HomeMy WebLinkAbout2000-05-09 City CouncilBUDGET
’00-’01 City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
ATTENTION:FINANCE COMMITTEE
FROM:
DATE:
CITY MANAGER
MAY 9, 2000
DEPARTMENT:ADMINISTRATIVE
SERVICES
CMR: 224:00
SUBJECT:ANNUAL ADOPTION OF THE CITY’S INVESTMENT POLICY
RECOMMENDATION
The City of Palo Alto Statement of Investment Policy requires review and approval by
Council as part of the annual budget process. Staff recommends that Council:
Approve various language changes and text reorganization to clarify the City’s
investment policy
Approve the following substantive changes to the investment policy:
Ao Grant staff the authority to invest 30 percent of the Ci.ty’s investment portfolio
in U.S. Treasury and Agency Securities that mature in greater than 5 years to
a maximum of ten years.
B°Eliminate the policy’s current limit on Federal Farm Credit securities to 10
percent of the portfolio.
Co Replace the policy’s current equity and asset requirements for purchasing
Certificates of Deposit with new requirements for collateralization, insurance
from the Federal Deposit Insurance Corporation, and ratings by Moody’s or
Standard and Poor’s.
D°Eliminate the policy’s current prohibition on purchasing Corporate Medium
Term Notes, allowing up to 10 percent of the portfolio to consist of such notes
that have an AA rating by Moody’s or Standard and Poor’s.
CMR:224:00 Page 1 of 5
Eo Eliminate the policy’s current prohibition on purchasing Negotiable
Certificates of Deposit, allowing up to 10 percent of the portfolio to consist of
such certificates as long as they are collateralized.
BACKGROUND
During the annual budget process, staff submits the investment policy to Council for review
and approval. As part of the 1998-99 audit of the City’s finances, the City’s external
auditors, Maze and Associates, recommended that the City engage an investment advisor to
perform a review of the City’s investment portfolio. Specifically, the review was to
determine: the credit quality of investments; whether securities contained any "enbedded"
features that posed high risk for the City; compliance with the City’s investment policy and
with State law; and whether, under State law, the City could invest in securities maturing in
greater than five years.
The City retained a consultant, Chandler Liquid Asset Management Inc., to conduct a review
of the City’s portfolio ending June 30, 1999. The consultant’s analysis determined that City
investments are "safe and highly liquid" and that "the credit quality of the City’s portfolio
is very high." The City’s investments contained no "embedded features" and they conformed
with the City’s investment policy as well as with State law. Moreover, the consultant
verified, ’through observation of practices in other cities, that the City of Palo Alto could
invest in securities maturing in more than five years. In short, the City was given high grades
for following the first two of the three main priorities of investing public funds: safety and
liquidity. ~
In the remainder of its report, the consultant provided recommendations to clarify and
strengthen the City’s investment policy and to enhance the third and lowest priority of
investing public funds, yield. To achieve higher yields, the investment adviser
recommended: 1) instituting a "benchmark" portfolio that identifies the City’s yield
objectives, and 2) purchasing Corporate Medium Term notes that have a higher yield than
current City investments. To maintain a "benchmark" portfolio that targets a specific yield
for a specific mix of investments, the City would, according to the consultant, have to be
active in buying and selling securities. This "benchmark" strategy differs from the City’s
current "buy and hold" policy in that the City holds all of its investments until they mature.
The City’s conservative "buy and hold" practice guarantees the full return of principal
invested and minimizes turnover in the portfolio.
DISCUSSION
Consultant recommendations on language changes that more clearly explain and link the
City’s Investment Policy with State law and code have been incorporated in the proposed
policy. Specific consultant recommendations on alternative investment instruments that
,conform to State code, but which are not allowed by current City policy, are being
recommended in the proposed investment policy. These recommendations allow the City
CMR:224:00 Page 2 of 5
additional flexibility in selecting investments and an opportunity to enhance yield without
significant risk. The language and substantive changes recommended and discussed below,
strengthen the City’s investment policy while allowing staff additional flexibility to
prudently manage the portfolio.
Text Changes to Clarify Investment Policy
State code governing investments now includes specific language on the Prudent
Investor Rule. The City’s existing definition has been modified to reflect that
standard.
o
o
The City’s current practice is to buy and hold securities until maturity so as to
mitigate the potential loss of principal due to market fluctuations. While staff
- assiduously follows this practice, it is important to acknowledge in the investment
policy that instances may arise where selling an investment is necessary. These
include, for example, liquidity needs in the event of a significant land or facility
purchase, or selling a security with a significantly declining credit rating. The
Administrative Services Director would have to approve any such sales of securities.
The sections on the City’s investment objectives (safety, liquidity, and yield) have
been rewritten so they are more clearly and succinctly defined.
The revised investment policy more clearly defines which funds fall under the-City’s
investment purview. It states that funds held by the Public Employees Retirement
System, deferred compensation programs, and bond trustees are not included in the
City’s portfolio.
Substantive Investment Policy Changes
The City’s current investment policy allows 30 percent of the portfolio to be invested
in securities that mature in greater than 5 years. With the accumulation of significant
reserves in the utilities and other funds, it is sensible to invest a portion of the
portfolio in longer-term securities that typically have higher yields than short-term
securities. California government code (53601) permits local agencies to do so, "as
long as the agency’s legislative body has granted express authority to make that
investment, either specifically or as part of an investment program approved by the
legislative body no less than three months prior to the investment." If the Council
approves the proposed policy, staff will be able to purchase U.S. Treasury and federal
agency securities with maturities in excess of five years. To limit potential interest
rate risk, language stating that investments shall not exceed a maximum 10-year
maturity has been included in the proposed policy.
CMR:224:00 Page 3 of 5
o Current City policy limits Federal Farm Credit Agency securities to 10 percent of the
portfolio. Obligations of the Federal Farm Credit Agency are Considered equivalent
in stature to bonds of other government agencies such as the Federal National
Mortgage Association. Since Farm Credit securities are similar to other agency issues,
which do not have any percent limitation, the consultant and staff recommend that the
Farm Credit limitation be eliminated.
o
The City currently has specific equity and asset requirements for financial institutions
from which it purchases Certificates of Deposit. The consultant found that these
selection criteria place a very large burden of research on City staff. In lieu of these
guidelines, the consultant and staff propose equally viable standards such as only
purchasing collateralized deposits from large banks that are rated by Moody’s or
Standard and Poor’s, or from smaller banks up to an amount insured by the Federal
Deposit Insurance Corporation. This change simplifies the investment selection
analysis without sacrificing safety.
Corporate Medium Term Notes: The consultant and staff recommend discontinuing
prohibition on these notes and allow their purchase as permitted by State code. With
the federal government’s budget surplus and buyback of Treasury debt instruments,
the market for government agency issues, such as Federal Home Loan Bank bonds,
has become increasingly competitive. By permitting this new investment, the City
will have additional flexibility in investing its idle cash and in enhancing its portfolio
yield. These corporate issues have an estimated .4 to .5 percent higher yield than
agency securities and do not pose significant additional risk. Cities with conservative
portfolios currently utilize these securities. Moreover, the notes are rated by Moody’s
and Standard and Poor’s and will only be purchased with an AA rating or higher.
Should one of these notes fall below City standards, it will be evaluated by staff for
potential sale and reported to Council. Staff proposes to introduce this new
instrument into the portfolio gradually, by allowing that no more than 10 percent of
the portfolio’s par value to be invested in these instruments.
o Negotiable Certificates of Deposit: This instrument is also prohibited by current City
Policy, but allowed by State code. As with corporate notes, the consultant and staff
propose that these certificates be permitted. According to the consultant, Negotiable
Certificates are nearly equivalent to banker’s acceptances and commercial paper in
terms of their liquidity, market and credit risk parameters, and yield. Since the latter
are allowed by City policy, the consultant recommends that Negotiable Certificates
that are collateralized be permitted as well. Purchase of these certificates will not be
allowed to exceed 10 percent of the par value of the portfolio.
CMR:224:00 Page 4 of 5
Other Consultant Recommendations
By increasing the number of City investments placed out between 5 and 10 years, and by
purchasing Corporate Medium Term Notes, the consultant and staff believe that the City will
achieve higher yields on its portfolio and still maintain a high level of safety. The consultant
further recommended that the City adopt a "benchmark" portfolio that would target a specific
blend of investment instruments to achieve a specific yield objective. The benchmark
recommended by the consultant would involve active trading (buying and selling) of
securities to retain the benchmark’s investment characteristics and yield objectives. In
addition, the consultant recommended turning over a portion of the portfolio to an outside
investment advisor.
With the recent addition of staff in the Treasury Division and the incorporation of investment
policy changes described above, staff believes it can move toward developing an in-house
benchmark portfolio that will enhance yield. Given the primary objectives of maintaining
the safety and liquidity of its investments, staff proposes developing a more passive
"benchmark" portfolio that can be managed in-house and that does not require the active sale
of securities or maintenance by an outside investment advisor. While still in the
development stage, staff foresees a specific portfolio allocation by security type and by
duration over a ten-year period. Disciplined oversight of this benchmark portfolio should
result in higher yields that can be sustained over time and that preserve the safety and
necessary liquidity of City investments.
ATTACHMENTS
A. Proposed 2000-01 Investment Policy with strikeout of 1999-00 Investment Policy
language and highlights of new language.
B.Proposed 2000-01 Investment Policy with no strikeouts or highlights.
PREPARED BY:Tarun Narayan, Senior Financial Analyst
Joe Saccio, Manager, Investments and Debt
DEPARTMENT HEAD:
CARL
Director,Services
CITY MANAGER APPROVAL:
"~MILY HARRISON
Assistant City Manager
CMR:224:00 Page 5 of 5
ATTACHMENT B
PROPOSED 2000-01 CITY OF PALO ALTO
Investment Policy
INTRODUCTION
The City of Palo Alto invests its pooled idle cash according to State of California law and the charter
of the City of Palo Alto. In particular, the City follows "The Prudent Expert Standard" cited in the
State Government Code (Section 53600.3). Under this standard, all governing bodies of local
agencies or persons authorized to make investment decisions on behalf of the City are trustees and
therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, .selling, or managing public funds, a trustee shall act with care,
skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to
the general economic conditions and the anticipated needs of the agency, that a prudent person acting
in a like capacity and familiarity with those matters would use in the conduct of funds of a like
character and with like aims, to safeguard the principal and maintain the liquidity needs of the
agency.
INVESTMENT PHILOSOPHY
The basic principles underlying Palo Alto’s investment philosophy is to ensure the safety of public
funds; provide that sufficient money is always available to meet current expenditures; and achieve
a reasonable rate of return on its investments.
The City’s preferred and chief practice is to buy securities and to hold them to their date of maturity
rather than to trade or sell securities prior to maturity. The City may, however, elect to sell a security
prior to its maturity should there be a significant financial need. If securities are purchased and held
to their maturity date, then any changes in the market value of those securities during their life will
have no effect on their principal value. Under a buy and hold philosophy, the City is able to protect
its invested principal. The economy, the money markets, and various financial institutions (such as
the Federal Reserve System) aremonitored carefully to make prudent investments and to assess the
condition of the City’s portfolio.
INVESTMENT OBJECTIVES
The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yield:
Safety: Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. The objective will be to mitigate credit risk and interest
rate risk.
a) Credit risk is the risk that an obligation will not be paid and a loss will result.
The City will seek to minimize this risk by:
¯Limiting investment to the safest types of securities as listed in the
"Authorized Investment" section.
¯Diversifying its investments among the types of securities that are
authorized under this investment policy.
b)Interest rate risk is the risk that changes in interest rates will adversely affect the
value of an investor’s portfolio. For example, an investor with large holdings
in long-term bonds has assumed significant interest rate risk because the value
of the bonds will fall if interest rates rise. The City can minimize this risk by:
Buying and holding its securities until,maturity.
Structuring the investment portfolio so that securities mature to meet cash
flow requirements.
To further achieve the objective of safety, the amount that can be invested in all
investment categories, excluding obligations of the U.S. Government and its agencies,
is limited either as a percentage of the portfolio or by a specific dollar amount. These
limits are defined under the "Authorized Investments" section.
Liquidity: Liquidity is the second most important objective of the investment
program. The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by maintaining
a portion of the portfolio in liquid money market mutual funds or local government
investment pools. In addition, the City will maintain one month’s cash needs in short
term investments and at least $50 million shall be maintained in securities maturing in
less than tw6 years. Since all possible cash demands cannot be anticipated, however,
the portfolio will consist of securities with active secondary or resale markets should the
need to sell a security prior to maturity arises.
Yield: Yield on the City’s portfolio is last in priority among investment objectives.
The investment portfolio shall be designed to obtain a market rate of return that reflects
the authorized investments, risk constraints, and liquidity needs outlined in the City’s
investment policy. Compared to similar sized cities, the City of Palo Alto should be
able to take advantage of its relatively large reserve balances to achieve higher yields
through long-term investments. In addition, the City will strive to maintain the level of
investment of idle funds as close to 100 percent as possible.
SCOPE
Ao
Bo
This investment policy shall apply to all financial assets of the City of Palo Alto as accounted
for in the Comprehensive Annual Financial Report (CAFR), including but not limited to the
following funds:
1.General Fund
2.Special Revenue Funds
3.Debt Service Funds
4.Capital Project Fund
5.Enterprise Funds
6.Intemal Service Funds
7.Trust and Agency Funds
The policy does not cover funds held by the Public Employees Retirement System or funds of
the Deferred Compensation program.
Investments of bond proceeds shall be governed by the provisions of the related bond
indentures.
GENERAL INVESTMENT GUIDELINES
1.The maximum stated final maturity of individual securities in the portfolio should be ten
years.
2.A maximum of 30% of the par value of the portfolio shall be invested in securities with
maturities beyond five years.
3.The City shall maintain a minimum of one month’s cash needs in short term
investments.
At least $50 million shall be maintained in securities maturing in less than 2 years.
Should the ratio of the market value of the portfolio to the book value of the portfolio
fall below 95 percent, the Administrative Services Department will report this fact to the
City Council within a reasonable time frame and evaluate whether there is any risk of
holding any of the securities to maturity.
Commitments to purchase securities newly introduced on the market shall be made no
more than three (3) working days before pricing.
Whenever possible, the City will obtain three or more quotations on the purchase or sale
of comparable securities and take the higher yield on purchase or higher price on sale.
This rule will not apply to new issues, which are purchased at market no more than three
(3) working days before pricing, as well as LAIF, City of Palo Alto bonds, money
3
market accounts and mutual funds, all of which shall be evaluated separately.
AUTHORIZED INVESTMENTS
The Califomia Government Code( Sections 53600 et seq.) governs investment of City funds. The
following investment are authorized:
U.S. Government Securities .(e.g. Treasury notes, bonds and bills) Securities that
are backed by the full faith and credit of the United States
a)There is no limit on purchase of these securities
b)Securities will not exceed 10 years maturity.
2.U.S. Government Agency Securities - Obligations issued by the Federal
Government agencies (e.g. Federal National Mortgage Association).
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 the portfolio.
b) Securities will not exceed 10 years maturity.
Certificates of Deposit (CD) - A debt instrument issued by a bank for a specified
period of time at a specified rate of interest.
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 and Poors.
For non-rated banks, deposit should be limited to amounts federally
insured (FDIC).
e) Rollovers are not permitted without specific instruction from authorized
4
a)
b)
c)
Commercial Paper Short-term unsecured obligations
City staff.
Banker’s Acceptance Notes (BA) - Bills of exchange or time drafts drawn on and
accepted by commercial banks. Purchase of banker’s acceptances are limited to:
No more than 30 percent of the par value of the portfolio.
Not to exceed 270 days maturity.
No more than $5 million with any one institution.
issued by banks,
corporations, and other borrowers. Purchases of commercial paper are limited to:
a)Having highest letter or numerical rating from Moody’s or Standard and
Poor’s
b) No more than 15 percent of the par value of the portfolio.
c) Not to exceed 180 days maturity.
d) No more than $3 million with any one institution.
Local Agency Investment Fund (LAIF) - A State of California managed
investment pool may be used up to the maximum (current maximum is $30 million)
permitted by California State Law.
Short-Term Repurchase Agreements (REPO) - A contractual agreement between
a seller and a buyer, usually of U.S. government securities, whereby the seller agrees
to repurchase the securities at an agreed upon price and, usually, at a stated time.
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.
8.City of Palo Alto Bonds
9.Money Market Deposit Accounts - Liquid bank accounts which seek to maintain a
net asset value of $1.00.
10.Mutual Funds which seek to maintain a net asset value of $1.00 and which are limited
essentially to the above investments and further defined in note 9 of Appendix A
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.
11.Negotiable Certificates of Deposit (NCD) issued by nationally or state chartered banks
and state or federal savings institutions. Purchases of negotiable certificates of deposit:
a) May not exceed 10 percent of the par value of the portfolio.
b) No more than $5 million in any one institution.
12.Medium-Term Corporate Notes - Issued by corporation organized and operating
within the United States or by depository institutions licensed by the United States or
any state and operating with the United States.
a) Not to exceed 5 years maturity.
b)Securities eligible for investment shall have a minimum rating of AA
from Moody’s and/or Standard & Poor’s rating service.
c) No more than 10 percent of the par value of the portfolio.
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 Moody’s or
Standard & Poors 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 in the portfolio.
Appendix A provides a more detailed description of each investment vehicle and its security and
liquidity features. Most of the City’s short-term investments will be in securities which pay principal
upon maturity, while long-term investments may be in securities which periodically repay principal,
as well as interest. Most of the City’s investments will be at a fixed rate. However, some of the
investments may be at a variable rate, so long as that rate changes on specified dates in pre-
determined increments.
PROHIBITED INVESTMENTS:
Includes all investments not specified above, and in particular:
Reverse repurchase agreements
Derivatives, as defined in Appendix B
Appendix B provides a more detailed description of each investment, which is prohibited, for City
investment.
AUTHORIZED INVESTMENT PERSONNEL
Idle cash management and investment transactions are the responsibility of the Administrative
Services Department. The Administrative Services Department is under the control of the Director
of Administrative Services (Director), as treasurer, who is subje.ct to the direction and supervision
of the City Manager.
The Assistant Director of Administrative Services, who reports to the Director, is authorized to make
all investment transactions allowed by the Statement of Investment Policy. He or she may authorize
the Manager, Investments, Debt and Projects (Manager), or Senior Financial Analyst/Investments
(Analyst) to enter into investments within clearly specified parameters.
The Investment function is under the supervision of the Manager, who is subject to the direction and
supervision of the Assistant Director of Administrative Services. The Manager is charged with the
responsibility to manage the investment program (portfolio), which includes developing and
monitoring the City’s cash flow model and developing long-term revenue and financing strategies
and forecasts.
The Analyst is subject to the direction and supervision of the Manager. The Analyst assists the
Manager, in the purchase and sale of securities. The Analyst also prepares the quarterly report, and
records daily all investment transactions as to the type of investment, amount, yield, and maturity.
Cash flow projections are prepared as needed.
In all circumstances approval from the Director of Administrative Services is required before selling
securities from the City’s portfolio. The Manager and the Analyst may also transfer no more than a
total of $5 million a day from the City’s general account to any one financial institution, without the
prior approval of the Assistant Director of Administrative Services.
No other person has authority to make investment transactions without the written authority of the
Assistant Director of Administrative Services.
USE OF BROKERS AND DEALERS
The Administrative Services Department maintains a list of acceptable dealers. A dealer acts as a
principal in security transactions, selling securities from and buying securities for their own position.
A dealer miast have
a) At least three years experience operating with California municipalities;
b) Maintain an inventory of trading securities of at least $10 million; and
7
c)Be approved by the Assistant Administrative Services Director before being
added to the City’s list of approved dealers. In addition, individual traders or
agents representing a dealer:
¯must have a minimum of one year of experience operating with California
municipalities.
A dealer will be removed from the list should there develop a history of problems to include: failure
to deliver securities as promised, failure to honor transactions as quoted, or failure to provide
reasonable or accurate information.
SAFEKEEPING AND CUSTODY
All securities shall be delivered to the City’s safekeeping custodian, and held in the name of the City
of Palo Alto, with the exception of the following investments:
a)Certificates of deposit, which will be held by the City itself.
b)City shares in pooled investment funds, under contract.
c)Mutual funds
d)Local Agency Investment Fund (LAIF)
POLICY REVIEW AND REPORTING ON INVESTMENTS
Monthly, the Administrative Services Department will review performance in relation to-Council-
adopted Policy. Quarterly, the Department will report to Council on: its performance in comparison
to policy, explain any variances from policy, provide any recommendations for policy changes, and
discuss overall compliance with the. City’s Investment Policy. In addition, the Department will
provide Council with:
a)A detailed list of all securities, investments and monies held by the City, and
b)Report on the City’s ability to meet expenditure requirements over the next six months.
Annually, the Administrative Services Department will present a Proposed Statement of Investment
Policy, to include the delegation of investment authority, to the City Council for review during the
annual budget process. All proposed changes in policy must be approved by the Council prior to
implementation.
Adopted by City Council October 22, 1984.
Monthly reporting effective January 1985.
Amended and Adopted by City Council June 24, 1985.
Amended by City Council December 2, 1985.
Amended by City
Amended by City
Amended by City
Amended by City
Amended by City
Amended by City
Amended by City
Amended by City
Amended by City
Amended by City
Amended by
Amended by
Amended by
Amended by
Amended by
Amended by
Amended by
Council June 23, 1986.
Council June 22, 1987.
Council August 8, 1988
Council November 28, 1988.
Council June 26, 1989.
Council May 14, 1990.
Council June 24, 1991.
Council June 22, 1992.
Council June 23, 1993.
Council November 18,1993.
City Council
City Council
City Council
City Council
City Council
June 20,1994.
June 19, 1995.
June 24,1996
June 23, 1997
January26,1998
City Council June 22, 1998
City Council June 28, 1999
9
APPENDIX A
EXPLANATION OF PERMITTED INVESTMENTS
o
o
U.S. Government Securities - United States Treasury notes, bonds, bills, or certificates of
indebtedness or those for which the faith and credit of the United States are pledged for the
payment of principal and interest.
U.S. Government Agency Securities - U.S. Government Agency Obligations include the
securities of the Federal National Mortgage Association (FNMA), Federal Land Banks
(FLB), Federal Intermediate Credit Banks (FICB), banks for cooperatives, Federal Home
Loan Banks (FHLB), Government National Mortgage Association (GNMA), Federal Home
L6an Mortgage Corporation (FHLMC), Student Loan Marketing Association (SLMA), Small
Business Administration (SBA), Federal Farm Credit (FFC) and Tennessee Valley Authority
(TVA). Federal Agency securities are debt obligations that essentially result from lending
programs of the Government. Federal agency securities differ from other types of securities,
as well as among themselves. Their characteristics depend on the issuing agency. It is
possible to distinguish three types of issues: (A) participation certificates (pooled securities),
(B) Certificates of interest (pooled loans), (C) notes, bonds, and debentures. The securities
of a few agencies are explicitly backed by the full faith and credit of the U.S. Government.
All issues, however, have de facto backing from the federal government, and it is highly
unlikely that the government would let any agency default on its obligations.
Certificates of Deposit - A certificate of deposit (CDs) is a receipt for funds deposited in a
bank, savings bank, or savings and loan association for a specified period of time at a
specified rate of interest. Denominations are $100,000 and up. The first $100,000 of a
certificate of deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC), if
the deposit is with a bank or savings bank, or the Savings Association Insurance Fund
(SAIF), if the deposit is with a savings and loan. CDs with a face value in excess of
$100,000 can be collateralized by U.S. Government Agency and Treasury Department
securities or first mortgage loans. Government securities must be at least 110 percent of the
face value of the CD collateralized in excess of the first $100,000. The value of first
mortgages must be at least 150 percent of the face value of the CD balance insured in excess
of the first $100,000. Generally, CDs are issued for more than 30 days and the maturity can
be selected by the purchaser.
°Bankers’ Acceptance - A Banker’s acceptance (BA) is a negotiable time draft or bill of
exchange drawn on and accepted by a commercial bank. Acceptance of the draft irrevocably
obligates the bank to pay the bearer the face amount of, the draft at maturity. BAs are usually
created to finance the import and export of goods, the shipment of goods within the United
States and storage of readily marketable staple commodities. In over 70 years of usage in
the United States, there has been no known instance of principal loss to any investor in BAs.
In addition to the guarantee by the accepting bank, the transaction is identified with a
specific commodity. Warehouse receipts verify that the pledged commodities exist, and, by
10
definition, these commodities are readily marketable. The sale of the underlying goods
generates the necessary funds to liquidate the indebtedness.
BAs enjoy marketability since the Federal Reserve Bank is authorized to buy and sell prime
BAs with maturities of up to nine months. The Federal Reserve Bank enters into repurchase
agreements in the normal course of open market operations with BA dealers.
As are sold at a discount from par. An acceptance is tied to a specific loan transaction;
therefore, the amount and maturity of the acceptance is fixed.
Commercial Paper - Commercial paper notes are unsecured promissory notes of industrial
corporations, utilities, and bank holding companies. Interest is discounted from par and
calculated using actual number of days on a 360-day year. The notes are in bearer form, with
maturities up to 180 days selected by the purchaser, and denominations generally start at
$100,000. There is a small secondary market for commercial paper notes and an investor
may sell a note prior to maturity.
Commercial paper notes are backed by unused lines of credit from major banks. Some
issuer’s notes are insured, while some are backed by irrevocable letters of credit from major
banks. State law limits a City to investments in United States corporations having assets in
excess of five hundred million dollars with an "A" or higher rating for the issuer’s
debentures. Cities may not invest more than 30 percent of idle cash in commercial paper.
Local Agency Investment Fund Demand Deposit - The Local Agency Investment Fund
LAIF) was established by the State to enable treasurers to place funds in a pool for
investments. The City is limited to an investment of the amount allowed by LAIF (currently
$30 million). LAIF has been particularly beneficial to those jurisdictions with small
portfolios. Palo Alto uses this fund for short-term investment, liquidity, and yield.
Repurchase Agreements - A Repurchase Agreement (REPOS) is not a security, but a
contractual arrangement between a financial institution or dealer and an investor. The
agreement normally can run’ for one or more days. The investor puts up funds for a certain
number of days at a stated yield. In return, the investor takes title to a given block of
securities as collateral. At maturity, the securities are repurchased and the funds repaid, plus
interest. Usually, amounts are $500,000 or more, but some REPOS can be smaller.
Money Market Deposit Accounts - Money Market Deposit Accounts are market-sensitive
bank accounts, which arc available to depositors at any time, without penalty. The interest.
rate is generally comparable to rates on money market mutual funds, though any individual
bank’s rate may be higher or lower. These accounts are insured by the Federal Deposit
Insurance Corporation or the Savings Association Insurance Fund.
Mutual Funds r Mutual funds are shares of beneficial interest issued by diversified
management companies, as defined by section 23701 M of the Revenue and Taxation Code.
To be eligible for investment, these funds must:
11
10.
11.
a)Attain the highest ranking in the highest letter and numerical rating provided by
not less than two of the three largest nationally recognized rating services; or
b)Have an investment advisor registered with the Securities and Exchange
Commission with not less than five years experience investing in the securities
and obligations, as authorized by subdivisions (a) to (n), inclusive, of Section
53601 of the California Government Code, and with assets under management
in excess of five hundred million dollars; and
c)Invest solely in those securities and obligations authorized by Sections 53601
and 53635 of the California Government Code. Where the Investment Policy of
the City of Palo Alto may be more restrictive than the State Code, the Policy
authorizes investments in mutual funds which shall have minimal investment in
securities otherwise restricted by the City’s Policy. Minimal investment is
defined as less than 5 percent of the mutual fund portfolio; and
d)The purchase price of shares of beneficial interest purchased shall not include
any commission that these companies may charge.
e) Have a net asset value of $1.00.
Callable Securities and Multi-Step-ups: Callable securities are defined as fixed interest rate
government agency securities, that give the issuing agency the option of returning the
invested funds at a specific point in time to the purchaser. Multi-step-ups are government
agency securities in which the interest rate increases ("steps-up") at preset intervals, and
which also have a callable option that allows the issuing agency to return the"invested funds
at a preset interval. Callable and multi-step-ups are permitted, 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.
Negotiable Certificates of Deposit (NCD). NCDs are large-dollar-amount, short-term
certificate of deposit. Such certificates are issued by large banks and bought mainly by
corporations and institutional investors. They are payable either to the bearer or to the order
of the depositor, and, being negotiable, they enjoy an active secondary market, where they
trade in round lots of $5 million. Although they can be issued in any denomination from
$100,000 up, the typical amount is $1 million. They have a minimum original maturity of
14 days; most original maturities are under six months. Also called a Jumbo Certificate of
Deposit.
12
Medium-Term Corporate Notes: Notes of a maximum of five years maturity issued by
corporations organized and operating with the United States or by depository institutions
licensed by the United States or any state and operating with the United States. According
to Califomia Code Section 53601, "Notes eligible for investment under this subdivision shall
be rated in the rating category of"A" or its equivalent or better by a nationally recognized
rating service. Purchase of medium-term notes may not exceed 30 percent of the agency’s
surplus money which may be invested pursuant to this section."
13
APPENDIX B ’
EXPLANATION OF PROHIBITED INVESTMENTS
Reverse Repurchase Agreements: A Reverse Repurchase Agreement (Reverse REPO) is
a contractual agreement by the investor (e.g. local agency) to post a security it owns as
collateral, and a bank or dealer temporarily exchanges cash for this collateral, for a specific
period of time, at an agreed-upon interest rate. During the period of the agreement, the local
agency may use this cash for any purpose. At maturity, the securities are repurchased from
the bank or dealer, plus interest.
California law contains a number of restrictions on the use of Reverse REPOS by local
agencies.
Derivatives: A derivative is a financial instrument created from, or whose value depends on
(is derived from), the value of one or more underlying assets or indices. The term
"derivative" refers to instruments or features, such as collateralized mortgage obligations,
forwards, futures, currency and interest rate swaps, options, caps and floors. Except for those
callable and multi-step-up securities as described under Permitted Investments, derivatives
are prohibited.
Certain derivative products have characteristics which could include high price volatility,
liquid markets, products that are not market-tested, products that are highly leveraged,
products requiring a high degree of sophistication to manage, and products that are difficult
to value.
According to California law, a local agency shall not invest any funds in inverse floaters,
range notes, or interest-only strips that are derived from a pool of mortgages.
14
City of Palo Alto
City Manager’s Report 5
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER ¯ DEPARTMENT: CITY MANAGER’S
OFFICE
DATE:MAY 8, 2000 CMR: 224:00
SUBJECT:REQUEST FOR APPROVAL OF RESOLUTIONS TO AMEND THE
COMPENSATION PLANS TO INCLUDE BACKUP CHILD CARE
AS AN EMPLOYEE BENEFIT
REPORT IN BRIEF
An interdepartmental committee was created in 1998 to explore issues impacting
¯ employee recruitment and retention. Several work/life issues, such as employee
responsibilities for child care and elder care and the need for flexible schedules, were
identified. One specific need identified was for backup child care, which provides
employees with an alternative when their regular child care arrangements are temporarily
disrupted. Backup child care has been shown to reduce absenteeism caused by child care
problems and to enhance productivity, retention and recruitment. Since a backup child
care center is scheduled to open in Palo Alto in the fall, it was determined that the City
could relatively easily address this issue in a way that would be of value to the City
organization and it’s employees. This staff report recommends the adoption of
resolutions to add a backup child care benefit to the City’s personnel Compensation
Plans.
CMR:224:00 Page 1 of 5
RECOMMENDATION
Staff recommends that Council adopt the attached Resolutions to amend the
Compensation Plans for Classified Personnel, Fire Department Personnel, Fire Chiefs’
Association Management Personnel, Management and Confidential Personnel and
Council Appointed Officers and Police Non-Management Personnel to add backup child
care as an employee benefit.
BACKGROUND
In 1998, the City Manager created an interdepartmental committee, comprised of
representatives from the Human Resources, Community Services, and Administrative
Services Departments, to explore ways the City might address its employee retention and
recruitment challenges through the provision of "work/life" benefits, including child care,
elder care and flexible scheduling. As described in the attached December 13, 1999
information staff report (CMR:443:99), the Work/Life Committee identified backup child
care as a worthwhile benefit to improve job satisfaction and performance by providing
employees with an alternative when their regular child care arrangements fall through.
Backup child care might be utilized, for example, when an employee’s regular child care
provider is ill, regular child care center is closed for an in-service day or when his or her
work schedule has been changed resulting in a temporary gap in child care. Employers
have found that backup care benefits not only those employees with children who use it,
but also their co-workers whose workload can be adversely impacted by the absenteeism
caused by child Care problems. It is estimated that every one dollar invested in backup
care yields three to four dollars in savings due to improvements in productivity, retention
and recruitment.
ChildrenFirst, the national leader in the design, development and operation of backup
child care centers, is developing a backup child care center in Palo Alto, scheduled to
open in Fall 2000. As described in CMR:443:99, this center will provide quality care in
an educational and safe setting for the infants through school-age children of parents
whose employers are members of the center. In order to secure slots for City employees,
the City has entered into a participation agreement and paid a refundable $5,000 deposit
from the City Manager’s Contingency Fund. As stated in CMR:443:99, this agreement
and deposit are contingent upon Council approval of funding for annual membership and
resolutions amending the City’s compensation plans to include backup child care as an
employee benefit.
DISCUSSION
This staff report transmits to Council for adoption Resolutions adding a backup child care
benefit to the City’s compensation plans (see Attachment A). These Resolutions describe
the Benefit Plan Document that will be included in the Compensation Plans for all
Regular Employees (Classified Personnel, Fire Department Personnel, Fire Chiefs’
CMR:224:00 Page 2 of 5
Association Management Personnel, Management and Confidential Personnel and
Council Appointed Officers and Police Non-Management Personnel).
The Benefit Plan Document describes the purpose, policy and procedures for the backup
child care benefit. The Plan Document explains that the backup child care benefit is for
all Regular Employees, who must pre-register their children before they can utilize the
ChildrenFirst center. At the proposed membership level, City employees, in total, are
entitled to an average of four visits per week or 208 visits per year. Individual City
employees are limited to 20 visits per year. Use of the ChildrenFirst center is on a first-
come, first-served basis and advance reservations are encouraged. ChildrenFirst will
work closely with the Human Resources Department to review the City’s utilization of
the center to ensure that the City has the right membership level and that usage by
individual employees is appropriate.
The Plan Document also explains the taxable nature of the backup child care benefit. The
City will bear the cost of the membership in the Palo Alto ChildrenFirst center, thus
providing access to Regular Employees at no charge. However, the backup child care
benefit is taxable based on the fair market value of the services utilized by the employee.
The fair market value of one backup child care visit has been calculated at $35. This
amount will be reported as employee income for each child care visit used by the
employee.
The City’s commitment to be a member of the ChildrenFirst center is contingent upon
ChildrenFirst’s success in opening the Palo Alto center. If ChildrenFirst is unsuccessful
in opening a Palo Alto center, all payments made by the City to ChildrenFirst will be
refunded.
RESOURCE IMPACT
At the proposed membership level, the cost to the City of an annual membership in the
ChildrenFirst backup child care center is $26,000 and has been included in the 2000-01
Proposed Budget. This is an ongoing cost. If City employee participation in the Palo
Alto ChildrenFirst center increases and exceeds initial estimates, a higher level of
membership will be negotiated to allow more usage at a higher cost.
POLICY IMPLICATIONS
City membership in a Palo Alto ChildrenFirst center will represent the addition of an
employee benefit that will be included in the City’s Compensation Plans.
CMR:224:00 Page 3 of 5
TIMELINE
ChildrenFirst expects to open its Paio Alto center in Fall 2000. Two months before the
center’s opening, City staff will work with ChildrenFirst to conduct outreach to City of
Palo Alto employees to encourage registration with ChildrenFirst. In this timeframe,
staff will also develop any necessary procedures to administer the benefit, including
utilization review and payroll reporting..
ATTACHMENTS
Attachment A:
Attachment B:
Resolutions Amending the Compensation Plans
Information Staff Report CMR:443:99
PREPARED BY: Audrey Seymour, Senior Executive Assistant
ITY MANAGER APPROVAL :~~. ~~.
EMILY ~ARRISON
Assistant City Manager
CMR:224:00 Page 4 of 5
ATTACHMENT
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF
PALO ALTO AMENDING THE COMPENSATION PLAN FOR
MANAGEMENT AND CONFIDENTIAL PERSONNEL AND
COUNCIL APPOINTED OFFICERS ADOPTED BY RESOLUTION
NO. 7890 AND AMENDED BY RESOLUTION NOS. 7897,
7902, 7907, 7914 AND 7945 TO ADD A BACKUP CHILD
CARE BENEFIT
The Council of the City of Palo Alto does RESOLVE as
follows:
SECTION i. Pursuant to the provisions, of Section 12 of
Article III of the Charter of the City of Palo Alto, the Management
Compensation Plan, adopted by Resolution No. 7890 and amended by
Resolution Nos. 7897, 7902, 7907, 7914 and 7945 is hereby amended
by adding Section "P" under "Special Compensation" relating to
Dependent Care Assistance, as shown in Exhibit "A".
SECTION 2. The Director of Administrative Services is
authorized to implement the amended Compensation Plan as described
in Section I.
SECTION 3. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore, no
environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of Administrative
Services
Director of Human Resources
000419 cl 0032340
EXHIBIT "A"
Backup Child Care
The City of Palo Alto will provide Backup Child Care
through a third-party provider, in accordance with the
"City of Palo Alto Backup Child Care Plan."
000419 c1"0032338
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE COMPENSATION PLAN FOR FIRE CHIEFS’
ASSOCIATION MANAGEMENT PERSONNEL ADOPTED BY
RESOLUTION NO. 7848 AND AMENDED BY RESOLUTION NO.
7900 TO ADD A BACKUP CHILD CARE BENEFIT
The Council of the City of Palo Alto does hereby RESOLVE as
follows:
SECTION i. Pursuant to the provisions of Section 12 of
Article III of the Charter of the City of Palo Alto, the
Compensation Plan adopted by Resolution No. 7848 and amended by
Resolution No. 7900 is hereby amended by adding Section "N"
relating to Backup Child Care, as set forth in Exhibit "A",
attached hereto and incorporated herein by reference.
SECTION 2. The Director of Administrative Services is
hereby authorized to implement the amended Compensation Plan as
described in Section i.
SECTION 3. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore, no
environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED: "
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of Administrative
Services
Director of Human Resources
000419 cl 0032336
EXHIBIT "A"
Backup Child Care
The City of Palo Alto will provide Backup Child Care
through a third-party provider, in accordance with the
"City of Palo Alto Backup Child Care Plan."
000419 cl 0032337
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE COMPENSATION PLAN FOR FIRE DEPARTMENT
PERSONNEL (IAFF)ADOPTED BY RESOLUTION NO. 7730
AND AMENDED BY RESOLUTION NOS. 7772 AND 7901
TO ADD A BACKUP CHILD CARE BENEFIT
The Council of the City of Palo Alto does hereby RESOLVE as
follows:
SECTION I. Pursuant to the provisions of Section 12 of
Article III of the Charter of the City of Palo Alto, the
Compensation Plan adopted by Resolution No. 7730 and amended by
Resolution Nos. 7772 and 7901 is hereby amended by revising
Section "M" relating to Dependent Care Assistance, as set forth in
Exhibit "A", attached hereto and incorporated herein by reference.
SECTION 2. The Director of Administrative Services is
hereby authorized to implement the amended classifications and
salaries as described in Section i.
SECTION 3. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore, no
environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of Administrative
Services
Director of Human Resources
000419 cl 0032334
EXHIBIT "A"
Dependent Care Assistance
Dependent Care Assistance Program. The City will
provide a dependent care assistance program for
employees according to. the provisions of the
Federal Economic Recovery Act of 1981, Code
Sections 125 and 129. The program will be
available to representation unit employees
beginning with pay period number 1 of 1994, and
remain in effect subject to a reasonable minimum
participation level and availability of third
party administrative services~ at a reasonable
cost.
Backup Child Care. The City will provide Backup
Child Care through a third-party provider, in
accordance with the "City of Palo Alto Backup
Child Care Plan."
000419 cl 0032335
RESOLUTION NO.
RESOLUTION OF THE ~COUNCIL OF THE CITY OF PALOALTO
AMENDING THE COMPENSATION PLAN FOR POLICENON-
MANAGEMENT PERSONNEL ADOPTED BY RESOLUTIONNO.
7788 AND AMENDED BY RESOLUTION NO. 7903 TO ADD A
BACKUP CHILD CARE BENEFIT
The Council of the City of Palo Alto does hereby RESOLVE as
follows:
SECTION I. Pursuant to the provisionsof Section 12 of
Article III of the Charter of the City of Palo Alto, the
Compensation Plan adopted by Resolution No. 7788 and amended by
Resolution No. 7903 is hereby amended by adding Section"K" under
"Special Compensation" relating to-Dependent Care Assistance and
BackUp Child Care, as set forth in Exhibit "A", attached hereto and
incorporated herein by reference.
SECTION 2. The Director ~f Administrative Services is
hereby authorized to implement the amended Compensation Plan as
described in Section I.
SECTION 3. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore, no
environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of Administrative
Services
Director of Human Resources
000419 c! 0032332
EXHIBIT "A"
Dependent Care Assistance
Dependent Care Assistance Program. The City will
provide a dependent care assistance program for
employees according to the provisions of the
Federal Economic Recovery Act of 1981, Code
Sections 125 and 129. The program wil! be
available to representation unit employees
beginning with pay period number 1 of 1992, and
remain in effect subject to a reasonable minimum
participation level and availability of third
party administrative services at a reasonable
cost. ,
Backup Child-Care. The City will provide Backup
Child Care through a third-party provider, in
accordance with the "City of Palo Alto Backup
Child Care Plan."
000419 cl 0032333
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE COMPENSATION PLAN FOR CLASSIFIED
PERSONNEL (SEIU) ADOPTED BY RESOLUTION NO. 7782
AND AMENDED BY RESOLUTION NOS. 7812, 7837, 7872
AND 7904 TO ADD A BACKUP CHILD CARE BENEFIT
The Council of the City of Palo Alto does hereby RESOLVE as
follows:
SECTION I. Pursuant to the provisions of Section 12 of
Article III of the Charter of the City of Palo Alto, the
Compensation Plan adopted by Resolution No. 7782 and amended by
Resolution Nos. 7812, 7837, 7872 and 7904 is hereby amended by
revising Section "G" relating to Dependent Care Assistance, as set
forth in Exhibit "A", attached hereto and incorporated herein by
reference.
SECTION 2. The Director of Administrative Services is
hereby authorized to implement the amended Compensation Plan as
described in Section I.
SECTION 3. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore, no
environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of Administrative
Services
Director of Human Resources
000419 c! 0032330
EXHIBIT "A"
Dependent Care Assistance
Dependent Care Assistance Proqram. The City will
provide a Dependent Care Assistance program for
employees according to the provisions of the
Federal Economic Recovery Tax Act of 1981, Code
sections 125 and 129.
Backup Child Care. The City will provide Backup
Child Care through a third-party provider, in
accordance with the _"City of Palo Alto Backup
Child Care Plan."
000419 ~1 0032331
ATTACHMENT B
City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:
DATE:
SUBJECT:
CITY MANAGER DEPARTMENT:CITY MANAGER’S
OFFICE
DECEMBER 13, 1999 CMR: 443:99
LETTER OF INTENT TO CONTRACT WITH CHILDRENFIRST
TO PROVIDE BACK-UP CHILD CARE AS AN EMPLOYEE
BENEFIT
This is an informational report and no Council action is required.
BACKGROUND
In response to the City’s recent experience with staff turnover and the difficulty filling
vacant positions, the City Manager initiated discussions with staff members in all
departments to better understand employee issues and concerns. An interdepartmental
committee, comprised of representatives from the Human ReSources, Community
Services, and Administrative Services Departments and the City Manager’s Office, was
formed in 1998 to explore ways the City might address its employee retention and
recruitment challenges through the provision of "work/life" benefits, including child care
and elder care.
The Work/Life Committee researched different types of programs to address employee
work/life needs, such as child care, as well as the cost-benefit to organizations that
institute such programs. The Committee found that employers in the Bay Area and
across the country meet the child care needs of their employees in a variety of ways,
including information and referral, employer-sponsored child care centers and back-up
child care. The Committee further found that employers that offer child care benefits to
employees have. experienced an improvement in job satisfaction, commitment,
performance and retention.
The Work/Life Committee identified several ways the City of Palo Alto might improve
morale and productivity by addressing employee child care needs. The City is currently
in the final stages of a Request for Proposal (RFP) process to select a developer and
operator of a downtown child care center (ClVIR:276:99). This center will be built on
land provided through a development agreement with the Palo Alto Medical Foundation.
The issue of reserving spots in the new downtown center for the children of City
CMR:443:99 Page 1 of 3
employ.ees’:wil!. be. explo.red:.when the:.icbntract is finalized. An additional p~rgr~im
identified to meet the Child Care needs.of City staff, City membership in a back-~p chiid
care center, is described below.
DISCUSSION
Through its external research and discussions with .City staff, the Work/Life Committee
learned that many parents face. significant stress..when their regular child care
arrangements fall through and they must find back-up care. Breakdowns in child care
arrangements are not infrequent and can arise in a variety of circumstances, for example:
when the child’s school or child care center closes for a holiday or in-service day; the
n .army is sick; or the~e has been an utianticipated change in the employee’s work
schedule.
According to national statistics, mothers lose an average of eight and a half days a year
and fathers lose five dayz a year of work due to child care problems. Child ca~e-related
absences cost U.S. companies an estimated $3 billion annually. In addition, studies have
shown that employees look for benefits like child care when making decisions to ehmge
or stay in their jobs. Motivated by such statistics, more and more employers are
providing.back-up care and other types of child care services. In fact, back-up child care
is the fastest .growing segment of the child care industry. Employers have found that
back-up care.benefits not o~y those employees with children who use it, but also their
.co-w0rkers whose workload is not adversely impacted by the absenteeism caused by
child eare-probl.ems. It isestiaiated that every one dollar invested in back-up care yields
three to four dollars in savings due to improvements in productivity, retention and
recruitment.
As the Work!Life Committee was exploring back-up child care as a potential benefit for
City employees, it discovered that ChildrenFirst was planning to develop a back-up child
care center inPalo Alto. Children_First is the national leader in the design, development
and operation of.back-up child care centers. These centers provide quality care in an
educational and safe setting for the children of parents whose employers are members of
the. center. ChildrenFirst centers ser~e children from the-age of 12 weeks through 12
years. The back-up care provided by ChildrenFirst is’intended to supplement, rather than
replace, rhgular child care arrangements when, for whatever reason, these.arrangements
break down.
Members 0fthe Work/Life Committee met with ChildrenFirst’s senior staff and toured its
San Francisco center, The Committee was impreshed with several aspects of
ChildrenFirst’s Operation including: ’
¯The focus on high quality, developmentally appropriate child care (not babysitting)
¯Exemplary safety standards
CMR:443:99 Page 2 of 3
¯Well trained and qualified staff
¯Staff sensitivity to the family stre~s that often accompanies the need for back-up care
¯Thorough outreach to inform employees about the program and sign them up
¯Excellent program administration, including record keeping and regular reporting to
members regarding their employees’ participation
¯Regular cost-benefit analysis showing savings to the City based on employee usage
ChildrenFirst plans to open a back-up child care center in the Palo Alto Square area in the
Spring of 2000 and is currently talking with Palo Alto and other major employers in Palo
Alto about becoming members. In order to secure slots for City employees, the City has
entered into a participation agreement and paid a refun~dable $5,.000 deposit from the City’
Manager’s Contingency Fund. This agreement and deposit are contingent upon the
Council’s approval of a Budge.t Amendment Ordinance (BAO) for an annual membership
($21,000 net of the $5,000 deposit) and resolutions amending the City’s compensation
plans to add back-up care as an employee benefit. Staff plans to bring the BAO and
resolutions to Council in March 2000. The agreement and deposit are also contingent
upon ChildrenFirst’s success in opening the Palo Alto center. Since the center would be
in a Planned Community Zone which does not currently include child care, ChildrenFirst
has applied to the City for a zoning amendment. The City’s consideration of this zoning
application is, of course, independent of any City interest in ChildrenFirst as a provider of
benefits to City employees.
RESOURCE IMPACT
The cost to the City of an annual .membership is $26,000. If City employee participation
in the Palo Alto ChildrenFirst center increases and exceeds initial estimates, a higher
level of membership will be negotiated to allow more usage at a higher cost.
POLICY IMPLICATIONS
City membership in a Palo Alto ChildrenFirst center will represent the addition of an
employee benefit that will be included in the City’s compensation plans.
ATTACI-IMENTS
A. ChildrenFirst Brochure
PREPARED BY: Audrey Seymour, Senior Executive Assistant
CITY MANAGER APPROVAL.’~~~. (~cA_~
EMI’I~HARRI S ON
Assistant City Manager
CMR:443:99 Page 3 of 3
Meet the
school vacations.
provider illness
maternity transition
jury duty
snow days
changes in flex schedule
business travel
doctor appointments
closing of futlTtime center
Your employees must choose
between their job and
their child’s care every day.
Give them a winning solution.
Your employees care ....
about their jobs, about their families.
They are working and parenting all at once anti face real competition
to do both well. If their regular child care breaks down for any reason,
they face an impossible choice: staying home or coming to work.
Now there is an easy choice called ChildrenFirst.
You care...
about your employees, about your company.
The choice to offer backup child care keeps your talent working during
their time of greatest need, so that your corporate engine can continue
to run. That choice is ChildrenFirst.
We care...
about your bottom line, about children.
One company provides employers with a solution that pays for itseK
in months, guarantees parents with peace of mind and convenience,
and nurtures children with the highest quality program. One company
has pioneered the field of backup child care.
That company is ChildrenFirst.
The solution is backup child care.
Why employers are choosing backup child care.
D id you know that child care-related absences
cost employers $3 billion annually,? By giving
employees the ¯option to come to work when
the babysitter calls in sick, employers increase productivity.
Corporate-sponsored backup child care translates into less
absenteeism, better staff retention, lower training costs, and
higher morale. That’s why backup care is the fastest growing
segmentof the child care industry.
,An 1LOI story
companies lo;¢e to tell
Clients tell us that they receive, a full
return on their investment in less than a
year. Unlike full-time work-site centers,
companies don’t have to spendmillions
of dollars to meet business objectives.
A company may partidpate in a
consortium membership for as little
as $30,000.The. flexibility of a
consortium membership accommodates
companies of all sizes and types.
Whether you have 100 employees or
10,000, whether you operate in a single
location Or in many; Childrenl~irst
can structt~ a membership to meet
your needs.
The benefit that
benefits everyone
Backup care complements other human
resotarce initiatives. Besides the obvious
productivity savings, companies are
finding backup child care can be key to
retaining valued employees and avoiding
recruitment, and training costs. Backup
child care helps you:
R.elocate employees with
minimal business disruption;
Accommodate flexible work sched~es;
Enable critical business travel;
Ease maternity transition.
Backup child care gets rave reviews from
parents and even from co-workers
without children who appreciate having
the full team p~sent. It makes the d~cult
job ofbal~n~ng persoml and professioml
concerns easier, No rounder more and
more employees want to work for and
stay with a company that provides backup
child care.
Why backup child care? Because you
care.., about your employees," about ’your
bottom line.
Backup child care serves more .and costs less,
_ Backup Full-time Work-siteChild uare Center Child Care Center
Capital cost to employer $0 Up to $2 million
Typical number of parent employees served All lOO
Typical number of registered children served 2000 150
No one does .it better.
.Why Child~enFirst is -Ameri.c.a’s leader in backup, child care.
Ftom the day the doors opened in 1992., our name
has been¯ synonymous with quality. In partnership
with business, we p oneered the)field of backup
child care. We set the standard for excellence and we continue
to raise the bar. We think that the unique needs of backup
child care are so important that we focus on it exclusively:
When it comes to backup child care, here’s how we
define quality:
Sample. of the more tha~ 200 clients we serve
¯ American Express Company
¯ ARCO
¯ Colgate-Palmolive Company
¯ . The Cond~ Hast PuNicatlons, inc.
¯ Dayton Hudson Corporation
¯ The Gillette Company
¯ PrlcewaterhouseCoopers LLP
¯ .Sara Lee Bakery
¯ Skadden, Arps
¯ Taco Bell Corp.
¯ Vlacom Inc.
Outstanding nurturing
The corme~.’on between teacher and"
child matters most.We hire educators ¯
that possess the human qualities we deem
.important to outstanding nurturing:
patience, commitment, tolerance,
optimism and perseverance.Their "_
attention to detail is unparalleled.
Trained professionals
Every one of our child ~are center
employees is a screened early childhood
professional.
¯.100% of’center directors and a~sistant
directors have master’s degrees;
¯All staff at minimum hav~ a four-year
bachelor’s degree; 40% of all staff have
master’s degrees;
¯Our low staff turnover rate ensures
consistent care;.
¯All staff are trained and receive
on-going education in the special ’
requirements of.backup child care.
99% client retention since ilaceD-tion
Safe and secure environment
Our centers are located ~ class A office
space in discreet locations with double-
locked entrances and security cameras
and staffed with ortsite security
administxators.
State-tf-the art center design
Our centers are darefully designed to
accommodate the rations needs of
children from twelve weeks thxough
twelve years. Ualike the walled classrooms
.of many centers, Children.First centers
have dear lines ~f fight and an arrival
area designed to ease separations and
transitions.
Uniqu~ clie~at services
Our fully staffed client service .
department works closely.with you to
customize and implement a turnkey
pmgr~ to meet yoiar business objectives.
.Th~y.e, ducate your employees and ensure
that you get the most out of the service.
Top acci:eclitation record
All eligible ChildrenFirst centers are
accredited by NAEYC (National-
Association for thd Education of Young
Children) compared to less than five
percent o~" all other private child care
"Our children are our most precious possession.
So when a need arises, it’s comforting for all of us at Avon
to know that ChildrenFi~’st is there to provide the kind of
safe and secure backup child care services our children need and deserve~
Quite.simply, ChildrenFirst is high-quality child care at its best!"
"Backup child care is about increasing productivity
for the employee and the employer. It benefits us all day-to-day
and has a positive impact on the bottom line. It is one of the most important
and widely-used resources of.our worklife program at Morgan."
ChildrenFir inc.
Excellence in Backup Child Care
ChildrenFirst is the national leader in the design, development,
and operation of corporate-sponsored backup child care centers.
Backup child care is used by employees when their
primaW ckild care arrangements are unavailable.
75 Federal Street, Boston, MA 02110
617.646.7000