HomeMy WebLinkAbout2001-07-23 City Council (2)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:JULY 23, 2001 CMR: 309:01
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE FOURTH QU ,ARTER, 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 fourth quarter of Fiscal Year 2000-01. The City’s investment policy
requires that staff report ~o 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, 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 June 30, 2001.
The face value of the City’s portfolio is $326.1 million; in comparison, last year it was
$291.4 million. Growth in the portfolio of $26.2 million in the fourth quarter primarily
resulted from funds received from Northern California Power Agency (NCPA) for sale of
the City’s excess load capacity and selling any surplus City power. Based on current City
contracts and market conditions, sale of City electricity has generated significant revenues.
The portfolio consists of $21.5 million in liquid accounts and $304.6 million in U. S.
government agency securities. The $304.6 million includes $140.0 million in investments
maturing in less than two years, comprising 46.0 percent of the City’s investment in notes
CMR: 309:01 Page 1 of 3
and securities. The current market value of the portfolio is 101.6 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
Bank of California, which is the City’s safekeeping agent. The average life to maturity of the
investment portfolio is 2.37 years.
Investments Made During the Fourth Quarter
During the fourth quarter, $21.1 million of government agency securities with an average
yield of 5.8 percent matured. During the same period, government securities totaling $49.6
million with an average yield of 5.3 percent were purchased. The City’s short-term money
market and pool accounts increased by $2.7 million compared to the third 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 $140.9 million and expenditures will be
$136.8 million over the next six months, indicating an overall growth of the portfolio of
about $4.1 million.
As of June 30, 2001, the City had $21.5 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 $34.0 million will mature between July 1,2001 and December
31, 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 fourth 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 fourth quarter of 2000-01 was $4.6 million while
the total for the fiscal year was $17.9 million. This is 9.6 percent more than the 2000-01
adjusted budget of $16.3 million. The increase in the size of the portfolio contributed to the
higher earnings. As of June 30, 2001, the yield to maturity of the City’s portfolio was 5.92
percent. This compares to a yield of 6.09 percent in the third quarter of 2000-01 and 6.10
percent in June 30, 2000. The City’s portfolio yield is expected to decrease in the first
quarter of 2001-02 as a result of declining interest rates. The City’s portfolio yield compares
to LAIF’s average yield for the quarter of 5.35 percent and an average yield on the two-year
and five-year Treasury bond during the fourth quarter of approximately 4.16 percent and 4.79
percent respectively.
CMR: 309:01 Page 2 of 3
Yield Trends
The Federal Open Market Committee (FOMC) has decreased rates three times or by 1.25
percent in the last quarter. Since it began cutting the Federal funds rate and discount rate in
January, 2001, the FOMC has reduced both key rates by 2.75 percent.
Economic growth continues to be sluggish. The FOMC continues to focus on steering the
economy away from a possible recession and appears less concerned about the rate of
inflation. Decline in corporate sales and earnings, in business capital spending, in consumer
spending,, and in economic growth abroad continue to weigh on the economy. Given FOMC
actions to reduce interest rates, 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 ftmds, 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 June 30, 2001.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of June 30, 2001
C)Investment Policy Compliance
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
’TAKUN N~
¯ Senior Financial Analyst
CARL YEAT~y
Director~, Ad~istrative Services
SON
Assistant City Manager
CMR: 309:01 Page3 of 3
Attachment A
Consolidated Report
City of Palo Alto Cash and Investments
Fourth Quarter, Fiscal Year 2000-01
(Unaudited)
Book Value Market Value
,Ci .ty Investment Portfolio (see Attachment B)$328,026,559 $ 333,360,207
Other Funds Held by the Ci,ty
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 06/30/01)
Total - Other Funds Held By City
1,460,215 1,460,215
691,088 691,088
5,528,047 5,528,047
7,805 7,805
7,687,155 7,687,155
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
Reserve 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
515,374 515,374
779,199 779,199
334,097 334,097
725,405 725,405
2,354,075 2,354,075
$ 338,067,789 $ 343,401,437GRAND 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 marketmutual 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 June 30, 2001
Attachment C
4
General Investment Guidelines:
a) Beg. FY 00-01, the max. stated final maturity of individual securities in the portfolio should be 10 years.Full Compliance
Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-01.0.04%
b) A max. of 30 percent of the par value of the portfolio shall be invested in securities with maturities
beyond 5 years.10.93%
c) The City shall maintain a minimum of one month’s cash needs in short term investments.Full Compliance
d) At least $50 million shall be maintained in securities maturing in less than 2 years.S140 million
Plus two managed pool accounts which provide instant liquidity.S21.5 million
e) Market value of the portfo!io will exceed 95 percent of the amortized cost basis of the portfolio.101.65%
d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3)
working days before pricing.Full Compliance
0 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
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
U.S. Government Agency Securities:Full Compliance
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;Ful! Compliance
- the interest rates at which they "step-up" are known at the time of purchase; and Full Compliance
-the entire face value of the security is redeemed at the call date.Full Compliance
- No more than 20 percent of the par value of portfolio.0.00%
b) Beginning FY 00-01~ securities will not exceed 10 years maturity.
Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-01.0.04%
Certificates of Deposit:None Held
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:None Held
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:None Held
a) No more than !5 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.
Investment Policy Compliance
As of June 30, 2001
Attachment C
7 Short-Term Repurchase Agreement (REPO):
a) Not to exceed I 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.
8 lVlutuaf 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.
9 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.
! 0 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.
11 Prohibited Investments:
a) Reverse Repurchase Agreements
b) Derivatives as defined in Appendix B of the Investment Policy
12 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