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Home My WebLink About0393.095• ® City of Palo Alto City Manager's Report TO: HONORABLE CITY COUNCIL FROM: CITY MAlIlAGER DEPARTMElIo'T: ADMINISTRATIVE SERVICES DATE: SEPTEMBER 1, 1995 CMR:393:9S SUBJECT: YEAR END INVESTMENT ACTIVITY REPORT In a&r-llioo to the mon1hly investment reports, staff plans !o provide Council with supplemental information on the City's investment portfolio on a quarterly basis. The pwpose of!bis report is lo inform CwnciI on the status oCth. City', investment portfuIio at the end of the 1994-95 fiscal year. RECOMMENDATIONS This is an infunnatiooaJ report and 00 Cooncil action is required. POLICY IMPUCATlQNS This report does not propose any changes lo exlsting City poIicie5. EXECUTIVE SUMMARy Dac:kcrouud As a result of the Orange County investment portfolio problems, new legislation is bdng proposed thai would require public agencie510 report detJuled information on an securities beld, on • Q.uarterly basis, 10 their respective governing bodies. Agencie5 would also be required lo QISCIose the curren! market value of Ihe investment portfolio" This information would forewarn the agency's governing body oC any steep declines in Ihe value of the securities being held. ParlofC '" , .. ". . c./;"' , , I I I , I '. - .... Q In the past, staff provided Council witll moothly detailed information on the im·estment portWIio. Since =Iy 1994, stalfbas provided C<Juncil with • moolhly report that contains • seneraI summary of the portfulio and of the monthly activity. Staff will cootinue \0 provide the general monlhly repo<1, but will odd. deta!led listing <>f investments, including i:lform.tion on the current morket value, on • 'l"arterly ba.,is (Attachment A). Iamtmeut Portfgljo Perform anN Ih .. driving f'ac1ors in the periOrmance of the investment portfolio are inlerest rales a.nd portfOlio growth. Interest rd\el; cootinued 10 decEne during the iast quarter ofth. fiscal year. The decline was attributed 10. dramatic slowdown in all sectors of the economy, rombined with the expectatioo that the Federal Reserve would be lowering the Federal Funds Rate. The Chairman of the Federal Reserve, Alan Greenspan, slated "We must remain "8'l8Ot 00 inflation.· In response 10 such comments, the bood market yields declined by ""e-half of a percent, as experts anticipated. rute cUI in July. Even will> the declines in interest rutes, tile investme?t portfolio was able 10 generale investment income slightly above the projected ~nnual,-,Qmat •. For fuca! year 1994-95, the investment portfolio earned $9.8 million, 1 percent above Ibe budget of$9.7 !!'.illioc, which had been adjusted up U million at midYear. The ovemil rute ofretum foe lbe fiscal year was 5.68 P""Cent, compared \0 staffs focecllSl <>f5.7 percent. !neTeases in interest rates early in the {;_«:al year a.nll ~wth m the ~ contributed 10 staff being able 10 achiov. !be targets. For fiscal year 1995-96, the budget lOr portfolio earnings is S 112 million, and the IO!aI rate of retum forecast is 6 P""Cent Based on year-end results and curr,nt financial martet cooditions, staff anticipates meeting the interest rate target, and due 10 current portfolio growth proj ectioos, may exceed Ibe ovemil donar urnings. Staffwill review these targets at midyear and report 00 any adjustments necessary. PartfaJio Grad The growth of the pottfolio cootributed 10 staffs abillty 10 attain the interest earnings targets in 1994-95. During the last six fiscal years, Ibe portfolio increased in size annually by an average ol SI5 million (Altachrnent C). INben adjusted lOr the utmty rebate that occurred in 1993-94, the average annual growth was 521 million. In fuca! year 1994-95, the investmenl portOOlio grew a !O!aI of $23 million. The maj<Jrily of the growth is attributed 10 budget savings in the enterprise ~.lIl~. Budget savings ocCurred primarily in the area <>f lower commodity purchases, which resulted in about S6 million in savings in the Gas and Electric funds. In addition, capItal project wad: was not completed as budgeted. This year, capita! project carryovers increased over S6 million from the prior fiscal year Citywide, primarily in 1he enterprise funds. Delays in mojoo: vehicle purchases due 1<> the need 10 ! -- i" :-. :-,;; _L .,:..... - :;" '---' -.... -; >f$~' ,i /~~.--,- -.' -, - devel<Jp specifk3lioos, saved ar.cther 52.S million in the Vehicle Replacemenl Fund_ Staff estlmat .. that tLe growth 0( the portfOUo should lola! about $20 miIlioo for 1995-96, wblch is in line w;th the annual lverage_ MAlrkd ValR' YJ.. 8M): Value Proposed legislation "'ould require local agencies \0 provide information 00 the current market value O(their portfolio compared 10 the pun:base price (book value). The martet value o(securilies fluctuates, depending 00 how interest rates perJixnL Wben interest rat .. increase, the value 0( the se<:urities declin .. , in on inverse relationship. The concern regarding market ... /ue bas 10 do with the possibility 0( ""'ing principal, as I result 0( having 10 seD • securiIy before its stated maturity. All portIOOos have an "unrealized gainlloss, " which ",fleets the dIfference between the purchase price and market value. As 0( June 3(},1995, the City', invC5tment portfOlio had. purcr.= price (book value) of $190.2 million, and. martet ,'a!ue 0($189.8 nullion, resulting in an unrealized loss 0($,4 million. The unrealized """ is • res"1I o(the inore .... in interest rates early in the fiscal year. Since the City bas I "buy and hold" policy, whicb means it will bold se<:urities untll !heir ..... ted maturities, !he unreaIized ""'ses will DOl materialize. In order 10 avoid having to sell • security at a loss, staff ensures that there are sufficient funds maturing 10 m<:e! current obligations. Of the total portfolio, S 1 S5 million, or 83 percent, ,.,11 Jnature w;thln two years; and 0(1llat Io!al, $19.9 mtllion is aVallablo overnight, which is the equivaleo! 0( more than one month's operating and capita! expenditures. hyqtmcgf Polky Comptiag" During tiscaI year 1994-9S, staff compljed with all aspects 0( the investmen! policy. For fiscal year 1995-96. staff bas received Cooneil approval \0 invest in FedeTa/ Farm Credit notes (a government agency se<:uriIy), aQJUste<! the financial ratio criteria fur financial institutions that p!'O'ide collateralized certi1kates 0( deposit (so addiliooa/ iruitituti<lns would be able \0 qualify) and revised !he language in the investment policy to reflect the organi7.atiooal cbanges w;thin the new Administrative Ser.ices o.. .. partment Staff also anticipates I>.a,'ing \0 =ise tile investment policy prior to the 1996-97 lrodget cycle, to accommodate legislation resuhing from the Orange County investmeo! problems. FISCAL IMPACT This is an in1Onnational repoo"t with no fiscal impoct re.-ulling. o ENVIRONMENTAL A SSf$$MENT There is no environmental assessment required fOr this report. ATtACHMENTS A) Report of Investments, 30 June 1995 B) Investn=! Activity, JuDe 1995 C) Investment portfolio Fiscal Yeat End BabDces PREPARED BY: Lalo Perez, Senior Financial Analyst DEPARTMENT HEAD APPROVAL: "--6110 , .. D Emily Harrison CITY MANAGER APPROVAL: CC:NIA Deputy City ~er,. ~istrative rvices L.. ..-~ ~ .. AfL'CIfElIT A ($;. -----~ IiikIr.f&' 1Iiiii'T1iEiTi-----~-.... -""'"" --. -..... --..... ~ --.... , ... .... "'" ...,a tJaI AQwq ~ FLftI . .,.. "" .... ., ..... .. ....,.-'1&,000,001 tu,ooc_ ......... ,-. --,--'" " ........ ,,--" ....... """'---" ... ---.,,, 12f27f,l18 • .ooc,1XlIl • .ooo,~ 11&.000,000 .,000,000 .,(X)Il,OO(! I&,OOC.ooo --..... "" ... ..'" 07111. ts,OOC.ooo ..... -........ --..... ... ,'"' S!5,300,OOO SOI.J4.4,lS11 ... .8"'4,'51 [ ,IO.ooo,nc» 1a,711.0s3 •. 711,D53 ... -• .3'" '--.-.-...... ".ooo.ooc .UIG1,!. .... "" ---) --."" t1l1519/5 S1<1,OOO,OOlI '1~.31'3 1I~:II5.7IJi 114,1l».15I T-..., __ .-"" .... 1e,DCll,OOCI 1IS.t5I,1!ifI ""-........ ,.....,-...... 1lftSo'il "',DUII,OOCI '3.»:/5,000 -""1 1:l,881.a:U I $3I.ooo,oc.o I3O,BaI.313 ""'-S3"!,cs:2,S'/"I I .......... ."',. I "" .,,. ""' .... ".000,000 • .iE3,431 "".,. • ..., .. 13 F>U Y.-GI12lW8 • .000,000 $III.CI67,500 "' ... "'.." ... ,... , .... ...... s:;o.ooo.OOO sum·.ooo ,1!i:.ooa "'''''-".... ..... .. ." .. $5,000.000 .,,,.,,. ...... e:,OOO.OOO --,.-"" ... "'ox>"" R.(l1C1.ooo $10XIOO ... ""'",. I .... , ..... ...... ........ .."."" "" ... ....,..,. ..... ,,.,. ....... """ ... 1:2,M,atl -SU7f,¥') "'-' If., I" "', ... .,...."" """."" .....,. ....". ... I .... ..... """" 1<I.ooc,OOI) 1::l,ooc,OO!:) OJ 13.000,000 -.. .-em'MIS a.coo,aoa 1e,0QIL4aII ... -as,"'53. 13 flU T."" , ..... 12,!!IOO,OOO .,.,,"'" IIIe.3&&) """ ... , I """ . -....... """' .... t3,aa,M! ... ... "''''' ... -,-."'.., 110.000.mo 1.0,2311,3<'5 "' .... '10,2(17"''' I ,.. ,-evan? --....... " .... ...... -.-Ct1RIII7 ........ ".9$4,,31"5 p."" 111JJ83.125 """ , ... ....., $',noo,ooo "'. ,oe.15O ...... t4PJ1,!'5C RO ..... ...,'" " ....... l4.-»,.1tJ ... .." .....,..,. ......... ...... \lI3j:~lm ......... "' .... '"' ...... .....'..,. FIUOO ."" =-.,,""'''''' ,,-'" CSIU83) $<.OOO~'!11 I -I,", ..".., ......... ......... ...., .. .. "" ... ...... ..... .... .., _ .... _ ... .. --I _'>U .... 11111097" ""' ... .. ....... .. ..... ....,,-.... . .... """., ..,"""'" .. ""'.., .,..". """.., [ -..... ,--$I.,DI7.~. ~742l --~'" OlftM8 f/5,QUI,OOD S4.18Z.1" "'''.a<2I """ .... ........ .... .... '111 ,,-......'" ".'" ,,-FlU" ..... ""'''' "0.000,000 18,1'53,1.25 C$'8l5,625j • .lIIIL~ ....... ~-"" .... , 11II,ooo,OO(l --'" CJta6,2!iC) "0,000,000 ,...., .... """'" alll(l1r2UJB .,." .. ".51,283 .,"'" "JJ.1.663 , '"'-""' .... -"' ... ... ""'" ,,.,.,. ...... "'''''' "'-"" ""'" .... ..~ ""'~"Ii -.'" ....... "'-$G5.7\l1 ,'2l1,'-.t1B3 "2l1,31t1.1'3i 111211.1) It7.I,5aI,M ......,-...o-... ~ -------..... """"'" I ...... ..... ""' .... WO.""' '1~.G4l!,0110 Iillt.&!:!,11M ~..2zr) "'~.22>l~ 1Nt-~ ... ~~-*,,-"'" I ~ ... IIIIt"..._...,.ktkI .... fltnulC ...... ~""., ... t:Q I'It..IIC c.-.......-.:2nHL -.~ tt:) ..................... ta"1 ..... tiQ ............... NCU'Ir~.., ... 1i!l ..... ~ .. _~.,:MIL-----... ---.---------- · ..... , .. ,-__________________ ~~-----A~TT~A~C-HMEN----~-.B----~()~----------------~ ~ .... City of Palo Alto Investment Activity June 1995 CU/UtENT PORTFOUO, The par \'1lue ollbe ~lty'. portfolio is $190 million, wbkb consist5 ol $1 5S5 million. 0< 83 percent. matu.--ing "'ithin two )'taT'S, Most of tbe investments. $1~4 miUion. oc 81 percent,. are ill United States governmect securities.. The current marlet value of the portfolio is 99.9 percent of cost and the """rage Iif. is 1.4 yean. Year-lo-Da!e lnvestmenllD<ome -,--------:: !L-,==== JUNE'S INYESTMENTSAND YIEW TREND5.- Staff invested $11 million in government agency serurities. .. 'ith maturities ranging from two '" three y~ at an average rate 0( ;return ol6, 19 peKenl IoIereSt rates de<Oline<l slightly during the month ol June, ,.,bleb bas bee. the trend foc the last few months. The Federal R ... r>. lowered the Federal Funds Rate one-quarlcr ol. pe=nt during the fiI'SI weel ol July. The bond 1lllIf'"-" built in • one-half percent increase aDd is DOW adjusting 10 the DeW figure. Interest rates are very sensitive 10 oconmruC' figures b<llS released due 10 the reM ol intl.OOIL Staff will contii::J.ue to monitor the cbanges and invest in the two lo three year range. since interest rates foe maturities under a. year ~ lower: If staff is enable to invest in the two 10 three year range. thea. .. will invest in ovemig;ht fuDd.~ whkh are also v __ romg higher than other securities ticder a eoe Type ollm·eslments co: ~ of 0tpasIt \.AiF' LDQII Ag.orq~ F~ us T·JoCIE5; T.......,. ~ "" ..... -WTU.IrL ~D: F'dMfty ~ ~ INTEREST INCOME: Interest income 00 an accrual basis for June was $916,140. For fiscal j'ear 1994-95. interes.t iocome t-otated S9.8 mil1ion~ or 101 pe""'DI olthe adjusted 1994-95 budget ol $9.1 million. The overall rate of retuJlI year-to-date on an accrual basis is 5,68 peFCent. .. .. ,.. F';"' ..... .. .. :: !ili1Wri1jjjjilljf;~iDJ;:iHdEJ;;V ~ ~ " .; .; ,./' ~ ,./' ~ ,./' " Prepared by: Admlnlstnollvo Senict'S Deparlmenl ";,-7';"'''''':--:-:-'--.,..,_''-·' .~--:----"'--..,,-..c "",-#,=--.~, ~------,~"""~;"",, ".';-'I!;; .. -~~"~(_'~."_ --... " ... _111._ ":'!':';."" .. ",,>-\.; ~/."'''-'' :-; . f ,e. _ . :: --" -~. ',:, -. <.~---" , -' .. , " , ~', ~ ,~:'. ~ -'.'~)~'~':' ': " .. , . ,-'., ,'. " " ."~ -' f II TTAClf£NT C CITY OF PALO ALTO INVESTMENT PORTFOLIO FISCAL YEAR END BAlANCES $200M $150M $100M $5OM $OM ~ __________________________________ --f 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1993-94 INCLUDES THE $37 MILLION UTILITY REBATE < " -,-~ . { \ .. ".