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HomeMy WebLinkAboutJANUARY 7,1992 I :1: I , , 0110..5-0 34:0001 CITY COUNCIL PROCEEDINGS ARE TAPE RECORDED AND ON FILE IN THE OFFICE OF THE CITY CLERK ROLL CALL CITY INVESTMENT POLICY (J. Dale Fin. Dir. ) 0330_'10 /liS':> MINUTES CITY COUNCIL OF THE CITY OF ARCADIA and the ARCADIA REDEVELOPMENT AGENCY ADJOURNED REGULAR MEETING (STUDY SESSION - CITY INVESTMENT POLICY) JANUARY 7,1992 The City Council and the Arcadia Redevelopment Agency met in an Adjourned Regular Meeting and Study Session at 6:30 p.m., Tuesday, January 7, 1992, in the Conference Room of the Council Chambers. The primary purpose of the 6:30 p.m. Study Session was to hear a presentation of City investment policy. PRESENT: Councilmembers Ciraulo, Fasching, Harbicht, Young and Gilb ABSENT: None At its meeting of December 17, 1991, the City Council requested that staff provide Council an update of City investment procedures, and a study session was scheduled for this date. In the January 2, 1992 City Council Newsletter, the City Treasurer provided Council with an Investment Report - December 31, 1991, which is submitted monthly by Gerald Parker, Assistant Finance Director/Treasurer. Attached to this report is a list and description of the functions of the investment vehicles used by the City which includes: 1. Federal National Mortgage Association (FNMA) 2. Federal Home Loan Bank (FHLB) 3. Farm Credit System (FFC) 4. Government National Mortgage Association (GNMA) 5. Federal Home Loan Mortgage Corporation (FHLMC) Also included in the list of investment vehicles: Bankers Acceptance (BK/ACCPT); State of California Local Agency Investment Fund (STATE L.A. I. F.); and Treasury Securities. Further, the City of Arcadia Investment Policy statement is included which was adopted by the City Council in September, 1989. Mr. James Dale, Finance Director, was present to explain the report and lead the discussion on this item. Mr. Dale stated, in part, that at one time State law required cities to adopt an investment policy annually and issue monthly investment reports. This law was later rescinded in 1989, however, Arcadia has maintained the monthly report to the City Council and still operates under the same investment policy. The State, Mr. Dale noted, sets certain criteria for those vehicles in which the City can legally invest. Further, the City also sets some restrictions and certain parameters for investing public funds. The important factors in Arcadia's policy are safety, liquidity and yield. This describes the primary investment policy of the City. The yield in interest earned at year end December 31, 1991, he noted, was $850,000. The current investment portfolio for the City is valued at $43,575,149.39, which is the largest portfolio the City has ever had, he added. Mr. Dale pointed out that much of the $43 million is restricted to certain usage, such as, the $2 million in the Narcotic Seizure Fund, 1 1/7/92 34:0002 which must be used for "narcotic related purchases and debt" only; also the Water fund carries reserves for water facilities; an emergency reserve at $3-4 million; Insurance reserves; Gas tax funds have restricted usage also. Referring back to the $43,575,000, in the investment portfolio, the Finance Director noted that 64% of the City's funds are invested in federal agency securities; 31% are with the State Local Agency Investment Fund (LAIF) , with the balance of the funds in Treasury notes and Certificates of Deposit (CD's). For Council's information, the Finance Director read off some current percentage figures. At this date, January 7, 1992, the prime lending rate is at 6.5%; Federal funds, which, he said, is "sort of the overnight investment rate", is at 3.25%; one month CD's at 3.77%; 3.74% for a six month CD; and one year CD's are at 4.16%. Further, ninety-day T-bills are 3.87% and the one-year T-bill rate is 4.14%. In response to a question from Councilmember Fasching the Finance Director said that it has been the position of the Treasurer to lock in interest rates for longer maturity dates when he perceives that interest rates are dropping. Therefore, the December Investment report reflects interest rates for many investment instruments maturing in 1996 and 1997, at rates much higher than today's rates. He added that the City's financial position is excellent. Further, the weighted yield from all investments in the City's portfolio is 7.146% overall. Mr. Dale noted also that 33% of the City's investments are invested for less than one year; 43% are invested between 4 and 5 years and the remainder of the funds are in~between. An explanation of how Arcadia operates within the Local Agency Investment Fund (LAIF) , which is a huge investment portfolio managed by the State of California, that fund, Mr. Dale advised, "has been recognized as one of the best in the country, and is currently at 6.577%" The City is 57 basis points above that. Further, it has been the policy of the City to make an investment and in most cases hold it to maturity unless after analysis an investment is later determined to be not doing well and sold or reinvested in a more favorable situation. And, it happens, that on the long term investments in Agency vehicles reflected in the December, 1991 monthly report, the investments listed as purchased at $29,025,149.39 increased by almost $772,000, today's date. The funds are invested very conservatively and are not traded except in certain situations produced by falling interest rates or callable dates that can be worked to the advantage of the City when instruments are sold, and then reinvested in LAIF. It was noted that there is no penalty for pulling funds out of these agency investment vehicles before a maturity date, since these investments are not CD's and can be brought and sold any day. Mr. Dale explained the "callable date" of an instrument as a means by which the Agency, FNMA, for example, can call in their instrument before the maturity date. It was noted that interest rates are falling and many callable dates on the report are for this year, so the interest rates are not going to prevail after the call date. Mr. Dale pointed out that it is his feeling that the interest rates will begin to pick up by the 3rd quarter of this year, although not much of a change is expected. The Finance Director explained City policy regarding the transfer of funds to and from LAIF. The City has been a member of LAIF since 1982. LAIF has almost $8 billion invested at the present time. LAIF is an excellent managed fund, according to Mr. Dale. The State Treasurer is the director of this fund. Further, as interest rates drop and an instrument has a later maturity date and an earlier callable date, LAIF will have a better yield than is expected 2 1/7/92 1 1 I 1 WATER REVENUES 03 S-o - (.30 NSP L A METRO TRANSPORTATION AUTH. BD. O~JO-c>-/ ,.,).5P 34:0003 out in the marketplace. So, as the City's other instruments become "callable" or an agency "calls" the instrument, Finance may then sell the instrument and invest it in LAIF because LAIF would still be at market rate. Then when interest rates go up, this situation is reversed. LAIF lags behind at a lower interest rate and at that point staff pulls out of LAIF to get back into investments that pay a higher yield. Mr. Dale commented also that LAIF allows an investment of $30 million per city and reiterated that the City has $13 million invested in this fund. The Finance Director also explained City policy in connection with Time Certificates; $100,000 in City funds are invested in CD's in each of nine Savings and Loans or banks within the City. These CD's are only invested in FDIC and FSLIC insured certificates. The City receives interest checks monthly from these accounts. Current interest rates were briefly mentioned for those CD's that had rolled over in January. The rates at Bank of America and Great Western are at 4.05% with a yearly yield of 4.13%. The interest earnings for 1991 were 8.2% on average and will continue to drop to an average weighted yield of 7.1% The average weighted yield for January is 7.146%, according to the Finance Director. All of the interest earned is reinvested. When tax revenues are received they are invested. When accounts payables go out each Friday at $300,000 to $400,000, if revenues do not come in for these payments, the City goes to LAIF to wire funds from the City's account to cover the checks. When certain income comes into the City it is then wired to LAIF. The City policy is to invest as much of the idle funds as possible.. In reference to the total investment figure of $43,574,149. as shown on the December statement, these funds have grown a little each year to what they are today. The figures may fluctuate as property taxes are received and expenditures made. In response to Mayor Gilb's question, the Finance Director responded that the City's' annual income from all interest earnings is $850,000. Further, the department projects that these earnings for IT 1991-92 will be down around $50,000 from what had been originally budgeted. The calculations were based on a 7% figure which was thought at the time to be very conservative. The year proved otherwise. The Mayor noted that in actuality the income from interest earnings will be down between $100,000 and $150,000 - not $50,000. Further, in 1992 the interest earned will only be a little higher, but not much. The Finance Director noted that staff will start looking at revenue estimates in February and March. The Mayor added that in the months of August, September and October of 1992 the interest rates may be 1% higher than they are at currently because of certain situations, and the interest rates could go up to 5.2% or 5.3%. Mayor Gilb then thanked the Finance Director for his presentation and continued on with the pre-meeting. The Finance Department reports that water revenues are projected to be down 13% in 1992 as compared to 1991 or approximately $643,000. And although mandatory water conservation has been rescinded, water conservation is expected to continue. The City Manager reported that information had been received from the Rapid Transit District (RTD) advising of the reorganization of RTD and LACTC (Los Angeles County Transportation Commission) to consolidate those two agencies into the L A Metropolitan Transportation Authority. Cities are now going to be represented by four delegates plus a fifth representing Long Beach. Staff advised of certain matters that must be considered by Council and then communicated to 3 1/7/92 CABLEVISION BILLING PRACTICES ()'6/0 ~O t.nP CLOSED SESSION ADJOURNMENT ATTEST: J Alford, 34:0004 Mayor Robert Bartlett of Monrovia to present to the Board on behalf of the cities. Much discussion ensued and the following recommendations determined: 1) That four corridors be set up, basically, by population to be equitable. 2) To elect a representative within each corridor - one vote per city within the corridor based on population. 3) The four corridor representatives should have staggered terms t"'o years apart to each serve four years. 4) The corridor representative and the alternate should be an elected Councilmember and go off the board when they go off their respective City Councils. The City Manager introduced Thorn Prevette, the General Manager of Cablevision, who was present to respond to Council's questions concerning two items listed on recent Cablevision user bills. A lengthy exchange occurred between Councilmember Fasching and Mr. Prevette regarding the increase in Cablevision rates and the City's 5% Franchise Fee. Councilmember Fasching reiterated previous statements that Cablevision covered up an actual increase in rates by setting out the City's 5% Franchise Fee on recent customer bills. He asked Mr. Prevette if Cablevision intends to set out other operating costs such as utility costs every time they raise their rates. Their billing practices are deceptive. 1 Mr. Prevette stated, in part, that they had combined two different changes in the way they bill their customers in one month. The rate increase should have been handled differently. He said he had followed a business directive from the "corporate company" to list the franchise fee, as allowed by federal law. If he could do this over again he would list the rate increase on one month's bill and the franchise fee on another monthly bill, however, they would still have the rate increase and would also set out the 5% franchise fee. Mr. Prevette also noted that his company is very concerned about the miscommunication that occurred. Council also questioned him on just how the 5% City fee is calculated since a bill used as an example had been calculated incorrectly. He responded that that may have to have a computer adjustment, also stating that the 5% would continue to be calculated on the total revenue - there will be no 5% reduction to the 5% fee in revenues to the City. Mayor Gilb requested an executive session before the regular meeting this date. At 7: 20 p. m. the City Council entered the CLOSED SESSION, RECONVENED and ADJOURNED sine die at 7:35 p. m. ~~ ~~y{)~ - Charles E. Gilb, Mayor 1 ~ 4 1/7/92