HomeMy WebLinkAboutJANUARY 7,1992
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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
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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 This law was later rescinded in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,
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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
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WATER
REVENUES
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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
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CABLEVISION
BILLING
PRACTICES
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CLOSED
SESSION
ADJOURNMENT
ATTEST:
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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.
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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.
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Charles E. Gilb, Mayor
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