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2002 04 10 IAB Minutes INVESTMENT ADVISORY BOARD Meeting April 10, 2002 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 Moulin, Olander, Lewis, Felice and Chairman Mahfoud ABSENT: Board Member Osborne OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Secretary II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA Mr. Falconer informed the Board that Board Members Lewis and Moulin submitted two items for discussion related to the investment policy. Mr. Falconer also advised the Board on behalf of the City Clerk's office, as a general reminder any Board Member that has not submitted their Form 700 needs to do so as soon as possible. IV CONSENT CALENDAR 1. Approval of Minutes of Meeting on March 13, 2002 for the Investment Advisory Board. MOTION - It was moved by Board Members Lewis/Olander to approve the Minutes of March 13, 2002. Motion carried unanimously. V. BUSINESS SESSION A. Transmittal of Treasury Report for February 2002. Investment Advisory Board March 13, 2002 Minutes In response to Board Member Moulin, Mr. Falconer advised the Board that the upcoming investments due in May will be rolled over into U.S. Treasuries and he will reinvest in GSE's as they mature. Mr. Falconer informed the Board that the Principal Financial common stock has been sold and the proceeds have been deposited into the general fund; the proceeds received totaled $461,000 (approximately $25.50 a share). In response to Board Member Lewis, Mr. Falconer advised the Board that the amount received was parenthetically noted in the Treasurer's Report. Mr. Falconer informed the Board that he is no longer purchasing commercial paper and has been relying on LAIF for short-term investment needs. MOTION - It was moved by Board Members Lewis/Olander to review, receive and file the Treasurer's Report for February 2002. Motion carried unanimously. B. Consideration of Fiscal Year 2002103 Investment Policy Board Member Lewis briefly summarized the article (handout) that was obtained from Merrill Lynch, using Treasuries in longer maturities. Board Member Moulin reviewed the language that was submitted to the Board for review. The language emphasizes the hold-to-maturity concept and allows us to sell when the credit worthiness of the issuer or the backer deteriorates. Board Member Moulin also reviewed the language on the second page, which is the suggested substitution language for the limitation to U.S. Treasury Bills, Notes and Bonds. Board Member Moulin also suggested that the language could be placed in a new section labeled "Maximum Maturities," or "Maturities" or it could be placed under the section of "Liquidity." Mr. Falconer clarified for the Board, the referencing of the City Council; the Investment Policies were draft policies with the assumption they would be adopted in June by the City Council and go into affect July 1 st When the City Council was mentioned, this was a statement brought forward from the previous sentence, which ended "the specific approval 2 Investment Advisory Board March 13, 2002 Minutes is authorized by the City Council," which carried to the next sentence, which stated "the City Council has authorized up to." Mr. Falconer also advised that the City has not invested in Ginny Maes; it is mentioned due to the fact that it is a permitted investment and it could be invested up to 100% of the City's portfolio: As a practical matter the City has not invested in them to date. Board Member Moulin advised the Board that on page 2, the fourth paragraph, the second line, diversified portfolio should be bolded. Mr. Falconer advised the Board that on page 3, referencing back to Board Member Moulin's handout and the attempt at raising the investment between two and five years, the decision would be between either one, or a combination of the two. Mr. Falconer stated that it would be up to the Council as to what is decided. Board Member Lewis advised the Board that he was not comfortable with specifying a dollar amount as part of the investment policy. Board Member Lewis suggested to the Board that in the policy, the Treasurer could review either on an annual, semi-annual or a quarterly basis. Mr. Falconer advised the Board that the Council reviews the policy on an annual basis. Board Member Lewis advised that it wasn't the Council necessarily that would review the policy. Board Member Moulin suggested to the Board that the City give a blanket authority to the Treasurer with the approval from the Investment Advisory Board, (dollar amount to be determined), to be reviewed quarterly. Board Member Moulin also stated to the Board that he felt the City Council would want a specific dollar amount for approval for investing for more than two years. Mr. Falconer advised the Board from staff's perspective that if there is a specific dollar amount in the policy, that places the responsibility on the Treasurer. Mr. Falconer also advised that if the cash flow increases then the Board can request a change to the policy. In response to Board Member Olander, Mr. Falconer stated that he was comfortable with the policy stating "up to $10 million," for this year. Board Member Moulin referred back to the second page of his handout, as a comparison to Mr. Falconer's suggestion, which states "may be invested between two and five years," Board Member Moulin suggested that it reads "maturing and not more than five years." Board Member Lewis agreed. Mr. Falconer advised the Board that what he was trying to say was the $10 million would be between two in five years. Board Investment Advisory Board March 13, 2002 Minutes Member Moulin suggested that it could read "not more than two to five years," and that the word "maturing" was important. Board Member Lewis suggested that on page three, it read "regardless of other limitations that the City Council has authorized up to $10 million," so that it somehow points out that the $10 million is the exception to the rule. Mr. Falconer reread to the Board the suggestions made to page nine, "the City of La Quinta Investment Policy has specified that no investment may exceed two years, except that up to ~ 10 million may be invested in U.S. Treasury Bills, Notes and Bonds, maturing between two and five years. Board Member Lewis reconfirmed that the "Ginny Mae's" would be taken out. Chairman Mahfoud shared his concerns with the Board regarding where the ~10 million derived from. He felt that clarification was needed somewhere in the policy so that a third party could see where it was derived from. Board Member Lewis suggested a paragraph stating "each year before the adoption of policy the Treasurer shall identify those monies that can be invested over a two year time period, such number to be incorporated into the policy." It was suggested by Board Member Moulin, that Mr. Falconer place the paragraph where he feels it would fit. Mr. Falconer advised the Board that he was considering having it under a separate section, as an example, "Section 1 9," and referencing it in the Executive Summary. Board Member Moulin concurred. Mr. Falconer asked the Board for clarification about moving the yield references, and how he recalled that there was a previous board discussion about placing it in the yield section. Board Member Lewis stated that it is not a separate objective and where it was placed was the most appropriate. Mr. Falconer stated that it may be better placed under the "Liquidity" section. Board Member Lewis stated that maybe it should be placed under liquidity, due to the fact that it states, "hold to maturity," which is part of the liquidity process. Mr. Falconer re- clarified the section that would be placed under liquidity, which begins "securities underlined," shall not be sold prior to maturity. Chairman Mahfoud asked the Board, referencing back to page 5, if there are other risks that also need to be identified other than the 4 Investment Advisory Board March 13, 2002 Minutes current credit and interest rate risk? Board Member Lewis stated that there are other risks, but felt that the policy covered the primary risks involved. Mr. Falconer clarified for the board that on page 9, the underlined statement was for emphasis. Referencing page 10, Mr. Falconer also advised the Board that the State code now allows up to a maximum of $40 million. In response to Board Member Lewis, Mr. Falconer clarified that Fannie Mae and Freddie Mac are publicly traded and had a little more oversight of being SEC regulated, whereas some of the other GSE's weren't. That is why there is a distinction between the $5 million and $3 million. Board Member Moulin suggested boosting the amount of Fannie Mae and Freddie Mac above $5 million, somewhere between $5 million and $10 million. Board Member Moulin advised the Board that Mr. Falconer is already purchasing $5 million in pieces of paper, which maximizes out his purchase in these investments. Board Member Moulin stated that he feels very comfortable raising the amount to $10 million. Board Member Olander advised the Board that he was not comfortable with that amount, in the event of a failure of an institution it would place the City in a crisis. Board Member Moulin advised the Board that the City Council has expressed their concerns in increasing LAIF, so where do you place the money? Board Member Moulin feels that a banking institution (Federal Agency) is a lot more solid credit wise than commercial paper. Mr. Falconer advised the Board that when he looks at investments, he looks at LAIF and commercial paper as short investments, and the long- term investments are Treasuries and GSE's. Mr. Falconer also advised the Board that if we were to limit GSE's the money would be placed into Treasuries. If the GSE's were increased, Mr. Falconer would take a small amount from the Treasuries to pick (as an example) up the 10 basis points. Discussion continued regarding commercial paper and GSE's, and the future of investments and the economy. Board Member Lewis stated that he wanted to clarify that he was not suggesting raising the limit on all GSE's, but was suggesting raising the limit on the regular agencies. Mr. Falconer stated that he wanted to clarify why he wanted to 5 Investment Advisory Board March 13, 2002 Minutes recommend increasing commercial paper from 52 to 53 million. The increase was to invest in more quality issurers such as General Electric do to his belief in the deteriorating quality of paper available and used the fact that he would have preferred to invest an additional $1 million in GE rather than Colgate. In order to invest in quality commercial paper, we need to go with a little better quality with a little bit more money. Board Member Lewis stated that from a practical standpoint that the Board should look towards raising the U.S. Agencies, or if nothing else place them on par with GSE's. Board Member Lewis also suggested that that Sallie Mae stay at 53 million. It was the consensus of the Board to raise all Federal Agencies to $5 million except for Sallie Mae which should remain at 53 million. Board Member Moulin advised that in the commercial paper paragraph, the last line that the "A" should be at the right of the 2. And on page 23, the last line, the word "approval" is missing. Motion - It was moved by Board Member Lewis/Olander to continue discussion of the Fiscal Year 2002/03 policy to the next scheduled meeting. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - March 2002 In response to Board Member Lewis, Mr. Falconer stated that LAIF does not react favorably when interests rates rise. Noted and Filed VII BOARD MEMBER ITEMS VIII ADJOURNMENT Investment Advisory Board March 13, 2002 Minutes MOTION - It was moved by Board Members Moulin/Lewis to adjourn the meeting at 6:55 p.m. Motion carried unanimously. Submitted'~y, ~.-~---~, Vianka Orrantia Secretary