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2000 05 10 IAB Minutes INVESTMENT ADVISORY BOARD Meeting May 10, 2000 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 Chairperson Osborne, followed by the Pledge of Allegiance. PRESENT: Board Members Bulgrin, Irwin, Lewis, Mahfoud, Moulin, and Chairman Osborne ABSENT: Board Member olander OTHERS PRESENT: John Falconer, Finance Director and Debbie DeRenard, Secretary II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA Board Member Moulin requested that Correspondence and Written Material Item C be moved and included with Business Session Item B. Board Approved. IV CONSENT CALENDAR A. Approval of Minutes of Meeting on April 12, 2000 for the Investment AdVisory Board. Board Member Irwin advised that the meeting last month was long and active and a lot of ground was covered. He stated that much of the ground that was covered - agreements and disagreements were not reflected in the minutes. He advised that the Board may recall that last month there was a strong recommendation from Staff regarding LAIF. He advised that at that time he asked whether Staff fully had a chance to review the tapes from the meeting and he was told they had not, but that they read the minutes every month. He advised that you do not get anything from the minutes, they do not contain the tenor of the conversation or the tenor of the Boards thoughts. He stated that he can no longer support this type of minutes. Investment Advisory Board May 10, 2000 Minutes Board Member Moulin advised that he spoke with the Mayor at a social event advising that the Mayor questioned what the Board was doing about LAIF. He advised that he informed the Mayor that Staff had recommended reducing the limit on the investment in LAIF. He further advised him of the tentative recommendations made at the meeting. The Mayor seemed to be aware of LAIF and expressed concerns that he had regarding the character of the investments under LAIF. Board Member Irwin advised that the minutes are the only form of communication the Board has with the City Council. Ms. DeRenard advised that some of the Council Members request and receive a copy of the meeting tapes. Board Member Bulgrin advised that some of them listen to the tapes. Chairman Osborne advised that Board Member Irwin is referring to the lack of information in the minutes. Board Member Moulin advised that due to the way the Board is handling the policy, no vote is taken after each meeting. He advised that if the Board took a tentative vote from the actual members present on certain percentages, the tenor of the discussion regarding the way the Board is going will not be in the minutes. Board Member Irwin advised that the subsequent points discussed each month should be summarized in the minutes and not like they were presented at this meeting. In response to Board Member Irwin, Mr. Falconer advised that Staff values all of the Board Members comments and tries to accommodate the Board. Board Member Moulin advised that he is not sure how the.rest of the Board feels about this, but on the subject of LAIF it would have been well to have an indication the Board Members had an extensive discussion on the changing nature of the LAIF investments and the possible additional risk involved and decreasing the limitations when the Investment Policy is adopted. Investment Advisory Board May 10, 2000 Minutes Board Member Lewis advised that more of a narrative minutes rather than motion type minutes. Board Member Irwin agreed. Board Member Moulin advised that Board Member Irwin's work in this area was lost. Mr. Falconer advised that he could summarize the Board's feelings from last meeting regarding the limitation in LAIF: Board Member Olander- 20%, Board Member Irwin - 15 %, Board Member Moulin - 20%, Chairman Osborne - 20%, and Board Member Lewis - 15 - 20%. Board Members Mahfoud and Bulgrin were not in attendance. He further advised that this was the substance of the entire meeting and the minutes could be changed to reflect those feelings. Chairman Osborne advised that LAIF is a tough area and there is a lot of reasons behind the views of each Board Member and a Council Member or a Board Member that had been absent from the meeting could not read the minutes and know what the views of each Board Member. Board Member Moulin advised that staff does not need to do a "blow by blow" of the meeting - but a consensus of the items would help. Board Member Irwin advised that he raised the point because the minutes as they were submitted in the present form were incomplete. Board Member Bulgrin advised that the Board should stay on the subject of the minutes for public agencies. He advised that there is a typical protocol in public agencies that you keep minutes brief, concise and to those points that are voted on and you do not carry all the discussion. This is the way it's done in public agencies. Investment Advisory Board May 10, 2000 Minutes Board Member Irwin advised that the Board doesn't necessarily have to follow this protocol. Board Member Bulgrin advised that the Board doesn't have to follow the protocol, but other agencies do follow it and his feelings are that discussions are more free flowing if not recorded. He further advised that having had several public agencies under him at one time, he appreciated having minutes that were action minutes. Board Member Lewis advised that part of the risk is that the Board is asking Staff to try and summarize a conversation and you run the risk of having them summarized incorrectly. Board Member Irwin advised that the Board Secretary has the tape to prepare the minutes, Mr. Falconer reviews the minutes and then they are reviewed by the Board for approval. Board Member Bulgrin advised that if the Board makes a motion to move in a certain direction then that's eventually recorded. Board Member Irwin advised that he reads the minutes of the City Council and they have more information in their minutes. Board Member Mahfoud requested a copy of the tape from the April 12th, 2000 meeting. MOTION -It was moved by Board Members Lewis/Moulin to approve the Minutes of April 12, 2000. Motion carried with Board Member Irwin voting NO. In response to Mr. Falconer, Chairman Osborne advised that the Board would like a little bit more detailed minutes such as the outcome of the LA I F vote. Investment Advisory Board May 10, 2000 Minutes V BUSINESS SESSION A. Transmittal of Treasury Report for March 2000 In response to Chairman Osborne, Mr. Falconer advised that on Page 6 the $500,000 investment was from the bond proceeds for the Civic Center Campus improvements. He advised that he spoke with the Public Works Department regarding the project and was informed that the project has been on hold and Staff was able to invest the proceeds through September 21st, 2000. He further advised that the other investment of 5 million was a roll-over of a matured investment as noted at the bottom of Page 6 of the Treasurers Report. He advised that he will invest in commercial paper this month when the second property tax levy is received. The City should receive their distribution the third week in May. Chairman Osborne advised that Staff will have to use the guidelines of the 1999/2000 Investment Policy. In reSponse to Board Member Lewis, Mr. Falconer advised that the new Investment Policy will take effect July 1, 2000. MOTION - It was moved by Board Members Lewis/Irwin to review, receive and file the Treasurers Report for MarCh 2000. Motion carried unanimously. B. Consideration of Fiscal Year 2000/01 Investment. Policy In response to Chairman Osborne, Board Member Moulin advised that the Board may recall as background that he dissented from the approval of the Investment Policy last year, not because he didn't like the thrust of it, the Board made a lot of changes that were beneficial including breaking down the government areas. At that time he pointed out the risk regarding "Fannie Mae and Freddie Mac" further advising that this discussiOn has been ongoing. He advised that he thought the comments in the article from the Wall Street Journal (Written and Correspondence Item C) would be interesting to the Board. He advised that he doesn't have as strong as feelings as he did last year, because the Board has Investment Advisory Board May 10, 2000 Minutes made positive steps, but he favors more of a risk based emphasis to the investments and he would like to see no limitation on U.S. Treasury investments. U.S. Treasury investments are riskless. He advised that he would be inclined to recommend that the investments in GSE's - non guaranteed by the federal government be lowered. Board Member Irwin suggested revisiting the bottom of page 9, top of page 10. Chairman Osborne suggested going through the investment policy and the tentative changes in order. In response to Board Member Lewis, Mr. Falconer advised that he spoke with the City Manager prior to the last meeting and it was suggested that Staff could manage by reducing LAIF from 35% to 25% in order to diversify the portfolio. Board Member Irwin advised that he had a discussion with the City Manager regarding the LAIF percentages. He advised that he approached the City Manager because he felt that he was a player. He further advised that he had the perception that Staff was drawing a line in the sand and that may have been a bad perception on his part. The City Manager advised him that Staff was not drawing a line in the sand and that they did make a recommendation, but that Staff would go along with any percentage that the Board came up with for LAIF. Board Member Lewis advised that he has the same opinion as last month to a certain extent and would like to see the LAIF percentages at 15%, maybe 20%, but if it was 25% he would find that a totally unacceptable percentage. He stated he does not like the direction that LAIF is going with their investment philosophy. Discussion continued with Board Member Irwin and Lewis discussing collaterized investments and their experience with other entities. Board Member Bulgrin suggested that each Board Member set the percentage that they would like to see for LAIF. Investment Advisory Board May 10, 2000 Minutes Board Member Irwin advised that he feels very strongly with a 15% limitation with LAIF. Last month the Board discussed reducing the overall balance from 10% to 5% - right there this fixes it. With the other changes that are being made to the policy and the City's reduced reliance on LAIF, the first 30 to 60 days after the change might be difficult, but after the first period it will not be that much of a burden. Board Member Bulgrin advised that he supports Staff. He advised that he doesn't support LAIF, but he supports the needs of what Staff needs to operate the City. Board Member Moulin advised that Staff came back last month with an initial recommendation of 25% limitation in LAIF. The Board discussed this at length and came up with a consensus of 20% with Board Members Lewis and Irwin leaning towards 15%. Board Member Bulgrin advised that LAIF isn't as secure as other investments, but it offers a lot of liquidity and there is a lot of money flowing through and as long as you don't invest long term money into LAIF he feels it's not a bad option for a City Treasurer. Board Member Irwin stated that he is trying to change the City policy regarding LAIF. Board Member Mahfoud advised that he is comfortable with 20%. In response to Board Member Mahfoud, Mr. Falconer advised that in the event the LAIF limit is lowered he would invest in commercial paper and money market mutual funds. In terms of every day - next day funds, Staff will need to rely on LAIF. In response to Board Member Mahfoud, Board Member Lewis advised that LAIF is not chasing yields and he further gave an example where LAIF had invested with a small bank and only received a yield of 5.83%. Investment Advisory Board May 10, 2000 Minutes Board Member Bulgrin advised that LAIF's purpose is to provide safety and liquidity to municipal investments with reasonable yields. Politically some Treasurers chase yields. Board Member Lewis advised that the problem with LAIF is that it's always subject to the whims of the current elected administration. Board Member Irwin advised that he has been on the Board six years and each year when the Board reviews the policy, LAIF has been the primary issue. LAIF is not going to go away. He then gave an example of when he worked for the County in 1992-93-94 with LAIF and their financials. This Board has discussed the LAIF issue for a number of years and approximately two years ago there was a movement to reduce LAIF and finally.someone said it should be at 35% and others felt it should be lower. It was agreed upon that the limit on LAIF would be 35% but the City would have a goal of managing down to 25% and to Staffs credit they did. He further advised that 5 months ago LAIF was at 27% and he questioned Staff about the percentage. Staff has done a good job with meeting the commitment. Last month some of the Board Member felt that the City could get along at a 15'% level. He further questioned if it would make any sense to set the LAIF limit at 20% of the policy and ask Staff to manage.down to a 15% level over the next year. Mr. Falconer advised that this would be his preference. He further advised that the City will have some bond issues coming up later in the year. Board Member Irwin suggested an informal motion with the Board, if the limit of LAIF would be set at 20% a commitment from Staff to manage down to 15% in the next twelve months. Board Member Moulin advised that this is very reasonable. He further advised that he would like to give staff the flexibility when there is the need and Staff should not be criticized if the LAIF limit exceeds 15%. Investment Advisory Board May 10, 2000 Minutes In response to Board Member Mahfoud, Mr. Falconer advised that LAIF is liquid. If you notify LAIF before 10:00 am, funds can be received the same afternoon. Chairman Osborne advised that we have a consensus that LAIF is lowered to 20% with a commitment from Staff to work towards 15%. Board Member Moulin advised that the exposure with LAIF and the City will continue to grow because the portfolio grows. Discussion continue to page 9 regarding U.S. Treasuries limit of 75%. Board Member Moulin advised that he. is comfortable with raising the limit to 100% for U.S. Treasuries. He further advised that he would change the last sentence to read "allows investment in U.S. Treasuries" instead of "limits investments in U.S. Treasuries". He advised that there is nothing more safe than U.S. Treasuries. Chairman Osborne disagreed advising that U.S. Treasuries aren't as safe when you add in liquidity. Board Member Moulin advised that this is a separate issue, liquidity, only deals with maturity. Board Member Lewis advised that one of the reasons behind the limitation percentage is the Policy does not look at it as a separate issue, its viewed as a integrated portfolio. Board Member Moulin advised that on the top of page ten, the first two paragraphs, he would like to see the percentages lowered from 75% to 60% and 25% to 20% for GSE's. He further advised that these would have the same arguments as the LAIF issue. He advised that he does not want to see the City investing in any one uninsured issuer. In response to Chairman Osborne, Mr. Falconer advised that on page 4 of the Treasurers Report it indicates that we have 10 million in Fannie Mae and 8 million in Home Loan Bank. These percentage equal 30% of surplus. Investment Advisory Board May 10, 2000 Minutes Board Member Irwin advised that Moody's the credit reporting agency continues to endorse GSE's. S & P have pulled their rating on GSE's. Board Member Lewis advised that he does not agree with lowering the percentages, but he would not vote against the policy as a whole. Board Member Irwin advised that he is uncomfortable with a large percentage in any one single name. He further advised that these are special organizations and not to be dealt with quickly. Board Member Bulgrin advised that he concurs with Board Member Lewis and further advised that he thought the Board was beginning to micro- manage the City. Chairman Osborne suggested that the Board watch the GSE's and report back during next years policy review. The Board concurred on changing commercial paper to maximum maturity of 90 days, a 2 million dollar limit in any one entity and adding the following sentence to the end of the paragraph: The City of La Quinta follows state code with the following two (2) restrictions of a maximum maturity per issue of 90 days and 2 million per issuer. The Board concurred on the changes on page 11. Mr. Falconer questioned page 12 - Sweep Accounts - advising that the Board had spoke in the past regarding adding U.S. Agency Securities to the Sweep Account. The Board concurred adding U.S. Agency Security to the Sweep Accounts. In response to Board Member Moulin, Chairman Osborne advised that at the planning stages of the sweep account, the bank advised that we could have a zero balance or $50,000 balance. He advised that he suggested having a $50,000 balance in case a vendor called to verify funds on a check and the teller was not aware of the sweep account and indicated to the vendor that there was zero balance in the account. 10 Investment Advisory Board May 10, 2000 Minutes Board Member Moulin advised of minor typo changes on page 17, second paragraph and 19, third paragraph. MOTION - It was moved by Board Members Lewis/Irwin to make the recommendations to the 2000/2001 Investment Policy, subject to review with the City Manager and City Attorney for their review and comment at the June 2000 Investment Advisory Board. Motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report -April 2000 Noted and Filed. B. Pooled Money Investment Board Reports - February 2000 Noted and Filed. VII BOARD MEMBER ITEMS Chairman Osborne advised that he will not be in attendance at the June 2000 meeting. Board Member Lewis spoke regarding LAIF investments that are not shown in the Pool Money Investment Report. Chairman Osborne requested the Investment Advisory Board Agenda to be distributed before June 2nd, 2000 SO that he could review before the meeting. Mr. Falconer reminded the Board that the meeting date has been changed from June 14, 2000 to June 7, 2000. 11 Investment Advisory Board May 10, 2000 Minutes VIII ADJOURNMENT MOTION - It was moved by Board Members Lewis/Moulin adjourn the meeting at 6:45 p.m. Motion carried unanimously. Submitted by, Debbie DeRenard Secretary 12