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2022 05 11 FACFINANCIAL ADVISORY COMMISSION AGENDA Page 1 of 4 MAY 11, 2022 REGULAR QUARTERLY MEETING FINANCIAL ADVISORY COMMISSION AGENDA CITY HALL COUNCIL CHAMBERS 78-495 Calle Tampico, La Quinta REGULAR MEETING WEDNESDAY, MAY 11, 2022 AT 4:00 P.M. ****************************** SPECIAL NOTICE Teleconferencing and Telephonic Accessibility in Effect Pursuant to Executive Orders N-60-20 and N-08-21 executed by the Governor of California, and subsequently Assembly Bill 361 (AB 361, 2021), enacted in response to the state of emergency relating to novel coronavirus disease 2019 (COVID-19) and enabling teleconferencing accommodations by suspending or waiving specified provisions in the Ralph M. Brown Act (Government Code § 54950 et seq.), members of the public, the Financial Advisory Commission, the City Manager, City Attorney, City Staff, and City Consultants may participate in this special meeting by teleconference Members of the public wanting to listen to this meeting may do so by tuning- in live via https://laquinta.12milesout.com/video/live. Written public comments – can be provided by emailing the Commission Secretary at JDelgado@LaQuintaCA.gov preferably by 12:00 p.m. on the day of the meeting, and will be distributed to the Commission, incorporated into the agenda packet and public record of the meeting, and will not be read during the meeting unless, upon the request of the Chair, a brief summary of any public comment is asked to be read, to the extent staff can accommodate such request. If emailed, the email “subject line” must clearly state “Written Comments” and list the following: 1) Full Name 4) Public Comment or Agenda Item Number Financial Advisory Commission agendas and staff reports are now available on the City’s web page: www.laquintaca.gov FINANCIAL ADVISORY COMMISSION AGENDA Page 2 of 4 MAY 11, 2022 REGULAR QUARTERLY MEETING 2) City of Residence 5) Subject 3) Phone Number 6) Written Comments *** TELECONFERENCE PROCEDURES *** Verbal public comments via Teleconference – members of the public may attend and participate in the meeting by teleconference via Zoom and use the “raise your hand” feature when public comments are prompted by the Chair; the City will facilitate the ability for a member of the public to be audible to the Commission and general public and allow him/her/them to speak on the item(s) requested. Please note – members of the public must unmute themselves when prompted upon being recognized by the Chair, in order to become audible to the Commission and the public. Only one person at a time may speak by teleconference and only after being recognized by the Chair. ZOOM LINK: https://us06web.zoom.us/j/89839984651 Meeting ID: 898 3998 4651 Or join by phone: (253) 215 – 8782 It would be appreciated that any email communications for public comments related to the items on the agenda, or for general public comment, are provided to the Commission Secretary at the email address listed above prior to the commencement of the meeting. If that is not possible, and to accommodate public comments on items that may be added to the agenda after its initial posting or items that are on the agenda, every effort will be made to attempt to review emails received by the Commission Secretary during the course of the meeting. The Financial Advisory Commission’s Chair will endeavor to take a brief pause before action is taken on any agenda item to allow the Commission Secretary to review emails and share any public comments received during the meeting. All emails received by the Commission Secretary, at the email address above, until the adjournment of the meeting, will be included within the public record relating to the meeting. ****************************** CALL TO ORDER Roll Call: Commissioners: Anderson, Campbell, Dorsey, Mast, Mills, Way and Chair Batavick PLEDGE OF ALLEGIANCE FINANCIAL ADVISORY COMMISSION AGENDA Page 3 of 4 MAY 11, 2022 REGULAR QUARTERLY MEETING PUBLIC COMMENT At this time members of the public may address the La Quinta Financial Advisory Commission on any matter not listed on the agenda by providing written public comments via email as indicated above; or provide verbal written comments via teleconference by joining the meeting virtually at https://us06web.zoom.us/j/89839984651 and use the “raise your hand” feature when prompted by the Chair. Please limit your comments to three minutes (approximately 350 words). The Commission values your comments; however, in accordance with State law, no action shall be taken on any item not appearing on the agenda unless it is an emergency item authorized by the Brown Act [Government Code Section 54954.2(b)]. CONFIRMATION OF AGENDA ANNOUNCEMENTS, PRESENTATIONS AND WRITTEN COMMUNICATIONS – None CONSENT CALENDAR NOTE: Consent Calendar items are routine in nature and can be approved by one motion. 1. Approve Meeting Minutes Dated April 13, 2022 2. Receive and File Revenue and Expenditure Report Dated February 28, 2022 BUSINESS SESSION 1. Review and Approve the Fiscal Year 2022/23 Meeting Dates STUDY SESSION 1. Discuss the Fiscal Year 2022/23 Investment Policy 2. Review and discuss 10-Year Financial Projections for the General Fund 3. Discuss Fiscal Year 2022/23 Preliminary Proposed Budget DEPARTMENTAL REPORTS 1. Finance Department Current and Future Initiatives 2. Fourth Quarter 2021 (October-December) Sales Tax Update for the City of La Quinta COMMISSIONERS’ ITEMS FINANCIAL ADVISORY COMMISSION AGENDA Page 4 of 4 MAY 11, 2022 REGULAR QUARTERLY MEETING ADJOURNMENT The La Quinta Financial Advisory Commission will hold a special meeting on June 1, 2022, commencing at 4:00 p.m. at the La Quinta City Hall Council Chambers, 78-495 Calle Tampico, La Quinta, CA 92253. DECLARATION OF POSTING I, Jessica Delgado, Management Assistant, of the City of La Quinta, do hereby declare that the foregoing Agenda for the Commission meeting was posted on the City’s website, near the entrance to the Council Chamber at 78-495 Calle Tampico, and the bulletin boards at 78-630 Highway 111, and 51-321 Avenida Bermudas, on May 6, 2022 DATED: May 6, 2022 Jessica Delgado, Management Assistant City of La Quinta, California Public Notices The La Quinta City Hall Council Chambers is handicapped accessible. If special equipment is needed for the hearing impaired, please contact the Commission Secretary at (760) 777-7150, twenty-four (24) hours in advance of the meeting and accommodations will be made. If special electronic equipment is needed to make presentations to the Commission, arrangements should be made in advance by contacting the Commission Secretary at (760) 777-7150. A one (1) week notice is required. If background material is to be presented to the Commission during a Commission meeting, please be advised that eight (8) copies of all documents, exhibits, etc., must be supplied to the Commission Secretary for distribution. It is requested that this takes place prior to the beginning of the meeting. Any Writings or documents provided to a majority of the Commission regarding any item(s) on the agenda will be made available for public inspection at the Concierge desk at City Hall located at 78495 Calle Tampico, La Quinta, California, 92253, during normal business hours. Digitally signed by Jessica Delgado DN: cn=Jessica Delgado, o=City of La Quinta, ou=Finance, email=jdelgado@laquintaca.gov, c=US Date: 2022.05.06 14:58:01 -07'00' FINANCIAL ADVISORY COMMISSION MINUTES Page 1 of 4 APRIL 13, 2022 SPECIAL MEETING FINANCIAL ADVISORY COMMISSION SPECIAL MEETING MINUTES WEDNESDAY, APRIL 13, 2022 CALL TO ORDER A special meeting of the La Quinta Financial Advisory Commission (Commission) was called to order at 4:00 p.m. by Chair Batavick. This meeting provided teleconferencing accessibility pursuant to Executive Orders N-60-20 and N-08-21 executed by the Governor of California, and subsequently Assembly Bill 361 (AB 361, 2021), enacted in response to the state of emergency relating to novel coronavirus disease 2019 (COVID-19) and enabling teleconferencing accommodations by suspending or waiving specified provisions in the Ralph M. Brown Act (Government Code § 54950 et seq.), members of the public, the Financial Advisory Commission, the City Manager, City Attorney, City Staff, and City Consultants may participate in this special meeting by teleconference. PRESENT: Commissioners Anderson, Campbell, Dorsey, Mast, Mills, Way (joined at 4:04 p.m.), and Chair Batavick ABSENT: None STAFF PRESENT: Finance Director Martinez, Financial Services Analyst Hallick, Management Assistant Delgado, Management Specialist Mignogna, and Public Works Director/City Engineer McKinney. PLEDGE OF ALLEGIANCE Commissioner Mills led the audience in the Pledge of Allegiance. PUBLIC COMMENT ON MATTERS NOT ON THE AGENDA – None COMMISSIONER WAY JOINED THE MEETING AT 4:04 P.M. CONFIRMATION OF AGENDA Staff requested that Study Session Item No. 1 be moved up and considered before the Consent Calendar. The Commission concurred. CONSENT CALENDAR ITEM NO. 1 FINANCIAL ADVISORY COMMISSION MINUTES Page 2 of 4 APRIL 13, 2022 SPECIAL MEETING ANNOUNCEMENTS, PRESENTATIONS, AND WRITTEN COMMUNICATIONS – None STUDY SESSION – taken out of Agenda order 1. DISCUSS PROJECTS TO BE INCLUDED IN FISCAL YEARS 2022/23 THROUGH 2026/27 CAPITAL IMPROVEMENT PROGRAM (CIP) BUDGET Management Analyst Mignogna and Public Works Director/City Engineer McKinney presented the staff report, which is on file in the Finance Department. The Commission and staff discussed CIP transportation projects; funding type and sources; and drainage improvements. Commissioner Mast suggested resurfacing tennis courts at Fritz Burn Park. Staff said they would have maintenance staff take a look at tennis courts conditions. Further discussion followed on parks and facilities projects; La Quinta park locations; City Hall capacity improvements; appropriations for Measure G funding for the Highway 111 Corridor (Corridor) project; possible grant funding for Corridor; overview of Corridor current phase plan; next steps for consultants for the Corridor project; cost and challenges for Village Underground utilities project; Phase II of citywide Public Safety Camera System (PSCS) installations and camera use; potential funding for PSCS; Washington Street sidewalk improvements for fiscal year 2023/24; and Measure G projections for fiscal year 2022/23. The Commission and staff discussed budgeting process for CIP and process for funding projects. The Commission expressed general consensus for the proposed CIP budget as presented; and recommended staff provide the Commission with continuous updates on the Corridor project’s projected appropriations as they become available. CONSENT CALENDAR ITEMS – taken out of Agenda order 1. APPROVE MEETING MINUTES DATED FEBRUARY 9, 2022 2. RECEIVE AND FILE SECOND QUARTER FISCAL YEAR 2021/22 TREASURY REPORTS FOR OCTOBER, NOVEMBER, DECEMBER 2021 3. RECEIVE AND FILE REVENUE AND EXPENDITURE REPORT DATED DECEMBER 31, 2021 4. RECEIVE AND FILE REVENUE AND EXPENDITURE REPORT DATED JANUARY 31, 2022 FINANCIAL ADVISORY COMMISSION MINUTES Page 3 of 4 APRIL 13, 2022 SPECIAL MEETING Motion – A motion was made and seconded by Commissioners Campbell/Mast to approve the Consent Calendar as submitted. Motion passed unanimously. BUSINESS SESSION 1. RECEIVE AND FILE FISCAL YEAR 2021/22 MID-YEAR BUDGET REPORT (Report) Finance Director Martinez presented the staff report, which is on file in the Finance Department. Commissioner Dorsey inquired about the unassigned fund balance for fiscal year 2020/21. Staff said it was a little over $19 million. The Commission and staff discussed review of credit card fees in upcoming fee study (study) and process for study; amounts appropriated for Dune Palms Bridge project; pay down process for the City’s pension liability; and second quarter budget adjustments listed on Exhibit 1 included in the staff report. The Commission recommended holding a future study session for an overview update on CIP project accounting and activity reporting. Motion – A motion was made and seconded by Commissioners Way/Anderson to receive and file fiscal year 2021/22 mid-year budget report, as submitted. Motion passed unanimously. STUDY SESSION – Continued 2. REVIEW AND DISCUSS THE 2022 COMMUNITY WORKSHOP Finance Director Martinez presented the staff report, which is on file in the Finance Department. Commissioner Mills commended Commissioners Batavick and Way on their assistance of simplifying the 10-year Financial Projections (Projections) report. The Commission suggested staff provide the previously used spreadsheet for Projections to the Commission for review in a future Commission meeting as a study session item. DEPARTMENTAL REPORTS All reports are on file in the Finance Department. 1. FINANCE DEPARTMENT CURRENT AND FUTURE INITIATIVES FINANCIAL ADVISORY COMMISSION MINUTES Page 4 of 4 APRIL 13, 2022 SPECIAL MEETING Finance Director Martinez thanked the Commission for their participation in the 2022 Community Workshop on March 12, 2022, and the Special Joint Council, Boards, Commissions, and Committees meeting on March 28, 2022. The Commission inquired on transient occupancy tax sharing agreements and how they are disclosed in the Annual Comprehensive Financial Report. COMMISSIONERS’ ITEMS – None ADJOURNMENT There being no further business, it was moved by Commissioner Campbell/Mast to adjourn this meeting at 6:11 p.m. Motion passed unanimously. Respectfully submitted, Jessica Delgado, Management Assistant City of La Quinta, California City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: May 11, 2022 STAFF REPORT AGENDA TITLE: RECEIVE AND FILE REVENUE AND EXPENDITURE REPORT DATED FEBRUARY 28, 2022 RECOMMENDATION Receive and file revenue and expenditure report dated February 28, 2022. EXECUTIVE SUMMARY • The report summarizes the City’s year-to-date (YTD) revenues and period expenditures for February 2022 (Attachment 1). • These reports are also reviewed by the City Council. FISCAL IMPACT – None BACKGROUND/ANALYSIS Below is a summary of the column headers used on the Revenue and Expenditure Summary Reports: Original Total Budget – represents revenue and expenditure budgets the Council adopted in June 2021 for fiscal year 2021/22. Current Total Budget – represents original adopted budgets plus any Council approved budget amendments from throughout the year, including carryovers from the prior FY. Period Activity – represents actual revenues received and expenditures outlaid in the reporting month. Fiscal Activity – represents actual revenues received and expenditures outlaid YTD. Variance Favorable/(Unfavorable) - represents the dollar difference between YTD collections/expenditures and the current budgeted amount. Percent Used – represents the percentage activity as compared to budget YTD. CONSENT CALENDAR ITEM NO. 2 The revenue report includes revenues and transfers into funds from other funds (income items). Revenues are not received uniformly throughout the year, resulting in peaks and valleys. For example, large property tax payments are usually received in December and May. Similarly, Redevelopment Property Tax Trust Fund payments are typically received in January and June. Any timing imbalance of revenue receipts versus expenditures is funded from the City’s cash flow reserve. The expenditure report includes expenditures and transfers out to other funds. Unlike revenues, expenditures are more likely to be consistent from month to month. However, large debt service payments or CIP expenditures can cause swings. Prepared by: Rosemary Hallick, Financial Services Analyst Approved by: Claudia Martinez, Finance Director Attachment 1: Revenue and Expenditure Report for February 28, 2022 MTD YTD YTD Percent of Budget YTD YTD Percent of Budget General Fund (GF)$9,087,227 $36,448,459 55.74%28,933,266$ 52.57% All Funds $10,383,771 $60,918,525 40.86%60,254,629$ 35.41% MTD YTD YTD Percent of Budget YTD YTD Percent of Budget General Fund $2,312,020 $20,815,940 29.47%19,513,481$ 29.71% Payroll (GF)$655,167 $6,992,643 60.97%6,153,139$ 59.10% All Funds $3,519,399 $49,261,895 30.67%64,956,285$ 34.97% February 2022 Expenditures Comparison to LY February 2022 Revenues Comparison to LY General Fund Non-General Fund Property Tax in lieu of Vehicle License Fees 2,307,838$ SilverRock Greens Fees 584,953$ Transient Occupancy (Hotel) Tax 1,999,799$ Gas Tax 136,085$ Measure G Sales Tax 1,817,956$ Allocated Interest 100,460$ Sales Tax 1,531,305$ Housing Authority Rent Revenues 86,163$ Franchise Tax- Burrtec 272,195$ Small Business Economic Relief Loan Repayments 80,625$ General Fund Non-General Fund Sheriff Contract (October-November)1,142,667$ Capital Improvement Program - Construction(1)292,604$ Marketing and Tourism Promotions 56,438$ SilverRock Maintenance 143,718$ TOT Resort Rebate Program 50,000$ Lighting & Landscape Maintenance 65,331$ Parks Landscape Maintenance 48,536$ Housing Authority Rental Expenses 55,204$ Machinery & Equipment 41,989$ Information Technology Management Services 27,500$ Top Five Revenue/Income Sources for February Top Five Expenditures/Outlays for February (1)CIP Construction: X-Park, SRR retention basin For Fiscal: 2021/22 Period Ending: 02/28/2022 Page 1 of 3 Revenue Summary Fiscal Activity Variance Favorable (Unfavorable)Fund Period Activity Current Total Budget Original Total Budget Percent Used 101 - GENERAL FUND 36,448,4599,087,22758,804,210 65,392,532 -28,944,073 55.74% 201 - GAS TAX FUND 1,004,593136,0851,965,880 1,965,880 -961,287 51.10% 202 - LIBRARY & MUSEUM FUND -2,113892,850,700 2,851,900 -2,854,013 0.07% 203 - PUBLIC SAFETY FUND (MEASURE G)-18005,000 5,000 -5,180 3.60% 210 - FEDERAL ASSISTANCE FUND -1170151,000 151,000 -151,117 0.08% 212 - SLESA (COPS) FUND 102,8328,333101,000 101,000 1,832 101.81% 215 - LIGHTING & LANDSCAPING FUND 511,15902,274,700 2,274,700 -1,763,541 22.47% 221 - AB 939 - CALRECYCLE FUND 31,11813,83670,000 70,000 -38,882 44.45% 223 - MEASURE A FUND 780,5326,0561,567,000 1,567,000 -786,468 49.81% 225 - INFRASTRUCTURE FUND -80100100 -108 7.77% 226 - EMERGENCY MANAGEMENT PERFORMANCE GRANT (EMPG)28,809012,000 12,000 16,809 240.08% 227 - STATE HOMELAND SECURITY PROGRAMS (SHSP)005,000 5,000 -5,000 0.00% 230 - CASp FUND, AB 1379 12,3231,33619,200 19,200 -6,877 64.18% 231 - SUCCESSOR AGCY PA 1 RORF 7,181,305000 7,181,305 0.00% 235 - SO COAST AIR QUALITY FUND 13,537052,800 52,800 -39,263 25.64% 237 - SUCCESSOR AGCY PA 1 ADMIN -74000 -74 0.00% 241 - HOUSING AUTHORITY 1,236,499107,286871,400 1,241,400 -4,901 99.61% 243 - RDA LOW-MOD HOUSING FUND -1,129035,000 35,000 -36,129 3.23% 247 - ECONOMIC DEVELOPMENT FUND 79,40180,62530,000 30,000 49,401 264.67% 249 - SA 2011 LOW/MOD BOND FUND (Refinanced in 2016)12,1830201,000 201,000 -188,817 6.06% 250 - TRANSPORTATION DIF FUND 1,640,17176,171428,000 428,000 1,212,171 383.22% 251 - PARKS & REC DIF FUND 425,58840,014351,000 351,000 74,588 121.25% 252 - CIVIC CENTER DIF FUND 314,92723,370152,000 152,000 162,927 207.19% 253 - LIBRARY DEVELOPMENT DIF 80,1677,54350,000 50,000 30,167 160.33% 254 - COMMUNITY & CULTURAL CENTERS DIF 191,33918,16472,000 72,000 119,339 265.75% 255 - STREET FACILITY DIF FUND 31,463000 31,463 0.00% 256 - PARK FACILITY DIF FUND 40000 40 0.00% 257 - FIRE PROTECTION DIF 104,6887,01166,000 66,000 38,688 158.62% 270 - ART IN PUBLIC PLACES FUND 113,9952,751130,000 130,000 -16,005 87.69% 275 - LQ PUBLIC SAFETY OFFICER -2002,600 2,600 -2,620 0.76% 299 - INTEREST ALLOCATION FUND 885,615100,46000 885,615 0.00% 310 - LQ FINANCE AUTHORITY DEBT SERVICE 001,100 1,100 -1,100 0.00% 401 - CAPITAL IMPROVEMENT PROGRAMS 4,750,31194,8849,894,806 62,391,518 -57,641,207 7.61% 405 - SA PA 1 CAPITAL IMPRV FUND -458000 -458 0.00% 501 - FACILITY & FLEET REPLACEMENT 595,27901,222,750 1,222,750 -627,471 48.68% 502 - INFORMATION TECHNOLOGY 892,9152,0701,786,700 1,786,700 -893,785 49.98% 503 - PARK EQUIP & FACILITY FUND 245,60272,076400,000 400,000 -154,398 61.40% 504 - INSURANCE FUND 504,85701,010,800 1,010,800 -505,943 49.95% 601 - SILVERROCK RESORT 2,916,582654,9634,157,693 4,187,693 -1,271,111 69.65% 602 - SILVERROCK GOLF RESERVE -210067,000 67,000 -67,210 0.31% 760 - SUPPLEMENTAL PENSION PLAN -3806,000 6,000 -6,038 0.63% 761 - CERBT OPEB TRUST 77,015080,000 80,000 -2,985 96.27% 762 - PARS PENSION TRUST -290,433-156,580700,000 700,000 -990,433 41.49% Report Total:10,383,771 60,918,52589,594,439 149,080,673 -88,162,148 40.86% ATTACHMENT 1 Accounts are subject to adjusting entries and audit. The City's Annual Comprehensive Financial Report is the best resource for all final audited numbers. 61 For Fiscal: 2021/22 Period Ending: 02/28/2022 Page 2 of 3 Expenditure Summary Fiscal Activity Variance Favorable (Unfavorable)Fund Period Activity Current Total Budget Original Total Budget Percent Used 101 - GENERAL FUND 20,815,9402,312,02055,162,726 70,624,237 49,808,298 29.47% 201 - GAS TAX FUND 976,67234,4672,007,500 2,984,683 2,008,011 32.72% 202 - LIBRARY & MUSEUM FUND 396,92339,3844,306,510 4,732,500 4,335,577 8.39% 203 - PUBLIC SAFETY FUND (MEASURE G)171,45200286,397 114,946 59.86% 210 - FEDERAL ASSISTANCE FUND 00148,350 148,350 148,350 0.00% 212 - SLESA (COPS) FUND 4,5760100,000 100,000 95,424 4.58% 215 - LIGHTING & LANDSCAPING FUND 1,242,954130,9112,257,400 2,257,400 1,014,446 55.06% 220 - QUIMBY FUND 330,300001,180,635 850,335 27.98% 221 - AB 939 - CALRECYCLE FUND 16,2210150,000 150,000 133,779 10.81% 223 - MEASURE A FUND 322,3611,5031,220,500 2,614,501 2,292,140 12.33% 225 - INFRASTRUCTURE FUND 00022,618 22,618 0.00% 226 - EMERGENCY MANAGEMENT PERFORMANCE GRANT (EMPG)9,750012,000 12,000 2,250 81.25% 227 - STATE HOMELAND SECURITY PROGRAMS (SHSP)005,000 5,000 5,000 0.00% 230 - CASp FUND, AB 1379 005,600 5,600 5,600 0.00% 231 - SUCCESSOR AGCY PA 1 RORF 13,502,588000 -13,502,588 0.00% 235 - SO COAST AIR QUALITY FUND 13,97170242,500 42,500 28,529 32.87% 237 - SUCCESSOR AGCY PA 1 ADMIN 3,500000 -3,500 0.00% 241 - HOUSING AUTHORITY 714,32080,0351,542,200 1,542,200 827,880 46.32% 243 - RDA LOW-MOD HOUSING FUND 7000250,000 250,000 249,300 0.28% 244 - HOUSING GRANTS (Multiple)13,66700160,000 146,333 8.54% 247 - ECONOMIC DEVELOPMENT FUND 16,76326321,500 21,500 4,737 77.97% 249 - SA 2011 LOW/MOD BOND FUND (Refinanced in 2016)30,545020,000 20,000 -10,545 152.73% 250 - TRANSPORTATION DIF FUND 400,0000604,500 1,816,757 1,416,757 22.02% 253 - LIBRARY DEVELOPMENT DIF 0030,000 30,000 30,000 0.00% 254 - COMMUNITY & CULTURAL CENTERS DIF 00125,000 125,000 125,000 0.00% 270 - ART IN PUBLIC PLACES FUND 75,289300127,000 742,700 667,411 10.14% 310 - LQ FINANCE AUTHORITY DEBT SERVICE 001,100 1,100 1,100 0.00% 401 - CAPITAL IMPROVEMENT PROGRAMS 4,101,577320,0619,894,806 60,540,692 56,439,115 6.77% 405 - SA PA 1 CAPITAL IMPRV FUND 997,179001,128,751 131,572 88.34% 501 - FACILITY & FLEET REPLACEMENT 423,75338,4341,222,750 1,319,714 895,960 32.11% 502 - INFORMATION TECHNOLOGY 890,22158,1211,786,700 2,256,627 1,366,406 39.45% 503 - PARK EQUIP & FACILITY FUND 115,21971,956255,000 255,000 139,781 45.18% 504 - INSURANCE FUND 864,87913,989936,800 936,800 71,921 92.32% 601 - SILVERROCK RESORT 2,756,535412,2824,161,262 4,191,262 1,434,727 65.77% 602 - SILVERROCK GOLF RESERVE 00030,000 30,000 0.00% 760 - SUPPLEMENTAL PENSION PLAN 12,833012,850 12,850 17 99.87% 761 - CERBT OPEB TRUST 89501,500 1,500 605 59.69% 762 - PARS PENSION TRUST 40,3114,96952,000 52,000 11,689 77.52% Report Total:3,519,399 49,261,89586,463,054 160,600,875 111,338,980 30.67% Accounts are subject to adjusting entries and audit. The City's Annual Comprehensive Financial Report is the best resource for all final audited numbers. 62 Fund #Name Notes 101 General Fund The primary fund of the City used to account for all revenue and expenditures of the City; a broad range of municipal activities are provided through this fund. 201 Gas Tax Fund Gasoline sales tax allocations received from the State which are restricted to street-related expenditures. 202 Library and Museum Fund Revenues from property taxes and related expenditures for library and museum services. 203 Public Safety Fund General Fund Measure G sales tax revenue set aside for public safety expenditures. 210 Federal Assistance Fund Community Development Block Grant (CDBG) received from the federal government and the expenditures of those resources. 212 SLESF (COPS) Fund Supplemental Law Enforcement Services Funds (SLESF) received from the State for law enforcement activities. Also known as Citizen's Option for Public Safety (COPS). 215 Lighting & Landscaping Fund Special assessments levied on real property for city-wide lighting and landscape maintenance/improvements and the expenditures of those resources. 220 Quimby Fund Developer fees received under the provisions of the Quimby Act for park development and improvements. 221 AB939 Fund/Cal Recycle Franchise fees collected from the city waste hauler that are used to reduce waste sent to landfills through recycling efforts. Assembly Bill (AB) 939. 223 Measure A Fund County sales tax allocations which are restricted to street-related expenditures. 224 TUMF Fund Developer-paid Transportation Uniform Mitigation Fees (TUMF) utilized for traffic projects in Riverside County. 225 Infrastructure Fund Developer fees for the acquisition, construction or improvement of the City’s infrastructure as defined by Resolution 226 Emergency Mgmt. Performance Grant (EMPG)Federal Emergency Management Agency (FEMA) grant for emergency preparedness. 227 State Homeland Security Programs (SHSP)Federal Emergency Management Agency (FEMA) grant for emergency preparedness. 230 CASP Fund, AB1379 / SB1186 Certified Access Specialist (CASp) program fees for ADA Accessibility Improvements; derived from Business License renewals. Assembly Bill (AB) 1379 and Senate Bill (SB) 1186. 231 Successor Agency PA 1 RORF Fund Successor Agency (SA) Project Area (PA) 1 Redevelopment Obligation Retirement Fund (RORF) for Redevelopment Property Tax Trust Fund (RPTTF) taxes received for debt service payments on recognized obligations of the former Redevelopment Agency (RDA). 235 SO Coast Air Quality Fund (AB2766, PM10)Contributions from the South Coast Air Quality Management District. Uses are limited to the reduction and control of airborne pollutants. Assembly Bill (AB) 2766. 237 Successor Agency PA 1 Admin Fund Successor Agency (SA) Project Area (PA) 1 for administration of the Recognized Obligation Payment Schedule (ROPS) associated with the former Redevelopment Agency (RDA). 241 Housing Authority Activities of the Housing Authority which is to promote and provide quality affordable housing. 243 RDA Low-Moderate Housing Fund Activities of the Housing Authority which is to promote and provide quality affordable housing. Accounts for RDA loan repayments (20% for Housing) and housing programs,. 244 Housing Grants Activites related Local Early Action Planning (LEAP) and SB2 grants for housing planning and development. 247 Economic Development Fund Proceeds from sale of City-owned land; transferred from General Fund for future economic development. 249 SA 2011 Low/Mod Bond Fund Successor Agency (SA) low/moderate housing fund; 2011 bonds refinanced in 2016. 250 Transportation DIF Fund Developer impact fees collected for specific public improvements - transportation related. 251 Parks & Rec. DIF Fund Developer impact fees collected for specific public improvements - parks and recreation. 252 Civic Center DIF Fund Developer impact fees collected for specific public improvements - Civic Center. 253 Library Development DIF Fund Developer impact fees collected for specific public improvements - library. 254 Community Center DIF Fund Developer impact fees collected for specific public improvements - community center. 255 Street Facility DIF Fund Developer impact fees collected for specific public improvements - streets. 256 Park Facility DIF Fund Developer impact fees collected for specific public improvements - parks. 257 Fire Protection DIF Fund Developer impact fees collected for specific public improvements - fire protection. 270 Art In Public Places Fund Developer fees collected in lieu of art placement; utilized for acquisition, installation and maintenance of public artworks. 275 LQ Public Safety Officer Fund Annual transfer in from General Fund; distributed to public safety officers disabled or killed in the line of duty. 299 Interest Allocation Fund Interest earned on investments. 310 LQ Finance Authority Debt Service Fund Accounted for the debt service the Financing Authority’s outstanding debt and any related reporting requirements. This bond was fully paid in October 2018. 401 Capital Improvement Program Fund Planning, design, and construction of various capital projects throughout the City. 405 SA PA 1 Capital Improvement Fund Successor Agency (SA) Project Area (PA) 1 bond proceeds restricted by the bond indenture covenants. Used for SilverRock infrastructure improvements. 501 Equipment Replacement Fund Internal Service Fund for vehicles, heavy equipment, and related facilities. 502 Information Technology Fund Internal Service Fund for computer hardware and software and phone systems. 503 Park Equipment & Facility Fund Internal Service Fund for park equipment and facilities. 504 Insurance Fund Internal Service Fund for city-wide insurance coverages. 601 SilverRock Resort Fund Enterprise Fund for activities of the city-owned golf course. 602 SilverRock Golf Reserve Fund Enterprise Fund for golf course reserves for capital improvements. 760 Supplemental Pension Plan (PARS Account)Supplemental pension savings plan for excess retiree benefits to general employees of the City. 761 Other Post Benefit Obligation Trust (OPEB)For retiree medical benefits and unfunded liabilities. 762 Pension Trust Benefit (PARS Account)For all pension-related benefits and unfunded liabilities. Fund Descriptions Page 3 of 3 63 64 City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: May 11, 2022 STAFF REPORT AGENDA TITLE: REVIEW AND APPROVE THE FISCAL YEAR 2022/23 MEETING DATES RECOMMENDATION Review and approve the fiscal year 2022/23 meeting dates. EXECUTIVE SUMMARY • Annually the Financial Advisory Commission (FAC) and staff discuss and select meeting dates for the following fiscal year. • The FAC shall meet quarterly with the ability to schedule special meetings as needed throughout the year. FISCAL IMPACT FAC members are eligible to receive $75 per member, per meeting attended. The proposed 2022/23 budget will be $3,700 for four regularly scheduled quarterly meetings plus an allowance for three special meetings per year for a seven-member Commission. BACKGROUND/ANALYSIS The FAC shall meet quarterly and may schedule additional special meetings as needed. Meeting dates for the current fiscal year 2021/22 are as follows: August 4, 2021 – Wednesday October 6, 2021 – Wednesday, special meeting date November 10, 2021 – Wednesday February 9, 2022 – Wednesday April 13, 2022 – Wednesday, special meeting date May 11, 2022 – Wednesday June 1, 2022 – Wednesday, special meeting date Proposed Meeting dates for the next fiscal year 2022/23 are as follows: August 10, 2022 – Wednesday October 5, 2022 – Wednesday, proposed special meeting date November 9, 2022 – Wednesday February 8, 2023 – Wednesday BUSINESS SESSION ITEM NO. 1 April 5, 2023 – Wednesday, proposed special meeting date May 10, 2023 – Wednesday June 7, 2023 – Wednesday, proposed special meeting date ALTERNATIVES: The FAC may amend the proposed meeting dates. Prepared by: Claudia Martinez, Finance Director City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: May 11, 2022 STAFF REPORT AGENDA TITLE: DISCUSS FISCAL YEAR 2022/23 INVESTMENT POLICY RECOMMENDATION Discuss the Fiscal Year 2022/23 Investment Policy. EXECUTIVE SUMMARY • As part of the work plan, and as stated in Section XVIII of the City’s Investment Policy (the Policy), The Financial Advisory Commission (FAC) is asked to review the Policy annually and forward any revisions to the City Manager and City Attorney for review. • Any revisions will again be brought before the FAC to recommend submission to the City Council. • City Council must adopt the policy by the end of June of each year. FISCAL IMPACT - None. BACKGROUND The City was awarded the Investment Policy Certificate of Excellence from the Association of Public Treasurers of the United States and Canada (APT US&C) in 2020/21, as well as certifications from the California Municipal Treasurers Association (CMTA) in 2018/19 and 2019/20. In addition, there were no new regulatory changes in FY 2021/22 that affected the City’s policy; therefore, staff recommends no significant changes to the current policy. The following minor edits, along with punctuation or format changes, are identified as red- lined in Attachment 1: • Section III Scope: Changed the reference to the City’s annual report to reflect the new name adopted by the Government Finance Officers Association: the Annual Comprehensive Financial Report (ACFR). • Section IX Authorized Financial Dealers: Changed the name and contact information for the state agency that oversees broker/dealers in California to the California Department of Financial Protection and Innovation. STUDY SESSION ITEM NO. 1 • Section IX Authorized Financial Dealers: Under bullet 2, added the National Credit Union Share Insurance Fund as an acceptable insurance, to match reference in Section X under Certificates of Deposit. Also added the full report name for “Call Reports” as well as a link to find them online. • Section X Permissible Deposits and Investments: Updated references to specific U.S. Government Agencies and clarified the amount of the investment portfolio that can be invested in Corporate Notes to match the State Code. • Edits to Appendix D-Approved Financial Institutions to reflect name changes, to add the County Pooled Investment Fund, and to add the bank at which business is conducted for the Dune Palms Mobile Estates. ALTERNATIVES The policy has been recognized by APT US&C and CMTA as being comprehensive as written, and therefore no alternatives are recommended at this time. Prepared by: Rosemary Hallick, Financial Services Analyst Approved by: Claudia Martinez, Finance Director Attachment: 1. Draft Investment Policy for Fiscal Year 2022/23 (red-lined) INVESTMENT POLICY ATTACHMENT 1 Exhibit A Fiscal Year 2021/20222022/2023 Table of Contents Section Topic Page Executive Summary 1 I General Purpose 2 II Investment Policy 2 III Scope 2 IV Objectives 3 V Maximum Maturities 5 VI Prudence 5 VII Authority 5 VIII Ethics and Conflicts of Interest 6 IX Authorized Financial Dealers and Institutions 6 X Permissible Deposits and Investments 7 XI Investment Pools 10 XII Payment and Custody 10 XIII Interest Earning Distribution Policy 11 XIV Internal Controls and Independent Auditors 11 XV Reporting Standards 12 XVI Review of Investment Portfolio 13 XVII Financial Advisory Commission – City of La Quinta 13 XIII Investment Policy Adoption 13 Appendices Topic Page A Municipal Code Ordinance 2.70 – Financial Advisory Commission 14 B Municipal Code Ordinance 3.08 – Investment of Moneys and Funds 16 C Segregation of Major Investment Responsibilities 18 D Listing of Approved Financial Institutions 19 E Investment Management Process and Risk 20 F Glossary 22 Page 1 of 27 CITY OF LA QUINTA Investment Policy Fiscal Year 2021/20222022/2023 EXECUTIVE SUMMARY The general purpose of this Investment Policy is to provide the rules and standards that must be followed in administering the City of La Quinta's (the “City”) deposits and investments. The City's Investment Policy conforms to all state and local statutes and applies to all deposits and investments of the City, with the exception of bond proceeds and those noted in section III herein. It is the City's policy to deposit and invest public funds in a manner that shall provide safety of principal, liquidity to meet the City’s obligations and requirements that may be reasonably anticipated, and a risk-based market rate of return. Authority to manage the City's investment portfolio is derived from the City Municipal Code. Management responsibility for the investment program is delegated to the City Treasurer, who shall establish and implement written procedures for the operation of the City's investment program consistent with the Investment Policy. The City Manager, City Treasurer, and city employees involved in the City's banking and investment process shall conduct the City's business in an ethical manner and refrain from any activity or relationship that may be, or have the appearance of, a conflict of interest. The Investment Policy shall be adopted by resolution of the La Quinta City Council on an annual basis, before the end of each fiscal year (June). Page 2 of 27 City of La Quinta Statement of Investment Policy July 1, 2021 through June 30, 2022 Adopted by the City Council on May 4, 2021 I. GENERAL PURPOSE The general purpose of this document is to provide the rules and standards that must be followed in administering the City of La Quinta's deposits and investments. II. INVESTMENT POLICY It is the policy of the City of La Quinta to deposit and invest public funds in a manner that shall conform to all State and local statutes governing the investment of public funds and set forth the permissible deposits and investments of the City's funds and the limitations thereon. III. SCOPE Except noted below, this Investment Policy applies to all deposits and investments of the City of La Quinta, the Successor Agency to the City of La Quinta Redevelopment Agency, and the City of La Quinta Financing and Housing Authorities. These funds are reported in the City's Comprehensive Annual Comprehensive Financial Report (CAFRACFR) and include all funds within the following fund types: ➢ General ➢ Special Revenue ➢ Capital Projects ➢ Debt Service ➢ Enterprise ➢ Internal Service ➢ Trust and Agency ➢ Any new fund types and fund(s) that may be created. Financial assets and investment activity not subject to this policy The City's Investment Policy does not apply to the following: ➢ Cash and Investments raised from Conduit Debt Financing; ➢ Funds held in trust in the City's name in pension or other post-retirement benefit programs; ➢ Cash and Investments held in lieu of retention by banks or other financial institutions for construction projects; and ➢ Short or long-term loans made to other entities by the City or Agency,; ➢ Short term (Due to/from) or long term (Advances from/to) obligations made either between the City and its funds or between the City and Agency.; and ➢ Investment of bond proceeds: . The City's Investment Policy shall not govern bond proceeds and bond reserve fund investments. California Code Section Page 3 of 27 5922(d) governs the investment of bond proceeds and reserve funds in accordance with bond indenture provisions. Arbitrage Requirement - The US Tax Reform Act of 1986 requires the City to perform arbitrage calculations and return excess earnings to the US Treasury from investments of proceeds of bond issues sold after the effective date of this law. These arbitrage calculations may be contracted with an outside source to provide the necessary technical assistance to comply with this regulation. Investable funds subject to the 1986 Tax Reform Act will be kept segregated from other funds and records will be kept in a fashion to facilitate the calculations. The City's investment position relative to the arbitrage restrictions is to continue pursuing the maximum yield on applicable investments while ensuring the safety of capital and liquidity, and to rebate excess earnings, if necessary. IV. OBJECTIVES The objectives of the City's investment activity, in order of priority and importance, are: A. Safety of Principal Safety of principal is the foremost objective of the City's investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of principal of the overall portfolio in accordance with the permissible deposits and investments. The City shall endeavor to preserve its investment principal by making only permissible deposits and investments, undertaken in a controlled manner to minimize the possibility of loss or misappropriation through malfeasance or otherwise. Investments not backed by the full faith and credit of the United States Government shall be diversified by allocating assets between different types of permissible investments, maturities, and issuers as a means to mitigate credit risk and interest rate risk. Investment in any single security type or single financial institution shall be limited to the maximum percentages and/or dollar amounts as noted in Section X. 1. Credit Risk is the risk of loss from the failure of the security issuer or backer. Credit risk may be mitigated by: • Limiting investments to investment grade securities as permitted in Section X; and • Diversifying the issuers of the securities in the investment portfolio so that potential losses due to issuer failure or individual securities downgrades may be minimized. 2. Interest Rate Risk is the risk that market values of securities in the portfolio will decline due to changes in general interest rates. Interest rate risk may be mitigated by: Page 4 of 27 • Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity; and • Investing operating funds primarily in shorter-term securities. 3. Liquidity Risk is the risk that a security cannot be liquidated because of its unique features or structure or because it is thinly traded. Liquidity risk is not a material issue for the City's portfolio because of the permissible deposits and investments (see Section X). A discussion of the City's investment process and risk is presented in Appendix E. B. Provide Liquidity The investment portfolio shall remain sufficiently liquid to meet all of the City's cash needs that may be reasonably anticipated. This is accomplished by structuring the portfolio so that sufficient liquid funds are available to meet anticipated demands. Furthermore, since all possible cash needs cannot be anticipated the portfolio should be diversified and consist of securities with active secondary or resale markets. The City's policy is to generally hold securities and other investments to maturity. However, securities may be sold prior to maturity under certain circumstances as follow: • A security with declining credit quality can be sold early to minimize loss of principal. • Unanticipated liquidity needs of the portfolio require that one or more securities be sold. • When a sale/repurchase is fiscally advantageous based on market conditions and fits the needs of the portfolio C. Yield a Risk-Based Market Rate of Return The City's investment portfolio shall be structured with the objective of yielding a risk-based market rate of return throughout budgetary and economic cycles. Return on investment is less important than the safety and liquidity objectives described above. The City's Investment Policy does not specify a single benchmark as a goal or target yield for a rate of return on its investment portfolio. The portfolio's rates of return will be influenced by several factors, including actions by the Federal Reserve Board, the marketplace, and overall economic perceptions and conditions. Performance Standards: As a basis for comparison only, the Treasurer's quarterly reports will display the rates of return on the three-month Bill, six-month Bill, the one and two-year U.S. Treasury Note, and the yield for the State Treasurer's Local Agency Investment Fund (LAIF). The Treasurer may use these or any other published rates of return that the Treasurer deems appropriate for comparison to the return on the City's investment portfolio. Page 5 of 27 The investment portfolio shall be designed with the objective of obtaining a market rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. V. MAXIMUM MATURITIES It is the City's policy to generally hold securities and other investments until maturity. This buy-and-hold policy shall not prevent the sale of a security as listed in section IV.B The general buy-and-hold strategy requires that the City's investment portfolio be structured so that sufficient liquid funds are available from maturing investments and other sources to meet all reasonably anticipated cash needs. The City shall follow Title 5 of the California Government Code §53601 (the “State Code”) regarding maximum maturities, in that “no investment shall be made in any security…that at the time of the investment has a term remaining to maturity in excess of five years”. VI. PRUDENCE and FIDUCIARY DUTY The City shall follow the State Code §53600.3 regarding fiduciary duty and the Prudent Investor Standard as follows: Except as provided in subdivision (a) of §27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. VII. AUTHORITY Authority to manage the City's investment portfolio is derived from Chapter 3.08 of the City's Municipal Code. Management responsibility for the investment program is delegated to the City Treasurer for a period of one year pursuant to the City Council's annual adoption of the Investment Policy. The City Treasurer shall establish written procedures for the operation of the investment program consistent with the Investment Policy. Procedures should include reference to safekeeping, wire transfer agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may Page 6 of 27 engage in an investment transaction except as provided under the terms of this Investment Policy (see Appendix C) and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. VIII. ETHICS AND CONFLICTS OF INTEREST The City Manager, City Treasurer, and City employees involved in the City's banking and investment process shall conduct the City's business in an ethical manner and refrain from any activity or relationship that may be, or have the appearance of, a conflict of interest. The City will maintain compliance with the procedures set forth in the Conflicts of Interest and Acceptance of Gifts and other Gratuities section of the City of La Quinta Personnel Manual and the City’s Municipal Code Chapter 2.60 Conflicts of Interest. Any questionable activity or relationship shall be reported immediately; reporting must be made in accordance with the personnel policies of the City and, until resolved, the officer or employee shall refrain from participating in the City's business related to the matter. The City Manager, City Treasurer, and City employees may conduct personal business with banks, brokers, and other financial institutions that are authorized to conduct business with the City provided that the terms of the activity to the accountholder with the City are the same as those that are available to the public in general, or to all employees as a result of contract negotiations. IX. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS The City Treasurer maintains a listing of financial institutions which are approved for direct investment purposes, as well as a list of approved broker/dealers. 1. Broker/Dealers who desire to become bidders for direct investment transactions must supply the City with the following: • Current audited financial statements; • Proof of Financial Industry Regulatory Authority (FINRA) Certification; • Proof of State of California registration; • Resume of financial broker; and • Completion of the City of La Quinta Broker/Dealer Questionnaire, which contains a certification of having read the City's Investment Policy. The City Treasurer or designee shall evaluate the documentation submitted by the broker/dealer and independently verify existing reports on file for any firm and/or individual(s) conducting investment related business. The City Treasurer or designee will may also contact the following agencies during the verification process: • Financial Industry Regulatory Authority (FINRA) Public Disclosure Report File (1-800- 289-9999). Page 7 of 27 • State of California Department of Corporations Financial Protection and Innovation (1-866-275-26771-916-445-3062). A professional investment manager or management firm, if engaged by the City pursuant to Section X of this policy, may utilize their own list of approved broker/dealers on the condition that any such list is provided to the City upon request. All Broker/Dealers and financial institutions that provide investment services will be subject to City Council approval. An annual review of the financial condition and registrations of approved broker/dealers will be conducted by the City Treasurer or designee. Current audited financial statements and/or System and Organizational Controls (SOC- 1 and/or SOC-2) internal control reports may be maintained on file for each financial institution and broker/dealer with which the City conducts business. Each mutual fund shall provide a prospectus and statement of additional information. 2. Financial Institutions will be required to meet the following criteria in order to receive City funds for deposit or investment (see Appendix D, "Listing of Approved Financial Institutions"): • Insurance - Public Funds shall be deposited only in financial institutions having accounts insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF). • Disclosure - Each financial institution maintaining invested funds in excess of the FDIC insured amount shall furnish the City a copy of the most recent Call Report (Consolidated Reports of Condition and Income) if requested. These reports can also be found at https://cdr.ffiec.gov/public/ManageFacsimiles.aspx The City shall not invest in excess of the FDIC insured amount in banking institutions which do not disclose to the city a current listing of securities pledged for collateralization in public monies. X. PERMISSIBLE DEPOSITS AND INVESTMENTS It is the City’s policy to follow Title 5 of the California Government Code (the “State Code”) in regard to allowable securities, and to be sufficiently diversified with regard to security type and issuer. Permissible deposits and investments, as allowed by Chapter 4, Part 1, Division 2, Title 5 (hereinafter cited by §), include, but are not limited to, the following list. The State Code can be directly referenced at https://leginfo.legislature.ca.gov/ Page 8 of 27 Checking, Savings, and Sweep Accounts - The City will only maintain checking and savings, accounts with state or national banks, savings associations, federal associations, and/or credit unions in accordance with §53635.2. • Collateralization: The amount of the City's deposits or investments not insured by the FDIC shall be collateralized by securities in accordance with §53652. The Treasurer may invest in an interest-bearing active deposit account as approved in §53632. The deposit account must be collateralized with securities that are in accordance with §53632.5. In addition, the market value of the collateralized securities must be maintained in accordance with §53652 and be held by a custodian in accordance with the requirements of §53656. The proportion of the City's share of the deposit account shall be determined in accordance with §53658. Certificates of Deposit (Negotiable and Non-negotiable) – As authorized in §53601(i), the City may invest in Non- Negotiable and Negotiable Certificates of Deposits (CD) up to 30% of the overall portfolio. In no instance shall a CD or combined CD’s with a single issuer exceed the FDIC or NCUSIF insurance limit of $250,000. U.S. Treasury Bills, Notes, and Bonds – As authorized in §53601(b), the City may invest in U.S. Treasury bills, notes, and bonds directly issued and backed by the full faith and credit of the U.S. Government. The City's Investment Policy provides for investments in U.S. Treasury issues of 100% of the portfolio. U.S. Government Agency Securities and Federal Government Securities – As authorized in §53601(f), the City may invest in securities issued by U.S. Government instrumentalities and agencies (commonly referred to as government sponsored enterprises or GSE's). These securities may not be backed by the full faith and credit of the U.S. Government (with the exception of Government National Mortgage Association (GNMA) securities). Examples of GSE's include Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal Home Loan Bank (FHLB), Federal Farm Credit Banks Funding Corporation (FFCB), Federal Land Bank (FLB), Federal Intermediate Credit Bank (FICB)Federal Agricultural Mortgage Corporation (FAMC), Tennessee Valley Authority (TVA), and GNMA securities. The City's Investment Policy allows investment only in securities of GNMA, FNMA, FHLMC, FHLB, and FFCB. For Fiscal Year 2021-222022-23, the maximum face amount per issuer is $20 million and the maximum face amount per purchase is $10 million. Prime Commercial Paper – As authorized in §53601(h), a portion of the City's portfolio may be invested in commercial paper of the highest rating as provided for by a nationally recognized statistical rating organization (NRSRO) such as Moody’s, Fitch, or Standard & Poor’s (S&P). There are a number of other qualifications regarding investments in commercial paper based on the financial Page 9 of 27 strength and size of the corporation and the size of the investment. The City limits on prime commercial paper are as defined in the State Code. Local Agency Investment Fund (LAIF) – As authorized in §16429.1 and by LAIF policies, local government agencies are each authorized to invest up to the deposit limit as designated by the California State Treasurer. The City Treasurer may not invest more than the maximum amount per account as allowed by LAIF. Money Market Mutual Funds – As authorized in §53601(l), local agencies are authorized to invest in shares of beneficial interest issued by diversified management companies (mutual funds) in an amount not to exceed 20% of the agency's portfolio. There are a number of other qualifications and restrictions regarding allowable investments in corporate notes and shares of beneficial interest issued by mutual funds which include (1) attaining the highest ranking or the highest letter and numerical rating provided by not less than two of the three largest nationally recognized rating services, or (2) having an investment advisor registered with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations and with assets under management in excess of five hundred million dollars ($500,000,000). Corporate Notes – As authorized in §53601(k), local agencies may invest in corporate notes. The notes must be issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any other state and operating in the United States. The City's Investment Policy allows investment in corporate notes authorized by the Government Code with the following limitations: • Maximum 30% of the portfolio; • Maturities shall not exceed five years from date of purchase; • Eligible notes shall be regularly quoted and traded in the marketplace; • Eligible notes shall be in a rating category of "AA" or better by an NRSRO; • The maximum aggregate investment in each issuer shall not exceed $5 million (PAR value), or no more than 10% of the total investment assets in the commercial paper and the medium-term notes of any single issuer. Professionally Managed Account(s) – The City Treasurer may place up to 50% of the portfolio with a professional portfolio management/investment management firm (firm) The firm will be approved by the City Council based upon the City Treasurer's recommendation pursuant to completion of a public request for proposal (RFP). The firm shall have: • An established professional reputation for asset or investment management; • Knowledge and working familiarity with State and Federal laws governing and restricting the investment of public funds; • Substantial experience providing investment management services to local public agencies whose investment policies and portfolio size are similar to those of the City; Page 10 of 27 • Professional liability (errors and omissions) insurance and fidelity bonding in such amounts as are required by the City; and • Registration with the Securities and Exchange Commission under the Investment Advisers Act of 1940 Before engagement by the City and except as may be specifically waived or revised, the firm shall commit to adhere to the provisions of the City's Investment Policy with the following exceptions: • The firm may be granted the discretion to purchase and sell investment securities in accordance with this Investment Policy; • The firm is not required to adhere to a buy-and-hold policy; and • The firm does not need City Manager or City Treasurer approval to make permissible investments. Local Agency Bonds and California Local Agency Obligations – As authorized in §53601(a) and §53601(e), the City may invest in California local agency obligations. §53601(a) pertains to investing in bonds issued by a local agency, or by the department, board, agency or authority of the local agency. §53601(e) pertains to investing in bonds and other defined indebtedness of any local agency, or department, board, agency or authority of the local agency within the State of California. The Agency obligations must be invested in the long-term rating category of A or better by an NRSRO. In the case of an initial public offering, including refinancings, the Treasurer may purchase directly from the Bond Underwriter. In the case of secondary issues, the Treasurer will rely on the approved Broker/Dealers. XI. INVESTMENT POOLS There are three (3) types of investment pools: • State-run pools (e.g., LAIF); • Pools that are operated by a political subdivision where allowed by law and the political subdivision is the trustee (e.g., County Pools, and Joint Powers Authorities such as the California Asset Management Program (CAMP)); and • Pools that are operated for profit by third parties (e.g. money market funds). The City's Investment Policy permits investment in pools and money market funds as authorized by State Code §16429.1, §53601(l) and §53601(p). XII. PAYMENT AND CUSTODY The City shall engage qualified third-party custodians to act in a fiduciary capacity to maintain appropriate evidence of the City's ownership of securities and other eligible investments. Such custodians shall disburse funds received from the City for a Page 11 of 27 purchase, to the broker, dealer or seller only after receiving evidence that the City has legal, record ownership of the securities. Even though ownership is evidenced in book-entry form rather than by actual certificates, this procedure is commonly referred to as the delivery versus payment (DVP) method for the transfer of securities. XIII. INTEREST EARNING DISTRIBUTION POLICY Interest earnings are generated from pooled investments and specific investments. The following provisions apply to the calculation and distribution of interest earnings. 1. Pooled Investments – It is the general policy of the City to pool all available operating cash of the City of La Quinta, Successor Agency to the City of La Quinta Redevelopment Agency, La Quinta Financing Authority, and La Quinta Housing Authority, and to allocate interest earnings as a payment to each fund of an amount based on the month-end cash balance included in the common portfolio for the earning period. 2. Specific Investments – Specific investments purchased by a fund shall incur all earnings and expenses to that particular fund. XIV. INTERNAL CONTROLS AND INDEPENDENT AUDITOR The City Treasurer shall establish a system of internal controls to accomplish the following objectives: • Safeguard assets; • The orderly and efficient conduct of its business, including adherence to management policies; • Prevention or detection of errors and fraud; • The accuracy and completeness of accounting records; and • Timely preparation of reliable financial information. While no internal control system, however elaborate, can guarantee absolute assurance that the City's assets are safeguarded, it is the intent of the City's internal control to provide a reasonable assurance that management of the investment function meets the City's objectives. The internal controls shall address the following: • Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. • Separation of transaction authority from accounting and record keeping. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. Page 12 of 27 • Custodial safekeeping. Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping. • Avoidance of physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities. • Clear delegation of authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities as outlined in the Segregation of Major Investment Responsibilities (aAppendicesx C). • Written confirmation of telephone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions shall be supported by written communications or electronic confirmations and approved by the appropriate person. Written communications may be via fax or email if on letterhead and the safekeeping institution has a list of authorized signatures. Fax correspondence must be supported by evidence of verbal or written follow- up. • Development of a wire transfer agreement with the City's bank and third-party custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. The system of internal controls developed by the City shall be reviewed annually by the independent auditor in connection with the annual audit of the City's Financial Statements. The independent auditor's letter on internal control over financial reporting and compliance as it pertains to cash and investments, if any, shall be directed to the City Manager who will direct the City Treasurer to provide a written response to the independent auditor's letter. The auditor's letter, as it pertains, to cash and investment activities, and the City Treasurer's response shall be provided to the City's Financial Advisory Commission for their consideration. Following the completion of each annual audit, the independent auditor shall meet with the Financial Advisory Commission and discuss the auditing procedures performed and the review of internal controls for cash and investment activities. See Appendix C, "Segregation of Major Investment Responsibilities." XV. REPORTING STANDARDS The City Treasurer shall submit a quarterly Treasurer’s Report to the City Council and the Financial Advisory Commission that includes all cash and investments under the authority of the Treasurer. In addition, the City Treasurer or designee shall ensure all investment transactions are reported on a monthly basis as they occur throughout Page 13 of 27 the quarter. The Treasurer's Report shall summarize cash and investment activity and changes in balances and include the following: • A certification by the City Treasurer; • A listing of purchases and sales/maturities of investments; • Cash and Investments categorized by authorized investments; LAIF will also be provided quarterly and show yield and maturity; • Comparison of month end actual holdings to Investment Policy limitations; • A two-year list of historical interest rates. XVI. REVIEW OF INVESTMENT PORTFOLIO The securities held by the City must be in compliance with this Policy at the time of purchase. Due to market conditions, some securities may no longer comply subsequent to the date of purchase, therefore a quarterly review of the portfolio will be conducted to identify any securities which may have fallen out of compliance. Any major incidences of noncompliance identified during such review will be reported to the Financial Advisory Commission for confirmation of staff course of action. XVII. FINANCIAL ADVISORY COMMISSION - CITY OF LA QUINTA The Financial Advisory Commission (FAC) is composed of seven members from the public that are appointed by the City Council. The FAC’s membership, qualifications, and powers and duties are prescribed in Chapter 2.70 of the La Quinta Municipal Code and included in this policy as Appendix A. On an annual basis, in conjunction with the Political Reform Act disclosure statutes, or at any time if a change in circumstances warrants, each commissioner will provide the City Council with a disclosure statement which identifies any matters that have a bearing on the appropriateness of that member's service on the FAC. All commissioners shall report annually to the City Clerk on Form 700, Statement of Economic Interests, any activities, interests, or relationships that may be, or have the appearance of, a conflict of interest. XVIII. INVESTMENT POLICY ADOPTION The City's Investment Policy will be reviewed annually by the City's Financial Advisory Commission and the City Treasurer. The Financial Advisory Commission will forward the Investment Policy with any revisions to the City Manager and City Attorney for their review and comment. A joint meeting will be held with the Financial Advisory Commission, City Manager, City Attorney, and City Treasurer to review the Investment Policy and any comments prior to submission to the City Council for their consideration. The Investment Policy shall be adopted by resolution of the City Council annually before the end of June of each year. Page 14 of 27 Page 15 of 27 City of La Quinta Municipal Code Chapter 2.70 FINANCIAL ADVISORY COMMISSION 2.70.010 General rules regarding the financial advisory commission. Except as set out below, see Chapter 2.06 for general provisions. 2.70.020 Number of members. The financial advisory commission ("FAC") shall initially consist of seven members appointed by, and serving at the will of, the city council. The city council may increase or decrease the number of members from time to time but in no event shall the membership exceed nine members or be less than five members. 2.70.030 Qualifications of members. A. In addition to the qualification requirements set forth in Section 2.06.040 of this code, a minimum of three of the members shall be finance professionals and shall have a verifiable background in finance and/or securities, preferably with knowledge and/or experience in markets, financial controls and accounting for securities. B. For those applying for the professional position, background information will be requested, and potential candidates must agree to a background check and verification by the city manager or designee. 2.70.040 Powers and duties. A. The principal functions of the FAC are: 1. Review at least annually the city's investment policy and recommend appropriate changes; 2. Review at least quarterly the treasury report and note compliance with the investment policy and adequacy of cash and investments for anticipated obligations; 3. Receive and consider other reports provided by the city treasurer; 4. Meet with the independent auditor after completion of the annual audit of the city's financial statements, and receive and consider the auditor's comments on auditing procedures, internal controls, and findings for cash and investment activities; 5. Review at least annually the revenue derived from the one percent (1%) transactions and use tax instituted by voters in November 2016 to ensure these funds are used to provide services, programs and capital projects in the city of La Quinta. APPENDIX A Page 16 of 27 6. Serve as a resource for the city treasurer on matters such as proposed investments, internal controls, use of or change of financial institutions, custodians, brokers and dealers. B. The FAC will report to the city council after each meeting either in person or through correspondence at a regular city council meeting. (Ord. 556 § 1, 2017) 2.70.050 References to the Investment Advisory Board. If any other chapter(s) or section(s) in this code refers to the Investment Advisory Board, that chapter(s) or section(s) shall be deemed to refer to the Financial Advisory Commission established by the ordinance amending chapter 2.70 of this code. Page 17 of 27 City of La Quinta Municipal Code Chapter 3.08 INVESTMENT OF MONEYS AND FUNDS 3.08.010 Investment of city moneys and deposit of securities. Pursuant to, and in accordance with, and to the extent allowed by Sections 53607 and 53608 of the California Government Code, the authority to invest and reinvest moneys of the city, to sell or exchange securities, and to deposit them and provide for their safekeeping, is delegated to the city treasurer, which, for purposes of this chapter, is defined in Section 2.12.010 of this code. (Ord. 529 § 1, 2015; Ord. 2 § 1, 1982) 3.08.020 Authorized investments. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to purchase, at their original sale or after they have been issued, securities which are permissible investments under the city council adopted city investment policy and any provision of state law relating to the investing of general city funds, including, but not limited to, Sections 53601 and 53635 of the California Government Code, as said sections now read or may hereafter be amended, from moneys in the city treasurer's custody which are not required for the immediate necessities of the city and as he or she may deem wise and expedient, and to sell or exchange for other eligible securities and reinvest the proceeds of the securities so purchased. (Ord. 529 § 1, 2015; Ord. 2 § 1, 1982) 3.08.030 Sales of Securities. From time to time the city treasurer shall sell the securities in which city moneys have been invested pursuant to this chapter, so that the proceeds may, as appropriate, be applied to the purchase for which the original purchase money may have been designated or placed in the city treasury. (Ord.2 § 1 1982) 3.08.040 City bonds. Bonds issued by the city and purchased pursuant to this chapter may be cancelled either in satisfaction of sinking fund obligations or otherwise if proper and appropriate; provided, however, that the bonds may be held uncancelled and while so held may be resold. (Ord. 2 § 1 (part), 1982) 3.08.050 Reports. The city treasurer shall make a quarterly report to the city council of all investments made pursuant to the authority delegated in this chapter and as permitted by Section 53646(b)(1) of the Government Code. (Ord. 529 § 1, 2015; Ord. 2 § 1, 1982) APPENDIX B Page 18 of 27 3.08.060 Deposits of securities. Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is authorized to deposit for safekeeping, the securities in which city moneys have been invested pursuant to this chapter, in any institution or depository authorized by the city council adopted investment policy and terms of any state law, including, but not limited to, Section 53608 of the Government Code, as it now reads or may hereafter be amended. In accordance with said section, the city treasurer shall take from the institution or depository a receipt for the securities so deposited and shall not be responsible for the securities delivered to and receipted for by the institution or depository until they are withdrawn therefrom by the city treasurer. (Ord. 529 § 1, 2015; Ord. 2 § 1, 1982) 3.08.070 Trust fund administration. Any departmental trust fund established by the city council pursuant to Section 36523 of the Government Code shall be administered by the city treasurer in accordance with Section 36523 and 36524 of the Government Code and any other applicable provisions of law. (Ord. 2 § 1, 1982) Page 19 of 27 Function Responsible Parties Develop and recommend modifications to the City's formal Investment Policy City Treasurer, Financial Services Analyst, and Financial Advisory Commission Review City's Investment Policy and recommend City Council action City Manager and City Attorney Adopt formal Investment Policy City Council Implement formal Investment Policy City Treasurer Review financial institutions and select investments City Treasurer or Financial Servies Analyst Acknowledge investment selections City Manager or his/her designee Execute investment transactions City Manager, City Treasurer, or Financial Services Analyst Confirm wires Accounting Manager, Accountant, or Management Assistant Record investment transactions in City's accounting records Accounting Manager or Accountant Investment cerification- match broker confirmation to City's investment records City Treasurer or Financial Services Analyst Reconcile investment records to accounting records and bank statements Financial Services Analyst Reconcile investment records to treasurer's report of investments City Treasurer, Accounting Manager, or Financial Services Analyst Security of investments at City Accounting Manager or Management Assistant Security of investments outside of City Third Party Custodian Review internal control procedures External Auditor SEGREGATION OF MAJOR INVESTMENT RESPONSIBILITIES APPENDIX C Page 20 of 27 Banking Services -Wells Fargo Bank, Government Services, Los Angeles, CA (Banking Services) -Bank of the West, San Francisco, CA (Banking Services) Custodian Services -The Bank of New York Mellon/Pershing LLC -Stifel Deferred Compensation -International City/County Management Association (ICCMA) Retirement Corporation Broker/Dealer Services -Stifel, Nicholaus, & Company, Inc. -Higgins Capital Management, Inc. -Great Pacific Securities Government/Joint Powers Authority Pools -State of California Local Agency Investment Fund (LAIF) -California Asset Management Program (CAMP) Trustee Services -US Bank (1) Other Post Employment Benefits (OPEB) Trust -California Employers' Retirement Benefits Trust (CERBT)/CalPERS Pension Trust - Administration -Public Agency Retirement Services (PARS) Listing of Approved Financial Institutions (1) US Bank is the fiscal agent for all of the following bonds: 2013 (refunded in 2021), 2014 (refunded in 2021), 2016, and 2021 Successor Agency to the La Quinta Redevelopment Agency (RDA) Bonds. US Bank is also the trustee and asset custodian for the PARS pension trust. APPENDIX D Page 21 of 27 Page 22 of 27 INVESTMENT MANAGEMENT PROCESS AND RISK Except as provided for in Section 27000.3, Government Code Section 53600.3 declares as a trustee each person, treasurer, or governing body authorized to make investment decisions on behalf of local agencies. Trustees are subject to the prudent investor standard. These persons shall act with care, skill, prudence, and diligence under the circumstances then prevailing when investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing funds. Section 53600.5 further stipulates that the primary objective of any person investing public funds is to safeguard principal; secondly, to meet liquidity needs of the depositor; and lastly, to achieve a return or yield on invested funds (Government Code Section 27000.5 specifies the same objectives for county treasurers and board of supervisors). Risk is inherent throughout the investment process. There is investment risk associated with any investment activity and opportunity risk related to inactivity. Market risk is derived from exposure to overall changes in the general level of interest rates while credit risk is the risk of loss due to the failure of the insurer of a security. The market value of a security varies inversely with the level of interest rates. If an investor is required to sell an investment with a five percent yield in a comparable seven percent rate environment, that security will be sold at a loss. The magnitude of that loss will depend on the amount of time until maturity. Purchasing certain allowable securities with a maturity of greater than five years requires approval of the governing board (see Government Code Section 53601). Part of that approval process involves assessing and disclosing the risk and possible volatility of longer-term investments Another element of risk is liquidity risk. Instruments with call features or special structures, or those issued by little known companies, are examples of "story bonds" and are often thinly traded. Their uniqueness often makes finding prospective buyers in a secondary market more difficult and, consequently, the securities' marketability and price are discounted. However, under certain market conditions, gains are also possible with these types of securities. Default risk represents the possibility that the borrower may be unable to repay the obligation as scheduled. Generally, securities issued by the federal government and its agencies are considered the most secure, while securities issued by private corporations or negotiable certificates of deposit issued by commercial banks have a greater degree of risk. Securities with additional credit enhancements, such as APPENDIX E Page 23 of 27 bankers acceptances, collateralized repurchase agreements and collateralized bank deposits are somewhere between the two on the risk spectrum. The vast majority of portfolios are managed within a buy and hold policy. Investments are purchased with the intent and capacity to hold that security until maturity. At times, market forces or operations may dictate swapping one security for another or selling a security before maturity. Continuous analysis and fine tuning of the investment portfolio are considered prudent investment management. The Government Code contains specific provisions regarding the types of investments and practices permitted after considering the broad requirement of preserving principal and maintaining liquidity before seeking yield. These provisions are intended to promote the use of reliable, diverse, and safe investment instruments to better ensure a prudently managed portfolio worthy of public trust. Source: Chapter II. Fund Management from the Local Agency Investment Guidelines Issued by California Debt and Investment Advisory Commission Page 24 of 27 GLOSSARY (Adopted from the Municipal Treasurers Association) The purpose of this glossary is to provide the reader of the City of La Quinta investment policies with a better understanding of financial terms used in municipal investing. AGENCIES: Federal agency securities and/or Government-sponsored enterprises. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large- denomination CD's are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMMERCIAL PAPER: Short-term unsecured promissory notes issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation, IBM, Bank America, etc. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of La Quinta. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. CONDUIT FINANCING: A form of Financing in which a government or a government agency lends its name to a bond issue, although it is acting only as a conduit between a specific project and bond holders. The bond holders can look only to the revenues from the project being financed for repayment and not to the government or agency whose name appears on the bond. APPENDIX F Page 25 of 27 COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DERIVATIVES: (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities). DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest-bearing money market instruments that are issued at discount and redeemed at maturity for full face value DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. FNMAs (Federal National Mortgage Association) - Like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FHLBs (Federal Home Loan Bank Notes and Bonds) - Issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies, and mortgage-lending institutions. They are issued irregularly for various maturities. The minimum denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity. Page 26 of 27 FLBs (Federal Land Bank Bonds) - Long-term mortgage credit provided to farmers by Federal Land Banks. These bonds are issued at irregular times for various maturities ranging from a few months to ten years. The minimum denomination is $1,0 00. They carry semi- annual coupons. Interest is calculated on a 360-day, 30-day month basis. FFCBs (Federal Farm Credit Bank) – Debt instruments used to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with three- and six-month maturities. The FFCB issues larger issues (one to ten year) on a periodic basis. These issues are highly liquid. FICBs (Federal Intermediate Credit Bank Debentures) - Loans to lending institutions used to finance the short-term and intermediate needs of farmers, such as seasonal production. They are usually issued monthly in minimum denominations of $3,000 with a nine-month maturity. Interest is payable at maturity and is calculated on a 360-day, 30-day month basis. FHLMCs (Federal Home Loan Mortgage Corporation) - a government sponsored entity established in 1970 to provide a secondary market for conventional home mortgages. Mortgages are purchased solely from the Federal Home Loan Bank System member lending institutions whose deposits are insured by agencies of the United States Government. They are issued for various maturities and in minimum denominations of $10,000. Principal and interest is paid monthly. Other federal agency issues are Small Business Administration notes (SBA's), Government National Mortgage Association notes (GNMA's), and Tennessee Valley Authority notes (TVA's). FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $250,000 per deposit per entity. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open- market operations. FEDERAL HOME LOAN BANKS (FHLB): Government sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. The mission of the FHLBs is to liquefy the housing related assets of its members who must purchase stock in their district Bank. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven-member Board of Governors in Washington, D.C., 12 regional banks and about 3,000 commercial banks that are members of the system. Page 27 of 27 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages. The term "pass- throughs" is often used to describe Ginnie Maes. LAIF (Local Agency Investment Fund): - A special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period, the minimum transaction is $5,000 and the City follows the state guidance for maximum total balance. The City is restricted to a maximum of ten transactions per month. It offers high liquidity because deposits can be converted to cash in 24 hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share basis determined by the amounts deposited and the lengt h of time they are deposited. Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one-half of one percent of the earnings. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase--reverse repurchase agreements that establish each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer- lender to liquidate the underlying securities in the event of default by the seller-borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded. NRSRO (NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION): A credit rating agency recognized by the Securities and Exchange Commission (SEC). Examples include Fitch Ratings, Inc., Moody’s Investor’s Services, Inc., and S&P Global Ratings, among others. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the Page 28 of 27 FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO: Collection of all cash and securities under the direction of the City Treasurer, including Bond Proceeds. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) registered securities broker- dealers, banks and a few unregulated firms. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO) and REVERSE REPURCHASE AGREEMENTS (RRP or RevRepo): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money that is increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. SSAE 16: The Statement on Standards for Attestation Engagements No. 16 (SSAE 16) is a set of auditing standards and guidance on using the standards, published by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) for redefining and updating how service companies report on compliance controls. The Service Organizational Control report (SOC-1) contains internal controls over financial reporting and is used by auditors and office controllers. Page 29 of 27 STRUCTURED NOTES: Notes issued by Government Sponsored Enterprises (FHLB, FNMA, SLMA, etc.) and Corporations which have imbedded options (e.g., call features, step-up coupons, floating rate coupons, and derivative-based returns) into their debt structure. Their market performance is impacted by the fluctuation of interest rates, the volatility of the imbedded options and shifts in the shape of the yield curve. SURPLUS FUNDS: Section 53601 of the California Government Code defines surplus funds as any money not required for immediate necessities of the local agency. The City has defined immediate necessities to be payment due within one week. TREASURY BILLS: A non-interest- bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or one year. TREASURY BONDS: Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. TREASURY NOTES: Medium-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to 10 years. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. UNIFORM PRUDENT INVESTOR ACT: The State of California has adopted this Act. The Act contains the following sections: duty of care, diversification, review of assets, costs, compliance determinations, delegation of investments, terms of prudent investor rule, and application. YIELD: The rate of annual return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: May 11, 2022 STAFF REPORT AGENDA TITLE: REVIEW AND DISCUSS 10-YEAR FINANCIAL PROJECTIONS FOR THE GENERAL FUND RECOMMENDATION Review and discuss 10-year financial projections for the General Fund. EXECUTIVE SUMMARY •Annually, 10-year financial projections of revenue and expenditures for the City’s General Fund are prepared for presentation at the Community Workshop. •The 2022 Community Workshop was held on Saturday, March 12, 2022 and included an overview of financial projections, recap of major initiatives, and accomplishments and upcoming projects. •In preparation for FY 2022-23 budget formulation, the Commission requested to further analyze the 10-year financial projections and impacts on the current budget process. BACKGROUND/ANALYSIS The City of La Quinta Fiscal Years 2023-2032 Financial Projections Report is an annual long-term financial forecast and serves as a fundamental element of the budget process. The purpose of the forecast is to evaluate current and future fiscal conditions and to guide policy and planning decisions. The General Fund (Fund) is the least restrictive fund of the City and provides the greatest resources to support citywide operations, therefore, 10-year projections are presented for this Fund. The Fund accounts for revenues from major taxes, services provided by the City, license and permits, franchise fees, and negotiated intergovernmental revenues. These revenues provide resources for public safety (police and fire), daily operations, community events, and contract services, as well as support for capital improvements. The attached projections include actuals for fiscal year (FY) ending 2020/21 and use the current 2021/22 budget to apply a growth factor for the 10-year model. The scenario presented for discussion demonstrates a gradual recovery from the pandemic. STUDY SESSION ITEM NO. 2 ALTERNATIVES: The purpose of this item is to further analyze and discuss projections with the Commission in preparation for FY 2022-23 budget discussions. Prepared by: Claudia Martinez, Finance Director Attachment: 1. General Fund Financial Projections City of La QuintaAs of February 23, 2022ActualGrowthCurrent Budget2022/23 to 2031/322020/21 Projections 2021/22 * 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32TOTAL1. Cash ReceiptsSales Tax - Measure G ᵃ12,594,389$ 12,300,000$ 12,637,800$ 12,890,556$ 11,142,684$ 11,365,538$ 11,592,848$ 11,824,705$ 12,061,200$ 12,302,424$ 12,548,472$ 12,799,441$ 121,165,668$ Sales Tax - Bradley Burns10,729,160 2%10,500,000 10,710,000 10,924,200 11,142,684 11,365,538 11,592,848 11,824,705 12,061,200 12,302,424 12,548,472 12,799,441 117,271,512 Transient Occupancy Tax11,071,977 1%11,840,000 11,958,400 12,077,984 12,198,764 12,320,751 12,443,959 12,568,399 12,694,083 12,821,023 12,949,234 13,078,726 125,111,322 Property Tax 9,232,411 2%8,927,000 9,105,540 9,287,651 9,473,404 9,662,872 9,856,129 10,053,252 10,254,317 10,459,403 10,668,591 10,881,963 99,703,123 Fire Service Property Tax 7,591,078 2%7,047,900 7,188,858 7,332,635 7,479,288 7,628,874 7,781,451 7,937,080 8,095,822 8,257,738 8,422,893 8,591,351 78,715,989 Fire Property Tax Reserves ᵇ70,110 800,200 78,662 225,586 381,262 546,098 720,519 904,969 1,099,910 936,511 936,511 936,511 6,766,539 Motor Vehicle In-Lieu4,376,455 2%4,615,000 4,707,300 4,801,446 4,897,475 4,995,424 5,095,333 5,197,240 5,301,184 5,407,208 5,515,352 5,625,659 51,543,622 Other Revenue/Intergovernmental 2,503,819 1%1,577,100 1,592,871 1,608,800 1,624,888 1,641,137 1,657,548 1,674,123 1,690,865 1,707,773 1,724,851 1,742,100 16,664,955 Franchise Fees1,942,464 1%1,825,000 1,843,250 1,861,683 1,880,299 1,899,102 1,918,093 1,937,274 1,956,647 1,976,213 1,995,976 2,015,935 19,284,473 Charges for Services962,358 1%876,010 884,770 893,618 902,554 911,580 920,695 929,902 939,201 948,593 958,079 967,660 9,256,653 Development Related Permits1,289,270 1%999,000 1,008,990 1,019,080 1,029,271 1,039,563 1,049,959 1,060,459 1,071,063 1,081,774 1,092,592 1,103,518 10,556,268 Document Transfer Tax1,568,997 1%750,000 757,500 765,075 772,726 780,453 788,258 796,140 804,102 812,143 820,264 828,467 7,925,126 Business Licenses/Permits735,341 1%1,253,000 1,265,530 1,278,185 1,290,967 1,303,877 1,316,916 1,330,085 1,343,386 1,356,819 1,370,388 1,384,092 13,240,244 Fines and Assessments779,006 1%294,000 296,940 299,909 302,908 305,938 308,997 312,087 315,208 318,360 321,543 324,759 3,106,649 SilverRock Resort Net Revenue ᶜ- - - 531,400 1,260,000 2,500,000 2,960,000 2,842,000 3,222,000 3,540,000 3,575,400 3,611,154 24,041,954 Carryover Funding/Use of Reserves16,589,933 14,640,959 2.Total Revenue$82,036,768$78,245,169 $64,036,411 $65,797,807 $65,779,173 $68,266,744 $70,003,554 $71,192,421 $72,910,185 $74,228,407 $75,448,618 $76,690,776 $704,354,0973.Cash Paid OutPolice Services Contract ᵈ16,395,945 6% 17,706,000 18,768,360 19,894,462 21,088,129 22,353,417 23,694,622 25,116,299 26,623,277 28,220,674 29,913,914 31,708,749 247,381,905 Fire Service Contract ᵈ6,164,684 4%6,988,000 7,267,520 7,558,221 7,860,550 8,174,972 8,501,970 8,842,049 9,195,731 9,563,561 9,946,103 10,343,947 87,254,624 Salaries (Full-Time Employees)5,993,384 3%6,335,400 6,525,462 6,721,226 6,922,863 7,130,549 7,344,465 7,564,799 7,791,743 8,025,495 8,266,260 8,514,248 74,807,109 Maintenance & Operations ᵉ5,183,300 2%7,273,850 7,419,327 7,567,714 7,719,068 7,873,449 8,030,918 8,191,537 8,355,367 8,522,475 8,692,924 8,866,783 81,239,561 Other Contract Services2,797,373 2%4,467,700 4,557,054 4,648,195 4,741,159 4,835,982 4,932,702 5,031,356 5,131,983 5,234,623 5,339,315 5,446,101 49,898,470 Transfers Out ᶢ2,185,000 1%1,082,000 1,092,820 1,103,748 1,114,786 1,125,934 1,137,193 1,148,565 1,160,050 1,171,651 1,183,367 1,195,201 11,433,315 Employee Medical Insurance Costs1,276,886 3%1,690,000 1,740,700 1,792,921 1,846,709 1,902,110 1,959,173 2,017,948 2,078,487 2,140,841 2,205,067 2,271,219 19,955,175 Other Personnel Costs469,347 2%976,320 995,846 1,015,763 1,036,079 1,056,800 1,077,936 1,099,495 1,121,485 1,143,914 1,166,793 1,190,129 10,904,240 PERS Unfunded Pension Liability ͪ2,008,514 1,477,100 1,283,698 1,377,000 1,476,400 1,539,800 1,580,600 1,659,600 1,699,600 1,740,600 1,784,600 1,771,600 15,913,498 PERS Normal Payroll Costs504,4052%569,300 580,686 592,299.72 604,146 616,229 628,553 641,124 653,947 667,026 680,366 693,9746,358,350 Salaries (Part-Time/Temporary)178,248 2%281,700 307,053 334,688 341,382 348,209 355,173 362,277 369,522 376,913 384,451 392,1403,571,808 Capital Expenses ᶠ4,610,911 6,315,356 2,052,000 2,052,000 2,052,000 2,052,000 2,052,000 2,052,000 2,052,000 2,052,000 2,052,000 2,052,000 20,520,000 Measure G Reserves7,524,389 3,578,644 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 - - - - -5,000,000 Multi-Year Project Carryovers14,640,959 14,640,959 - - - - - - - - - -- 4.Total Operational Expenses$69,933,347$73,382,329 $53,590,526 $55,658,237 $57,803,269 $60,009,450 $62,295,306 $63,727,049 $66,233,193 $68,859,772 $71,615,161 $74,446,090 $634,238,0535.Yearly Operating Cash Position(2 minus 4) 12,103,421 4,862,840 10,445,885 10,139,570 7,975,905 8,257,294 7,708,248 7,465,371 6,676,992 5,368,634 3,833,457 2,244,686 70,116,043 6. RDA Loan Repayment ᶨRepayment based on Last & Final ROPS2,591,066 2,642,888 2,695,746 2,749,661 2,804,654 2,860,747 2,917,962 2,976,321 3,035,847 2,748,258 - - 22,789,196 7.Cash Position After RDA Repayment(5 plus 6)14,694,487$ 7,505,728$ 13,141,631$ 12,889,231$ 10,780,559$ 11,118,041$ 10,626,210$ 10,441,692$ 9,712,839$ 8,116,892$ 3,833,457$ 2,244,686$ 92,905,239$ OPERATING BUDGET NOTES:a - Measure G transaction and use sales tax effective April 1, 2017 is projected to be 110% of Bradley Burns sales tax collected. b - Fire Property Tax Reserve account balance as of June 30, 2021 is $11,423,931. These funds are held in trust by the County of Riverside and restricted for fire services. c - SilverRock Resort Net Revenue includes revenue derived from sales tax, property tax, and transient occupancy taxes. d - Police and Fire services are provided by the County of Riverside and subject to the County's annual budget and contractual obligations. e - Maintenance and operations includes utilities and internal services charges. f - Ongoing capital expense projections include minimum capital funding required for street and sidewalk improvements to secure Measure A and Gas Tax funding (both restricted for road improvements). g - Transfers Out supports the Gas Tax Fund for street improvements, the Lighting and Landscape District, Art in Public Places, and SilverRock golf course.h - PERS unfunded pension liability projections are based on CalPERS actuarial valuations as of June 30, 2020 issued in August 2021. j - Annual RDA loan repayments represent the 80% General Fund portion. The remaining 20% is recognized in a Housing Authority Fund. The final repayment is scheduled for FY 2029/30.GENERAL FUND FINANCIAL PROJECTIONS - Gradual RecoveryOPERATING BUDGET & CAPITAL PROJECTS FUNDED BY THE GENERAL FUNDThe Current Budget for 2021/22 INCLUDES carryovers from 2019/20.Revenue projections are based on current economic conditions and historical trends. Current Fire Service Reserve balance as of June 30, 2021 is $11,423,931.Expenditure projections are based on current operations, identified projects and regulatory requirements. RDA loan repayments end in 2029/30 and are allocated 80% to the General Fund and 20% to the Housing Authority Fund. RDA LOANATTACHMENT 1ATTACHMENT 1 City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING: May 11, 2022 STAFF REPORT AGENDA TITLE: DISCUSS PRELIMINARY GENERAL FUND REVENUE PROJECTIONS FOR THE FISCAL YEAR 2022/23 BUDGET RECOMMENDATION Discuss preliminary General Fund revenue projections for the fiscal year 2022/23 budget. EXECUTIVE SUMMARY • The annual General Fund operating budget includes revenues and expenses of Measure G sales taxes with oversight by the Financial Advisory Commission (FAC). • The FAC formulated a subcommittee to serve on the 2022/23 Operating Budget Subcommittee. • Public meeting attendance is encouraged to receive citizen input during the budget process. FISCAL IMPACT - None. BACKGROUND/ANALYSIS Measure G was approved on November 8, 2016 and adopted by resolution on December 20, 2016 with an effective date of April 1, 2017. Additional funds generated by the Measure are subject to citizen oversight by the FAC. Each year the General Fund operating budget includes revenue projections and uses of Measure G funds, therefore an FAC subcommittee was established to review the overall budget process and projections. FAC SUBCOMMITTEE On December 14, 2021 the FAC appointed Commissioners Dorsey, Mast, and Anderson to serve on the 2022/23 Operating Budget Subcommittee to review and discuss the 2022/23 Budget projections for revenues and expenses with the Finance Department. The Committee has met to discuss current State and regional economic reports, professional consultant revenue projections, and multiple expense impacts which will be incorporated into the proposed budget. Additional meetings are needed before finalizing revenue and expense projections for the 2022/23 STUDY SESSION ITEM NO. 3 Budget. This study session provides an overview of known economic conditions, which will shape 2022/23 revenue and expenditure projections. BUDGET PROCESS The annual budget process is complex, it requires the coordination of all City departments and external contractors which provide essential City services. The City invites the public to participate in the budget process by attending any of the following public meetings. Finance staff is also available to discuss the proposed budget and may be reached by email at finance@laquintaca.gov or by calling 760-777-7000. Below is a schedule of all planned public meeting dates leading up to budget adoption. 4/5/2022 City Council Meeting - CIP Study Session 4/13/2022 Financial Advisory Commission Meeting - Proposed Capital Improvement Program Budgets 5/11/2022 Financial Advisory Commission Meeting - Preliminary General Fund Expense & Revenue Projections 5/17/2022 City Council Meeting - Budget Study Session #1 - (General Fund and Internal Service Funds focus) 6/1/2022 Financial Advisory Commission Meeting - Final review of proposed Measure G sales tax uses 6/7/2022 City Council Meeting - Budget Study Session #2 - (All Appropriations- General Fund, Internal Service Funds, Enterprise, and Special Revenue Funds) 6/7/2022 Housing Authority Board Meeting - Budget Study Session #1 (Housing Funds Only) 6/8/2022 Housing Commission Meeting - Final Review of proposed Housing Authority Budget 6/21/2022 City Council Meeting - Adopt Operating and CIP budget 6/21/2022 Housing Authority - Adopt Budget PUBLIC MEETING DATES FISCAL YEAR 2022/23 BUDGET ALTERNATIVES The FAC may wish for the budget subcommittee and Staff to consider additional revenue impacts as the Proposed 2022/23 Budget is prepared. Prepared by: Claudia Martinez, Finance Director City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING DEPARTMENT REPORT TO: Members of the Financial Advisory Commission FROM: Claudia Martinez, Finance Director DATE: May 11, 2022 SUBJECT: FINANCE DEPARTMENT CURRENT AND FUTURE INITIATIVES In addition to items presented as staff reports, the Finance Department would like to provide updates on the following matters. AUDIT & FINANCIAL REPORTING • Single Audit for federal funds for fiscal year 2020/21 is currently in process. • Citywide Comprehensive fiscal year 2020/21 Audit is currently in process. The fiscal year (FY) 2020/21 Annual Comprehensive Financial Report (ACFR) remains in draft form with an expected completion date of 5/31/2022. The City has been granted an extension to file the report from the Government Finance Officers Association of the United States and Canada (GFOA) for the Certificate of Achievement for Excellence in Financial Reporting. The City has provided comments to the auditing firm on reporting requirements, the presentation of information, notes to the financial statements, statistical section, and management letters to ensure that all requirements are met. COMMITTEE UPDATES • FY 2022/23 General Fund Operating Budget Subcommittee (Commissioners Anderson, Dorsey, Mast) o The FY 2022/23 budget process is in process by City staff and management. The subcommittee has met and discussed the budget process and general fund revenue projections. A second meeting will be held on May 26, 2022 and will cover updated revenue projections, expenditure requests and proposed uses of Measure G sales tax revenue. • Reserve Policy Update (Spring of 2022) o Coordination with the City Clerk’s office o Selection of sub-committee at June meeting DEPARTMENTAL REPORT ITEM NO. 1 PERSONNEL UPDATES The Accounting Manager recruitment is currently underway, and we will provide an update once the process is finalized. It is important to note the items mentioned in this update are in addition to the daily functions of the Finance Department. City of La Quinta FINANCIAL ADVISORY COMMISSION MEETING DEPARTMENT REPORT TO: Members of the Financial Advisory Commission FROM: Rosemary Hallick, Financial Services Analyst DATE: May 11, 2022 SUBJECT: FOURTH QUARTER 2021 (OCTOBER-DECEMBER) SALES TAX UPDATE FOR THE CITY OF LA QUINTA The attached report was prepared by consultants HdL Companies as an update of sales tax receipts for fourth quarter sales from October to December 2021. • La Quinta’s overall adjusted sales tax receipts for major industry groups increased 20.9%, which compares to Riverside County at 27.4% and the state at 15.6%. The large increases are in part due to the COVID- 19 pandemic lockdowns that continued in Q4 2020, measures the state put in place to assist businesses (such as delayed filings with no penalties), and a resurgence in consumer spending at restaurants for Q4 2021. • The City’s sales-per-capita was higher than both the county and state averages. • General consumer goods (such as department stores) made up 36% of sales tax revenue and 44% of Measure G revenue. • Autos and transportation made up 8% of sales tax revenue and 14% of Measure G revenue. • The City continues to benefit from increased online purchasing in the form of an increase in the County pool share, which was 15% of our sales tax revenue. DEPARTMENTAL REPORT ITEM NO. 2 The City continuously monitors local development, economic conditions, impacts on travel and trade, and legislative and judicial news for any potential changes to sales tax collections. The City’s fiscal year 2021/22 budget was conservatively forecast based on known information as of Spring 2021, and is subject to adjustment to reflect actual incoming tax receipts. Fiscal year sales tax collections are shown in the chart below. Attachment 1: HdL Q4 Sales Tax Update Quarter Payment Bradley Burns 33060 Measure G 520 MG % of BB % change from LY 3 July 2021 Advance 855,803$ 996,605$ 116.45%24.39% 3 August 2021 advance 1,054,672$ 1,288,136$ 122.14%17.72% 3 September 2021 3rd Qtr payment 613,938$ 914,607$ 148.97%31.20% 3 Total 2021 2,524,413$ 3,199,348$ 126.74%23.24% 4 October 2021 advance 983,637$ 1,216,772$ 123.70%12.16% 4 November 2021 advance 930,977$ 1,160,715$ 124.68%-7.82% 4 December 2021 4th Qtr payment 1,531,305$ 1,817,959$ 118.72%82.96% 4 Total 2021 3,445,920$ 4,195,447$ 121.75%26.06% 1 January 2022 advance 1,002,774$ 1,192,335$ 118.90%15.55% 1 February 2022 advance 959,345$ 1,177,728$ 122.76%-16.17% FY 2021/22 Total YTD 7,932,452$ 9,764,857$ 123.10% FY 2021/22 Budget 10,500,000$ 12,300,000$ www.hdlcompanies.com | 888.861.0220 Q4 2020* Q4 2021* Legend $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 SALES TAX BY MAJOR BUSINESS GROUP*Allocation aberrations have been adjusted to reflect sales activity General Consumer Goods Restaurants and Hotels County and State Pools Building and Construction Autos and Transportation Fuel and Service Stations Food and Drugs Business and Industry TOP 25 PRODUCERSCITY OF LA QUINTA HIGHLIGHTS Published by HdL Companies in Spring 2022 Best Buy BevMo Circle K Costco Floor & Decor G & M Oil Genesis/Hyundai of La Quinta Hobby Lobby Home Depot In N Out Burger Kohls La Quinta Chevrolet & Cadillac La Quinta Resort and PGA West Lavender Bistro Lowes Marshalls PGA WEST Private Clubhouse & Golf Courses Ross Target TJ Maxx Torre Nissan Tower Mart Ulta Beauty Vons Walmart Supercenter SALES TAX UPDATE CITY OF LA QUINTA 4Q 2021 (OCTOBER - DECEMBER) La Quinta’s receipts from October through December were 26.7% above the fourth sales period in 2020. Excluding reporting aberrations, actual sales were up 20.9%. The resurge in tourism coupled with rising menu prices resulted in a strong quarter from restaurants-hotels. Prices for general consumer goods reached a 40-year high in 4Q21 brought on by inflation. Higher retail gasoline prices in 4Q21 were the result of increased demand for gasoline, reduced U.S. refinery capacity, and low gasoline inventories. A shortage of necessary parts limited production of new vehicles, allowing dealers in the autos-transportation industry to charge a premium for available inventory. As 2021 closed, revenue from building- construction continue to climb with cost challenges related to labor, materials shortages and inflation. Large onetime use tax payments caused a temporary bump in receipts from business-industry. Measure G, the City’s voter-approved transactions and use tax, brought in an additional $4,198,342, led by sales from general consumer goods and restaurants- hotels. Net of aberrations, taxable sales for all of Riverside County grew 27.4% over the comparable time period; the Southern California region was up 17.4%. TOTAL: 21.8% $4,211,562 Measure G TOTAL:$ 3,451,851 20.9% 27.4% 15.6% COUNTY STATE LA QUINTA 4Q2021 ATTACHMENT 1 TOP NON-CONFIDENTIAL BUSINESS TYPES Q4 '21*La QuintaBusiness Type Change Change ChangeCountyHdL State 66.4%67.5%75.7% 236.5 Casual Dining 53.8%54.1%53.5% 135.5 Service Stations 220.5%144.6%50.1% 127.3 Leisure/Entertainment 27.2%25.9%31.4% 97.6 Family Apparel 12.1%8.3%16.8% 89.5 Quick-Service Restaurants 0.6%2.7%3.6% 87.5 Grocery Stores 18.8%22.1%28.3% 83.8 Specialty Stores 6.3%12.1%20.1% 81.2 Home Furnishings 95.9%105.8%109.4% 73.6 Fine Dining 16.6%16.9%1.3% 35.6 Fast-Casual Restaurants *Allocation aberrations have been adjusted to reflect sales activity *In thousands of dollars REVENUE BY BUSINESS GROUP La Quinta This Calendar Year* 9% Others 15% Pools 19% Restaurants 10% Autos/Trans. 11% Building 36% Cons.Goods *ADJUSTED FORECONOMIC DATA SALES TAX UPDATECITY OF LA QUINTA4Q 2021 STATEWIDE RESULTS California’s local one cent sales and use tax receipts for sales during the months of October through December were 15% higher than the same quarter one year ago after adjusting for accounting anomalies. A holiday shopping quarter, the most consequential sales period of the year, and the strong result was a boon to local agencies across the State. Consumers spent freely as the economy continued its rebound from the pandemic and as robust labor demand reduced unemployment and drove up wages. Brick and mortar retailers did exceptionally well as many shoppers returned to physical stores rather than shopping online as the COVID crisis waned. This was especially true for traditional department stores that have long been among the weakest categories in retail. Discount department stores, particularly those selling gas, family and women’s apparel and jewelry merchants also experienced strong sales. Many retailers are now generating revenue that is nearly as much, or even higher, than pre-pandemic levels. Sales by new and used car dealers were also much higher than a year ago. The inventory shortage has resulted in higher prices that have more than offset the decline in unit volume in terms of revenue generation for most dealerships. Restaurants and hotels were only moderately lower than last quarter, with both periods being the highest in the State’s history. Increased menu prices coupled with robust demand to dine out are largely responsible for these gains. These are impressive results for a sector that does not yet include the positive impact that will occur later this year as international travel steadily increases at major airports. Conference business, an important revenue component for many hotels, is also still in the early stages of recovery. Building material suppliers and contractors were steady as growing residential and commercial property values boosted demand, particularly in the Southern California, Sacramento and San Joaquin Valley regions. Although anticipated interest rate increases by the Federal Reserve could dampen the short-term outlook for this sector, industry experts believe limited selling activity will inspire increased upgrades and improvements by existing owners. With demand remaining tight and calls for more affordable housing throughout the state, the long-term outlook remains positive. The fourth quarter, the final sales period of calendar year 2021, exhibited a 20% rebound in tax receipts compared to calendar year 2020. General consumer goods, restaurants, fuel and auto-transportation industries were the largest contributors to this improvement. However, the future growth rate for statewide sales tax revenue is expected to slow markedly. Retail activity has now moved past the easy year-over-year comparison quarters in 2021 versus the depths of the pandemic bottom the year before. Additional headwinds going into 2022 include surging inflation, a dramatic jump in the global price of crude oil due to Russia’s war in Ukraine and corresponding monetary tightening by the Federal Reserve. This is expected to result in weakening consumer sentiment and continued, but decelerating, sales tax growth into 2023. HAND OUT FOR STUDY SESSION ITEM NO. 2 REVIEW AND DISCUSS 10-YEAR FINANCIAL PROJECTIONS FOR THE GENERAL FUND FAC MEETING MAY 11, 2022 FINANCIAL ADVISORY COMMISSION MEETING- MAY 11, 2022 - STUDY SESSION ITEM NO. 2 HAND-OUT BY BY CITY OF LA QUINTA GENERAL FUND 10-YEAR FINANCIAL PROJECTIONS FISCAL YEARS 2023-2032 STAFF (6 (5 (3 (2 (8 (4 (10 (9 (1 (7 (11 SH-111 MADISON ST54TH AVEWASHINGTON ST48TH AVE EISENHOWER DR52ND AVE JEFFERSON STMILES AVE AIRPORT BLVAVENIDA CARRANZA58TH AVE FRED WARING DR 50TH AVE AVENIDA BERMUDASMONROE STFRED WARING DR 50TH AVE JEFFERSON STJEFFERSON ST58TH AVE EISENHOWER DR 58TH AVE ¯ 0 0.45 0.9 1.35 1.80.225 Miles STVR Exempt STVR_exempt_zone North La Quinta Cove Mid La Quinta South La Quinta City Boundary Id name zoning 1 Homewood Suites (La Quinta Desert Villas - Center Pointe) Tourist Commercial (TC) District 2 Legacy Villas Tourist Commercial (TC) District & Development Agreement 3 La Quinta Resort including Spa & Tennis Villas Tourist Commercial (TC) District & Adjacent to TC District 4 Embassy Suites Village Commercial District 5 Village Commercial Village Commercial District 6 SilverRock Specific Plan Tourist Commercial (TC) District - Undeveloped 7 Codorniz Entitlement Approval 8 Signature at PGA West Tourist Commercial (TC) District 9 Puerta Azul Entitlement Approval 10 SW corner Ave 64 & Madison St Tourist Commercial (TC) District - Undeveloped 11 NW corner Ave 64 & Madison St Tourist Commercial (TC) District - Undeveloped 10TH ANNUAL COMMUNITY WORKSHOP - MARCH 12, 2022 - HAND-OUT BY STAFF CITY OF LA QUINTA STVR PROGRAM PERMIT AREAS POWER POINTS FAC MEETING MAY 12, 2022 05/11/2022 1 Financial Advisory Commission Meeting 05/11/2022 1 2 05/11/2022 2 Financial Advisory Commission 05/11/2022 Business Session Item No. 1 Review and Approve the Fiscal Year 2022/23 Meeting Dates Proposed Meeting Dates Wednesday August 10 Quarterly Wednesday October 5 Special Wednesday November 9 Quarterly Wednesday February 8 Quarterly Wednesday April 5 Special Wednesday May 10 Quarterly Wednesday June 7 Special 3 4 05/11/2022 3 Financial Advisory Commission Meeting 05/11/2022 Study Session Item No. 2 Receive and Discuss 10-Year Financial Projections for the General Fund 5 6 05/11/2022 4 7 8 05/11/2022 5 9 10 05/11/2022 6 QUESTIONS & DISCUSSION 11 12 05/11/2022 7 Financial Advisory Commission Meeting 05/11/2022 Study Session Item No. 3 Discuss Preliminary General Fund Revenue Projections for the Fiscal Year 2022/23 Budget General Fund Summary Revenues 67,821,100$ Less Operating/CIP Expenses (63,985,020) Preliminary Budget Surplus 3,836,080 Less Measure G Reserves (3,353,000) BUDGET SURPLUS 483,080$ GENERAL FUND FY 2022/23 PROPOSED BUDGET Measure G Sales Tax Revenue 13,500,000$ Police Services (5,100,000) Capital Improvements (5,047,000) Available for Appropriation 3,353,000$ MEASURE G SALES TAX SUMMARY 13 14 05/11/2022 8 Revenue Projections •Moderate growth rates were applied to major revenue accounts •Current economic factors- increase in retail sales & leisure and hospitality •Economic risks: inflationary pressures, market volatility, interest rate increases Expense Projections •Assist City and community with recovery and restoration efforts related to COVID-19 •Increase in contract services, utilities, materials/supplies, payroll projections, and pension obligations •Continue to address infrastructure improvements and capital improvement projects 15 16 05/11/2022 9 FY 2022‐23 Budget Schedule •May 17 – City Council- Session #1 •June 1 – Financial Advisory Commission •June 7 – City Council- Session #2 •June 21 – City Council- Budget Adoption For the latest budget information visit: www.laquintaca.gov/business/finance/budget Discussion & Questions 17 18 05/11/2022 10 The Financial Advisory Commission Will Hold a Special Meeting on June 1, 2022 19