HomeMy WebLinkAbout2002-10-21 City Council (3)City of Palo Alto
City Manager’s Report
TO:
FROM:
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 21, 2002 CMR: 417:02
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE FIRST QUARTER, FISCAL YEAR 2002-03
This is an information report and n~-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 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 September 30, 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 September 30, 2002.
The face value of the City’s portfolio is $331.4 million; in comparison, last quarter it was
$339.7 million. The decline in the portfolio of $8.3 million primarily results from lower sales
and transient occupancy tax revenues and the fact that County property tax receipts are not
received until the second fiscal quarter.
The portfolio consists of $19.9 million in liquid accounts and $311.5 million in U. S.
government treasury and agency securities. The $311.5 million includes $122.1 million in
investments maturing in less than two years, comprising 39.2 percent of the City’s investment
in notes and securities. The current market value of the portfolio is 105.6 percent of the book
CMR: 417:02 Page 1 of 4
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 2.32 years.
Investments Made Durin~ the First Quarter
During the first quarter, $44.5 million of government agency securities with an average yield
of 4.9 percent matured. During the same period, government securities totaling $40.6 million
with an average yield of 3.4 percent were purchased. The City’s short-term money market
and pool account decreased by $4.4 million compared to the fourth 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 first quarter of 2002-03, the money market and pool account balances were decreased to
purchase treasury and federal agency securities prior to anticipated declines in interest rates.
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
$152.7 million and expenditures will be $152:0 million over the next six months, indicating
an overall growth of the portfolio of about $0.7 million.
As of September 30, 2002, the City had $19.9 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 $33.1 million will mature between October 1, 2002 and
March 31, 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 Citg Investment Policy
During the first 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 first quarter of 2002-03 was $4.5 million. As of
September 30, 2002, the yield to maturity of the City’s portfolio was 5.22 percent. This
compares to a yield of 5.39 percent in the fourth quarter of 2001-02. The City’s portfolio
yield is expected to decrease in the second quarter of 2002-03 as a result ofreinvestment of
mdturing securities at lower interest rates. The City’s portfolio yield of 5.22 percent
compares to LAIF’s average yield for the quarter of 2.64 percent and an average yield on the
two-year and five-year Treasury bonds during the first quarter of approximately 2.21 percent
and 3.31 percent, respectively.
CMR: 417:02 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.
The FOMC expects the economy to continue its slow road to recovery. In the short-term,
however, a considerable economic uncertainty exists. In fact, the FOMC has adjusted its
outlook to economic weakness bias indicating that an interest rate cut could occur this year.
Increasing. international uncertainty combined with sluggish economic growth will 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 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 September 30, 2002.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of September 30, 2002
C)Investment Policy Compliance
CMR: 417:02 Page 3 of 4
PREPARED BY:
Seffior Financial Analyst
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CARL YEATS
Director,
City Manager
Services
CMR: 417:02 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)$335,246,565 $ 354,056,675
Other Funds Held by the City
Cash with Bank of/Xanerica
(includes general, imprest, and other accounts)
1995 Utility Revenue Bond Proceeds
Fidelity Fund - Treasury Class I
Petty/Working Cash (as of 09/30/02)
Total - Other Funds Held By City
2,813,366 2,813,366
445,424 445,424
8,405 8,405
3,267,195 3,267,195
Funds Under Management of Third Party Trustees *
(Debt Service Funds and Reserves)
US Bank Trust Services **
Golf Course Certificates of Participation
Construction Fund & Lease Payment Fund
2002 Civic Center Certificates of Participation
Lease Payment Fund, Reserve Fund, & Cost of Issuance
2002 Downtown Parkinghnpvt. Certificates of Participation
Impvt. Fund, Cost of Issuance, Reserve Fund
335,418 335,418
350,441 350,441
3,451,528 3,451,528
1999 Utility Revenue Bonds
Construction Fund 298,808 298,808
California Asset Manageme~t Program (CAMP) ***
Golf Course Certificates of Participation
Reserve Fund
2001 University Ave. Parking Bonds
hnpvt. 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
724,747 752,766
1,513,739 1,560,354
33,001,773 33,184,550
15,328,977 15,428,404
Total Under Trustee Management 55,005,433 55,362,270
$ 393,519,193 $ 412,686,140GRAND 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.
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ATTACHMENT B
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Investment Policy Compliance
As of September 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 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:
-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 b,efore 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).
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 collateralized 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 (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
0.03%
0.04%
Full Compliance
$122.1 million
$19.1 million
$0.8 million
105.64%
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Fuil Compliance
13.01%
0.03%
None Held
None Held
None Held
InvestmentPolicy Compliance
As of September 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 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) 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 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