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2008 09 10 IAB MinutesINVESTMENT ADVISORY BOARD Meeting September 10, 2008 CALL TO ORDER Regular meeting of the La Quinta Investment Advisory Board was called to order at the hour of 4:35 P.M. by Chairman Ross, followed by the Pledge of Allegiance. PRESENT: Board Members Ross, Moulin, Rassi, and Park ABSENT: Board Member Deniel OTHERS PRESENT: John Falconer, Finance Director, and Vianka Orrantia, Senior Secretary II PUBLIC COMMENTS - None. III CONFIRMATION OF AGENDA Chairman Ross advised that there were two Board Member handouts to add to the agenda. Mr. Falconer advised that these handouts were two staff handouts, one being the August cash flow analysis, which was not available at the August meeting, to be discussed under V. Business Session - Item A and the second item was an email from Board Member Moulin regarding the government take over of Fannie Mae and Freddie Mac, along with Staff responses to Board Member Moulin's request for information. Chairman Ross advised that his handout was a list regarding investments from stock mutual funds and would like it added to Board Member items. IV CONSENT CALENDAR Approval of Minutes of Meeting on August 13, 2008 for the Investment Advisory Board. MOTION - It was moved by Board Members Moulin/Park to approve the minutes of August 73, 2008. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for June and July 2008 Mr. Falconer presented the Staff report advising that the June draft report was discussed at the August meeting and page 8 was available reporting the cash and investments by fund, which was subject to audit adjustments, which were now available. Investment Advisory Board Minutes September 10, 2008 Mr. Falconer presented the July report and advised that page 13 reflects a decline in the portfolio by 58.6 million due to the Vista Dunes and the Dune Palms housing projects, in addition to two months of invoices from the Sheriffs Department of approximately S 1.2 million and asemi-annual waste hauling payment to Burrtec, which totaled approximately 5900,000. Mr. Falconer also advised that the portfolio maturity has decreased from 18 days to 62 days. Mr. Falconer further advised that the report format remained the same with the exception of page 15, which Staff incorporated the recommended changes by the Board changing the limits set forth from the 2008/09 Investment Policy li.e. Freddie Mac, Federal Home Loan and LAIF). In addition, also added was the section of the professional managed account to the report. Mr. Falconer further reported that the portfolio has declined slightly to yield an overall rate of 2.7%, with the pooled cash portfolio at 2.99%. Staff is waiting to discuss issues regarding the current benchmark or disclosing additional items for comparison into the financial statement. In addition, page 18 reflects a maturity in Farm Credit paper, which was not reinvested, but was invested into LAIF. In response to Board Member Rassi, Mr. Falconer stated that he is looking for direction from the Board regarding a "benchmark," whether or not the Board would like to use other references or eliminate the benchmark. Chairman Ross advised that there were previous discussions of possibly using a 3-month, 6-month, Commercial Paper or LAIF as a benchmark. Board Member Moulin advised Staff that on page 15, there had been a title change and it should now read "Permissible Deposits and Investments." In response to Chairman Ross, Mr. Falconer advised that there are various proposals from both political parties regarding the State budget. Mr. Falconer further advised that there were some discussions of the State possibly taking money either from non-housing redevelopment agency funds or from housing redevelopment agency funds. General discussion ensued by the Board and Staff regarding the State budget and possible contributions to the State towards the budget. Board Member Moulin advised that the extraordinary economic conditions including the explicit federal backing of the debt securities of Fannie Mae & Freddie Mac may present unique investment opportunities for the sale 2 Investment Advisory Board Minutes September 10, 2008 of securities at a gain. Board Member Moulin suggested that the Board consider whether the investment policy should be revised to deal with these extraordinary conditions. General discussion ensued among the Board and Staff in reference to Fannie Mae and Freddie Mac. Mr. Falconer advised that the City currently holds S20 million in Freddie Mac commercial paper with S10 million due to mature in September. Mr. Falconer stated that he does not like to trade in the market and the investment policy's 30% cap on GSE's. In response to Chairman Ross, Mr. Falconer advised that he plans to invest in Farm Credit commercial paper. Continued general discussion ensued by the Board and Staff regarding Fannie Mae and Freddie Mac. Chairman Ross requested that this item possibly be continued for discussion under Board Member items. MOTION - It was moved by Board Members Rassi/Moulin to approve, receive and file the amended Treasury Report June and the July 2008 motion carried unanimously. In response to Chairman Ross, Board Member Moulin advised that there should be further discussion about Freddie Mac and Fannie Mae and if there will be a need to amend the investment policy accordingly. In response to Chairman Ross, Mr. Falconer advised that there could be further discussion of Fannie Mae and Freddie Mac under Board member items but there couldn't be any formal action taken. Board Member Moulin suggested that this item be continued to the next scheduled meeting. B. Continued Discussion of the Investment Advisory Board 2008/2009 Work Plan Chairman Ross advised of the handout submitted by Board Member Moulin, along with Mr. Falconer's comments and asked Board Member Moulin to comment on the handout. Board Member Moulin stated that he felt that the two most important jobs of the investment Advisory Board were to: 11 to determine that the investments comply with the investment policy and 2) to be satisfied that 3 Investment Advisory Board Minutes September 10, 2008 investments comply with the investment policy and 2) to be satisfied that the expected statutory obligations and the obligations of the Treasurer meet the expected liabilities and expenditures over the next six months. Board Member Moulin suggested that the cash flow section of the Treasurers report be summarized. In response to Chairman Ross, Board Member Moulin advised that the information was obtained from the National Treasurer's Association and from World Bank. In response to Board Member Moulin, Mr. Falconer stated that the Mayor had inquired about the Fannie Mae and Freddie Mac situation and he had informed the City Manager Mr. Falconer suggested that the Accounting Manager attend the next scheduled meeting and present the assumptions preparation of the cash flow process either in written or verbal form. Mr. Falconer advised that each line item in the budget is reviewed and projected out for the year. Chairman Ross thanked staff and suggested that the cash flow sheet be forwarded in written form for the Board's review prior to the next scheduled meeting. Board concurred. Mr. Falconer advised that the Treasurers Report serves two purposes: 1) to support a statement of six-months cash on hand and 2) cash flow variances for a one month period. Chairman Ross asked if attachment 1 of the Treasurers Report was useful to the Board. Board Member Moulin stated that he didn't think so. Chairman Ross advised that attachment 2 was a memorandum from the Treasurer with his evaluation and recommendations of State required reports. Mr. Falconer advised that at the previous meeting, the Board asked Staff to return with the requirements the State requires in preparing a Treasurers report. Staff referred back to State Code 53646 and analyzed and compared it page by page to the current Treasurers report. Mr. Falconer reiterated that this not a recommendation by Staff but if the Board feels that the Treasurers report be streamed lined, than this could help in deciding what reports to modify. Mr. Falconer advised that upon his conversation with the Accounting Manager, she stated to him that she would continue to prepare the Treasurers report in the same format due to the check and balances the 4 Investment Advisory Board Minutes September 10, 2008 current format contains. Mr. Falconer also advised that if presentation is important to the Board there are some reports that could be modified. Mr. Falconer further advised that pages 1, 3 and 5 are a requirement and could not be modified. Chairman Ross suggested that the Treasurers Report be reviewed page by page to determine what is being reported in more than one report and what is report specific. Mr. Falconer reported the following: Page 1; Reports cash on hand for the next six month period, along with sources of documents used to generate the fair market value of the investments, in addition to the balances by category and compliance with the State Code with no exceptions to the State Code. In response to Chairman Ross, Mr. Falconer advised that the City Council receives the entire Treasurers Report along with a cover letter. In response to Board Member Moulin, Mr. Falconer advised that the Treasurers Report is first approved by the Board and than submitted to Council for final approval. Page 2; Not a requirement of State Code, therefore not a required page. General discussion ensued by the Board and Staff regarding the term "surplus funds," actual percentages vs. surplus percentages, and the establishment of the LAIF percentages. Mr. Falconer advised that page 34 was developed to distinguish between actual funds and surplus funds. General discussion ensued by the Board and Staff on the process of the City's warrant run. In response to Chairman Ross, Mr. Falconer advised that page 35 was developed at the request of a former Board member, Board Member Olander. Mr. Falconer further advised that policy states that there should be at least two years of historical data listed. General discussion ensued by the Board and Staff regarding the historical data and the impact to the chart due to the change in the investment policy. 5 Investment Advisory Board. Minutes September 10, 2008 Board Member Moulin suggested that the following changes to the chart: (with information listed below title of column: Column 1 -Monthly annualized earnings of pooled cash and investments Column 2 -Annualized earnings of fiscal agent Column 3 -Combination of column 1 & 2 (historical data) Column 4 -Average maturity With remaining data for comparative purposes only. Mr. Falconer advised that this particular report is not required by State Code. In response to Board Member Moulin, Mr. Falconer advised that in order to comply with State Code requirements, the Treasurers report must be completed within 30 days of a quarter. Due to scheduling of the Investment Advisory Board meetings, Staff is unable to present to the Board, to meet the State requirement, the City's quarterly investments reports. Chairman Ross advised that at the previous board meeting it was suggested that the Board consider forming asub-committee, due to the absence of Board Member Deniel the Board should consider continuing discussions of the work plan to the next scheduled meeting. MOTION - It was moved by Board Members Moulin/Park to continue the discussion of the Fiscal Year 2008/2009 Work Plan Investment Policy to the next scheduled meeting. VI CORRESPONDENCE AND WRITTEN MATERIAL A . Month End Cash Report -August 2008 Mr. Falconer advised that LAIF has continued to decline slightly in the month of August, with the portfolio currently at $67 billion, in addition to a decline in Treasury rates. Noted and Filed B. Pooled Money Investment Board Report -June 2008 Mr. Falconer advised that as a result of Board Member Moulin's email (page 2 of the handouts) and his question regarding the impact to the City's investments with LAIF still currently invested in Fannie Mae and Freddie Mac, Mr. Falconer contacted Christine Solich, Assistant Director of Investments at LAIF and she advised Mr. Falconer of their recent 6 Investment Advisory Board Minutes September 10, 2008 website posting, which stated that as of September 8`" LAIF currently has 8.96% of their portfolio invested in Fannie Mae and Freddie Mac. Mr. Falconer further advised that there has been a reduction in LAIF's investments in Fannie Mae and Freddie Mac over the past few months and future investments will remain short-term. Mr. Falconer also advised that the City's LAIF balance is currently at 546.5 million. General discussion ensued among the Board and Staff regarding LAIF's additional commercial paper investments and their terms. Noted and Filed C. Joint City Council/IAB Meeting Mr. Falconer advised the Board that the annual joint meeting with the City Council and the Investment Advisory Board has been scheduled for November 25`" at 7:00 p.m., at the City Center in the Study Session Room. Mr. Falconer also advised that duration for each Board/Commission is approximately 30 minutes. Noted and Filed VII BOARD MEMBER ITEMS Board Member Moulin advised that his email (handout) was a result of a news release and felt that Staff should be alerted of a possible default of Fannie Mae and Freddie Mac, which could have resulted in a loss for all agencies. Mr. Falconer advised that page 3 of his handout was a list of investments by maturity, along with the current accrued interest. Mr. Falconer further advised that he contacted the City's custodian at Bank of New York, Mr. Richard Lopez, and asked if there were any settlement issues with Fannie Mae and Freddie Mac and his response was that all recent purchases have settled. General discussion ensued by the Board and Staff regarding the news release of Fannie Mae and Freddie Mac. Board Member Moulin advised that depending on the outcome of Fannie Mae and Freddie Mac, the Board could recommend an amendment to the Investment Policy. Mr. Falconer advised that page 4 of his handout was excerpts from rating agencies affirming their ratings for commercial paper. In response to Chairman Ross, Mr. Falconer advised that he receives a daily spread analysis of the current market value of commercial paper and noticed a 7 Investment Advisory Board Minutes September 10, 2008 narrowing in price of Fannie Mae and Freddie vs. Farm Credit and Federal Home Loan Bank. Mr. Falconer advised that his concern was the duration of the government guarantee. Board Member Moulin commented that he felt that the guarantee would be indefinite. Chairman Ross advised that his handout was in regards to the Parnassus Equity Income Fund and was for informational purposes only. Chairman Ross further advised that this fund makes active use of CDARS for their cash balances. VIII Adjournment MOTION - It was moved by Board Members Park/Moulin to adjourn the meeting at 5:58 p.m. Motion carried unanimously. 8 Vianka Orrantia, Senior Secretary