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1997 01 15 IAB Minutes INVESTMENT ADVISORY BOARD MINUTES January 15, 1997 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 Chairwoman Brown, followed by the Pledge of'Allegiance. PRESENT: Board Members Frame, Irwin, Lewis, Osborne, Rodriguez, Sales and Chairwoman Brown ABSENT: None OTHER PRESENT: John Falconer, Finance Director and Debbie DeRenard, Secretary II CONFIRMATION OF AGENDA- Confirmed III PUBLIC COMMENT- N/A IV CONSENT CALENDAR A. Approval of Minutes of Meeting on December 11, 1996 for the Investment Advisory Board. MOTION - It was moved by Board Members Lewis/Frame to approve the minutes of December 11, 1996 as submitted. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for November 30, 1996 In response to Board Member Lewis, Mr. Falconer advised that the column titled Surplus Over/Under - Savings accounts and other time accounts represent the negative cash. Mr. Falconer advised that the Checking Accounts could be added to the title. Investment Advisory Board January 15, 1997 Minutes In response to Board Member Lewis, Mr. Falconer advised that the Cash Flow Analysis schedule represents cash received. He explained that TOT funds received in May, would represent funds earned in April and the Payroll estimates are higher in May due because it's a three pay period month. In response to Board Member Frame, Mr. Falconer advised that there are cUrrently two major sources of bond funds for the Highway 111 project and the 1995 Bond issues that are reflected in several categories, such as Redevelopment activity, Capital Projects and Other and at some point these funds will be disbursed. In response to Board Member Frame, Mr. Falconer advised that it is his intention to keep the cash flow analysis schedule showing a forecast of six months in advance. MOTION - It was moved by Board Members Lewis/Osborne to Review, Receive and File the Treasurers Report dated November 30, 1996. Motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - December 1996 Noted and Filed B. Pooled Money Investment Board Report - October 1996 Noted and Filed C. LAIF Fortieth Annual Report FY 1995-96 In response to Board Member Lewis, Mr. Falconer advised that this report is actually a Pooled Money Investment Report. LAIF is a part of the Pooled Money Investment Fund. The agenda item should have been titled Pooled Money Investment Board Fortieth Annual Report for FY 1995-96. Investment Advisory Board January 1 5, 1 997 Minutes In response to Board Member Frame, Board Member Lewis advised that LAIF funds are kept in a separate pool within the overall pool. D. LAIF Answer Book Chairwoman Brown thanked Staff for reviewing the LAIF Answer Book and preparing a list of the changes. In response to Board Member Frame, Board Member Irwin advised that he did have a better feeling regarding LAIF after reviewing the Answer Book. He advised that he noticed that LAIF has shortened their maturities and the balance sheet is much cleaner than it was in the past years. Board Member Irwin stated that as an example, the yield reported in last fiscal year was 5.71 overall, this is the same as a two-year note. The average rate of a two-year note is 5.69. There is a difference of 30 basis's' points as compared to a 6-month T-bill rate. The 6-month T-bill rate for the fiscal year ended 96 was approximately 5.39. There is roughly a 30-basis' point difference. Board Member Frame advised that in the LAIF Question and Answer book it states that the LAIF rate of 5.70 is gross earnings. Mr. Falconer advised that on page 24 the administrative earnings are listed. Board Member Irwin advised that the City is getting a two-year return on the gross, but when expenses are pulled out the rate is back to a six-month treasury bill rate. Mr. Falconer advised that on page 26 it states: Actual Apportionment Rate is figured after charges have been subtracted. The subtraction of charges results in the 5.518751% apportionment rate reported 6/30/96 for LAIF. Investment Advisory Board January 1 5, 1 997 Minutes In response to Board Member Frame, Mr. Falconer advised that in terms of the LAIF balance, and in terms of the forecasting, this will help. He further advised that it was unique to see the cycle of the funds. What is nice from a cash management standpoint, is that LAIF is same day liquidity. You earn a little higher rate than a 6- month T-bill. This kind of flexibility is important in cash management. In response to Board Member Osborne, Mr. Falconer advised that with the cash flow statement and our current LAIF balance at 40 percent there are not problems. He further advised that he may need to invest two million in Commercial Paper in the next two weeks when the transient occupancy taxes are received. In response to Board Members Irwin/Sales, Mr. Falconer advised that he was thinking about investing in commercial paper because he will need the funds at the end of February to pay the debt service. He further advised that if he invested the funds in LAIF it would go over the 40 percent maximum. In response to Board Member Irwin, Mr. Falconer advised that he would research short term T-bills, but the yields are better on commercial paper. He further advised that he has to be careful not to go over the maximum that can be invested in T-bills. Board Member Irwin advised that he would not want real money invested in Commercial Paper. Board Member Sales agreed vehemently. In response to Board Member Osborne, Mr. Falconer advised that he would be staying within the 30-day time frame if he invested the two million in commercial paper. In response to Board Member Sales/Irwin, Mr. Falconer advised that this investment is in the Investment Policy. Board Member Sales questioned whether anyone on staff is qualified to make an investment decision in Commercial Paper. 4 Investment Advisory Board January 15, 1 997 Minutes Mr. Falconer advised that he would review the credit services. Board Member Sales advised that he wouldn't want to make that investment decision. Board Member Irwin stated that Mr. Falconer can't make that judgement. The City doesn't have the resources to do that. Mr. Falconer advised that he has Moody's and Standard & Poors available. He further advised that he appreciates feedback from the Board. In response to Board Member Sales, Mr. Falconer advised that he would need to review the Investment policy guidelines regarding the maximum investable allowed before investing the two million. In response to the Board, Mr. Falconer advised that he would be reviewing the investment vehicles and-the balances in the T-bill and LAIF accounts and decide where he will invest the funds. Board Member Irwin advised that he has reservations with investing funds in commercial paper. Board Member Osborne advised that in an investment the City is looking for safety, liquidity and yield in this order. When the Board established the investment policy, keeping these items in mind, this Board looked at Commercial Paper as a safe investment, the liquidity was there and the yield was right. When these factors are compared to the other government agency investments, will they compare. In response to Board Member Osborne, Mr. Falconer advised that the yield will be lower by 30 basis' points. Board Member Irwin advised that there is a yield advantage by investing in Commercial Paper, but there is a risk as well. Investment Advisory Board January 1 5, 1 997 Minutes Board Member Frame stated that Mr. Falconer has a guideline of 30 percent available to invest in Commercial Paper. This Board approved the Investment Policy but in terms of guidance, this Board would feel less comfortable with investing in Commercial Paper. The Board set the percentage at 30 percent maximum, but now that an investment in Commercial Paper is being considered, some members prefer not to invest in this vehicle. He further advised that Mr. Falconer will need to weigh the advantages. Board Member Lewis stated that the input regarding Commercial Paper is very useful, but this should have. been discussed when the Policy was being reviewed. Board Member Lewis advised that when purchasing through a broker/dealer you are relying on a rating service. Discussion continued with the Board concurring on Mr. Falconer reviewing the safety measures and investing the two million in a safe investment. E. LAIF Questionnaire In response to Board Member Sales, Mr. Falconer advised that no questions were added, deleted or changed on the LAIF Questionnaire. The only changes were in the remark's column. There were no major changes to the questionnaire from the previous one that is on file. Staff did the analysis attached to the Staff Report and has noted the changes. In response to Board Member Irwin, Mr. Falconer advised that an Audit Report is available upon request. He advised that he would make the request and agendize it for February. A report from the Department of Finance was .submitted to the Board on a previous agenda. Board Member Osborne advised that due to the fact that the LAIF percentages were reduced, the City is at a point where other investment vehicles will need to be used. He further advised that Investment Advisory Board January 15, 1 997 Minutes In reviewing the LAIF Questionnaire he has noted that several questions previously asked, have been answered. He asked Board Member Irwin if he has the same strong feelings against LAIF. He also advised that he reviewed prior minutes from past Board meetings and listed the concerns that Board Member Irwin has had with LAIF and asked if he would like to review the concerns. In response to Board Member Osborne, Board Member Irwin advised that LAIF had made changes and has a more conservative approach. He further advised that some of the concerns that he had previously, he still has and always will have because the concerns cant be changed. He advised that he has concerns with LAIF's accounting methods as well as the City's Financial Statement. He prefers the mark to market method. Board Member Osborne advised that LAIF sends out a monthly report that compares the market value. Board Member Irwin advised that what LAIF doesn't provide is a precise number of shares like a mutual fund. He advised that he had a difficult time doing an independent verification of the monthly and annual interest accruals. The lack of SEC involvement is also a problem. He further advised that he places more reliance on a big six audit report as opposed to the State Controllers Office. There are other alternative investment vehicles, but further commented that LAIF was not a bad investment. Chairwoman Brown questioned if the Board had any further concerns regarding the LAIF Questionnaire. Board Member Frame advised that when he reviewed the credit criteria, he noticed that LAIF has a fair amount of leeway versus what they use as the risk criteria. The Board concurred that they were satisfied with the LAIF Questionnaire. Investment Advisory Board January 1 5, 1997 Minutes VII BOARD MEMBER ITEMS Mr. Falconer discussed the City's portfolio and the maximum percentages that can be invested with surplus funds. Chairwoman Brown advised that the Commission/Board Handbooks were distributed to each member before the meeting. She asked that it be agendized for the February meeting. In response to Board Member Sales, Mr. Falconer advised that in the Desert Sun - Saturday addition, there was an article regarding the City of Palm Desert receiving a rating on their Investment Policy. He further advised that La Quinta received the same letter as the City of Palm Desert. VIII ADJOURNMENT MOTION - It was moved by Board Members Lewis/Sales to adjourn the meeting. Motion carried unanimously.