,434,818 60,767,750
$ 408,827,637 $ 421,617,105GRAND 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 mntual fund which invest in bankers acceptance, certificate of deposit,
commercial paper, federal agency securities, and repurchase agreements.
ATTACHMENT B
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Investment Policy Compliance
As of June 30,2002
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 o.fthe 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:
- 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 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
0.03%
3.07%
Full Compliance
$128.1 million
$9.8 million
$13.3 million
103.64%
Full Compliance
Full Compliance
U.S. Government Securities:
a) There is no limit on purchase of these securities.Full Compliance
b) Securities will not exceed 10 years maturity.Full Compliance
Full ComplianceU.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 "step2up" 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. Author.ized 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 from federally insured large banks that arc rated by
Moody’s or Standard & Poors.
d) For non-rated banks, depogit 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 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 from 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
Full Compliance
Full Compliance
9.71%
0.03%
None Held
None Held
None Held
Investment Policy Compliance
As of June 30, 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 102percent 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) No more than 10 percent oftt~e 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 re, ore bhan $5 million of the par value may be invested in securities of any single issuer, qther
than the U.S. Government, i(s agencies and instrumentality.
e) Ifsecuritie~ 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