HomeMy WebLinkAbout2001-04-23 City Council (4)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
APRIL 23, 2001 .CMR: 206:01
CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE THIRD 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 third quarter of 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 March 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 March 31, 2001.
The face value of the City’s portfolio is $299.9 million; in comparison, last quarter it was
$293.1 million. Growth in the portfolio of $6.8 million primarily results from strong sales,
transient occupancy, and property tax receipts in the third quarter.
The portfolio consists of $18.8 million in liquid accounts and $281.1 million in U. S.
government agency securities. The $281.1 million includes $155.2 million in investments
maturing in less than two years, comprising 55.2 percent of the City’s investment, in notes
and securities. The current market value of the portfolio is 102.3 percent of the book value.
Because the City’s practice is to hold securities until they mature, changes in market price
CMR: 206:01 Page 1 of 3
do not affect the City’s investment principal. The market valuation is provided by Union
Bank of California, which is the Cit~ safekeeping agent. The average life to maturity of the
investment portfolio is 2.10 years.
Investments Made During the Third Quarter
During the third quarter, $29.2 million of government agency securities with an average
yield of 5.4 percent matured. During the same period, government securities totaling $39.5
million with an average yield of 5.3 percent were purchased. The City’s short-term money
market and pool accounts increased by $2.6 million compared to the second quarter.
Availabilit7 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 $138.3 million and expenditures will be
$135.2 million over the next six months, indicating an overall growth of the portfolio of
about $3.1 million.
As of March 31, 2001, the City had $18.8 million deposited in the Local Agency Investment
Fund (LAIF) and a money market account that could be withdrawn on a daily basis. !n
addition, securities totaling $42.1 million will mature between April 1, 2001 and September
30, 2001. On the basis of the.above projections, staffis 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 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 third quarter of 2000-01 was $4.5 million. As of
March 31, 2001, the yield to maturity of the City’s portfolio was 6.09 percent. This
compares to a yield of 6.15 percent in the second quarter of 2000-0.1. The City’s portfolio
yield is expected to decrease in the fourth quarter of FY 2000-01 as a result of declining
interest rates. The City’s portfolio yie!d compares to LAIF’s average yield for the qua~er
of 6.17 percent and an average yield on the two-year and five-year Treasury bond during the
third quarter of approximately 4.58 percent and 4.77 percent respectively.
Yield Trends
The Federal Open Market Committee (FOMC) has decreased rates three times or by 1.50
percent in the last quarter. In comparison, the rate was unchanged in the prior two quarters.
On January 3rd, January 30th, and March 20th the FOMC decreased the Federal funds rate
(the rate financial institutions pay to borrow money from the Federal Reserve Bank) 0.50
CMR: 206:01 Page 2 of 3
percent each time. In a surprise move, the FOMC decreased the Federal funds rate another
0.50 percent on April 18th. This decrease was expected to occur at the FOMC meeting on
May 15th~ ~
The FOMC is continuing to focus on steering the economy away from a possible recession.
The declines in the financial markets, rising energy costs, and declines in corporate sales and
earnings suggest that the economic growth will continue to deteriorate. There is considerable
evidence and sentiment that the economy is headed toward a recession. Given the current rate
environment and anticipated FOMC actions to reduce interest rates.further, 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 notheld
directly in the investment portfolio. These include cash in the City’s regular bank account
with Bank of America. The bondproceeds, 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 March 31, 2001.
ATTACHMENTS:
A)¯ Consolidated Report of Cash and Investments
B)Investment Portfolio, as of March31, 2001
C)Investment Policy Compliance
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
TARUN NA~YAN--
Senior Financial Analyst.
Director, Ad~/rlinistrative Services
EMI]~ HARRISON
Assistant City Manager
CMR: 206:01 Page 3 of 3
Consolidated Report
City of Palo Alto Cash and Investments
Third Quarter, Fiscal Year 2000-01
(Unaudit¢d)
Attachment A
Book Value Market Value
City, Investment Portfolio (see Attachment B)$ 300,042,568 $ 306,755,218
Other Funds Held by the City,
Cash with Bank of America
(includes genera!, imprest, and other accounts)
1995 Utility Revenue Bond Proceeds
Fidelity Fund - Treasury Class l
Petty/Working Cash (as of 03131101)
Total - Other Funds Held By City
2,374,200
997,441
7,765
3,379,406
2,374,200
997,441
7,765
3,379,406
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.
Resetwe 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
.510,027
770,691
1,100,449
717,315
3,098,481
$ 306,520,456
510,027
770,691
1,100,449
717,315
3,098,481
$313,233,105GRAND 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 mutual fund which invest in bankers acceptance, certificate of deposit,
commercial paper, federal agency securities, and repurchase agreements.
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Investment Policy Compliance
As of March 31, 2001
Attachment C
6
General Investment Guidelines:.
a) Beg. FY 00-01, the max. stated final maturity ofi~dividual securities in the portfolio should be 10 years.
Investment exceeding 10 years ma*arity. Authurized 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, LA1F, 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 0nly from federally insured large banks that are rated by
Moody’s or Standard & Poors.
d) For non-rated banks, deposit should be limited toamounts 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
0.04%
8.56%
Full Compliance
$155.2 million:
$18.8 million
102.27%
- Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
Full Compliance
1.67%
0.04%
None Held
None Held
None Held
Investment Policy Compliance
As of March 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) N.o more than $5 million in any one institution.
Medium-Term Corporate Notes:
a) No morethan 10 percent of the par value of the portfolio.
b) Not to exceed 5 years maturity.
c) ~ecurjties eligible for investment shall have a minimum rating ~fAA 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
None Held
None Held
None Held
None Held
Full Compliance
None Held
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 LA1F
Full Compliance