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2001 10 10 IAB Minutes INVESTMENT ADVISORY BOARD Meeting October 10, 2001 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 Mahfoud followed by the Pledge of Allegiance. PRESENT: Board Members Lewis, Olander, Chairman Mahfoud, Osborne, Moulin and Felice (via videoconference) ABSENT: Board Member Mitchell OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Secretary II PUBLIC COMMENTS - none III CONFIRMATION OF AGENDA At the request of Board Member Lewis, Mr. Falconer presented page 2 of the June LAIF Report, to be discussed under Item VI - B. Based on a conversation with Board Member Moulin, Mr. Falconer presented a revised page 007 of the Treasurer's report, which will be discussed under Item V-A. IV CONSENT CALENDAR 1. Approval of Minutes of Meeting on September 12, 2001 for the Investment Advisory Board. MOTION - It was moved by Board Member Lewis/Moulin to approve the Minutes of September 12, 2001. Motion carried unanimously. Investment Advisory Board October 10, 2001 Minutes V BUSINESS SESSION A. Transmittal of Treasury Report for August, 2001 Board Member Lewis advised that because the City no longer uses a percentage of investments for the various government agency investments (GSE's), he suggested making a change to Page 3, of the Treasurer's Report, in the column listed under "Authorized Investments and Diversification." Board Member Lewis further suggested that Mr. Falconer change the title to read All Funds Actual Percentage or Dollars, and list the dollar amounts of the particular agencies. Mr. Falconer concurred and suggested adding another column to reflect all funds actual and include the dollar amounts next to the column with the percentages at 100% as a double check. Mr. Falconer advised the Board of the revision on page 007. Mr. Falconer advised that listed under Fiscal Agent Investments rather than one block of information, with the new revision it would consist of two blocks. The revision reflects the $34 million of Treasury Notes that were purchased for the bond proceeds on the recent bond issue, which was reflected in the total but not the detail. Vice Chairman Moulin advised that the changes in bond proceeds from the beginning of the month to the end of the month, and how it was being explained, are reflected on the cash flow page on page 008. In response to Board Member Lewis, Mr. Falconer advised that of the $46 million that was spent, three weeks later, in accordance with the agreement with the County, a wire was sent for $8.6 million to the County to pay-off a Pass Through Agreement. Mr. Falconer advised the Board that we are required by the IRS to spend the money within three years or obligate the money for five years, per the tax-exempt laws. In response to Board Member Lewis, Mr. Falconer advised the Board the timing was right and the Redevelopment Agency had the bond capacity to raise the funds and went to market. Board Member Lewis asked what rate was being paid on the bonds, Mr. Falconer advised that the net interest rate is approximately 5.1%. In response to Board Member Lewis, Mr. Falconer advised that we had two ratings: the stand-alone Investment Advisory Board October 10, 2001 Minutes rating, without insurance, was an "A" rating: however, insurance was purchased, along with a Surety Bond, therefore the rating was a triple "A" rating. Chairman Mahfoud asked who the underwriter was. Mr. Falconer advised he would get back to the Board as to who the underwriter was. (Wedbush Morgan Securities, San Diego, California) Chairman Mahfoud asked if the City was making any changes in projected revenue growth and budget due to a possible slow down? Mr. Falconer advised the Board that he could speak in general terms, and Mr. Falconer advised that he modified the revenue report to reflect revenues for this year versus last year. For the months of July and August, the City revenues are at their projections, if not a little bit ahead. September was good for building permits, but T.O.T. Tax will be down around 50% for the month. Mr. Falconer advised that he believes that there will be a rebound in the economy next year and in terms of the City's budget, the City will meet its projections for this year. Vice Chairman Moulin advised that Mr. Falconer will continue to go into shorter maturities. The $34 million was placed in Treasury Notes, with a three-month maturity. Mr. Falconer advised the Board that he remains very cautious due to the current market. Mr. Falconer advised the Board that he currently does not have any investments in Sally Mae due to the unavailability of inventory. Vice Chairman Moulin stated that the yields were not much different between the Treasury Notes and the GSE's. MOTION - It was moved by Board Member Lewis/Olander to review, receive and file the Treasurers Reports for August 2001 as amended. Motion carried unanimously. B. Consideration of Changes in Investment Policies Mr. Falconer advised the Board, the three items listed were an outcome of the meeting with the Council on September 25th. Vice Chairman Moulin advised that Staff is asking to lift the limitations on the $6 million dollars previously agreed upon by the Treasurer and the City Manager. Vice Chairman Moulin also advised that a larger number Investment Advisory Board October 10, 2001 Minutes will be required, and the question to the Board would be whether or not a limit would be needed. Mr. Falconer advised that there are generally two funds - the pooled funds under the direct control of the Treasurer and fiscal agent funds under the control of U.S. Bank. The fiscal agent funds have no wire limitation. For instance when the Treasurer called U.S. Bank and instructed them to purchase $34 million in U.S. Treasuries, they transferred the funds with no limitation. For pooled funds the Treasurer tries to roll investments over as they mature and remit only the difference, if any. However, there have been instances where an investment matured and was not rolled over and the City received the entire amount back. Mr. Falconer continued that the City has received a T-Note of $10 million and it would take two days to reinvest the funds $6 million one day and $4 million the next. In addition, the possibility exists that with only one person able to verify a wire, these or any other wire could not be processed if the verifier was unavailable. In response to Board Member Lewis, Mr. Falconer stated that wires only come into play with the pooled funds under the direct control of the Treasurer. In response to Board Member Lewis, Mr. Falconer stated that the bond proceeds are in the custody of U.S. Bank. Board Member Lewis asked for clarification, if a $10 million bond was purchased, even though Wells Fargo delivered a $10 million bond, Wells Fargo would not deliver out the $10 million due to the 86 million dollar limit? Mr. Falconer replied that Wells Fargo does not deliver out the bond, and clarified that Wells Fargo was not our broker, and his limit was $6 million per day. Vice Chairman Moulin asked Mr. Falconer if the bank agreement specifies a limit or specifies no limit? Mr. Falconer replied that it specifies the City specify a limit or no dollar amount on wires. Vice Chairman Moulin asked who was authorized to make these wire requests? Mr. Falconer replied that when securities are purchased, the City Manager or designee's approval is needed, regarding the type and the amount that the Treasurer chooses to purchase. Mr. Falconer advised the Board that upon his arrival in the morning he calls and the bids are received. Mr. Falconer chooses the investment he wants to purchase that day, than Mr. Falconer instructs the broker to deliver the security to the Bank of New York, which is the City's Trustee. The Bank of New York is faxed a form notifying them to expect the security to be delivered 4 Investment Advisory Board October 10, 2001 Minutes with the CVSIP number and the dollar amount, along with instructions with either same day or next day settlement. A wire is prepared and initiated by either the Treasurer or City Manager. The wire is then verified, with only one person in the City who verifies the wire, which is the Accounting Manager. The AccOunting Manager verifies that the trade ticket information agrees with the wire based on information prepared by Mr. Falconer. Upon verification, either the Treasurer or the City Manager sends the wire. Chairman Mahfoud asked that by adding one more person to verify would there be room for error? Mr. Falconer replied that by adding an alternate person, (Assistant City Manager) this would allow him to make that day's transaction, in the event the Accounting Manager was out of the office. Mr. Falconer advised the Board that there is a three-step process: initiate, verify and send. Mr. Falconer can initiate the wire; the Accounting Manager verifies the wire and than Mr. Falconer sends the wire. The money is wired to Bank of New York and Bank of New York than emails Mr. Falconer informing him that the money is received. A journal entry is then made to book the transaction into the City's accounting system. The City's Financial Services Assistant prepares a fax to the Bank of New York. Board Member Osborne advised the Board of his concern of having no limit on a wire, and the same person sending the wire and receiving email confirmation and would recommend the Financial Service Assistant be an additional wire verifier. Mr. Falconer advised that he could instruct the bank to change the email for verification to the verifier. Board Member Lewis advised that he would like to see a change in internal controls prior to changing the limit of the wire. Mr. Falconer advised the Board that due to the recent events he would like to expand the number of brokers at the three broker/dealers. Mr. Falconer continued that at two of the three broker/dealers only one broker has been approved. Board Member Osborne recommended Diane Valenzuela from our Merrill Lynch broker/dealer in Indian Wells. Mr. Falconer stated that he had intended to ask Fred Sandoval of Merrill Lynch for his recommendations. Mr. Falconer stated the City has a prescribed process on bringing on new brokers, which would come before the Investment Board prior to Council consideration Mr. Falconer recommended three brokers per broker/dealer. Investment Advisory Board October 10, 2001 Minutes MOTION - It was moved by Lewis/Olander to recommend the changes as discussed. Motion carried unanimously. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End CaSh Report - September 2001 Mr. Falconer advised the Board that he currently has not been making any investments in Commercial Paper due to the current situation in America. In response to Chairman Mahfoud, Mr. Falconer advised that the City will have some investments due at the end of October and a large maturity at the end of November. Noted and Filed. B. Pooled Money Investment Board Reports - July 2001 Board Member Lewis advised the Board that he requested page 2 of the June LAIF Report to be distributed. In the July report, year-to-date yield, last day of the month, it went from June of 2001 at 6.1% to July 2001 at 4.6%. The June report went from May of 2001 at 6.2% to June 2001 at 6.1%. Board Member Lewis advised the Board that this was a substantial drop in the July report. Mr. Falconer advised that it was possible the drop in percentage was due to a fiscal year end as to compared to a month end report. Noted and Filed. VII BOARD MEMBER ITEMS Board Member Lewis asked Mr. Falconer if the Minutes from the joint meeting with the City Council were going to be distributed for approval. Mr. Falconer responded that the Minutes will go to the City Council for approval and will be included in the next Investment Advisory Board Agenda packet upon Council's approval. Investment Advisory Board October 10, 2001 Minutes VIII ADJOURNMENT MOTION - It was moved by Chairman Mahfoud/Lewis to adjourn the meeting at 6:20 p.m. Motion carried unanimously. Vianka Orrantia Secretary