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2008 03 12 IAB Minutes INVESTMENT ADVISORY BOARD Meeting March 12, 2008 CALL TO ORDER Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of 4:30 P.M. by Vice-Chair Rassi, followed by the Pledge of Allegiance. PRESENT: Board Members Ross, Moulin, Park and Rass; ABSENT: Chairperson Deniel OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Secretary II PUBLIC COMMENTS - None III CONFIRMATION OF AGENDA - (This is the time set aside for public comment on any matter not scheduled on the agenda.) Mr. Falconer requested that the handouts submitted by Board Members Rassi, Ross and Moulin, be added and discussed under Section V, item B. Consideration of the Fiscal Year 2008/09 Investment Policy. In response to Board Member Ross, Mr. Falconer advised that the Section reviewed and redlined by Board Member Rassi was included in the agenda packet for the Board's review. In response tei Board Member Ross, Board Member Park advised that he did not have a handout for the Board's review, but during the discussion of the investment policy, would have a verbal update. IV CONSENT CALENDAR Approval of Minutes of Meeting on February 13, 2008 for the Investment Advisory Board. Board Member Rassi advised that Section X of the investment policy was not assigned for his review but was assigned to the entire Board for review. Staff to amend meeting minutes to reflect change. MOTION - It was moved by Board Members Moulin/Ross to approve the minutes of February 13, 2008, as amended. Motion carried unanimously. Investment Advisory Board Minutes March 12, 2008 Mr. Falconer reviewed the City's approval process for a trade and advised that the City Manager does at times question a trade. Mr. Falconer further advised that this approval process is unique to the City of La Quinta due to the Wymer incident. Board Member Park stated that he feels that the sentence is reading as if the City Manager was approving the trade. Mr. Falconer clarified that the City Manager approves the investment of a category and not a "specific" investment (i.e. approval of commercial paper, not GE commercial paper); he approves the parameters of a trade. General discussion ensued regarding the reading of the sentence and the Board suggested possibly elaborating on the sentence for more clarity. In addition it was suggested by Board Member Ross upon rewording of the sentence, that the sentence be placed under Section VII "Delegation of Authority. " Mr. Falconer advised leaving the sentence within its current Section. It was consensus of the Board that Board Member Park attempt to rewrite the sentence and present it at the next scheduled meeting. Board Member Moulin stated that he felt that the underlining of specific sentences be eliminated from the policy and suggested either placing in bold or italic text. In response to Board Member Park, Mr. Falconer advised that Section XIII "Interest Earning Distribution Policy," item B, that the general fund management fee of 5% derives from a one time journal entry charged on a yearly basis, which is typical for most cities to do. Board Member Park advised that upon his review of Section 18, there were no recommended changes but asked Staff to elaborate on the "Arbitrage Requirement." Mr. Falconer stated that the City has to perform arbitrage cal~ulations for the IRS to ensure that excess interest income earnings on bond proceeds are remitted to the IRS. Mr. Falconer also stated that the City does not maintain bond reserve funds, but instead maintains a surety bond. In response to Board Member Park, Mr. Falconer advised that the City has never had to pay any excess fees to the IRS. 3 Investment Advisory Board Minutes March 12, 2008 Board Member Park shared with the Board his discussion with Chairwoman Deniel, Board Member Park stated that he feels Sections eight and fourteen should be integrated, with Chairwoman Deniel disagreeing. Chairwoman Deniel asked Board Member Park to defer this issue to Board Member Moulin. Board Member Park also shared Chairwoman Deniel's justification for not combining the sections: 1) she felt that they were two different topics with one Section evolving around the personal affairs of the employees of the city and 2) the other establishing proceeds for internal controls and external order. She felt that by reorganizing the two sections they would follow one after the other achieving clarity and simplicity, again asking that this be deferred to Board Member Moulin. Board Member Park advised that he felt there were some redundancies. Board Member Moulin asked where there were redundancies and Board Member Park reiterated that he feels that the two Sections could be integrated and will forward his notes to Board Member Moulin for his review. In response to Board Member Rassi, Board Member Ross advised that the roman numeral numbering in the policy was correct. Board Member Ross suggested they discuss his four page handout at this time. Board Member Ross advised of the review of page 9 and the suggestion by Board Member Moulin to integrate a table within this particular Section of the policy and a change to the title. Board Member Moulin suggested that Section X's title be changed to "Permissible Deposits and Investments," with an additional column added to the table and labeled "restrictions." Board Member Ross advised that this is a condensed table from Appendix A on page 19 of the existing policy, using the first column, with the use of two additional columns, in addition to adding a column for restrictions. Board Member Moulin advised that the objective of the table is to reflect the investments the City can invest in, as authorized by city code. Board Member Ross advised that the Appendix A would remain within the policy due to the informative information it provides. Board Member Ross advised of the following changes: 4 Investment Advisory Board Minutes March 12, 2008 Page 4: Section IV "Objectives" item 1. "Diversification" and integrated it into item 1 language to reflect the change. "Safety" deleted item 4 with a modification to the Page 5: Credit Risk-Third bullet point was deleted due to the integration into item 1. Item 2. Liquidity: slight modification to the wording, anticipated cash needs replaced operating requirements. Item 3. Yield: Deleted existing language and replaced with the first paragraph of Section XV Benchmark, which is almost a duplication of yields existing paragraph. Additional language was incorporated from a memo dating back in August of 2007 from Board Member Moulin. Page 6: Deleted item 4 Diversified Portfolio. Board Member Ross advised of a conversation at a previous. meeting as to the placement of the professional portfolio management firm within the policy and further advised that he had no suggestions at this time. Board Member Moulin advised that at the previous meeting there were drastic changes to be made to the investment policy and Chairwoman Deniel advised at that time she would review and make those changes. Board Member Moulin asked the Board if Chairwomen Deniel had a chance to make those changes. The Board discussed recommended changes presented at a previous meeting by Board Member Moulin. (Board referred to previous handout.) The discussion at that time was in reference to safety, liquidity and yield. Board Member Moulin advised that the current policy begins with a "General Purpose" and proposed using the language from the Government Code, Section 53600.5. Board Member Rassi advised that terms, Safety, Liquidity and Yield are used largely by the Municipal Treasurers Association and suggested leaving the terms within the policy as follows: "Safeguard Principal" Safety; "Safeguard Principal" Liquidity and "Safeguard Principal" Yield. Board Member Moulin read Government Code Section 53600.6 for the Board and advised that the government codes uses the term "Safeguard of Principal" not the term "Safety." 5 Investment Advisory Board Minutes March 12, 2008 General discussion ensued among the Board as to whether or not the terms should remain within the policy or use the proposed language from the Government Code as suggested by Board Member Moulin. Board Member Ross advised that also discussed previously was Board Member Moulin's recommendation to add the term "deposit" in Section II Investment Policy. Board Member Moulin advised that he had also made suggested title change to Section II-Delegation of Authority, to read just "Authority" and also incorporated language from Government Code Sections 35607 and 35068. Board Member Ross concurred with the recommended title change. Board Member Park asked if "Approval" might be a better word versus the word "Authority." Mr. Falconer asked if this would be a better title for this section. No comments were made. Board Member Moulin advised of his recommendation to change the Objectives section to Section III, which places the investment risks into the safeguard section. He further advised that it was discussed possibly incorporating the language from GASB 41 . Staff will follow up to find out if the language from GASB 41 can be used with the city's policy. Board Member Moulin advised of a modification to the language in item 2 "Provide Liquidity" second sentence to include the term "to satisfy all obligations," in lieu of "anticipated cash needs." In response to Board Member Park, Board Member Moulin advised that the wording prior was "operating requirements" which he felt was too limiting. Mr. Falconer advised that the Board keep in mind there are times that Staff will have liquidity needs that are not always budgeted, if an opportunity arises the City would like to take advantage of these opportunities. Therefore he would like to the Board to keep in mind that these opportunity are not always anticipated and they are "extra- ordinary" not ordinary. Board Member Ross advised that this could be expressed with terms such as obligations, demands, needs or requirements. 6 Investment Advisory Board Minutes March 12, 2008 Mr. Falconer advised that the term "demand" used in government is usually a formal term, such as demand register, which usually is a reference to warrants or checks. Board Member Moulin asked if the term demand within the forth sentence would be appropriate used. Mr. Falconer replied yes. Board Member Park suggested possibly using the term "opportunity." Board Member Ross advised that he would attempt to rewrite the sentence. Board Member Rassi advised that the third sentence uses the term "anticipated demands" and feels this term suffices. Board Member Moulin referred to the last page of his handout, item 3 Earn of Market Rate of Return, and advised that he had taken wording from the "Benchmark Section and incorporated into item 3 and also added the term "risk-based market rate of return." Board Member Ross asked if Chairwoman Deniel had comments to the changes. Board Member Moulin replied no. Board Member Ross advised that the term "budgetary cycle" was eliminated from this section. In response to Board Member Moulin, Board Member Ross and Mr. Falconer reviewed the budgetary cycle for the Board. Board Member Moulin advised that since the budgetary matters affect liquidity and he suggested adding a paragraph into the budgetary section regarding liquidity. Board Member Ross advised that he agrees with the term "budgetary cycle" and would like to incorporate back into the policy. Board concurred. In response to Board Member Ross, Board Moulin advised that he referenced code section 53607 and 53608 for consideration as footnote within the policy. He further advised that this would help with the continued delegatio.n of authority. In response to Board Member Ross, Mr. Falconer advised that he would provide a copy of the resolution at the next scheduled meeting. 7 Investment Advisory Board Minutes March 12, 2008 Board Member Moulin asked if there were any comments to the section of comparative rate of return. Board Member Moulin advised that he propose eliminating the Benchmark section and incorporate into comparative rate of return. Board Member Ross asked Board Member Moulin if he would like to use the wording he proposed back in August. Board Member Moulin replied yes. Board Member Ross advised that he had one slight change to the recommendation, adding the word "the" to page 6 of the handout. Board Member Moulin advised that along with Chairwoman Deniel, that there should be other comparatives added. Board Member Ross advised that the wording reads: the Treasurer may use these, changing the word "for" to "and," other published rates of return that the Treasurer deems appropriate. Board Member Ross asked if the comparatives could be excluded from within the policy and only included within the reports generated by the Treasurer. Mr. Falconer stated that he feels it should be spelled out within the policy and will forward some additional comparatives for the Board's review. In response to Board Member Moulin, Board Member Ross advised that the rate of return has been placed under the section of yield. General discussion was ensued by the Board regarding the change of NASD to FINRA. Board Member Rassi referred to his handout and read the portion referencing the change. MOTION - It was moved by Board Members Moulin/Ross to continue the discussion of the Fiscal Year 2008/09 Work Plan Investment Policy to the April meeting. C. California Municipal Treasurer's Conference - San Francisco, CA April 23 - 25, 2008 Mr. Falconer advised that the City does provide for one staff member and two Board Members to attend the annual CMT A conference. He presented the Staff Report advising that the Annual California Municipal Treasurers Association Conference will be held April 23 - 25, 2008 in San Francisco, California. Mr. Falconer advised the Board of his tentative travel plans. 8 Investment Advisory Board Minutes March 12, 2008 Board Member Rassi advised that he would be interested in attending the conference and further advised that there are no registration fees for retired sustaining members. Board Member Ross advised he might be able to attend and will notify Staff by Thursday, March 13th. Board Member Park advised that if Board Member Ross was unable to attend that he would be willing to attend. Board Member Moulin stated that he feels that Chairwoman Deniel should attend the conference. Mr. Falconer suggested that Staff send an email to Chairwoman Deniel to see if she would like to attend. Ms. Orrantia advised that in order to meet the early registration deadline, she would need to know the names of those Board members who will be attending by Friday, March 14th. MOTION - It was moved by Board Members MoulinlRoss to approve two Board member to attend the CMTA Conference in San Francisco, California on April 23 - 28, 2008. Motion carried unanimously VI CORRESPONDENCE AND WRITTEN MATERIAL A . Month End Cash Report Mr. Falconer advised that the selective interest rates on page 7 could be considered as possible benchmarks by the Board for the six-month T-Bill and LAIF, with a current one, two and five year benchmark Treasury Note and bond. Board Member Moulin suggested adding a three year. In response to Board Member Ross, Mr. Falconer advised that he refers to the six month on page 3 of the report. Noted and Filed B. Pooled Money Investment Board Report Board Member Ross asked if Staff was at it's maximum investment level in LAIF. 9 Investment Advisory Board Minutes March 12, 2008 Mr. Falconer advised that currently the City's portfolio is at $191 million with $31 million in LAIF, with a little more room to invest in LAIF, with the current 25% restriction. In response to Board Member Ross, Mr. Falconer advised that with the current yield curves, he would prefer to invest in LAIF. In response to Board Member Rassi, Mr. Falconer advised that the City has two LAIF accounts with an $80 million maximum for both. Noted and Filed VII BOARD MEMBER ITEMS - None VIII Adjournment MOTION - It was moved by Board Members Moulin/Ross to adjourn the meeting at 6:27 p.m. Motion carried unanimously. ~ ~ ~ Vianka Orrantia, Senior Secretary 10