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2002 05 08 IAB Minutes INVESTMENT ADVISORY BOARD Meeting May 8, 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, and Chairman Mahfoud, Board Member Osborne (5:35) ABSENT: Board Member Felice OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Secretary II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA IV CONSENT CALENDAR 1. Approval of Minutes of Meeting on April 10, 2002 for the Investment Advisory Board. Board Member Moulin advised the Board that on page 2, section B second paragraph, last line, should be deleted: ~.~ ~A~.~. ~A~,,,;.. ~,, ......... *"~ ';~*="~ ' ;~"=~+" ' *~" first r,,-~,-,-~,-,r~,~l-, ,,,-~,,1~,- "V;~IA" Board Member Moulin also advised the Board that on page 3, third paragraph, fourth/fifth line should read: Mr. Falconer stated that it would be up to the_.....~-~--~, ~ as to what is decided. And also on page 3, last paragraph should read' Investment Advisory Board May 8, 2002 Minutes Board Member Moulin suggested that it reads "maturing =.".d ~ not more than five years." Board Member Moulin also advised the Board that page 5, third paragraph, eighteenth line should add the following: Board Member Moulin feels that a banking institution is a lot more solid credit wise than commercial paper. Board Member Moulin, along with Mr. Falconer advised the Board that on page 6, first paragraph should read: It was the consensus of the Board to raise GSE'~ to ~ ~ million except for Sallie Mae, which should remain, at $3 million. Board Member Lewis advised the Board that on page 2, under section B, first paragraph should read' .Board Member Lewis briefly summarized the article (handout) that was obtained from Merrill Lynch, using Treasuries MOTION - It was moved by Board Members Moulin/Olander to approve the minutes of Minutes of April 10, 2002 as corrected. Motion carried unanimously. V. BUSINESS SESSION A. Transmittal of Treasury Report for March 2002. In response to Board Member Lewis, asking about the decrease in cash Mr. Falconer advised the Board there was possibly one debt service payment and one large Capital Project bill due that caused a drop in the cash outflow. Mr. Falconer informed the Board that on page 3, "Annualized Earnings on investments," are below the City's benchmark, which is reflected on maturity, which is down to 35 days. Staff has been currently laddering the portfolio, investing in a two-year treasury, eighteen-month treasury 2 Investment Advisory Board May 8, 2002 Minutes and a one-year treasury. In response to Board Member Osborne, Mr. Falconer informed the Board that the Iow rates were due to the yield curve. Mr. Falconer advised the Board that he is using more of LAIr as same day short-term cash. Board Member Lewis suggested to the Board that on page 4, US Government Securities, fourth column titled "Yield Price," changing the word "Yield." Mr. Falconer advised the Board that he would check the title on the trade ticket and re-label the title. MOTION - It was moved by Board Members Lewis/Olander to review, receive and file the Treasurer's Report for March 2002. Motion carried unanimously. B. Consideration of Fiscal Year 2002/03 Investment Policy The Board reviewed the attached Investment Policy and changes/additions/deletions are shown in amended form. Board Member Moulin advised the Board that on page 1, Table of Contents, item IXX should read: IXX: Maximum,.,~,~,~A~*"-;*" Board Member Lewis suggested moving IXX section to page 7, prior to Section V. Board Member Moulin felt that it should come after Section V. Chairman Mahfoud suggested that on page 3, of the Executive Summary, the sixth paragraph, third sentence that the $10 million dollar amount is misleading and suggested that it should read except amount or projected annual amount. Board Member Lewis advised the Board that the current amount under discussion is $10 million. Board Member Lewis advised the Board that a dollar amount is not mentioned in any other section of the policy. Mr. Falconer advised the Board that he would like to leave the Executive Summary as is. Chairman Mahfoud again suggested changing the wording to read "projected annual amount, not to be projected within the next five years. 3 Investment Advisory Board May 8, 2002 Minutes The Executive Summary and page 10 was amended as follows: · ..except .r...+.,,... -.~.'"' ...... ~ I O ,,,,,,,..,,,"';';"" the projected annual dollar amount as detailed in Section !XX V may be invested in U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. Board Member Moulin suggested to the Board that on page 20, fifth column, under restrictions, sixth row, leaving at two years due to the fact that it has not changed the overall general policy. Board Member Osborne suggested to the Board that it change to "invest 2 to 5 years." Board Member Moulin suggested that placing the 2-year limitation with the word "except, "$10 million 2 to 5 years. Chairman Mahfoud agreed with Board Member Moulin in using the word "except." Board Member Lewis suggested to the Board that it should read "no more would be invested than 5 years. Board Member Osborne suggested it read "no more than $10 million would be invested up to 5 years," Board Member Lewis stated that the maximum maturity is limited to 5 years. Board Member Osborne suggested it read: "no more than $10 million invested in 2 to 5 years." Board Member Moulin advised the Board that they should strike out GSE's and 100% does not imply individually. Board Member Lewis stated that the State does not differentiate a breakdown. Mr. Falconer advised the Board that he would need to change GNMA line item on page 20. Board Member Moulin advised the Board that the maximum maturity column should be left blank and suggested that Mr. Falconer make the corrections. Board Member Moulin stated that it does not belong on the form. Mr. Falconer advised the Board that this could be eliminated. Motion - It was moved by Board Member Lewis/Olander to finalize the Fiscal Year 2002/03 policy at the next scheduled meeting. VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - April 2002 In response to Board Member Moulin, Mr. Falconer advised the Board that the Sweep Account is now going into Dreyfus. Mr. Falconer also 4 Investment Advisory Board May 8, 2002 Minutes informed the Board that the negative balance does reflect on the City's book. Noted and Filed B. Pooled Money Investment Board Reports - January 2002 and February 2002 Noted and Filed VII BOARD MEMBER ITEMS Mr. Falconer updated the Board on the conference in Monterey, California that was attended by Staff, Board Members Olander and Mahfoud. Chairman Mahfoud advised the Board of the various meetings during the conference; the first meeting was how a municipality can raise money, the following day there were several meetings, cash flow forecast and short-term cash management and on Wednesday, there were several meetings held, one of interest was about LAIF. In previous year's attendance for this particular subject consisted of about 10 attendees, this year there was standing room only. Mr. Falconer advised the Board of the two Speakers, Elaine Parks, LAIF Administrator who replaced Pat Biehl and Bill Sherwood the Chief Investment Officer. Mr. Falconer informed the Board that there is a concern for the budget deficit, which is projected to be $22 billion and that the budget not be passed by June 30th. Mr. Falconer advised the Board that if the budget is not passed, Bill Sherwood went through the steps that LAIF would go through in order to maintain the State's perspective of cash needs and the borrowing techniques that would be implemented. Mr. Falconer advised the Board that it was similar to the 1995 scenario LAIF encountered. Mr. Falconer informed the Board, at this particular meeting he asked Mr. Sherwood about commercial paper and the difficulty obtaining quality paper. Mr. Sherwood approached it from a different perspective, they're limited to 1 $0 days, where the City of La Guinta is at 270 and they cannot pay more than 10% of an isuers outstanding commercial paper, which sometimes they bump up. Mr. Falconer also advised the Board, that Mr. Sherwood addressed what would happen if the State does not pass the budget in time and the impact to LAIF. Mr. Sherwood stated that he has asked for written insurance from the State Investment Advisory Board May 8, 2002 Minutes Controller that the State would not come after LAIF to meet the State's cash needs, at this current Mr. Sherwood has been assured verbally, but not in writing, and the City may need other liquid cash available. Mr. Falconer informed the Board, that the City of Palm Desert is trying to draft legislation, that the State cannot go after LAIF Funds, that these are ear marked for those agencies that participate in LAIF. Mr. Falconer also stated that if the City of Palm Desert is looking for sponsors. Board Member Osborne asked that in the February report, that it states "loans were for 6% of the fund," is there limit on that number? Mr. Falconer replied that he would have to look at the handbook. Mr. Falconer also advised the Board that they do not invest in any GSE's with imbedded options, "callables." Board Member Moulin asked what other cities were doing? Mr. Falconer replied that most agencies are investing 50 to 100% of their portfolio in LAIF. In response to Board Member Olander, Mr. Falconer stated to the Board that it does not matter whether it's a Republican or Democrat Administration, as long as things are running smoothly, the Treasurer can focus on their one or two core issues that they really want to focus and leave their day-to-day operations with the staff. Mr. Falconer expressed his concern to the Board referencing the key people in the state that have held their current positions for quite a length of time, such as Bill Sherwood with over 30 years experience, Bill Dodd, an investment officer with 30 years experience and Elaine Parks with 28 years, these key people could leave their positions at the same time and leave a void in the state. Board Member Olander informed the Board that there is also concern in regards to automobile tax and the receipts that may or may not be coming in, and surprising number of cities dependant on this tax if they do not come in. In response to Board Member Moulin, Board Member Olander advised the Board that there was not enough time to discuss how banks are picked for their time deposits. Mr. Falconer advised the Board that he spoke with Mr. Sherwood and they will be holding an annual LAIF Conference in September and we were welcome to attend or if a conference call about any concerns or questions, he would accommodate that call. In response to Chairman Mahfoud, Mr. Falconer informed the Board that when the state had it's budget problems in 1998, the state went into issuing warrants without a budget and the Jarvis Group, from the County of Los Angeles filed a law suit claiming that the state cannot be issuing warrants without a budget. There was a stay on this issue and an appeal was made and will be heard in June. Depending on the outcome, it will probably be appealed at the California Investment Advisory Board May 8, 2002 Minutes Supreme Court. Mr. Falconer also informed the Board that if the budget is not passed that the State Controller has a handle on meeting the short-term needs of the agencies and does not want to impact the State's credit rating. Board Member Lewis asked Mr. Falconer what the difference between Pooled Loans and General Fund Loans? Mr. Falconer will get back to the Board on this issue. Board Member Osborne expressed his feelings about raising the percentage on LAIF and would not increase the percentage at this time. Board Member Lewis asked if LAIF had to be liquidated, would every agency get their money back? Board Member Osborne replied to the Board that it would probably depend on the market value of their portfolio. Mr. Falconer informed the Board that the state has liquidity percentages that they break the portfolio down to. Chairman Mahfoud advised the Board that attendance at the LAIF Conference would be strongly recommended. In response to Board Member Lewis, Mr. Falconer stated that there is a restriction on the amount you can take in and out of LAIF, per day. He also stated that LAIF has a market value at the end of the year. VIII ADJOURNMENT MOTION - It was moved by Chairman/Board Members Mahfoud/Osborne to adjourn the meeting at 6:45 p.m. Motion carried unanimously. Submit, ted-by, Vianka Orrantia Secretary