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Home My WebLink About2000-07-31 City Council (16)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:July 31, 2000 -~CMR: 339:00 SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT FOR THE FOURTH QUARTER, FISCAL YEAR 1999-00 This is an information report and no Council action is required. BACKGROUND The purpose of this report is to inform Council 0fthe status of the City’s investment portfolio as of the end of the fourth quarter of the Fiscal Year 1999-00. 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 June 30, 2000 The City’s investment portfolio is detailed in Attachment B. It is grouped by investment type and includes the issuer of investment, 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, 2000. The face value of the City’s portfolio is $291.4 million; in comparison, last year it was $279.5 million. Whereas rapid growth in the portfolio in prior years was generated by augmentation of the Calaveras Reserve, recent growth in the portfolio appears to result from strong property, transient occupancy, and documentary transfer tax receipts. The portfolio consists of $18.4 million in liquid accounts and $273.0 million in U. S. government agency securities. The $273.0 million includes $159.4 million in investments maturing in less than two years, comprising 58.4 percent of the City’s investment in notes CMR: 339:00 Page 1 of 4 and securities. The current market value of the portfolio is 98.9 percent of the book value. Because the City’s practice is to hold securities until they mature, changes in market price do not affect what the City earns in real dollars. The market valuation is provided by Union Bank of Cafifornia, which is the City’s safekeeping agent. The average life to maturity of the investment portfolio is 1.77 years. Investments Made During the Fourth Quarter During the fourth quarter, $22.0 million of government agency securities with an average yield of 6.0 percent matured. During the same period, government securities totaling $20.5 million with an average yield of 7.2 percent were purchased. The City’s short-term money market and pool accounts increased by $4.6 million compared to the third quarter. The increase in liquid funds was necessary in preparation for the City purchase of PAMF land and building. While the City had few problems making investments in the fourth quarter, it should be noted that it is becoming increasingly competitive to buy Treasury and government agency securities. Federal buyback of debt and budget surpluses have caused the treasury market to restrict and have placed the government agency market in demand. Availability of Funds for the Next Six Months Unlike many small and medium sized cities that sometimes have to borrow funds for 30 to 90 days, 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 $118.5 million and expenditures will be $125.5 million over the next six months, indicating an overall decline of the portfolio of about $7.0 million. The City’s portfolio decrease is due to the acquisition by the City of PAMF-owned land and the Roth building for $9.7 million in July 2000. If the PAMF purchase were excluded, there would be a $2.7 million increase in the portfolio. As of June 30, 2000, the City had $18.4 million deposited in Local Agency Investment Fund (LAIF) and a money market account that could be withdrawn on a daily basis. By the PAMF transaction date, staff will have approximately $20 million available for PAMF purchases and to meet any other obligations. In addition, securities totaling $21.0 million will mature between July 1, 2000 and December 31, 2000. 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 1999-00, 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. CMR: 339:00 Page 2 of 4 Investment Yields Interest income on an accrual basis for the fourth quarter of 1999-00 was $4.4 million, while the total for the .iscal year was $17.1 million. This is 11.7 percent more than the 1999-00 adjusted budget ,:f $15.3 million. The increase in the size of the portfolio and higher interest rates contributed to the higher earnings. As of June 30, 2000, the yield to maturity of the City’s portfolio was 6.10 percent. This compares to a yield of 5.97 percent in the third quarter of 1999-00 and 5.84 percent on June 30, 1999. The portfolio’s yield is expected to increase in the first quarter of FY 2000-01. The City’s portfolio yield compares to LAIF’s average yield for the quarter of 6.18 percent and an estimated average yield on the two-year Treasury bond during the fourth quarter of approximately 6.17 percent. The City’s portfolio yield usually exceeds the two-year Treasury yield. The steady increase in interest rates over the past few quarters, however, has temporarily caused the City’s portfolio yield to lag behind two-year Treasury securities. Yield Trends The Federal Open Market Committee (FOMC) has raised rates three times or 1.0 percent in the last two quarters, although leaving the rates unchanged at its June 28 meeting. Two separate quarter basis point increases are possible before year-end. In general, yields on the City’s portfolio are expected to increase in the next several quarters. The yields on new investments are exceeding the yields on maturing investments; hence the City can reinvest these funds in higher yielding securities. In the long-term, however, given demand for Treasury and other agency securities resulting from the Federal government’s buy back of debt, the currently inverted yield curve, and the stock market’s volatility, rates will fluctuate and potentially go down further. Funds Held by the City or Managed Under Contract Attachment A is a consolidated report of all City investment funds, including those not held directly in the investment portfolio. These.include cash in the City’s regular bank account with Bank of America;’ bond proceeds, which the City itself manages in a separate investment account; bond reserves; and debt service payments being held by the City’s fiscal agents. The most recent data on funds held by the fiscal agent is as of June 30, 2000. CMR: 339:00 Page 3 of 4 ATTACHMENTS: A)Consolidated Report of Cash and Investments B)Investment Portfolio, as of June 30, 2000 C)Investment Policy Compliance PREPARED BY: Tamn Narayan, Senior Financial Analyst DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: Director, Administrative Services Assistant City Manager CMR: 339:00 Page 4 of 4 Attachment A Consolidated Report City of Palo Alto Cash and Investments Fourth Quarter, Fiscal Year 1999-00 (Unaudited) Book Value Market Value Ci.ty Investment Portfolio (see Attachment B)$289,535,737 $286,444,982 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 Petty/Working Cash (as of 6/30/00) Total - Other Funds Held By City 4,504,000 953,101 7,770 5,464,871 4,504,000 953,101 7,770 5,464,871 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 494,410 801,446 2,811,721 726,034 4,833,612 299,834,219 494,410 791,846 2,811,721 726,034 4,824,012 $296,733,865GRAND TOTAL 0 E~ o~ o o o 0000000000000000000000000 ooooooooooooooooo888888~00000000000000000 00000000000000000 0000000 0 o NN n<o. d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d d ~0000000000000000000000000000000~~~~o o o o o o o o o o o o o o o o o o o o 0000000000000~00000000000~0000~00000000000000~000~ ~:~ 00 o._o 0000000000000000000000000~0000000000000000000000000 oO oo oo oo oo oo o o o o o o o o o o o o o o o o o o o o~ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 C) 0 0 0 0 ~D 0 0 0 0 ggggggggggggggggggg ~ 0 0000000000000 Investment Policy Compliance As of June 30, 2000 Attachment C No more than 10 percent of the portfolio in collateralized Certificates of Deposit (CDS) of any institution.0.00% No more than 30 percent of the portfolio in Banker’s Acceptance Notes. - No more than $5 million with any one institution. Not to exceed 270 days maturity.0.00% No more than 15 percent of the portfolio in Commercial Paper. - Not to exceed 180 days maturity. No more than $3 million in any one institution.0.00% None HeldThe following investments are prohibited: -Reverse Repurchase Agreements -Derivatives as defined in Appendix B of the Investment Policy -Negotiable Certificates of Deposit -Medium Term Corporate Notes No more than 10 percent of the portfolio in Farm Credit Securities. No more than 20 percent of portfolio in callable or Multi-Step-up government agency securities. Liquidity enough to meet one month’s cash needs. At least $50 million maturing in less than 2 years. No more than 20 percent of the portfolio shall be in investments maturing in more than five years. Market value of the portfolio will exceed 95 percent of the amortized cost basis of the portfolio. Commitments to purchase securities newly introduced on the market shall be made no more than three (3) working days before pricing. 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 -LAIF 4.5% 13.0% Sufficient Liquidity $159.4 million 0.00% 98.9% No Exceptions 100% Compliance No more than 2 percent of the portfolio in the Guaranteed Portion of Small Business Administration Notes Mutual Funds Shall: - 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 - Have an investment advisor registered with the Securities and Exchange Commission with not less than five years. Experience investing in the securities and obligations, and with assets under management in excess of five hundred million dollars, and - The purchase price of shares of beneficial interest purchased shall not included any commission that these companies may charge. 0.00% Full Compliance