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1997 04 09 IAB Minutes INVESTMENT ADVISORY BOARD Meeting April 9, 1997 I CALl TO ORDFR Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of 5:30 P.M. by Vice Chairman Sales, followed by the Pledge of Allegiance. PRESENT: Board Members Irwin, Osborne, Frame, Lewis (5:40) and Vice Chairman Sales ABSENT: Chairwoman Brown and Board Members Rodriguez OTHER PRESENT: John Falconer, Finance Director and Debbie DeRenard, Secretary II CONFIRMATION OF AGENDA- Confirmed III PUBLIC COMMENT In response to Vice Chairman Sales, Mr. Falconer advised that the Investment Advisory Board meeting notice is posted in the Palm Desert Post - La Quinta addition on Thursdays. A notice of the meeting is also posted on the bulletin boards at Albertsons', the Chamber of Commerce and City Hall. IV CONSFNT CALENDAR A. Approval of Minutes of Meeting on February 12, 1997 and March 12, 1997 for the Investment Advisory Board. MOTION - It was moved by Board Members Irwin/Osborne to approve the Minutes of February 12, 1997 and March 12, 1997 as submitted. Motion carried unanimously. Investment Advisory Board April 9, 1997 Minutes V BUSINFSS SESSION A. Transmittal of Treasury Report for January 31, 1997 and February 28, 1997. Board Member Frame advised that since the Board received both the January and February Treasury Reports he was able to review and compare the two reports, He further advised that there was a forecasted two million dollar debt service payment that is now at zero. Mr. Falconer advised that he transferred the funds a month earlier to the Bond Trustee. Board Member Frame advised that he was unsure of how much preview the Board has over this, but in terms of understanding the Treasurers Report better, when changes of this size occur they should be hi-lighted. The Board concurred on hi-lighting any dollar amounts that have changed or creating a separate section of the report for forecasted changes that are of a substantial amount. Board Member Frame advised that adding a column that shows the re- forecasted amount would be helpful too. MOTION - It was moved by Board Members Irwin/Frame to approve the Treasurers Reports dated January 31, 1997 and February 28, 1997. Motion Carried Unanimously. B. Fiscal Year 97/98 Investment Policies In response to Vice Chairman Sales, Mr. Falconer advised that the City Council looks to the Investment Advisory Board and Staff for any proposed changes. He further advised that the current Investment Policy has been easy to work with. In response to Vice Chairman Sales, Mr. Falconer advised that the Investment Policy before the Board has no unapproved changes. Mr. Falconer advised that the City is required to adopt the Investment Policy each year by State Code. Investment Advisory Board April 9, 1997 Minutes Mr. Falconer asked that the Board give Staff clarification on (1) Commercial Paper investments, (2) the two year maturity and (3) the LAIF investment percentage. Board Member Irwin advised that he would like the definition of surplus funds added. He further added that surplus funds became an issue with the Board after the approval of the Investment Policy. Mr. Falconer advised that the second page of the Treasurers Report clarifies the surplus/percentages. In response to Board Member Frame, Board Member Irwin advised that at previous meetings, Staff indicated the cash position and advised the Board that the City was running afoul of the rules on surplus funds as distinguished from surplus funds. He further advised that he would like to see the definitions in the current Investment Policy. Mr. Falconer advised that there is a definition of surplus funds in the Policy on page 15, footnote one. Board Member Irwin questioned why the Board had clarification problems at the last two meetings if the definition of surplus funds was in the policy. Mr. Falconer advised that he recalls that the City had almost reached the maximum percentage of investments in LAIF and T-bills and the other options were Commercial Paper and government securities. Board Member Irwin advised that the reason the City was maxing out was because of the definition of surplus funds. Board Member Osborne questioned if another column is needed in the Treasury Report to indicate total investment and surplus funds. Board Member Irwin advised that would be a possibility. In response to Board Member Frame, Mr. Falconer advised that the State mandates the surplus definition and the State has set the limitation on surplus funds. Investment Advisory Board April 9, 1997 Minutes In response to Board Member Lewis, Mr. Falconer advised that he will research the State limitations.on investments. The Board concurred that two columns on the Treasury Report indicating total/surplus funds would be easier for the Board to review. The Board discussed Commercial Paper investment percentages and concurred to leave Commercial Paper in as an investment vehicle at the same percentage level by a 3 to 2 vote. Board Member Lewis, Osborne and Frame voting YES and Board Members Irwin and Sales voting NO. Board Member Frame suggested adding a footnote for investments such as LAIF that states that investments not authorized if they are part of another entities investments are permitted as long as they don't exceed that given percentage of the total portfolio. He expressed concern about entities investing in investments that are not approved by the City. Board Member Irwin stated that this is how it has been all along with · LAIF. Board Member Frame agreed and advised that a footnote should be added indicating this so that the Board will periodically check the investments. Board Member Irwin advised that if the City is going to have a Policy to not invest in certain types of securities, than there should be a policy to not invest in an entity that invests in that type of security. Board Member Lewis advised that he agrees with Board Member Frame and he further explained that Staff does not have the time and may or may not have the expertise needed for some of the investments. Certain direct investments were eliminated because of this. He further stated that an entity such as LAIF or a mutual fund has the staff to understand these investments. Board Member Irwin advised that he understands what Board Members Frame and Lewis are explaining, but in the context of LAIF they invest in securities that the City would not even consider. Vice Chairman Sales questioned the investment percentage of LAIF. He further added t'hat the City Council is probably going to lower the percentage. 4 Investment Advisory Board April 9, 1997 Minutes Board Member Irwin advised that the decision will be made by the City Council. Board Member Osborne advised that he doesn't see a problem with the investment percentage of LAIF. Based on the last review of LAIF and its investments, yields and planning, he doesn't see a need to change. Board Member Irwin advised that he continues to believe that the City doesn't need to have a significant piece of the portfolio in LAIF. He further stated that he could not support a policy that would permit a significant investment in LAIF. He added that he doesn't want to have the hassle of LAIF at the Investment Advisory Board meeting~. He will wait for the City Council meeting. Board Member Lewis advised that a significant amount of money has already been moved out of LAIF. In response to Vice Chairman Sales, Mr. Falconer advised that the City went from an investment high of 22.3 million in January 1996 to 11 million in January 1997. The City is averaging 25 - 30% of surplus investments in LAIF. He further advised that Staff is trying to maintain the percentage at 25 to 30%. Vice Chairman Sales questioned why the investment percentage limit is 40% in LAIF. Mr. Falconer advised that Staff tries to maintain the 25 to 30% level. Staff desires to have some percentage to work with, but if the Board suggests reducing the LAIF percentage to 35%, Staff is prepared to work with this percentage. Board Member Irwin stated that a year ago Staff said that they were prepared to reduce LAIF to 25% and there was a lot of credibility lost when Staff changed it. In response to Mr. Falconer, Board Member Irwin advised that it has been a year. Mr. Falconer advised that Staff has reduced the LAIF percentage from 80% down to 25%. 5 Investment Advisory Board April 9, 1997 Minutes Board Member Frame stated that he doesn't think Staff reneged on what they said they .were going to do. He further advised that he remembers Staff advised that they were going to try and reduced the LAIF percentage to 25%. He added that he feels Staff has kept their promise. Board Member Irwin advised that he went back to the tapes. Vice Chairman Sales advised that he remembers Staff saying that their target was 25%. Board Member Osborne advised that the LAIF balance 'in February was 23%. Board Member Irwin advised that at one point LAIF was settled and then it became unsettled because Staff made the change. Board Member Osborne advised that Staff is doing a fine job with LAIF and they have brought the percentage down substantially. Board Member Frame suggested that the Board stick with the guidelines and not try to manage the day to day activities. Board Member Irwin advised that if the LAIF percentage would be 30 - 35% at June 30th and with a definite limitation of 25% by the end of the year, he would have not be opposed to it. Vice Chairman Sales questioned if the motive is to take the Policy to the City Council and have them changed the percentage. Mr. Falconer advised that the Staff is prepared to reduce LAIF to 35%. Board Member Osborne suggested reducing LAIF to 35%. Board Member Irwin stated that we will just have to take it to Council and let it go at that. Vice Chairman Sales stated that he is tryincj to prevent that. He would rather have the Board deal with the Policy. This is the Board purpose to handle the Policy and he would rather see the Board do their job. Investment Advisory Board April 9, 1997 Minutes Board Member Lewis advised that the Board would be derelict in their duties to not pass on some kind of recommendation to the City Council. Council. Board Member Irwin agreed. Board Member Lewis advised that the Board agrees to reduce the percentage in LAIF, Staff has done an outstanding job in reducing the percentage. Staff is keeping the LAIF level down to 25 - 30% when the level is 40%. Staff is not abusing the percentages that have been given. He further advised that Commercial Paper is an option for investments and if the Board lowers the LAIF level to far, the City would have to resort to investing in Commercial Paper. Board Member Irwin advised that the City could invest in more treasury bills. Board Member Lewis advised that rates will be hiked up in the next couple of months. Vice Chairman Sales suggested that Staff discuss this and bring it back to the Investment Advisory Board with two figures, one being what the policy should be for the next year, and the other what Staff's goal is for the following year after that. Board Member Lewis advised that the Board needs to set the Policy. Staff can come back with their goals, but the Board needs to make the decision. It would be wrong for Staff to recommend the policy as it's the Boards responsibility to recommend a policy number to the City Council. In response to Board Member Frame, Mr. Falconer advised that Staff would recommend LAIF percentage be 35% for FY 97/98. In response to Board Member Sales, Mr. Falconer advised that Staff cannot make a LAIF percentage goal for the FY 98/99 Policy year at this time. Vice Chairman Sales advised that he has no objections to chancjincj the LAIF limit to 35% for the Fiscal Year 1997/98. Investment Advisory Board April 9, 1997 Minutes Board Member Frame advised that he would like to know what Staff's strategy plan is regarding investments. Board Member Lewis advised that the lower that the LAIF percentage is the more drastic the change is to the day to day operations. Board Member Irwin questioned if the percentage in treasury bills could be increased. Board Member Lewis advised that percentages are for the purpose of safety and diversification. If you are not diversified, you can run into credit risks and interest rate risks. No investment should have an investment percentage of 100%. Board Member Irwin advised that treasury bills at one point were at 90%. Board Member Lewis advised that it's his opinion that treasury bills should be lower. After further discussion, the Board unanimously concurred on lowering the LAIF level to 35%. Mr. Falconer advised that Staff would bring back the proposed changes at the May 14, 1997 meeting. MOTION - It was moved by Board Members Lewis/Osborne to continue the 1997/98 Investment Policy to the next Investment Advisory Board Meeting. Motion carried unanimously. C. Sweep Account Presentation - Damon Santos, Wells Fargo Bank In response to Board Member Osborne, Mr. Falconer advised that the hard dollar costs are for armored car service and the lock box service. Mr. Falconer advised that the City will need to decide to keep the sweep balance at $50,000 or zero. In response to Board Member Frame, Mr. Falconer advised that it's his opinion that the reason other Cities don't use the Sweep Account is because it's easier to use LAIF. 8 Investment Advisory Board April 9, 1997 Minutes Board Member Osborne advised that he would prefer the account, staying at a $50,000 balance. Banks have been known to make errors and by having a balance of zero, there is no room for errors. Vice Chairman Sales suggested leaving the balance up to Staff. Mr. Falconer advised that this will be taken to the City Council and he asked for a recommendation from the Investment Advisory Board. He further advised that the City will close the money market account and convert the checking aCcount to the sweep account with the U.S. Treasury. The City Council is always interested in how the Investment Advisory Board feels about issues. MOTION - It was moved by Board Members Lewis/Osborne to recommend that the City convert the checking account to a sweep account and close the money market account and use the U.S. Treasury Money Market fund as the sweep vehicle with the target balance of $50,000. Motion carried unanimously. VI CORRESPONDFNCE ANIn WRITTFN MATFRIAL A. Month End Cash Report - February 1997 and March 1997 In response to Vice Chairman Sales, Mr. Falconer advised that this report is prepared because Staff cannot get the Treasury Report completed due to the Month End. This reports give the Board the balances in a timely manner. In response to Vice Chairman Sales, Board Member Irwin advised that he has complimented Staff before for producing the report. He further advised that the report is very useful. B. Request for Proposals for Audit Services Mr. Falconer advised that the City Council wanted to retain the current auditors, Conrad and Associates and requested Staff to 'negotiate the contract. The Contract was successfully negotiated with Conrad and Associates and has been approved. Investment Advisory Board. April 9, 1997 Minutes C. Staff's Response to Board/Commissions Handbook Noted and Filed D. Pooled Money Investment Board Report - December 1996 Board Member Irwin questioned the "strips" on page 6 and the percentage rate for pooled loans on the LAIF report. Board Member Frame suggested that Mr. Falconer research the report and bring it back to the Board. E. CMTA Conference - April 14 - 18, Palm Springs, California Mr. Falconer advised that Board Member Brown and Board Member Irwin will be attending the conference. VII BOARD MEMBER ITEMS In response to Board Member Irwin, Mr. Falconer advised that during the course of the annual audit, the auditors will contact the custodian directly. Board Member Irwin requested a letter from the Auditors that states that they have examined the records of the custodian and they are satisfied that as of June 30th, 1997 the amount of securities is correct. Mr. Falconer advised that there is a footnote in the Financial Statements that states the balances. VIII ADJOURNMENT MOTION - It was moved by Board Members Lewis/Irwin to adjourn the meeting. Motion carried unanimously. 10