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1998 03 11 IAB Minutes INVESTMENT ADVISORY BOARD Meeting March 11, 1998 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 Vice Chairman Irwin, followed by the Pledge of Allegiance. PRESENT: Board Members Bulgrin, Frame, Lewis, Osborne and Vice Chairman Irwin ABSENT: Board Member Frame and Chairman Sales OTHER PRESENT: John Falconer, Finance Director and Debbie DeRenard, Secretary II CONFIRMATION OF AGENDA Mr. Falconer'added a historical trend report and replaced Page 3 'of the January 31, 1998 Treasury Report. III 'PUBLIC COMMFNT - None IV CONSFNT CAI FNnAR A. Approval of Minutes of Meeting for February 11, 1998 for the Investment Advisory Board. MOTION - It was moved by Board Members Osborne/Bulgrin to approve the minutes of February 11, 1998 as submitted. Motion carried unanimously. V BUSINESS SFSSlON A. Transmittal of Treasury Report for January, 1998. In response.to Board Member Osborne's question regarding the LAIF 19.05 percentage of Investable Surplus Funds, Mr. Falconer advised that on Page 8 - Reconciliation of Actual and Surplus Funds the 19.05 percentage can be found in the last column of Row 6. ! Investment Advisory Board March 11, 1998 Minutes In response to Board Member Osborne's question regarding interest rates for Ford Motor Credit, Mr. Falconer advised that the interest rate should read 5.31 percent, not 0.5310 percent as shown in the report. In response to Board Member Osborne, Mr. Falconer advised that on Page 7 - Cash Flow Analysis, the Projected Liquid Cash Balances is used for forecasting purposes only. He further advised that this balance represents the balance before investments. Vice Chairman Irwin suggested changing the name to reflect the purpose. Mr. Falconer advised that he would review and change the column description before the next Board meeting. MOTION - It was moved by Board Members Bulgrin/Brown to Review, Receive and File the Treasury Report dated January, 1998. Motion Carried Unanimously. " B. Fiscal Year 1998/99 Investment Policies Mr. Falconer advised as background, the Investment Advisory will meet with the City Attorney and City Manager in June. The changes will be forwarded to the City Council before June 30th, 1998 for next year's 1998/99 Investment Policy. He advised that on Page 10, of the policy, he added further restrictions requiring not more than $1 million dollars may be invested in any one entity at any time. He further advised that on Page 21, there is a changed in Custodial Services to Bank of New York due to the sale of Wells Fargo Bank. Vice Chair Irwin opened discussion on the Executive Summary, asking for additions/deletions/changes that the Board might have regarding the Investment Policy. In response to Board Member Osborne's question regarding Page 3, fourth paragraph, Mr. Falconer advised that this City has never dealt with the collateralization process. The City typically does not invest in CD's. Investment Advisory Board .March 11, 1998 Minutes Board Member Brown advised that when the financial institution takes public funds, it is noted on the Certificate of Deposit and states the collateralization, but the City would not receive anything on an updated basis. In response to Board Member Osborne, Board Member Brown advised that evidence of ownership would not necessarily be supplied to the City. Mr. Falconer advised that he would review the process of investing in CD's and bring it back to the Board. In response to Vice Chairman Irwin's question regarding the amount of bids that are required for commercial paper, Mr. Falconer advised that he requests 3 bids. He further advised that there is not a requirement for the number of bids, but for practical matters he tries to obtain 3 bids. Vice Chairman Irwin questioned if there was any reason not to add the number of bids required to the Executive Summary. Vice Chairman Irwin questioned paragraph 5, the following sentence: In addition, the City's investment in the State Local Agency Investment Fund LAIF is allowable as long as the average maturity does not exceed two years, unless specific approval is authorized by the City Council. He advised that he wasn't sure what was being referred to. Board Member' Bulgrin advised that its referring to the Portfolio. Board Member Osborne advised that on Page 5, Item 2 - Liquidity, the paragraph refers to the securities. He advised that he would like to re- word the sentence to read sufficient liquid fund. After further discussion by the Board, the sentence was changed to read as follows: This is accomplished by structuring the portfolio so that ~~~~~~.~~urki~ inatur~ c~curr~ with cash n~ Lo ,~ee'L ~tici~L~ Investment Advisory Board March 11, 1998 Minutes :: In response to Board Member Osborne, Mr. Falconer advised that the internal controls as stated in the Investment Policy, are part of the City's audit. He further advised that the City receives a Management Letter from the auditors at the completion of the audit regarding any concerns that they may have. Mr. Falconer advised that on Page 17 in the restrictions column - Prime Commercial Paper, he added the proposed change "$1,000,000. maximum per insurer". Vice Chairman Irwin advised that the LAIF maximum is at 35% and he recalled that Staff had said in the past they were working at reducing the LAIF percentage to 25% no later than the end of 1997. He further advised that the new Investment Policy should reflect a 25% maximum for LAIF. He further advised that he can no longer say that LAIF is a bad investment as it was four years ago, because over a period of time LAIF has restructured their balance sheet. He further added he still feels that the LAIF balance is too high and should be reduced. LAIF is still not subject to audits by one of the big six firms and is not overseen by the SEC or any other Federal Agency. The only oversight that it receives is by the State. LAIF still makes some investments that are contrary to the City's Investment Policy. He advised that the limited contacts that he has had with LAIF have been unsatisfactory. So for these reasons the City's investment percentage should be no more than 25%. Board Member Osborne advised that based on how the City has been holding its LAIF balances and percentages, the City has been lower than the 35% percent for the last 18 months. In response to Board Member Osborne, Mr. Falconer advised that rather than go on recollection on the LAIF percentages, he proposed having Staff bring back a month-to-month LAIF percentage worksheet. Board Member Osborne advised that the issue of the availability of liquid funds needed by the City and the safety that LAIF holds in its investments and the yield, he added that he feels 25% is too Iow. He further advised that a 25% percent LAIF maximum will put too much restriction on Staff. Investment Advisory Board March 11, 1998 Minutes Board Member Lewis advised that before a decision is made on the LAIF percentage, he would like Staff to bring a report back detailing where the LAIF balances have been percentage wise for the last eighteen months. This will give the Board a feel for how Staff has handled LAIF. He further advised that 35% might be a little high for what the City'is trying to accomplish. Board Member Bulgrin advised that his concern is liquidity. In response to Vice Chairman Irwin, Board Member Bulgrin advised that the liquidity with T-bills depends on the market at the time of sale. He further advised that LAIF gives you reasonable return within reasonable time. Vice Chairman Irwin advised that he views the T-bills in the City's portfolio as the same thing as cash. Mr. Falconer advised that T-bills are classified as available surplus funds. He further advised that the City has never had a situation where they could not get their funds from LAIF. The City has never had to break a T-bill early. Board Member Bulgrin advised moving from 35% to 25% would take away the flexibility. Mr. Falconer advised that as a practical matter, Staff is trying to keep the percentage for LAIF Iow. He advised that on Page 5 of the Treasurers' Report the pooled cash balances have decreased. He further advised that if the percentage of LAIF was to be reduced from 35% to 25% the City would need to search for another investment vehicle that would provide same day liquidity such as a money market fund or treasury bills. In response to Vice Chairman Irwin, Mr. Falconer advised that the money market percentage limit is 20% and the City is currently at 7%. '5 Investment Advisory Board March 11, 1998 Minutes In response to Vice Chairman Irwin's questions regarding why the City would feel the need to find a new investment vehicle for liquidity purposes, Mr. Falconer advised that money market mutual funds provides a professional investment. He further advised that the City does not have the Staff to do the daily trading that is required by some investments. Board Member Osborne advised that in viewing the previous Treasurer Reports, there have only been two (2) months out of the last 18 months that the City has been over the 30% LAIF percentage.. He further advised that this would be due to the investing in other vehicles. The Board has been reluctant to invest in commercial paper, and by lowering the LAIF percentage, they will be investing in commercial paper. The priority is safety, liquidity and yield. Vice Chairman Irwin advised that the reason he has focused on reducing LAIF to 25% is because that is what Staff had told the Board they were going to do almost two years ago. Mr. Falconer advised that there might be a disagreement regarding the 25%. He advised that he doesn't want to speak for anyone, however he believed that it was Staff's intention to move as a practical matter towards a reduction of 25%. He doesn't feel it was Staff's intent to actually reduce the rate to 25% by certain date. Vice Chairman Irwin advised that he remembers representations made at one point regarding the reduction. Board Member Brown advised that its important that the Investment Advisory Board not try to micro-manage the investments. She further advised that she is looking forward to the 12-18 months review.of LAIF percentages. Board Member Bulgrin advised that his only concern is a period of twelve months, he further advised that he would like to know Staff's feelings regarding the reduction. MOTION - It was moved by Board Members Brown/Bulgrin to continue the Fiscal 1998/99 Investment Policies. Motion carried unanimously. Investment Advisory Board March 11, 1998 Minutes C. CMTA Conference - April 22 - 24, 1998, Sacramento, California Mr. Falconer advised that when Board Member Lewis and Osborne attended the CMTA conference in Monterey two years ago, they were the only Board Members in the State that attended the conference. The City has recognized the important of Board Members attending the conference. This year it is budgeted for two Board Members and one Staff member attend the conference. Board Member Lewis and Brown advised that they would not be able to attend. Board Member Bulgrin and Osborne advised that they might be able to attend. Mr. Falconer advised that the reason staff is bringing this before the Board early is to get the early registration and a time slot reserved. Vice Chairman Irwin advised that he has a conflict and would not be able to attend. MOTION - It was moved by Board Members Lewis/Brown to appoint Board Members Bulgrin and Osborne to attend the CMTA Conference in Sacramento on April 22 - 24, 1998. In the event that one cannot attend, authorize Staff to call and poll the other Board Members. Motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - February, 1998 Noted and Filed. B. Pooled Money Investment Board Reports - December 1997 Noted and Filed. Investment Advisory Board March 11, 1998 Minutes VII BOARD MEMBER ITEMS In response to Board Member Osborne, Mr. Falconer advised that each Board Member will receive a copy of the City Council minutes from the March 10, 1998 Joint meeting. VIII ADJOURNMENT MOTION - It was moved by Board Members Lewis/Brown to adjourn the meeting at 6:2§ P.M. Motion carried unanimously.