CITY COUNCIL STAFF REPORT
Meeting: February 7, 2023
Subject
Consider the Monthly Treasurer's Investment Report for December 2022 Recommended Action
Receive the Monthly Treasurer's Investment Report for December 2022 Discussion
Background
On May 19, 2022, the City Council approved the City's Investment Policy. Per the City's Investment Policy, the Treasurer shall submit monthly transaction reports to the City Council within 30 days of the end of the reporting period per California Government Code Section 53607. In addition to the monthly transaction reports, quarterly investment reports are submitted to the City Council approximately 45 days following the end of the quarter. The quarterly investment report offers a more extensive discussion of the City's economy, cash flow, and investments.
The City's Municipal Code Section 2.24.050 Investment Authority states that the Treasurer shall make a monthly report of all investment transactions to the City Council. Lastly, the City's Municipal Code Section 2.88.100 Duties–Powers–Responsibilities lists one of the powers and functions of the Audit Committee is "to review the monthly Treasurer's report." Per the referenced code provisions, a Treasurer's Investment Report shall be submitted to the Audit Committee and City Council every month.
Treasurer's Investment Report
The report provides an update on the City's investment portfolio for the month ending December 31, 2022. The report is as of January 18, 2023.
The attached statements include balances and transactions of the City's investments with the Local Agency Investment Fund (LAIF) and Chandler Asset Management. While not governed by the City's Investment Policy, statements for the Public Agency Retirement Services (PARS) Section 115 Trusts are also attached per a request from the Monthly Treasurer's Report Subcommittee.
The City's General Ledger cash and investments balance was $220.1 million, a $2.0 million increase from the prior month due to receipts of $12.9 million, disbursements of $(10.7) million, and journal adjustments of $0.1 million.
Cash and Investments – General Ledger Balance
Fund Type
Month Ending November 30, 2022
Receipts
Disbursements
Journal Adjustments*
Month Ending December 31, 2022
General Fund
109,800,500
12,237,054
(6,863,434)
41,618
115,215,738
Special Revenue
44,504,633
455,633
(2,146,175)
-
42,814,091
Debt Service
2,682,650
-
-
(360,400)
2,322,250
Capital Projects
39,391,448
-
(248,615)
-
39,142,833
Enterprise
12,220,686
169,340
(768,738)
198,288
11,819,575
Internal Service
9,499,557
-
(660,486)
(15,880)
8,823,191
Total
$218,099,474
$12,862,026
$(10,687,448)
$(136,374)
$220,137,678
*Journal adjustments include transactions recorded in other systems and imported into the financial system, Council-approved budget adjustments, quarterly Cost Allocation Plan (CAP) charges, and quarterly interest earnings.
The $220.1 million in cash and investments includes $33.0 million in cash, $21.1 million in cash equivalents, $148.8 million in investments, and $17.2 million restricted for funding pension costs.
The City pools cash for all funds except restricted funds. However, the City accounts for interest earnings, revenues, and expenditures separately for each fund to adequately meet the purpose and restrictions of each funding source. Pooling funds is a common and appropriate practice used in public agencies. By pooling funds, the City can benefit from economies of scale, diversification, liquidity, and ease of administration.
Cash and Investments – General Ledger Balance
Month Ending November 30, 2022
Month Ending December 31, 2022
% of Portfolio
Cash in banks and on hand
Operating Checking (Wells Fargo)
30,469,390
32,883,874
15%
Workers' Compensation Checking (Wells Fargo)
47,333
31,453
0%
Payroll Checking (Wells Fargo)
-
-
0%
Restricted for Bond Repayments1 (BNY Mellon)
360,400
-
0%
Petty Cash and Change
5,000
5,000
0%
Cash Equivalents
Local Agency Investment Fund
21,131,545
21,131,545
10%
Investments
Investments (Chandler)
148,845,755
148,845,755
68%
Restricted for Pension2 (PARS)
17,240,051
17,240,051
8%
Total Cash and Investments3
$218,099,474
$220,137,678
100%
1 Cash held by fiscal agent for bond repayments
2 In accordance with GASB 67/68, the assets in the Section 115 Pension Trust are reported as restricted cash and investments in the General Fund. The assets can only be used to fund CalPERS costs. 3 Assets in the Section 115 OPEB Trust are excluded as the City cannot use these assets to fund its own operations. The assets are held in trust for retirees' post-employment health benefits.
The table below shows the bank balances for the City's cash and investments. Bank and General Ledger balances differ due to timing. Bank balances do not include outstanding checks and deposits in transit. The General Ledger is updated quarterly with interest earnings and annually with the year-end investment market values.
Cash and Investments – Bank Balance
Month Ending November 30, 2022
Month Ending December 31, 2022
% of Portfolio
Cash in banks and on hand
Operating Checking (Wells Fargo)
30,474,316
33,821,218
15%
Workers' Compensation Checking (Wells Fargo)
54,027
33,538
0%
Payroll Checking (Wells Fargo)
-
-
0%
Restricted for Bond Repayments1 (BNY Mellon)
360,400
8,333
0%
Cash Equivalents
Local Agency Investment Fund
21,170,973
21,170,973
10%
Investments
Investments (Chandler)
147,091,668
147,282,846
67%
Restricted for Pension2 (PARS)
18,054,973
17,395,501
8%
Total Cash and Investments3
$217,206,356
$219,712,409
100%
1 Cash held by fiscal agent for bond repayments
2 In accordance with GASB 67/68, the assets in the Section 115 Pension Trust are reported as restricted cash and investments in the General Fund. The assets can only be used to fund CalPERS costs. 3 Assets in the Section 115 OPEB Trust are excluded as the City cannot use these assets to fund its own operations. The assets are held in trust for retirees' post-employment health benefits.
Local Agency Investment Fund (LAIF)
LAIF is an investment pool administered by the State of California Treasurer and governed by California Government Code. The City can withdraw funds from LAIF at any time. As a result, the City uses LAIF for short-term investment, liquidity, and yield.
The City's LAIF account had a balance of $21.2 million, no change from the previous month. The interest rate was 2.07%. The City did not make any deposits or withdrawals in December 2022.
Investment Portfolio
In FY 2018-19, the City conducted a Request for Proposal (RFP) for investment management services and selected Chandler Asset Management. Under the City's Treasurer's direction, Chandler Asset Management manages the City's investment portfolio in accordance with the City's investment objectives. The City's investment objectives, in order of priority, are to provide:
Safety to ensure the preservation of capital in the overall portfolio Sufficient liquidity for cash needs
A market rate of return consistent with the investment program The performance objective is to earn a total rate of return through a market cycle equal to or above the return on the benchmark index. Chandler Asset Management invests in high-quality fixed-income securities consistent with the City's Investment Policy and California Government Code to achieve the objective.
The portfolio's market value was $147.3 million, compared to $147.1 million at the end of the previous month. The table below includes historical comparisons of the City's portfolio.
October 31, 2022
November 30, 2022
December 31, 2022
Market Value
145,375,884
147,091,668
147,282,846
Par Value
155,796,034
155,927,174
156,155,965
Book Value
155,563,286
155,696,350
155,929,700
Average Maturity
2.82 years
2.74 years
2.62 years
Average Modified Duration
2.43 2.34
2.28 Average Purchase Yield
1.68%
1.69%
1.70%
Average Market Yield
4.81%
4.56%
4.63%
Average Quality1
AA/Aa1
AA/Aa1
AA/Aa1
1 S&P and Moody's respectively
The portfolio's market value fluctuates depending on interest rates. When interest rates decrease after an investment is purchased, the market value of the investment increases. In contrast, when interest rates increase after an investment is purchased, the market value of the investment decreases. At the time of purchase, the City intends to hold all investments until maturity, so changes in market value do not affect the City's investment principal. A decrease in market value creates an unrealized loss. The loss will only be realized if the City sells its investments before maturity. The market values were provided by Chandler Asset Management.
Section 115 Trust Investment Portfolio
The City established Section 115 Trusts to reduce pension rate volatility and pre-fund Other Post-Employment Benefits (OPEB) costs. A Section 115 Trust is a tax-exempt investment tool that allows local governments to pre-fund pension and retiree health costs. Once contributions are placed into the trust, assets from the trust can only be used to fund retirement plans.
The Section 115 Trusts are not governed by the City's Investment Policy but by separate investment policies. On December 6, 2022, City Council approved the Pension Trust Investment Policy and OPEB Trust Investment Policy. Public Agency Retirement Services (PARS) administers the trust, and US Bank manages the investments per the investment policies.
Both Section 115 Trusts are invested in "balanced" portfolios. The investment objective is designed to provide a moderate amount of current income with moderate growth of capital. It is recommended for investors with a long-term time horizon. The strategic asset allocation ranges for this objective are:
Asset Class
Range
Target
Equities
50-70%
63%
Fixed Income
20-40%
29%
Real Estate
0-15%
5%
Commodities
0-10%
2%
Cash
0-10%
1%
The Section 115 Pension Trust had a balance of $17.4 million, a decrease of $0.7 million from the prior month due to investment losses. The Section 115 OPEB Trust had a balance of $31.6 million, a decrease of $1.2 million from the prior month due to investment losses. The one-month investment returns were -3.62% for both the Pension Trust and OPEB Trust.
Compliance
All of the City's investments comply with state law and the City's Investment Policy. In compliance with California Government Code 53646 (b)(3), the City maintains the ability to meet its expenditure requirements for the next six months.
Sustainability Impact
No sustainability impact.
Fiscal Impact
No fiscal impact.
_____________________________________
Prepared by: __________________
Thomas Leung
Budget Manager
Reviewed by: __________________
Kristina Alfaro
Director of Administrative Services
Approved for Submission by: __________________
Pamela Wu
City Manager
Attachments:
A – Chandler Investment Report December 2022
B – Chandler Custodial Statement December 2022
C – PARS Pension and OPEB Account Statement December 2022 D – LAIF Account Statement December 2022
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