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2004 03 10 IAB Minutes INVESTMENT ADVISORY BOARD Meeting March 1 0, 2004 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 Lewis, followed by the Pledge of Allegiance. PRESENT: Chairman Lewis; Board Members Moulin, Olander and Mahfoud ABSENT: Board Member Deniel OTHERS PRESENT: John Falconer, Finance Director; Vianka Orrantia, Secretary II PUBLIC COMMENTS - (This is the time set aside for public comment on any matter not scheduled on the agenda.) None III CONFIRMATION OF AGENDA - Confirmed IV CONSENT CALENDAR Approval of Minutes of Meeting on February 11, 2004 for the Investment Advisory Board. MOTION - It was moved by Board Members Olander/Mahfoud to approve the Minutes of February 11, 2004. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for January 2004 In response to Chairman Lewis, Mr. Falconer clarified for the Board that the handout was part of the month end report. Mr. Falconer presented and reviewed the Treasurer's report advising the Board that the month of January was a big month for reinvestments on maturing securities; page 6 of the Treasurer's report lists the maturing and new securities. Page 2 of the Treasurer's report reflects an increase in the portfolio by $1 5.3 million due to the first property tax distribution; this was received in late January. $10 million was invested in a 30 day T-Bill and $5 million in LAIF. This is Investment Advisory Board March 10 2004 Minutes the highest the portfolio has ever been for the City. MOTION - It was moved by Board Members Olander/Moulin to review, receive and file the Treasurer's Report January 2004. Motion carried unanimously. . B. Consideration of Fiscal Year 2004/05 Investment Policies Chairman Lewis advised the Board that for this meeting the Board possibly draw up a rough outline with any changes to be made and/or considered; in the month of April, make any recommendations to language based on changes discussed in today's meeting; for the month of May fine tune any changes that will be recommended and in the month of June meet with the City Attorney and City Manager and finalize recommendations to be forwarded to City Council. A handout of possible areas of discussion was outlined by Staff. Board Member Moulin advised the Board that due to the continued growth of the City, an investment manager would be a possible consideration. This would also depend on the Treasurer and the City as to whether or not they are ready to move in this direction. The other alternative would be to develop a Staff that is geared towards money management or out source this function. Chairman Lewis stated that the City's portfolio is currently at $140 million as of the end of January and the Treasurer has continued to do an outstanding job managing the portfolio, but due to the continued growth of the City, the Treasurer has other duties other than manage the portfolio. Chairman Lewis suggested to the Board that if not this current fiscal year, the following fiscal year consider either hiring a dedicated individual (not sure if the City has the support staff to help with the management) or using a management advisory service. Chairman Lewis advised the Board that the Board was created due to an investment advisor the City was using, however there are a few major points that are different now, that would not be changed, the biggest one being the DVP with third party custodian trustee, this in it of itself was the main reason the Investment Board was created. The monies cannot disappear, if an investment is purchased, before the money leaves the bank account, the investment is received. If the investment is not what was told the City was buying, it does not get paid for this is the reason for the third party custodian. In response to Board Member Mahfoud, Mr. Falconer stated to the Board with the number of investments the average trade is two to three per month, with the exception of December and January, where the average was six to seven. A typical trade on the Treasurer's time is an average 2 Investment Advisory Board March 1 0 2004 Minutes of 15 minutes; the average back office work takes approximately 1 hour, inclusive of the faxes and wires. In response to Board Member Olander, Mr. Falconer replied to the Board that from a time management stand point this does not require a great deal of time due to the current limitations and structure within the policy. (i.e. what can be invested in, by and hold). Board Member Moulin reiterated the buy and hold to maturity term, which the Treasurer invests currently in the limited term set on the basis of making sure the City does not have to sell before hand. Discussion ensued by the Board regarding the comments made by one of the investment presenters at the previous meeting. Also discus$ed amongst the Board was the term "actively traded" portfolio and the advantages. Chairman Lewis stated to the Board that the term actively traded portfolio is used; one thinks of "day traders," the fixed income market does not work the same. With a money manager there would be 1 0 to 12 trades per month vs. the current 3 to 4 trades per month. Mr. Falconer advised the Board that there would be staff time involved in tracking the purchases; the activity would have to be reported as a trader, such as the gains and losses on each of the transactions. Board Member Moulin stated to the Board that the investment presenters suggested to the Board that the terms for investments should be longer to increase yield. Board Member Mahfoud stated to the Board that using a money manager would be more of a yield enhancement, moving from a passive to active bond strategy. An investment manager has the ability to discover discrepancies and move up and down the yield curve along with risk minimizing strategies of the portfolio. There are two ways to manage a bond portfolio based either on a bench mark, a short-term five year bench mark replicating the bench mark which is cost effective and minimizes risk. The money manager would have to aggressively manage the account as opposed to passively managing the account. A money manager has the ability to discover discrepancies; they are also able to move up and down. the yield curve as well as the ability to do risk minimizing strategies. Board Member Mahfoud also stated to the Board that he was in favor of possibly changing the policy to include a money manager. In response to Board Member Mahfoud, Chairman Lewis stated to the Board that he agreed that the City does not have the criteria to watch the bond market and the yield curve. Chairman Lewis advised the Board that picking up yield could provide for additional monies to pay for services needed in the City, the City has been trying to build a new fire station in North La Quinta. Board Member Mahfoud stated to the Board that the risk in using a money manager is much less than actively managing a stock portfolio. 3 Investment Advisory Board March 10 2004 Minutes Board Member Moulin stated to the Board that the current policy helps to ensure the safety of the City's investments. Board Member Moulin advised the Board that in the development of the budget, the Treasurer indicates that the yield of investments is not a needed source of income of funds for projects or to meet obligations. The City is not in the business of making money on their investments, but in the business of trying to meet community service obligations, whether this overlooks an opportunity to get funds to improve this by investing the City's money a different way, is a decision that has to be made. The way that it is currently being invested, there is not much return, but assures the principal will be in place upon maturity. Board Member Mahfoud advised the Board that conservative criteria can be set for the money managers. Chairman Lewis stated to the Board that the current Investment Policy is designed to allow the Treasurer to continue day to day functions and when needed make investments, currently the City does not have the resources to do some of the analysis, such as various mathematical number crunching or watching current bond market and yield curve from minute to minute or day to day. In order to provide services to the City~ the City has to have the income, and the City does not want to do deficit spending, enhanced services can be provided if more money is coming in. Going to the next level of expertise could enhance the current investment portfolio. Board Member Mahfoud advised the Board that there is one down side; a money manager could deviate from the guidelines. Chairman Lewis advised the Board that numerous guidelines can be established as well as safeguards. Board Member Moulin stated to the Board that a strategy needs to be devised and separate the idea of the money manager into another document for future discussions. Board Member Moulin suggested to the Board that this could be called a long range plan or strategic plan, therefore current discussions pertaining to the current policy could continue. Mr. Falconer advised the Board that the money manager informational discussions were a work plan item and he recommended that the City Council approval be given as to whether or not this would be continued for further discussion and/or incorporated into the Investment Policy. If approved by Council, the Board would come up with proposed language for the Investment Policy and develop an RFP. Board Member Olander asked Staff if there could be a reference in the Investment Policy that this idea was under study or possible strategic planning. In response to Board Member Moulin, Mr. Falconer advised the Board that this scheduled meeting with the Council usually takes place in October; this is the opportunity to discuss items and/or issues with 4 Investment Advisory Board March 1 0 2004 Minutes Council. Board Member Moulin asked Staff if this issue was important enough to request a meeting with the City Council. Chairman Lewis replied to the Board and Staff that this would have to be noticed properly. Chairman Lewis stated to the Board that due to time constraints that this issue at this time is not workable for this year's policy. Chairman Lewis suggested to the Board that a meeting be scheduled with the City Council to discuss the issue of a money manager, possibly after the completion of the 2004/05 policy. This particular issue would be placed on hold for future discussion. At the upcoming CMT A conference there are a few sessions regarding the use of financial advisors. Mr. Falconer advised the Board that due to the current yield curve, this might be the opportunity to investigate this idea further and see if this would be the direction the Council might want to take. In response to Chairman Lewis, Mr. Falconer advised the Board to draw up a plan regarding a money manager asking Staff for their recommendation and than present City Manager and also to the City Council for their consideration. Chairman Lewis suggested to the Board the following request be written to the City Council; the Investment Advisory Board would like comments from the City Council as to whether they should adjust the Investment Policy to allow the use of a money manager or investment advisor and. what concerns City Council would have regarding such services. Board Member Olander stated to the Board that it might be easier if there was a meeting with Council to present and discuss this issue. Board Member Mahfoud suggested to the Board that the "idea' of a money manager be added to the policy as an "asset" class. In response to Board Member Moulin, Chairman Lewis clarified for the Board the term asset class, LAIF is an example of this term in the policy. Board Member Moulin stated to the Board that he feels this idea falls under the strategic plan and currently does not belong in the policy if this is not what the City wants. Chairman Lewis stated to the Board that corporate bonds are listed in the policy as well as LAI F. Board Member Moulin stated to the Board that corporate bonds are an authorized investment by the State of California and the idea of a money manager currently fall under strategic plan or work plan at this time because this is the future not the "now." Board Member Olander stated to the Board that this is a gradual educational process and could be listed within the policy as being aware of the changes coming in the near future and beginning to look into other options. Chairman Lewis advised the Board that a money manager might fall under the content of an investment pool, (page 1 2 of the Investment Policy). 5 Investment Advisory Board March 10 2004 Minutes Mr. Falconer stated to the Board that "pool" listed in the Investment Policy might possibly mean that other cities would combine money and pool it. Board Member Moulin concurred and referenced for the Board . Article 11. Mr. Falconer advised the Board that in the past, the Board would use this time to go through the general parameters and return to the next scheduled meeting with any particular sections that need to be amended, at that time the Board can present their items in written form for consideration. Chairman Lewis advised the Board that the handout from Staff listed some items for discussion, GSE's, the review of LAIF and possibly review percentages due to the growth of the portfolio. Board Member Moulin advised the Board that they might want to reconsider corporate notes. Mr. Falconer stated to the Board that the City's broker/dealers ask why the City does not invest in callable GSE'S. They are available with some money to be made, but the policy currently only allow bullets or discount notes. Short discussion ensued by the Board regarding callables. Chairman Lewis reviewed for the Board a list of possible discussion items for the next scheduled meeting, commercial paper, corporate notes, limitations on' all the different investments categories and GSE's in general. Chairman Lewis asked the Board to review the policy and the specific areas mentioned (or any other areas) for any recommendations, additions and/or changes. These will be discussed at the next scheduled meeting. MOTION - It was moved by Board Members Moulin/Olander to continue the review of the Fiscal 2004/05 Investment Policies. Motion carried unanimously. C. California Municipal Treasurer's Conference - South Lake Tahoe, CA April 21 - 23, 2004 Chairman Lewis and Board Member Mahfoud advised the Board that they will be able to attend the conference. Board Members Olander and Moulin will not be able to attend. MOTION - It was moved by Board Members Moulin/Olander to appoint 6 Investment Advisory Board March 1 0 2004 Minutes Conference in South Lake Tahoe on April 19 - 23, 2004. Motion carried unanimously. VI CORRESONDENCE AND WRITTEN MATERIAL A. Month End Cash Report and other selected Financial Data - February 2004 Mr. Falconer advised the Board that the current weighted average LAIF portfolio maturity is down slightly at 1 67 days, with the City currently at 162 days. Noted and Filed B. Pooled Money Investment Board Reports - December 2003 General conversation ensued amongst the Board and Staff regarding commercial paper and GSE's. Noted and Filed VII BOARD MEMBER ITEMS In response to Chairman Lewis, Mr. Falconer advised the Board of the fee schedule handout received from Capital. Chairman Lewis and Board Member Moulin summarized for Board Member Olander the informational investment presentations, which took place at the February Investment Board meeting. In response to Board Member Olander, Chairman Lewis advised the Board the next step regarding the informational investment presentations is to decide whether or not to adjust the investment policy allowing an investment manager. In response to Board Member Moulin, Mr. Falconer informed the Board of the mid-year report, this report is done annually in February to discuss how the City has done in first six months of the fiscal year, propose any budget changes and report financial activities to the City Council and where the City will be by the end of the fiscal year. Mr. Falconer also informed the Board that the projection for the general fund will have a net increase and fund balances by the end of the year of $3.9 million. Property tax increment numbers have been received from the County and the Redevelopment Agency will increase a net of $ 5 million for the year. Staff approached the City Council to ask for $1 million for appropriations such as plan checking 7 Investment Advisory Board March 1 0 2004 Minutes and contract services for Public Works and Building and Safety based upon increased revenues. Each department had a request which totaled about $890,000. The vehicles licenses fees were lowered by approximately $300,000 based on the projections from the state, which could be a reoccurring line item. Mr. Falconer informed the Board that 2003 was the biggest year for building permits for the City which totaled over $300 million. In response to Board Member Moulin, Mr. Falconer updated the Board on the current development in Old Town La Quinta and the Embassy Suites Hotel. Board Member Moulin asked Staff if the SilverRock Ranch had any affect on the City's cash flow. Mr. Falconer replied to the Board that the bond proceeds are designated for this project and the current budget is approximately $1 million per month. Mr. Falconer updated the ,Board on the current status of the project. VIII ADJOURNMENT MOTION -. It was moved by Board Members Moulin/Olander to adjourn the meeting at 6:50 p.m. Motion carried unanimously. Sub' tad b/j '~ Vianka Orrantia Secretary 8