HomeMy WebLinkAbout2001-01-22 City Council (14)TO:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
JANUARY 22, 2001 CMR: 118:01
CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE SECOND QUARTER, FISCAL YEAR,2000-01
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 second quarter of the Fiscal Year 2000-01. 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, 2000
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, 2000.
The face value of the City’s portfolio is $293.1 million; in comparison, last quarter it was
$287.0 million. Growth in the portfolio of $6.1 million primarily results from strong sales,
transient occupancy, documentary transfer, and property tax receipts in the second quarter.
The portfolio consists of $16.3 million in liquid accounts and $276.8 million in U. S.
government agency securities. The $276.8 million includes $177.2 million in investments
maturing in less than two years, comprising 64.0 percent of the City’s investment in notes and
securities. The current market value of the portfolio is 101..2 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
CMR: 118:01 Page 1 of 3
Bank of California, which is the City’s safekeeping agent. The average life to maturity of the
investment portfolio is 1.74 years.
Investments Made During the Second Quarter
During the second quarter, $14.0 million of government agency securities with an average
yield of 6.1 percent matured. During the same period, government securities totaling $15.4
million with an average yield of 6.3 percent were purchased. The City’s short-term money
market and pool accounts increased by $4.6 million compared to the first quarter.
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 fees is sufficient to provide funds for ongoing
expenditures. Projections indicate receipts will be $136.9 million and expenditures will be
$131.5 million over the nextsix months, indicating an overall growth of the portfolio of
about $5.4 million.
As of December 31, 2000, 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 $50.3 million will mature between January 1,2001 and
June 30, 2001. 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 2000-01, 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 2000-01 was $4.4 million. As
of December 31, 2000, the yield to maturity of the City’s portfolio was 6.15 percent. This
compares to a yield of 6.14 percent in the first quarter of 2000-01. The City’s portfolio yield
is expected to decrease in the third quarter of FY 2000-01 as a result of declining interest
rates. The City’s portfolio yield compares to LAIF’s average yield for the quarter of 6.53
percent and an average yield on the two-year and five-year Treasury bond during the second
quarter of approximately 5.72 percent and 5.55 percent respectively.
Yield Trends
The Federal Open Market Committee (FOMC) has not changed the federal funds rate in the
last two quarters. However, on January 3rd, the FOMC unexpectedly lowered the federal
funds rate by 0.50 percent and the discount rate by 0.25 percent. There is a possibility that
the federal funds rate will be lowered another 0.25 percent at the January 31st FOMC
meeting.
CMR: 118:01 Page 2 of 3
The FOMC focus has shifted from fighting inflation to steering the economy away from a
possible recession. Factors such as rising energy costs, substantial declines in corporate sales
and earnings, declines in the financial markets, and eroding consumer confidencesuggest
that economic growth may be slowing further. In the current rate environment, the yield on
the City’s portfolio is expected to gradually 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, 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 December 31, 2000.
ATTACHMENTS:
A).
C)
Consolidated Report of Cash and Investments
Investment Portfolio, as of December 31, 2000
Investment Policy Compliance
PREPARED BY: Tarun Narayan, Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
Director, AdmiCstrative Services
CITY MANAGER APPROVAL:
E’]~L~Y~ ~SON
Assistant City Manager
CMR: 118:01 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)$291,119,886 $ 294,467,911
Other Funds Held by the Ciff
Cash with Bank of America
(includes general, imprest, and other accounts)
1995 Utility Revenue Bond Proceeds
Fidelity Fund - Treasury Class I
Petty/Working Cash (as of 12/31/00)
Total - Other Funds Held By City
2,928,762 2,928,762
983,927 983,927
7,765 7,765
3,920,454 3,920,454
Funds Under Management of Third Part~ 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 Costof Issuance Funds
California Asset Management Program (CAMP) ***
Golf Course Certificates of ParticipatiOn
Reserve Fund
Total Under Trustee Management
504,078 504,078
806,266 806,266
1,914,169 1,914,169
730,327 730,327
3,954,840 3,954,840
$ 298,995,179 $ 302,343,205GRAND 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.
ATTACHMENT B
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Attachment C
Investment Policy Compliance
As of December 31, 2000
l 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 l0 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 tha~: / 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 bonds, moneY market
accounts, and mutual funds).
Full Compliance
0.04% ~
2.70% ,
Full Compliance
$177.2 million:
$16.3 million
101.17%:
Full Compliance
Full Compliance
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 l0 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
Fuli Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
11.2%
0.04%
None Held
None Held
None Held
Investment Policy Compliance
As of December 31, 2000
Attachment C
10
II
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 nameofthe
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