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2003 04 09 IAB Minutes INVESTMENT ADVISORY BOARD Meeting April 9, 2003 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: Chairman Mahfoud, Board Members Moulin, Olander and Mortenson ABSENT: Board Member Lewis OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Secretary II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA Mr. Falconer informed the Board that Staff received a resignation letter from Board Member Felice. A copy of that letter was distributed to each Board Member. Mr. Falconer also informed the Board that the letter had been turned into the City Clerk's office for processing. IV CONSENT CALENDAR A. Approval of Minutes of Meeting on March 12, 2003 for the Investment Advisory Board. MOTION - It was moved by Board Members Moulin/Olander to approve the Minutes of March 12, 2003. Motion carried unanimously. V. BUSINESS SESSION A. Transmittal of Treasury Report for February 2003. Board Member Moulin advised the Board of his observation of LAIF and commercial paper and the discussion at the previous month's meeting. Investment Advisory Board April 9, 2003 Minutes Mr. Falconer advised the Board that the commercial paper investment has matured. Chairman Mahfoud asked if there was a particular time that Staff makes their commercial paper purchases and if the transactions were done when the proPerty taxes were received. Mr. Falconer replied to the Board that these transactions were done in February and June. In response to Board Member Olander, Mr. Falconer replied to the Board that Solomon, Smith, Barney carried the same rating as GE Capital. Board Member Olander commented to the Board that cash balances were noticeably below the previous year. In response to Board Member Olander, Board Member Moulin replied to the Board that this was due to the expenditure of the money of the bonds. Board Member IVI_~ replied to the Board that the bond money is currently bein~Ll~disperse~/_~ Mr. Falconer advised the Board that bonds were issued for which was used to purchase the Ranch Property for approximately $42.5 million. Another bond was issued for $40 million, which "washed"each other out. $42.5 was used to purchase the Ranch and another $40 million was issued for the construction of a golf course and other eligible RDA projects. In response to Board Member Moulin, Mr. Falconer advised the Board that all debt service payments are currently paid through June. Board Member Olander advised the Board of the current article in the local paper regarding the Ranch Property. MOTION - It was moved by Board Members Olander/Mortenson to review, receive and file the Treasurer's Report for February 2003. Motion carried unanimously. B. Consideration of Fiscal Year 2003/04 Investment Policy Board Member Moulin suggested to Mr. Falconer that a new section should be written and placed on page 17, under investment bond proceeds and a paragraph that covers the item which had been discussed under "Board Member Items." Investment Advisory Board April 9, 2003 Minutes Board Member Moulin advised the Board that the summary completed by Mr. Falconer, detailing the historical changes, did not reduce to zero intermediate credit bank and federal land bank investments. Exhibit A indicates this. However looking back at the bottom of page 10, the policy itself does not distinguish this and authorizes $5 million for these two categories of GSE's. Board Member Moulin also advised that this item be cleaned up and limit it to the four items since Staff is not currently investing in Sallie Mae GSE's. Board Member Moulin suggested to the Board limiting GSE's to Freddie Mac, Fannie Mae, Federal Home Loan Banks and Federal Farm Credit. Chairman Mahfoud asked the Board if they had ever invested in Sallie Mae. Mr. Falconer replied that Staff has only invested in Sallie Mae once. Mr. Falconer informed the Board that Sallie Mae will be losing their sponsorship and Staff is supportive in changing it to zero in the policy. Board Member Moulin recapped the historical information regarding GSE's. Chairman Mahfoud asked the Board if they were comfortable dropping Sallie Mae. The Board concurred. Board Member Mortenson advised the Board that of those agencies listed that are not backed by principal and interest by full faith and credit of U.S. on page 10 and 1 1 of the policy, that Federal Home Loan Bank, Federal Farm Credit Bank, and Federal Land Bank, in his opinion, that these were. Board Member Moulin advised that Board that they are not and he also advised that historically Federal Home Loan Banks were backed at one time. Board Member Moulin suggested to the Board that Staff make the last paragraph on page 10 and first paragraph on page 1 1 one paragraph. Board Member Moulin asked the Board whether they wanted to increase the amount of GSE's over $5 million. Board Member Moulin asked Mr. Falconer if the Board applied a $5 million limit, would that limit Staff from paying a premium. Mr. Falconer replied to the Board that Staff pays face value and amortizes the premium over time; Mr. Falconer suggested maybe adding "plus unamortized premium." Board Member Moulin suggested to the Board that it state, "as 'a limitation of face amount," in the combined paragraph from page 10 and 1 1. Investment Advisory Board April 9, 2003 Minutes In response to Chairman Mahfoud, Mr. Falconer advised the Board that if Sallie Mae's were dropped to zero, the four remaining GSE's would be 20% of the portfolio. Mr. Falconer continued tthat the Board may want to consider increasing the amount per GSE's to $7 - 7.5 million to maintain the historical 25%. Chairman Mahfoud asked the Board if there were any comments regarding commercial paper. Board Member Mahfoud commented to the Board that LAIF carries the ball on commercial paper. Board Member Moulin advised the Board that the current amount for commercial paper should remain as is. Mr. Falconer advised the Board that at one time the maximum for commercial paper was $10 million. Chairman Mahfoud asked that Staff contact LAIF and find out what criteria is used to purchase commercial paper. Chairman Mahfoud stated to the Board that he sees no urgency in reducing the amount in commercial paper. Board Member Olander advised the Board of an article in the New York Times, referencing accounting shenanigans, which is more prevalent than people thought' and may impact the commercial paper market. There were also comments on the negativity of the current economy in this article. Board Member Olander suggested that the Board hold the line on commercial paper, but monitor closely. Chairman Mahfoud summarized items that would be addressed at the next scheduled meeting: 1. Staff add a paragraph, referencing the internal loan; 2. Bottom of page 10, top of 11, make into one paragraph; 3. Staff to call LAIF to see what their criteria is for commercial paper. 4. An increase from $5 million to $7.5 million in GSE's, including Fannie Mae, FHLMC, FHLB and Federal Farm Credit. Board Member Moulin advised the Board that on the bottom of page 35, left hand column, referencing FHLB, the last sentence on the page reads other federal agencies such as SBA Notes, GMNA, which continues to the top right hand side of the page, needs to be moved to the top of Page 36. Investment Advisory Board April 9, 2003 Minutes Board Member Moulin reminded the Board that it was agreed to increase LAIF. Chairman Mahfoud stated to the Board that the agreement was a 5% increase. Motion - It was moved by Board Member Moulin/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 2003 Mr. Falconer commented to the Board that the LAIF rate continues to go down; however, compared to the daily liquidity rate from 1.99% - 1.89% on page 8, the three year Treasury currently is at 2.06%. Board Member Moulin advised the Board that on page 11, cash flow, the table of the under spent, the totals do not add up. Mr. Falconer commented to the Board that the column is in thousands with cents. Board Member Moulin suggested to the Board that Staff modify the column by removing the cents. Mr. Falconer commented to the Board that LAIF typically trails the market when rates are falling and is slower to recover when rates rise; Board Member Olander advised the Board that LAIF balances have picked up substantially, which means that other municipalities have placed additional funds with LAIF. Noted and Filed B. Pooled Investment Board Report - January 2003 Chairman Mahfoud commented to the Board that PMIA had 21%of the portfolio invested in commercial paper, above agencies and CD's. Board Member Olander commented to the Board that the LAIF's commercial paper is guaranteed or collateralized. Mr. Falconer stated to the Board that the City has not looked too much into Commercial Paper that LAIF invests in, and that some asset-backed commercial paper is securitized with mortgages. 5 Investment Advisory Board April 9, 2003 Minutes Chairman Mahfoud requested that Staff contact LAIF and find out what criteria is used to purchase commercial paper. Mr. Falconer commented to the Board that the LAIF Answer Book sets forth the criteria for investing in commercial paper, possibly investing in A2, P2 paper. Mr. Falconer will follow-up on this request and will report back at the next scheduled meeting. Noted and Filed VII BOARD MEMBER ITEMS Board Member Moulin advised the Board that a 30 year loan was made between the General Fund and the Redevelopment Fund, at 10%. If the money had been loaned to the City within itself, it would have been subject to investment by the investment policy, but that this would not qualify against the investment policy. Board Member Moulin also advised the Board that the $13 million dollar loan for the hotel project brings some questions as to whether or not it should be covered in the investment policy or whether or not it does not apply. Board Member Moulin advised the Board that this transaction was put together by the Finance Director/Treasurer for the City. Board Member Moulin asked if Mr. Falconer would explain this transaction to the Board. Mr. Falconer clarified to the Board that the loan amount was $3.4 million with the developer of the Embassy Suites. Mr. Falconer informed the Board that the in the last Cour~cil Meeting, Staff recommended to the City Council that a loan be made for $6 million for three projects. One being the library for 94.3 million in the Civic Center Campus, the second for Avenida La Fonda to complete the street similar to Avenida Estado, the third one being the upgrading of Eisenhower Drive, between Rancho La Quinta and the Hotel. It was recommended to the Council to loan General Fund reserves to the Redevelopment agency for these projects. Mr. Falconer also informed the Board that this money would be loaned at 7% interest for up to 30 years; there is a promissory note with no specified repayment term other than the 30 years. The loan could be subject to repayment earlier if the Council decided to take subsequent action or the note can be forgiven due to inability of repayment. Mr. Falconer also informed the Board that based on the projections of the redevelopment agency and the property tax growth, the City should be able to recoup the money. Mr. Falconer stated that the 94.3 million used to build the library is further secured with developer impact fees which developers pay. Investment Advisory Board April 9, 2003 Minutes When the impact fees were adopted, the City needed to provide the citizens with a library, which the fee study determined was 94.3 million. This amount had to broken down and separated by past development and future development. When a developer pulls a permit he will only be responsible for future impact, so when viewing the 94.3 million the City was looking at future impacts. Mr. Falconer advised the Board that they could have built the library with General Fund money, but the City did not want to let the developers off the hook. If the City was to go on a pay-as-you-go basis, it would take thirty years to collect 94.3 million. The future revenues that are generated by the library impact fees will be placed back into the redevelopment agency and the Redevelopment Agency will be able to pay back the General Fund, with the library funds, along with the property tax increment. The General Fund will get a 7% interest rate which will generate 12%million to 913 million of interest over the thirty years, in addition to the principal. Mr. Falconer advised the Board that Board Member Moulin's question is whether or not this loan is an investment. Board Member Moulin stated to the Board that this was the same pocket, a book transfer. Mr. Falconer advised the Board that they look in the Investment Policy at what the definition of portfolio is and maybe expand and exclude some of the items, such as a promissory note or developer agreement note from the Investment Policy so the public does not consider these investments. Board Member Moulin advised the Board that per his conversation with Mr. Falconer, the purpose of the proceeds being used is authorized for General Fund purposes. The City will spend the money anyway and this is a technique to benefit the City a great deal. Board Member Moulin advised the Board that one of the requirements of the Investment Policy was the determination of surplus funds for the next year, which would take away 96 million for the next 30 years; this would reduce the amount of surplus monies available, which is an impact on the Investment Policy. Board Moulin also advised the Board that this should either be included or excluded from the policy. Chairman Mahfoud asked if opportunity costs lost were considered. Mr. Falconer replied that currently the City is earning 1.9~)% on the money. Chairman Mahfoud also asked if this should be stipulated in the policy. Mr. Falconer replied that on page 37, under portfolio, that the paragraph could be expanded. Investment Advisory Board April 9, 2003 Minutes (At this point of the meeting the Board agreed that the discussion should be continued under the consideration of the 03/04 Investment Policy.) VIII' ADJOURNMENT MOTION - It was moved by Board Members Moulin/Olander to adjourn the meeting at 6:30 p.m. Motion carried unanimously. Subn~tt~y, ~ Vianka Orrantia Secretary