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1996 04 10 IAB Minutes INVESTMENT ADVISORY BOARD MINUTES April 10, 1996 I CALL TO ORDER Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of 5:30 P.M. by Chairman Lewis, followed by the Pledge of Allegiance. PRESENT: Board Members Brown, Irwin, Osborne, Sales and Chairman Lewis ABSENT: Board Members Rodriguez and Frame OTHER PRESENT: John Falconer, Finance Director, Mark Weiss, Assistant City Manager and Debbie DeRenard, Secretary II CONFIRMATION OF AGENDA Chairman Lewis asked if there were any additions or corrections to the agenda by the Board or Staff. Mr. Falconer, Finance Director, stated that there were four additions. Additional information was received for Information Item No. A, Mr. Falconer asked that Information Item titled Consideration of Selection of Broker/Dealer for City of La Quinta Listing of Financial Institutions - Staff Report to City Council and Information Item regarding the Government Code be added. He asked that a revised copy of the March 28, 1996 Investment Advisory Board Minutes be included. All were received after the posting and mailing of the agenda. MOTION - It was moved by Board Members Brown/Irwin to add the additional information to Informational Item A; add Information Item No. C and D; and add the revised minutes to the Agenda. Motion carried unanimously. III PUBLIC COMMENT - (This is the time set aside for public comment on any matter not scheduled on the agenda.) Norris Bernard, Human Services Commission Member, spoke regarding a Community Vision Workshop to be held Thursday, April 18, 1996 at 7:00 P.M. Investment Advisory Board April 10, 1996 Minutes IV CONSENT CALENDAR A. Approval of .Minutes of Special Meeting on March 28, 1996 for the Investment Advisory Board. MOTION - It was moved by Board Members Brown/Sales to continue the consideration of the Special Meeting Minutes to the May 8, 1996 meeting. Motion carried unanimously. V BUSINESS SESSION A. City Council Request- Preferred Board Size Mr. Falconer introduced Mr. Mark Weiss, Assistant City Manager and advised that Mr. Weiss has been instructed by the City Council to meet with the Boards and Commissions to seek their input regarding the current structure of the Boards and Commissions. Mr. Mark Weiss, Assistant City Manager, advised that Council has made it clear that the Planning Commission and the Investment Advisory Board are very distinct and will not be changed. He advised that the only issue is the Board size. The Council would like the Board's opinion on their size - whether it would be more effective with five, or seven members. Board Members Sales advised that he has been on the Board since it was formed and he feels that tonight's attendance (five members present out of seven) is why it's important to have seven members. Chairman Lewis stated that if all the other Boards and Commissions are being reduced to five members, then it would make sense to lower the number of Board members. He advised that it is nice to have the additional input from a seven-member board. His preference would be to stay at seven members. He stated that he would rather see reduction by attrition rather than to force members to resign. Mr. Weiss advised that how the Board size would be reduced has not been addressed by the Council in any detail. The discussion centered around reducing by attrition rather than asking a member to step down. The Council wanted to make it clear that all the Boards and Commissions were created with a purpose in mind. With respect to how it would be done by attrition - Investment Advisory Board April 10, 1996 Minutes has not been addressed. He questioned the Board as to the effectiveness of the Board in terms of five, or seven members. Chairman Lewis commented that all seven members have their own distinct field and knowledge. In response to Mr. Weiss, the Board unanimously agreed that a seven- member board is the preference. Board Member Sales added that the Board has accomplished more since the Board has been increased to seven members. MOTION -It was moved by Board Members Sales/Brown to express to the City Council that the preference of the Board is to remain at seven members. Motion carried unanimously. B. Transmittal of Treasury Report for February 29, 1996. Mr. Falconer presented the Treasury Report for February 29, 1996 and advised that the decrease in the cash of approximately two million is the result of debt service payments processed during the month of February. In response to Board Member Irwin, Mr. Falconer advised that he reported last month that approximately two million dollars would be spent in the next two months. He advised that he hasn't seen any substantial changes in the 1995 Bond Proceeds and advised that he would contact the Economic Development Consultants for more information. In response to Board Member Sales, Mr. Falconer advised that the February Treasury Report does not reflect the LAIF quarterly mark to market. The quarterly mark to market was reflected in the January Treasury report. MOTION -It was moved by Board Members Brown/Irwin to accept, receive and file the Treasury Report for February 29, 1996. Motion carried unanimously. C. Consideration of approval of Investment Policy for the City of La Quinta. Investment Advisory Board April 10, 1996 Minutes Chairman Lewis advised that at the last meeting, the Board completed the review of the draft Investment Policy and Staff was going to incorporate the changes into the policy and bring back a final draft. Mr. Falconer advised that the Investment Policy attached to the staff report have the changes incorporated into it. He further advised that other changes have been received since the agenda was mailed. Board Member Irwin advised that on Page 3, fifth paragraph -it reads, The City of La Quinta shall require that each individual investment have a maximum maturity of two years unless specific approval is authorized by the City Council. He would like it to read, The City of La Quinta shall require that each individual investment in a fixed income security have a maximum maturity of two years unless specific approval is authorized by the City Council. Mr. Falconer advised that the Board may want to consider that the City can only invest in certain money market mutual funds by State Code - 60 or 90 maturities, which would fall under the two-year maximum. Board Member Sales advised that this is covered on Page 10 of the Policy. Board Member Sales questioned Page 3, paragraph 4 and Page 8, Item 2 - B regarding collateralization of CD's. Chairman Lewis advised that not all CD's are required to be collateralized. If they have FDIC insurance, they are not required to be collateralized. Chairman Lewis advised that maximum maturity of mutual funds would depend on how the mutual fund is defined. Board Member Osborne advised that LAIF is less than two years. Board Member Irwin advised that LAIF is an animal- the City has a piece of the pool. Board member Osborne advised that having a mutual fund - we would have a piece of that pool and right now the average for LAIF is less than two years. If the Board addresses paragraph 3 as Board Member Irwin has advised - would this change the position with LAIF if the average maturity 4 Investment Advisory Board April 10, 1996 Minutes went for more than two years. Mr. Falconer advised that LAIF has never been that high. Board Member Irwin advised that he believed the highest has been 500 - 520 days average maturity. In response to Board Member Osborne, Board Member Irwin advised that the FCC requires money market funds have an average maturity of something less than 90 days or so. Chairman Lewis advised that the Board could expand the paragraph to include LAIF. The Board concurred on having Paragraph 5, on page 3 read as follows; The City of La Quinta shall require that each individual investment in a money market mutual funds and/or-LAIF be limited to those who have an investment policy and an average maturity of less than two years unless specific approval is authorized by the City of La Quinta. Board Member Irwin advised that money market funds have a specific policy and LAIF has no policy. LAIF has nothing. In response to Board Member Osborne, Chairman Lewis advised that the City would have to have specific approval authorizing LAIF. Board Member Irwin questioned if that opens up short term bond mutual funds with an average maturity of less than two years as an investment vehicle. Mr. Falconer advised that in regards to Page 3, paragraph 5, the Board needs to have a separate paragraph regarding the 90 days for money market mutual funds and a separate paragraph for two years for LAIF. Board Member Irwin advised that if we are discussing investment policies - LAIF has no investment policy. Mr. Falconer advised that the City can set forth their own. Investment Advisory Board April 10, 1996 Minutes In response to Board Member Irwin, Mr. Falconer advised that if the average maturity of LAIF goes beyond two years, then the City should consider moving out of it. Chairman Lewis advised that from the tone of the Board discussions over the last year, it is the Board intention to move the City's money out of LAIF into alternative investment vehicles. He advised that Board Member Irwin has brought up some valid issues regarding LAIF. However, it is easier to take the process in steps rather than all at once and completely disrupt everything. If the Board eliminates LAIF as a possibility, then the process will have 'to be done at once. From the discussion last meeting, it is the intention of the Board that LAIF is reduce to 50 percent now and reduced again in six months - twelve months. This way the City will diversify and get use to the way the money is diversified and the fact that it is no longer one phone call to one entity to get the money. Board Member Irwin advised that the Board did take action six months ago to diversify - and our LAIF balance has gone to twenty million. In response to Board Member Irwin, Board Member Osborne stated that the City has not had the ability to move it. He advised that it has been seven months, but selecting broker/dealers takes an extraordinary amount of time.. Chairman Lewis advised that it took a considerable amount of time and then when the Board finally had it in place, the City Council continued the issue regarding the broker/dealer list and the Board still cannot move the money out of LAIF. Board Member Irwin advised that they continued it because of LAIF - LAIF was the problem. Board Member Sales suggested that the Board discuss LAIF later in the meeting and continue discussion of the Investment Policy. He advised that his solution to paragraph 5 would be to make an exception at this point that the Board would be looking to the policy of the fund or pool as it relates to maturities in those particular cases versus the individual securities held by the pools or money markets. Investment Advisory Board April 10, 1996 Minutes Board Member Irwin advised that what has been difficult for him, is that a big piece of the policy relates to all the funds that are owned by the City, RDA or petty cash fund. One piece that the Board has little if any control over is the bond proceeds. In this period, bond proceeds have fluctuated from three million to sixteen million dollars. If the Board is dealing with percentages, fluctuation like that - we don't control the size and most importantly the Board has no control over how the funds are invested. He advised that he would like to see bond proceeds pulled out of the Investment Policy - we have no control over how the funds will be invested - why lay the percentages on the Board. Board Member Sales advised that he had brought this issue up in the past and at one point the Board was told they had no control. He advised that Mr. Falconer has indicated that the Board does have some control over where the funds are invested, the Board has just not exercised any control. Mr. Falconer advised that the bond indenture sets forth where you can place the investments. In response to Board Member Sales, Mr. Falconer advised that the bond investments were placed in money markets by default. In response to Board Member Irwin, Mr. Falconer advised that the Board has limited authority over how the bond proceeds are invested. Each bond issue has guidelines that state what is permissible investments. Some are more restricted than others. Chairman 'Lewis requested a consensus from the Board regarding the maximum maturity on mutual funds/LAIF. Board Member Sales advised that he feels that the first sentence of paragraph 5, page 3 is fine, but what is needed is another paragraph. In response to Mr. Falconer, Board Member Sales advised that the Board would look for the average maturity in LAIF. He further added that the Board could specify that the pool has to be two years or .less for underlined securities. Investment Advisory Board April 10, 1996 Minutes Mr. Falconer advised that he would call the LAIF office and verify the above. In response to Board Member Irwin, Chairman Lewis advised that the policy would apply to all funds, even if the'City is restricted as to the investment vehicle. Board Member Irwin advised that he has reservations in regards to including bond proceeds in the policy. Chairman Lewis advised that the Board could revisit this area at a later date. In response to Board Member Irwin, Mr. Falconer advised that the second sentence in Item X can be changed to read; Each LAIF account is restricted to a maximum' investable limit of $20 million; in addition, LAIF will provide quarterly market value information to the City of La Quinta. Board Member Sales advised that on Page 10, Item 12 - He would prefer to have a City Attorney opinion regarding this area. Board Member Sales advised that the purpose of the Investment Advisory Board was to make sure that only securities that can be purchased on a payment versus delivery basis, would be part of the investments at the City of La Quinta. Chairman Lewis advised that this section would exclude mutual funds and LAIF investments. The Board concurred on having the City Attorney's opinion on item No. 12.' Board Member Brown advised that the reason for reviewing the policy was to try to bring an acceptable policy to the City Council. It is the Investment Advisory Board's responsibility to identify the exceptions. She further made the recommendation to identify those investments that are the exception. In response to Board Member Irwin, Board Member Brown advised that she realized that mutual funds and LAIF are 98 percent of the portfolio at this point, but as the Board has discussed, the goal is to take the first step to diversify the portfolio. It can't be done all at one time. Investment Advisory Board April 10, 1996 Minutes Board Member Sales recommended that the Board identify the exceptions to Item No. 12, and have the Board state specifically that the investment in these exceptions must be made directly to the institutions and not through a second or third party. Mr. Falconer advised that the Board could identify the two exceptions and say that the two exceptions should adopt a delivery versus payment method. Chairman Lewis advised that we need to identify the particular items in Section 12. The Board concurred .without objections. In response to Board Member Irwin, Mr. Falconer advised that step by step instructions regarding investment procedures would be available by July 31st. These could not be completed before the policies are adopted. Arbitrage Rebate In response to Board Member Irwin, Mr. Falconer advised that the last sentence could be changed to read -It is the City's position to continue maximization of yield and to rebate excess earnings, if necessary. The Board concurred without an objection. Authorized Investments and Diversification Mr. Falconer advised that after reviewing the Authorized Investments and Diversification schedule (Page 14) an area that needs clarification is the amount of funds that can be invested in each investment vehicle. Chairman Lewis advised that the guidelines do not address investible amounts per institutions. There is no limitation. An additional restriction on an individual line item, not only as a percentage of the portfolio, but as a maximum per institution or investment vehicle. Mr. Falconer advised that Staff reviewed one of the bond indentures and it did specify that money market mutual funds must be rated. He advised that' staff called the bond trustee and the Trustee gave Staff a verbal rating of Triple A. Investment Advisory Board April 10, 1996 Minutes The Board concurred on requesting the City Attorney's opinion regarding the permissible percentages of investment in money market mutual funds. Chairman Lewis advised that we also need to know what constitutes surplus funds and whether the fifteen percent relates to the total funds or per investments. In response to Board Member Irwin, Mr. Falconer advised that he would review sweep accounts. Board Member Irwin distributed information regarding LAIF that he had produced on the risk of LAIF. He further advised that he cannot support the 50% investment into LAIF. Chairman Lewis advised that this specific issue - LAIF - was voted on at the March 28, 1996 meeting. The 50% level was done in the form of a motion by the Board. He further advised that he is aware that Board Member Irwin was the dissenting vote on the LAIF issue. Board Member Irwin requested that LAIF be reconsidered by the Board. He advised that he has given the Board five papers regarding LAIF and the problems with it. No other Board Member has ever disagreed with his opinion with the exception of saying they liked the yield. Board Member Sales advised that the Board doesn't particularly like the yield. It's a good place for the money to be until a time when the portfolio can be diversified. Board Member Brown stated that this Board has a lot of work to do and she is not in favor of changing the past vote. She further advised that she thought that was why the board had called for a vote. She advised that she is aware that Board Member Irwin does not care for LAIF. She stated that she doesn't want to review LAIF again. Board Member Irwin stated, what about at Tuesday's Council Meeting? Board Member Brown advised Board Member Irwin that she is concerned with the present meeting. 10 Investment Advisory Board April 10, 1996 Minutes Board Member Irwin advised that there are a lot of comments made about LAIF at the Council Meetings. Chairman Lewis stated that the Investment Advisory Board is an advisory board to the City Council- the Board advises City Council on what this Boards feelings are. City Council has the option of following the Investment Advisory Boards advice or determining that they do not feel it is the appropriate advice and doing something else. This Board has made a recommendation to City Council on the Investment Policy and one of the items included was the 50% level investable in LAIF. City Council has the option of changing it. In response to Board Member Irwin, Chairman Lewis advised that the issues regarding LAIF were addressed and voted on at the last meeting. Board Member Brown advised that she is not personally willing to discuss LAIF until it becomes the way that Board Member Irwin wants it. This Board has done their duty to review LAIF and the several paPers prepared by Board Member Irwin. The Board has done everything that is prudent. The issue is that the majority rules. She further advised that if Board Member Irwin would like to call the City Council- that's within his rights as an individual who lives in La Quinta. She further requested Chairman Lewis to proceed with the meeting. Board Member Sales advised that he agrees with Board Member Brown and further advised Board Member Irwin that the information presented has no new information regarding LAIF. Board Member Irwin advised that the accounting and reporting issues have never been addressed. Board Member Sales advised that he believed that all the issues have been reviewed regarding LAIF. Chairman Lewis requested Board Member Irwin to make a motion if that was his preference. Board Member Irwin advised that when he made a motion previously, he could not get a second. 11 Investment Advisory Board April 10, 1996 Minutes Chairman Lewis stated, that should answer your question. Chairman Lewis advised that on Page 18 - the Listing of Approved Financial Institutions, First Interstate Bank is listed as banking services. He questioned if it should be changed to Wells Fargo and is the City going out to bid for a new bank. Mr. Falconer advised that currently the merger with First Interstate Bank and Wells Fargo agreement states that Wells Fargo is required to keep the City's account. The City has the option of going out to bid. In response to Board Member Sales, Mr. Falconer advised that the Broker/Dealer staff report will be presented at the April 16, 1996 Council Meeting. Mr. Falconer advised that the information added to the agenda regarding the broker/dealer is a coPy of the staff report that will be presented to the City Council on Apd116th. He further advised that item was continued at the April 2nd City Council meeting. Council Member Perkins brought up a LAIF issue and in addition felt that the staff report didn't provide enough information for him to make a decision at that time. Staff has given more detail regarding the information that was in question. The staff report will be presented at the April 16th City Council meeting. Any Investment Advisory Board Members are welcome to attend and speak. Board Member Sales advised that on the first page of the staff report - the second paragraph under Issue and Direction - the word cash should be eliminated. The Board concurred without an objection. In response to Chairman Lewis, Mr. Falconer advised that the glossary is recommended for an Investment Policy by the Municipal Treasurers Association. He further advised that he would like to submit the final Investment Policy to the Municipal Treasurers Association for their review after it has been adopted by the City Council. The Board reviewed the remainder of the Investment Policy and had no other changes. 12 Investment Advisory Board April 10, 1996 Minutes In response to Board Member Irwin, Mr. Falconer advised that once the Investment Policy has been approved by the Investment Advisory Board, it will be presented to the City Manager and City Attorney for review. VVhen the City Manager and City Attorney have completed their review, they will bring it back to the Investment Advisory Board.. MOTION -It was moved by Board Members Brown/Sales to continue the discussion of the La Quinta Investment Policy until the May meeting. Motion carried unanimously. VI BOARD MEMBER COMMENTS Board Member Brown advised that this Board has set a very dangerOus policy by going back and revising the minutes. The Board had unanimously accepted the minutes as action minutes only. This is an issue of a large nature and should have been addressed at a meeting. Mr. Falconer advised that the reason for the change in the minutes was at the request of Board Member Irwin. He wanted the items discussed at the March 28, 1996 meeting to be in detail to show how the ultimate motion came about regarding section 9. Mr. Falconer advised that after the Board has reviewed the detailed minutes, he would like direction on the type of minutes the Board would prefer. Board Member Irwin advised that at recent City Council meetings there have been comments regarding adequate/inadequate Board and Commission minutes. He further advised that he could not find any standards that can be applied. He felt that the standard should be like the City Council Minutes. In response t° Board Member Brown, Chairman Lewis clarified that the Board is to review the new set of minutes and approve one or the other set and to select the preferred method with respect to future minutes. Board Member Sales advised that the next step after completing the Investment Policy is to establish an Investment Plan. 13 Investment Advisory Board April 10, 1996 Minutes VII INFORMATIONAL ITEMS A. Information regarding Primary Dealers. Received and' filed. B. Information regarding the Government Accounting Standards Board (GASB). Received and filed. VII ADJOURNMENT MOTION - It was moved by Board Member Osborne/Sales to adjourn the meeting. Motion carried unanimously. 14