The URL can be used to link to this page

Home My WebLink About2001-10-22 City Council (2)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:OCTOBER 22, 2001 CMR: 388:01 SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR THE FIRST 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 first 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 September 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 September 30, 2001. The face value of the City’s portfolio is $321.1 million; in comparison, last quarter it was $326.1 million. The decline in the portfolio of $5.0 million primarily results from cash flow requirements and not from operating performance. The City for example does not receive property tax receipts in the first quarter, requiring a draw on liquid funds to meet expenditure needs. The portfolio consists of $11.9 million in liquid accounts and $309.2 million in U. S. government agency securities. The $309.2 million includes $129.5 million in investments maturing in less than two years, comprising 41.9 percent of the City’s investment in notes and securities. The current market value of the portfolio is 104.4 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: 388:01 Page 1 of 3 Bank of California, which is the City’s safekeeping agent. The average life to maturity of the investment portfolio is 2.51 years. Investments Made During the First Quarter During the first quarter, $21.0 million of government agency securities with an average yield of 5.5 percent matured. During the same period, government securities totaling $25.7 million with an average yield of 4.8 percent were purchased. The City’s short-term money ¯ market and pool account decreased by $9.7 million compared to the fourth quarter of 2000- 01. Investment staff continually reviews the City’s short-term cash flow needs and adjusts its liquid funds to meet those needs and take advantage of investment opportunities. During the fourth quarter of 2000-01, the money market and pool account balances were increased to meet potential higher Utility commodity purchases. Staffhas lowered the pool amounts as the commodity market has moderated. 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 $134.7 million and expenditures will be $133.1 million over the next six months, indicating an overall growth of the portfolio of about $1.6 million. As of September 30, 2001, the City had $11.9 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 $30.0 million will mature between October 1, 2001, and March 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 first 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 first quarter of 2001-02 was $4.8 million. As of September 30, 2001, the yield to maturity of the City’s portfolio was 5.88 percent. This compares to a yield of 5.92 percent in the fourth quarter of 2000-01. The City’s portfolio yield is expected to decrease in the second 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 4.47 percent and an average yield on the two-year and five-year Treasury bond during the first quarter .of approximately 3.65 percent and 4.43 percent respectively. CMR: 388:01 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 plus October 2. Since it began cutting the federal funds rate and discount rate in January, 2001, the FOMC has reduced both key rates by 4.0 percent to 2.50 and 2.00 percent respectively. There is a possibility that the federal funds rate will be lowered another 0.50 percent before the end of the calendar year. Economic growth continues to be weak, however the terrorist attacks have significantly increased uncertainties in the economy. The FOMC is focusing on steering the economy away from a recession. Given FOMC actions to reduce interest rates and the weakness in the economy, the yield on the City’s portfolio is expected to decrease in the coming quarters. Funds Held by the Cityor 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, 2001. ATTACHMENTS: A)Consolidated Report of Cash and Investments B)Investment Portfolio, as of September 30, 2001 C)Investment Policy Compliance PREPARED BY: DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: TARUN NARAYAN" Senior Financial Analyst CARL Director,Services EMILY ~SON Assistant City Manager CMR: 388:01 Page 3 of 3 Attachment A Consolidated Report City of Palo Alto Cash and Investments First Quarter, Fiscal Year 2000-01 (Unaudited) Book Value Market Value Ci,ty Investment Portfolio (see Attachment B)$323,997,603 $338,231,468 Other Funds Held by the City 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 2,050,902 2,050,902 697,114 697,114 3,840,458 3,840,458 7,805 7,805 6,596,278 6,596,278 Funds Under Management of Third ParD, 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 459,518 459,518 771,345 771,345 339,231 339,231 712,809 712.809 2,282,903 2.282.903 $ 332,876,785 $ 347,110,650GRAND 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. ~oooooooooo~ooooooooooo ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o o o o o o o o o o o o o N ~ ~ N N ~ $ ~ ~ ~ ~ ~ o o o o o o o o o o o o o 0 o N 0000000000000000000000000000000000000~000000000000000000~0000000 0000000000000000000000000000000~0000000000000000000000000000000 000000000000000000000000000000000000000000000000000000000000000 o ~ Eo 000 000000000000000000000 00000 ~~oo ~o~ooo~ 000000000000000000000000000000 00000000000000000000000000000000 0000000000000000000000000000000000000000000000000000000000000000 00000000000000000000000000000000 oooo~ooooooooooooooooooooo o o o o o o o o o o o o o o o o o o o o o o o N N N N N NIIIIIIIIIIIIIIIIIIII!IIIIIZZZZZZ 000000000000000000000000000000~000000000000000000000000000000~ 000000000000000000000000000000~0000000000000000000000000000000 00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000~000000000000000000000000000000~000000000~0000000~0000000000~00 ggggggggggggggggggggggggggggg~ 0 0 o 0 09 o Investment Policy Compliance As of September 30, 2001 Attachment General Investment Guidelines: a) Beg. FY 00-01, the max. stated final maturity of individual securities in the portfolio should be l0 years. Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-0 I. 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, LAW, City of Palo Alto bonds, money market accounts, and mutual funds). Full Compliance 0.04% 8.71% Full Compliance $129.5 million $11.9 million 104.38% Full Compliance Full Compliance 2 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 3 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 kno~vn at the time of purchase;Full 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.- 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% 4 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. 5 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. 6 Commercial Paper:None Held 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. Investment Policy Compliance As of September 30, 2001 Attachment C 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. None Held 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. None Held None Held None Heldl 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:Full. Compliance a) Reverse Repurchase Agreements None Held 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 Full Compliance City, with the exception of : -Certificates of Deposit, Mutual Funds, and LAIF