HomeMy WebLinkAbout2000-10-23 City Council (13)City of Palo Alto
C ty Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:OCTOBER 23, 2000 CMR: 395:00
SUBJECT:CITY OF PALO ALTO’S INVESTMENT ACTIVITY REPORT
FOR THE FIRST QUARTER, FISCAL YEAR 2000-01
This is an information report and no Council action is required.
BACKGROUND
The purpose of this report is to inform Council of the status of the City’s investment portfolio
as of the end of the first quarter of the Fiscal Year 2000-01. The City’s investment policy
requires that staff report to Council on the City’s portfolio composition compared to Council-
adopted policy; portfolio performance; and other key investment and cash flow information.
DISCUSSION
Investment Portfolio as of September 30, 2000
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, 2000.
The face value of the City’s portfolio is $287.0 million; in comparison, last quarter it was
$291.4 million. The decline in the portfolio is due to the purchase of Palo Alto Medical
Foundation purchases for $9.7 million. If the Palo Alto Medical Foundation purchases had
not occurred, the portfolio would have realized a $5.2 million increase. This growth in the
portfolio results from strong sales, transient occupancy, documentary transfer, and property
tax receipts.
The portfolio consists of $11.6 million in liquid accounts and $275.4 million in U. S.
goverrma, ent agency securities. The $275.4 million includes $171.4 million in investments
maturing in less than two years, comprising 62.2 percent of the City’s investment in notes
and securities. The current market value of the portfolio is 99.7 percent of the book value.
Because the City’s practice is to hold securities until they mature, changes in market price
CMR: 395:00 Page 1 of 3
do not affect what the City cams in real dollars. The market valuation is provided by Union
Bank of Califomia, which is the City’s safekeeping.~gent. The average life to maturity of the
investment portfolio is 1.76 years.
Investments Made During the First Quarter
During the first quarter, $10.0 million of government agency securities with an average
yield of 6.0 percent matured. During the same period, government securities totaling $12.4
million with an average yield of 6.8 percent were purchased. At the end of the first quarter,
the City’s short-term money market and pool accounts decreased by $6.8 million compared
to the levels at the end of the fourth quarter. Toward the end of the fourth quarter 1999-00,
liquid funds were significantly increased in anticipation of the purchase of Palo Alto Medical
Foundation land and the Roth building. With completion of this transaction in the first
quarter of 2000-01, liquid funds decreased and have retumed to customary levels of
approximately $10-$11 million.
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 $129.5 million and expenditures will be
$124.0 million over the next six months, indicating an overall growth of the portfolio of
about $5.5 million.
As of September 30, 2000, the City had $11.6 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 $40.2 million will mature between September 1, 2000
and March 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 first quarter of 2000-01, staff complied with all aspects of the investment policy.
Attachment C lists the restrictions in the City’s investment policy, compared with the
portfolio’s actual compliance.
Investment Yields
Interest income on an accrual basis for the first quarter of 2000-01 was $4.4 million. As of
September 30, 2000, the yield to maturity of the City’s portfolio was 6.14 percent. This
compares to a yield of 6.10 percent in the fourth quarter of 1999-00. The portfolio’s yield
is expected to increase in the second quarter of FY 2000-01. The City’s portfolio yield
compares to LAIF’s average yield for the quarter of 6.48 percent and an estimated average
yield on the two-year and five-year Treasury bond during the first quarter of approximately
6.20 percent and 6.05 percent respectively. The City’s portfolio yield usually exceeds the
CMR: 395:00 Page 2 of 3
two-year Treasury yield. The steady increase in interest rates and the inverted Treasury yield
curve over the past year, 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 the federal funds rate two times
or by 0.75 percent in the last two quarters. The FOMC left the rate unchanged at its June 28th
and October 3rd meeting but indicated a "tightening" bias or tendency to raise rates at its
October meeting.
The FOMC remains concerned about potential inflationary pressures. Factors such as low
unemployment, higher oil prices, and high consumer spending could cause higher inflation.
In the current rate environment, the yield on the City’s portfolio is expected to gradually
increase as old securities mature and higher yield securities are purchased.
Funds Held by the City or Managed Under Contract
Attachment A is a consolidated report of all City investment fimds, 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 most recent data on funds held by the fiscal agent is as of September 30, 2000.
ATTACHMENTS:
A)Consolidated Report of Cash and Investments
B)Investment Portfolio, as of September 30, 2000
C)Investment Policy Compliance
PREPARED BY: Tarun Narayan, Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
Director,-[A~inistrative Services
CITY MANAGER APPROVAL:
EMILV~ HARRISON
Assistant City Manager
CMR: 395:00 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
City Investment Portfolio_(see Attachment B)$284,967,462 $284,191,430
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 9/30/00)
Total - Other Funds Held By City
2,713,388
1,800,732
7,770
4,521,890
2,713,388
1,800,732
7,770
4,521,890
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
502,921
794,353
1,886,373
718,607
3,902,254
502,921
794,353
1,886,373
718,607
3,902,254
$292,615,574GRAND TOTAL $ 293,391,606
* These funds are subject to the requirements of the underlying debt indenture.
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Investment Policy Compliance
As of September 30, 2000 "
Attachment C
General Investment Guidelines:
a) Beg. FY 00-~1, the max. stated final maturity of individual securities in the portfolio should be 10 years.
Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-01.
b) A max. of 30 percent of the par value of the portfolio shall be invested in securities with maturities
beyond 5 years.
c) The City shall maintain a minimum of one month’s cash needs in short term investments.
d) At least $50 million shall be maintained in securities maturing in less than 2 years.
Plus two managed pool accounts which provide instant liquidity.
e) Market value of the portfolio will exceed 95 percent of the amortized cost basis of the portfolio.
d) Commitments to purchase securities newly introduced on the market shall be made no more than three (3)
working days before pricing.
f) Whenever possible, the City will obtain three or more quotations on the purchase or sale of
comparable securities (excludes new issues, LAIF, City of Palo Alto bonds, money market
accounts, and mutual funds).
U.S. Government Securities:
a) There is no limit on purchase of these securities.
b) Securities will not exceed 10 years maturity.
U.S. Government Agency Securities:
a) There is no limit on purchase of these securities except for:
Callable and Multi-step-up securities provided that:
-The potential call dates are known at the time of purchase;
- the interest rates at which they "step-up" are known at the time of purchase; and
- the entire face value of the security is redeemed at the call date.
-No more than 20 percent of the par value of portfolio.
b) Securities will not exceed 10 years maturity.
Investment exceeding 10 years maturity. Authorized under investment policies prior to FY 00-01.
Certificates of Deposit:
a) May not exceed 20 percent of the par value of the portfolio;
b) No more than 10 percent of the par value of the portfolio in collateralized CDs in any institution.
c) Purchase collateralized deposits 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.
Full Compliance
0.04%
1.45%
Full Compliance
$171.4 million
$11.6 million
99.72%
Full Compliance
Full Compliance
Banker’s Acceptance Notes:
a) No more than 30 percent of the par value of the portfolio.
b) Not to exceed 270 days maturity.
c) No more than $5 million with any one institution.
Full Compliance
Full Compliance
Commercial Paper:
a) No more than 15 percent of the par value of the portfolio.
b) Having highest letter or numerical rating from Moody’s or Standard and Poor’s.
c) Not to exceed 180 days maturity.
d) No more than $3 million with any one institution.
Full Compliance
Full Compliance
Full Compliance
13.2%
0.04%
Full Compliance
0.00%
0.00%
Full Compliance
0.00%
Full Compliance
0.00%
Investment Policy Compliance
As of September 30, 2000
Attachment C
7 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.
8 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.
9 Negotiable Certificates of Deposit (NCD):
a) No more than 10 percent of the par value of the portfolio.
b) No more than $5 million in any one institution.
10 Medium-Term Corporate Notes:
a) No more than 10 percent of the par value of the portfolio.
b) Not to exceed 5 years maturity.
c) Securities eligible for investment shall have a minimum rating of AA from Mood’s and/or Standard & Poor’s.
d) No more than $5 million of the par value may be invested in securities of any single issuer, other
than the U.S. Government, its agencies and instrumentality.
e) If securities owned by the City are downgraded by either rating agencies to a level below AA it
shall be the City’s policy to review the credit situation and make a determination as to whether
to sell or retain such securities.
11 Prohibited Investments:
a) Reverse Repurchase Agreements
b) Derivatives as defined in Appendix B of the Investment Policy
12 All securities shall be delivered to the City’s safekeeping custodian, and held in the name of the
City, with the exception of :
-Certificates of Deposit, Mutual Funds, and LAIF
Full Compliance
0.00%
Full Compliance
0.00%
Full Compliance
0.00%
Full Compliance
0.00%
Full Compliance
None Held
100%
Compliance