Title
Recommendation to Accept the Investment Report for the Quarter Ending March 31, 2017. (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Accept the Investment Report for the Quarter Ending March 31, 2017
BACKGROUND
Each quarter of the fiscal year, an Investment Report is provided to the City Council for review, per the Investment Policy. Attached is the Investment Report for the fiscal quarter ending March 31, 2017, which includes detailed information on the City’s cash and investments. This report does not reflect the Council direction on February 21, 2017 to divest Wells Fargo investments. On April 18, 2017, the City Treasurer provided the Council an update that included actions that have been taken to implement Council’s direction.
DISCUSSION
The investment report includes all cash and investments as summarized in the nine categories listed below as of March 31, 2017. The City utilizes U.S. Bank as its third-party custodian for safekeeping of all investments with the exception of investments held by Bond Trustees and several Certificates of Deposit purchased through Bank of Marin. The City also utilizes the Local Agency Investment Fund (LAIF) 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.
As of March 31, 2017, the investment portfolio average yield (before adjustments for changes in market value) was 1.14%, which is lower than the rate for two-year U.S. Treasury bills at 1.27 % but higher than the LAIF average monthly rate of 0.82%.
The investments in Certificates of Deposit, Federal/Agency Issues, Medium Term Notes/Commercial Paper, Asset Backed Securities and Supranationals are managed by PFM Asset Management (PFM) and Chandler Asset Management (Chandler), the City’s two registered investment managers. Several Certificates of Deposits are held by Bank of Marin. 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 investment managers invested approximately 33% of the pooled portfolios’ investments in U.S. treasuries and agency notes and 17% in Corporate Notes and Commercial Paper, 7% in Certificates of Deposits (CDs), 6% in Asset Backed Securities and 2% in Supranationals. Most of these investments were rated either A-1/AA- or better by nationally recognized statistical rating organizations.
The remaining 35% of the total Investment Portfolio was deposited with LAIF as of March 31, 2017. LAIF has 57% of its investments in U.S. Treasuries and agency notes, 16% in CDs and bank notes, and 27% in other types of investments. Additional economic summaries and specific information related to each of the investment advisors and LAIF are included in the Investment Portfolio Summary Report included in Exhibit 1.
Governmental Accounting Standards Board (GASB) 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 managers and bond trustees for all other investments. These market valuations are subject to daily changes. The difference between market value and historical costs, known as Unrealized Investment Gains and Losses, are temporary in nature and are not cash related transactions. Since it is the City’s general intention to hold its investments until maturity, when they would be redeemed at par value, any unrealized gain or loss is only reported at the end of the fiscal year in the City’s Comprehensive Annual Financial Report.
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 $39 million, or 22%) and Internal Service Funds (approximately $25 million, or 14%) are unrestricted, although a portion of these amounts may be committed for existing obligations or designated for specific purposes. The remaining $115 million, or 64%, 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 cash on deposit and 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 Investment Report for the quarter ending March 31, 2017.
Respectfully submitted by,
Elena Adair, Finance Director
Exhibit:
1. Quarterly Investment Report
cc: Kevin Kennedy, City Treasurer