Loading...
2003 06 11 IAB Minutes INVESTMENT ADVISORY BOARD Meeting June 11, 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 Lewis ABSENT: None OTHERS PRESENT: John Falconer, Finance Director, Vianka Orrantia, Secretary Tina Nolan, Dick Jones and Cristina Deniel II PUBLIC COMMENT - None III CONFIRMATION OF AGENDA Mr. Falconer advised the Board of several handouts that reference the current Freddie Mac situation and suggested to the Board that this be discussed under Board Member items. IV CONSENT CALENDAR A. Approval of Minutes of Meeting on May 14, 2003 for the Investment Advisory Board. It was discussed by the Board whether or not the meeting minutes should be summarized or verbatim. Board Member Moulin advised the Board that on page 4 of the Minutes, the following paragraph should read: Board Member Moulin stated to the Board that the first concern was the advance to the Developer for the Embassy Suites Hotel, which was ~ considered by the Treasurer's office. Investment Advisory Board June 11, 2003 Minutes MOTION - It was moved by Board Members Lewis/Olander to approve the Minutes of May 14, 2003 as corrected. Motion carried unanimously. V. BUSINESS SESSION A. Transmittal of Treasury Report for April 2003 In response to Board Member Lewis, Mr. Falconer advised the Board of the current balance, which was a little over $100 million and the overall pooled interest rate, currently a little under 2%. Mr. Falconer also advised the Board that the City has been spending a great deal of the bond proceeds and staff is currently exceeding their benchmark on six month T-Bills rates at 1.17% with a ninety-two day average maturity. Mr. Falconer also informed the Board that for the month of April there have been no significant' transactions or expenditures. In response to Chairman Mahfoud, Mr. Falconer advised the Board that on page 4 of the Treasurer's Report, the next maturity for Freddie Mac will come due on June 30th, which is a Federal Home Loan Discount Note for 95 million. Mr. Falconer also informed the Board that based on the current events in reference to Freddie Mac, he will roll over the discount note at time of maturity. MOTION - It was moved by Board Members Lewis/Olander to review, receive and file the Treasurer's Report for April 2003. Motion carried unanimously. B. Continued Consideration of Fiscal Year 2003/04 Investment Policy Mr. Falconer reviewed the functions of the Board for the current guests in attendance. Mr. Falconer informed the Board that Staff included an Executive Summary report with all changes and/or deletions to the Investment Policy and a red-lined/strikeout version of the actual proposed Investment Policy. Mr. Falconer also included for the Board a copy of the change in the City code to reduce the Investment Advisory Board from seven members to five members. There is also a clause grand- fathering any existing Board members who reside outside of the City 2 Investment Advisory Board June 11, 2003 Minutes to reapply in the future, however, any future applicants must reside in the City of La Quinta. Kathy Jenson, City Attorney advised the Board that she reviewed all changes to the Investment Policy and that all changes were within the prerogatives of the Board to recommend to City Council for final approval. Tom Genovese, City Manager concurred and agreed with the recommended changes. Board Member Moulin advised Staff that the redlined copy of the Investment Policy should be a redline copy of suggested "current" changes and/or deletions, not of what was redlined last year. Board Member Moulin also advised Staff that the actual "bullet point symbols" were changed and he suggested that that they be changed back to the ones used in previous years. Chairman Mahfoud asked the Board for clarification for an item listed on page one of the table of contents, item number XVII, the word "activity," should have been included in the title so it would read Financial Assets and Investment Activity Not Subject to this Policy. Board concurred. Chairman Mahfoud reviewed the items changed and/or deleted. Board Member Moulin advised the Board that on page nine of the Investment Policy listed under U.S. Government and Related Issues, second bullet point should not be lined out and the third bullet point which was lined out was the draft paragraph to make the difference to the corrected paragraph at the beginning of page ten. Board Member Lewis pointed out that the useful amount is 100% in U.S. Treasuries. Board Member Lewis advised the Board that on page 11, first paragraph last sentence, the last half of the sentence has an extra space that needs to be deleted to complete the sentence. Chairman Mahfoud reviewed the changes on page sixteen. Board Member Moulin advised the Board that item seventeen on page sixteen, first sentence should be deleted and the word City should be added to the second sentence which should read: The City's Investment Policy does not apply to the following: The heading for item seventeen should include the word activity and it should read "Financial Assets and Investment Activity Not Subject To." 3 Investment Advisory Board June 11, 2003 Minutes Board Member Moulin asked the City Attorney and City Manager if they were in agreement with item seventeen on page sixteen. Ms. Jenson replied to the Board that the paragraph was a good clarification. As an example, the Embassy Suites the loan type was a vehicle used for other purposes, an investment in a different sense, a redevelopment project. Another example, the City's Redevelopment Agency has another program which makes loans to downtown businesses for facade improvements; these types of loans are forgiven if there is full performance. These loans are done pursuant to the redevelopment law and completed in a particular format, which is not an investment in the traditional sense of the word. The clarification within the policy is an excellent clarification. Board Member Moulin stated that he felt this paragraph was necessary due to the fact that it impacted the remainder of funds the City had to investment. As an example, funds that are invested from two to five years, Staff placed $10 million in last year and will only be able to invest $5 million this year due to the current economic situations, monies used for other purposes, which takes away funds that would otherwise be a jurisdiction of the Investment Advisory Board. Ms. Jenson advised the Board that there are situations that happen when another phase of the transaction goes forward, there is other money that needs to be committed to it. Mr. Falconer advised the Board that the only other change to the policy was on page seventeen, first sentence, the number seven needs to be changed to five. In response to Board Member Lewis, Mr. Falconer informed the Board that he was directed to place "conduit financing" in the glossary. Board Member Moulin asked the Board if the language for the Federal Home Loan Bank was changed. Mr. Falconer replied that this had been changed. Motion - It was moved by Board Members Lewis/Moulin to approve the Investment Policy as amended and forward the Policy to the City Council for their consideration. Motion carried unanimously. 4 Investment Advisory Board June 11, 2003 Minutes VI CORRESPONDENCE AND WRITTEN MATERIAL A. Month End Cash Report - May 2003 Mr. Falconer informed the Board that since the report was processed, rates have changed significantly. In response to Board Member Olander, Mr. Falconer advised the Board that he rolled over a T-Bill and the two year rate is the same as six months with a 1% yield. Mr. Falconer also advised the Board that his strategy is that as investments begin to mature, he will roll them over. Mr. Falconer informed the Board that Staff received the second property tax distribution in May. Typically this is invested in commercial paper. This year the amount received was approximately $13 million, 94 million which will be invested in LAIF and 99 million in Treasury Bills for one month until needed for debt services. Mr. Falconer further stated that he will remain currently with Treasuries for the short term. Discussion ensued amongst the Board regarding the current interest rates. In response to Board Member Olander, Mr. Falconer informed the Board that the Preliminary Budget was distributed to Staff and will be considered by the City Council on Friday, May 13th. The general fund operating budget has a small deficit, approximately 956,000; for a 921 million general fund budget this is not a large amount. Council's direction to Staff is to always present a balanced budget; Staff has recommended cuts to some programs. Some of the recommended cuts are travel by 17%, estimated claims payable have been cut by 950,000, and some annexation studies will be cut, which is approximately 950,000-960,000. Even with these cuts there remains a small deficit which Council will discuss at the scheduled meeting. Board Member Moulin commented to the Board how surprised he was at the amount of hotel tax received by the City. Board and Staff discussion ensued regarding the T.O.T. tax received by the City. Noted and Filed Investment Advisory Board June 11, 2003 Minutes B. Pooled Investment Board Report - March 2003 and LAIF Forty Sixth Annual Report, Fiscal Year 2001-2002 Mr. Falconer advised the Board that on page three of the Pooled Investment Board Report, listed are the average portfolio balances and annual earnings. The average daily portfolio is approximately 950 billion with the annual earnings dropping. Mr. Falconer also advised the Board that on page eighteen, there is a breakdown of the local agency fund balances. In response to Board Member Olander, Mr. Falconer advised the Board that the State would have to absorb the administrative costs from other funding sources to remain under their budget limitation. Noted and Filed VII BOARD MEMBER ITEMS Chairman Mahfoud advised the Board of the current events taking place with Freddie Mac such as management shake up, ongoing restatement of earnings, (which is not good for the equity market) and criminal investigations. Chairman Mahfoud shared with the Board his concerns and advised the Board that he is currently not comfortable with the events. He also shared with the Board that he felt the Board is reacting to the events, instead of anticipating the market. Board Member Olander advised the Board that the market handled the shake up pretty well. He thought perhaps there would be a reaction in the market the day following the events. Board Member Lewis advised the Board that he felt this was a positive; Freddie Mac's Board took a look at the fact that Senior Management was not cooperating with an internal auditor committee and dismissed management; this was a very proactive stance. Board Member Lewis also advised the Board that he would be more concerned if Staff had invested in the stock of Freddie Mac, as opposed to the bonds themselves, which he does not see that these issues have affected the credit quality of the bonds that Staff is investing in. Board Member Lewis stated that he had no concerns of the rolling over of additional monies. Board Member Olander advised the Board that he saw these events as positive, due to the concerns of the growth of GSE's, growing at 8% to 20% a year. These loans were difficult to audit and keep control of. Board Member Moulin advised the Board that Investment Advisory Board June 11, 2003 Minutes Arthur Anderson had been the prior auditor for Freddie Mac. Price Waterhouse was appointed last year to conduct the audit, and as a result of the audit they concluded that the previous earnings were understated and they were holding back reserves. Board Member Moulin also advised the Board that the Chairman of the Board of Freddie Mac is Shaun O'Malley Mr. O'Malley is a former Chief Executive Officer of Price Waterhouse. This is a perfect opportunity for Mr. O'Malley to associate with his former firm. Apparently, the three executives of Freddie Mac, including Brensel the CEO that used to be the Chief Financial Officer with an accounting background, was not cooperating sufficiently and were resisting the audit committee. The outcome of the management shakeup is positive. It was asked by authorities both of Fannie Mae and Freddie Mac to voluntary disclose certain additional financial information. Fannie Mae complied and Freddie Mac was delinquent in their disclosures. Board Member Olander advised the Board that they are aware of the current problems and felt the Board takes these events under advisement and felt they were doing everything that they could do. Chairman Mahfoud asked Staff when the next Freddie Mac investment matured. Mr. Falconer replied that there was one at $5 million due to mature June 30th. The current limit is currently at $5 million. Mr. Falconer advised the Board that he continues to rollover investments due to the current rates. The Board ensued discussion about the current events and economic market. VIII ADJOURNMENT MOTION - It was moved by Board Members Lewis/Moulin to adjourn the meeting at 6:35 p.m. Motion carried unanimously. Vianka Orr ~ntia Secretary