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2008 10 15 IAB MinutesINVESTMENT ADVISORY BOARD Special Meeting October 7 5, 2008 1 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 Chairman Ross, followed by the Pledge of Allegiance. PRESENT: Board Members Deniel, Ross, Park, and Rassi ABSENT; Board Member Moulin OTHERS PRESENT: John Falconer, Finance Director and Vianka Orrantia, Senior 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.) None. Mr. Falconer advised of several handouts to be added to the agenda, one of which was correspondence received from the State Treasurer's office clarifying several issues; LAIF and the State's budget need for cash, along with discussions of the State's inability to issue tax revenue anticipation notes. The correspondence was derived from numerous emails from various cities concerned about LAIF monies. The correspondence received from the State Treasurer's office reaffirmed all funds belong to the cities, e.g. participants and not the State. Mr. Falconer requested that page 9 be replaced due to a change in the cash flow analysis, due to a Council action to defer receipt of $3.8 million from the sale of land at SilverRock. Mr. Falconer also advised that an Excel spreadsheet with the cash flow assumptions for August was emailed at the request of the Board from the prior meeting. Also included was a cash flow sheet dated July 31, 2008 and supplementary data. Ms. Orrantia requested, on behalf of Board Member Moulin, that amended pages to pages 2 and 3 of the meeting minutes be replaced. The last paragraph on page 2 and the second paragraph on page 3 were duplicate statements and were simplified by combing the two paragraphs. In response to Chairman Ross, Mr. Falconer clarified that the Budget and Cash Flow handout dated July 31, 2008 should be included as part section VI. Item A. Month End Cash Report -September 2008. Investment Advisory Board Minutes IV CONSENT CALENDAR October 15, 2008 Approval of Minutes of Meeting on September 10, 2008 for the Investment Advisory Board. MOTION - It was moved by Board Members Rassi/Deniel to approve the minutes of September 10, 2008, as amended. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for August 2008 Mr. Falconer presented the staff report advising that the portfolio has declined by 52.5 million due to the construction activity at the Dune Palms Housing project. The project is near completion with the City obligation of 530 million and the current balance at 52 million with a recent draw from the project at 51.2 million. Mr. Falconer also advised that the portfolio continues to decrease in average maturity, with the average maturity at the end of August at 51 days. The current yield is up slightly due to the maturity of a T-Bill, with the overall portfolio continuing to decrease with the current market. Mr. Falconer further advised that due to recent press, staff continues to monitor commercial paper with Morgan Stanley A-1 and Met Life still remaining at an A-1 + grade. The current commercial paper held by the City will mature the first part of November, with a GE long-term corporate note maturing in October with no reinvestment due to cash needs and one holding in GE Capital which will mature in September of 2009. Mr. Falconer advised that at the previous Board meeting there was a discussion by Board Member Moulin regarding the yields of treasuries and modification of the 30% cap for all GSE's within the investment policy, due to the current rates of the six-month T-Bill at .85% and six-month Discount Notes at 2.50%. Mr. Falconer asked if the Board had considered changing the investment policy due to the current economic market and if this was the Board's desire, Council approval would also be needed. In response to Board Member Deniel, Mr. Falconer advised that he is currently at the 30% cap. Board Member Deniel stated that she was not sure if an act of Congress was needed to guarantee Freddie Mac and Fannie Mae, but she suggested that the Board research this issue and subject to the Board's findings, then a decision could be made to make the necessary modification to the investment policy giving the Treasurer a little more 2 Investment Advisory Board Minutes October 15, 2008 flexibility. In response to Chairman Ross, Mr. Falconer advised that an amendment to the policy at this time would require Council approval. Board Member Deniel informed the Board that if presented to Council for approval, she was willing to be present at the Council meeting on behalf of the Board. Board Member Rassi stated that he is pleased with the City's portfolio and was also pleased with the Council's decision not to approve the implementation of a professional portfolio manager to try and increase the City's yield. Board Member Deniel stated that the stability of the portfolio is based on what it is allowed to invest in. The current economy has impacted the stock market and not the fixed income securities. Therefore, if the City had implemented a professional portfolio manager, the portfolio would look similar to that of the Treasurer due to the constraints of the investment policy; the only difference would be that a professional portfolio manager would not have to hold to maturity. Board Member Rassi stated that it was his recollection that the intent to hire a professional portfolio manager was to obtain a higher yield; and with the uncertainty of today's market the portfolio is doing well. In response to Chairman Ross, Mr. Falconer advised that there is availability of commercial paper; however, due to the constraints of the policy he is limited on what he can purchase. Mr. Falconer also advised that due to the current publicity of Morgan Stanley, Met Life and GE Capital, he is more apt to purchase commercial paper such as Nestle or AT&T. Mr. Falconer further advised that the City is fortunate that the current GE Capital paper held will mature in 2009 with most cities holding Corporate Notes till 2012; and with the current economic state, this could have some impact to the future holdings. Board Member Deniel informed the Board and staff that she has some concerns of market pricing of GSE's due to the premiums paid. Board Member Deniel also informed the Board that GSE's carry a market risk which the T-Notes and T-bills do not carry. General discussion ensued by the Board in reference to discount notes. In response to Chairman Ross, Mr. Falconer advised that the existing portion of City Hall has a mortgage until 2018 and the expansion was paid for by a loan from the general fund to the civic center developer 3 Investment Advisory Board Minutes October 15, 2008 Falconer clarified for the Board the process of the development impact fees. General discussion ensued by the Board and staff regarding the loan from the general fund. General discussion also ensued by the Board regarding the status of SilverRock. MOTION - It was moved by Board Members Park/Deniel to approve, receive and file the amended Treasury Report for August 2008. Motion carried unanimously. In response to Board Member Deniel, Mr. Falconer suggested forming a subcommittee to research GSE's. Chairman Ross suggested that Board Member Moulin along with staff serve as the subcommittee and report back their findings of Fannie Mae and Freddie Mac under the new guarantees at the next scheduled board meeting. Board Member Deniel clarified that the subcommittee needs to research as to whether or not an act of Congress is needed to have the full faith and credit behind GSE's or part of the 5700 billion that has recently been passed. Mr. Falconer stated that he was under the impression that the guarantee did not apply to Farm Credit or Federal Home Loan Bank. Chairman Ross stated that the research needed by the subcommittee is to make sure that the act of Congress is needed to make sure the guarantees are effective as well as the duration of the guarantee. B. Continued Discussion of the of the Investment Advisory Board 2008/09 Work Plan Mr. Falconer advised that the State imposed on all RDA's, 5350 million state-wide based on a formula. Upon applying that formula to the City of La Quinta, the City's RDA portion to be withheld by the State will be approximately 54.8 to 54.9 million. Mr. Falconer further advised that he contacted the Auditor Controller's office and they advised him that they will be drafting a memo as to how this money will be obtained by each city. This amount to be withheld from all cities only represents 5350 million of the State's 515 billion shortfall. Mr. Falconer also advised that all monies withheld by all cities is not a considered a loan to the State. 4 Investment Advisory Board Minutes October 15, 2008 all monies withheld by all cities is not a considered a loan to the State. Mr. Falconer advised that there have been some discussions of legal challenges from the California Redevelopment Agency, a statewide group of RDA members, which is considering legal action against the withholding of these monies. Mr. Falconer also advised that the City generates roughly S 10 million in excess tax increment every year and the withholding of these monies will cut the City's RDA funds in half, which have been allocated towards SilverRock. Mr. Falconer further advised that he does not want to bond for any SilverRock improvements and would like to proceed on a "pay as you go" basis. This is mainly due to the current economic market and the inability to issue bonds at this time. General discussion ensued by the Board regarding previous state withheld money. In response to Board Member Deniel, Chairman Ross summarized the discussions carried over from the previous Board meeting which included the work plan, handouts from Board Member Moulin, the modifications to the Treasurer's Report and staff's suggested changes to the report. Mr. Falconer presented staff's suggested "required" pages to the Treasurer's Report in accordance to State Code: Page 2: Required Page 3: Not required Board Member Deniel advised that page 3 was very useful to the Board and suggested that a paragraph referencing surplus also be added. Chairman Ross stated for clarification when staff states a report is "required" by State Code it's also required by City Council. Staff concurred. Page 4: Not required but staff would like to still include as part of the report. Mr. Falconer commented that this particular sheet references surplus maximums, which was referenced by Board Member Moulin. Mr. Falconer advised that this page reflects a difference from the all "funds" category vs. the surplus "category," which is a result from the information provided on page 10 and the timing of cash needs. In response to Board Member Deniel, Mr. Falconer clarified for the Board the use of the term surplus within staff's report and how it is defined by the City Attorney. 5 Investment Advisory Board Minutes October 15, 2008 Board Member Deniel stated that she feels that term "surplus" needs to be changed. Mr. Falconer reiterated that page 4 is not "required" to be included as part of the Treasurer's Report. Board Member Deniel stated that she was satisfied with page 4 with the exception of the surplus columns. Page 5: Required In response to Board Member Deniel, Mr. Falconer advised that the market values for this particular page are provided by the Bank of New York and US Bank. In response to Chairman Ross, Mr. Falconer advised that page 37 of Section B, Attachment 3 is mandated by the State Code and is generated on a quarterly basis for approval by the City Council. Page 6: Required Page 7: Required General conversation ensued by the Board and staff regarding 2 of the columns on page 7, "Principal" and "Par," due to their similarities; it was the conclusion of both the Board and staff to eliminate one of the columns. Mr. Falconer suggested that he redraft page 7 and email to the Board for their review. Page 8: Not required Board Member Deniel stated that she felt this page was useful in following the market trends and suggested that it reflect a quarterly trend instead of a monthly trend. In response to Chairman Ross, Mr. Falconer advised that the reports could reflect whatever the Board feels is useful information. Page 9: Not required Mr. Falconer advised that page 9 is a six-month cash flow analysis supporting page 2 of the Treasurer's Report. 6 Investment Advisory Board Minutes October 7 5, 2008 In response to Board Member Deniel, Mr. Falconer advised that the tax increments listed prior to December are early tax revenue sent in by city residence with a large portion collected in December but paid to the city in January. In response to Board Member Deniel, Mr. Falconer advised the TOT collected by the hotel is paid directly to the City a month after it is collected. Chairman Ross advised that at the previous month's meeting, Board Member Moulin stated that he would like to see the actual year-to-date forecast also reflected on page 9. Mr. Falconer advised that he emailed the forecast for the Board's review prior to the scheduled meeting, which also included the revenue and expenditures. General discussion ensued by the Board regarding the forecasted items listed on page 9 and suggested changes to the page. Board Member Rassi commented that he felt that the suggested changes by Board Member Moulin at the previous month's meeting would be of no advantage to the Treasurer's functions. Mr. Falconer informed the Board that the drafted page to the Treasurer's Report took roughly 50 hours to complete, and if implemented into the report, would take approximately two days to complete. Chairman Ross and Board Member Deniel suggested that this particular issue be continued to the next scheduled meeting. Page 10: Not required In response to Board Member Deniel, Mr. Falconer clarified for the Board that staff would have to refer back to the investment policy in order to eliminate a page from the report. Page 11: Not required Page 12: Not required In response to Chairman Ross, Mr. Falconer summarized for the Board pages 37, 38 and 39, which were included in Section B. MOTION - It was moved by Board Members Deniel/Rassi to continue the 7 Investment Advisory Board Minutes October 15, 2008 discussion of the Fiscal Year 2008/09 Work Plan to the November meeting. VI CORRESPONDENCE AND WRITTEN MATERIAL A . Month End Cash Report -September 2008 Noted and Filed B. Pooled Money Investment Board Report -July Report Mr. Falconer advised that the report has increased by 55.6 billion. Noted and Filed VII BOARD MEMBER ITEMS Mr. Falconer advised the Board of the scheduled Ethics Training scheduled for November 19, advising that this training needs to be completed by December 31 of 2008. Mr. Falconer further advised that draft financial statements have been forwarded to the auditor and should be receiving back within the next few weeks. Mr. Falconer informed the Board that a joint meeting with City Council has been scheduled for November 25, 2008 at 7:30 p.m. in the Study Session Room at the Civic Center. Mr. Falconer also advised if there were specific topics that needed to be discussed with the City Council, they need to be submitted to staff to be placed on the meeting agenda. VIII Adjournment MOTION - It was moved by Board Members Park/Deniel to adjourn the meeting at 6:05 p.m. Motion carried unanimously. 8 vianRU vrranun, Senior Secretary