Title
Recommendation to Accept the Treasury Report for the Quarter Ending June 30, 2015. (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Recommendation to Accept the Treasury Report for the Quarter Ending June 30, 2015
BACKGROUND
Each fiscal quarter, a Treasury Report is provided to the City Council for review, per council policy. Attached is the Treasury Report for the fiscal quarter ending June 30, 2015, which includes detailed information on the City’s cash and investments.
DISCUSSION
The investment report includes all cash and investments as summarized in the six categories listed below as of June 30, 2015. The City utilizes U.S. Bank as its third-party safekeeping custodian for safekeeping of all investments with the exception of the Local Agency Investment Fund (LAIF) and investments held by Bond Trustees. As a money market fund administered by the State Treasurer. LAIF has many governmental agency participants and holds securities through its own administrator. Investments held by Bond Trustees are administered in accordance with individual bond indentures.
The investment portfolio average yield of 0.79% (before adjustments for changes in market value) is slightly over the two-year rate for U.S. Treasury bills, which was 0.69% as of June 30, 2015.
The investments in Federal/Agency Issues and Medium Term Notes/Commercial Pager are managed by PFM Asset Management (PFM) and Chandler Asset Management (Chandler), the City’s two registered investment advisors. PFM is responsible for managing investments ranging from one to three years, and Chandler manages investments ranging from one to five years, all of which have been made in accordance with the City’s investment policy. These advisors invested approximately 61% of the portfolios’ investments in U.S. treasuries and agency notes and 39% in Corporate Notes and Commercial Paper. Most of these investments were rated either AA or AAA by independent rating firms and none have a rating below an A-.
As of June 30, 2015, approximately 61% of the State’s Local Agency Investment Fund (LAIF) investments were in U.S. treasuries and agency notes, 22% in CDs, and 17% in other types of investments. Additional economic summaries and specific information related to each of the investment advisors and LAIF are included in the Quarterly Investment Report attached to this report.
Governmental Accounting Standards Board Statement 40 requires the City to recognize the fair market value of its investments at the end of each fiscal year. The market values of investments included in this report are obtained from the State Controller’s office for LAIF and from the City’s registered investment advisors and bond trustees for all other investments. These market valuations are subject to daily changes. The change in market values is considered to be temporary in nature, as it is the City’s general intention to hold its investments until maturity, when they would be redeemed at market value.
There may be differences between the market values provided by PFM versus those provided by the custodian (U.S. Bank). PFM’s monthly statement, which includes market values, is intended to detail its investment advisory activity as well as the activity of any accounts held by the City in pools that are managed by PFM. The custodian bank maintains the control of assets and executes (i.e., settles) all investment transactions. The custodian statement is the official record of security and cash holdings and transactions. PFM recognizes that the City may use its reports to facilitate record keeping and that the custodian bank statement and the PFM statement should be reconciled and differences resolved. Many custodians use a settlement date basis which may result in the need to reconcile due to a timing difference.
Of the total cash and investments reported above, only the portions held in the City’s General Fund (approximately $35 million, or 20%) and Internal Service Funds (approximately $24 million, or 14%) are unrestricted, although a portion of these amounts may be committed for existing obligations or designated for specific purposes. The remaining $116 million (66%) of the City’s cash and investments are restricted for specific uses, in accordance with federal, State or local agency rules and regulations.
FINANCIAL IMPACT
The City’s expenditure requirements for the next six months are covered by anticipated revenues from City operations and liquidity from maturing investments.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
All investments were made in accordance with the provisions of the City’s approved Investment Policy. The policy emphasizes safety, liquidity and diversification.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378(b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities (acceptance of the Treasury report), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Accept the Treasury Report for the quarter ending June 30, 2015.
Respectfully submitted by,
Elena Adair, Finance Director
Exhibit:
1. Quarterly Investment Report
cc: Kevin Kennedy, City Treasurer