Business Item 5c
STAFF REPORT
City Council Business Item
DATE: November 7, 2022
TO: Honorable Mayor and Council Members
FROM: Aaron Felmlee, Finance Director
THROUGH: Merritt Perry, City Manager
SUBJECT: Authorize the Finance Director to setup a US Bank Sweep Account on the City’s General Checking Account ending 3254
STAFF RECOMMENDATION:
Receive Staff report and authorize the Finance Director to setup a US Bank sweep account on the City’s general checking account ending 3254.
EXECUTIVE SUMMARY:
City staff have been working with our banking partners to examine if new and/or improved investment options are available now that the Federal Reserve has been raising rates at levels not seen for nearly 15 years. Upon this research it was determined that setting up an auto-sweep account on the City’s Checking Account would provide the City with interest earning potential on the nearly $3,000,000 that is held in the General Checking Account. Historically, the City has not been able to earn any interest on those balances, primarily due to the near zero federal funds rate.
For context the average annualized return for the last 10 years for the money market fund the City would be investing in through the sweep account has averaged 0.45%. Currently, the rate the City would be able to earn is at 2.75%, well above historical averages.
According to Investopedia the definition of a sweep account is, “a bank or brokerage account that automatically transfers amounts that exceed, or fall short of, a certain level into a higher interestearning investment option at the close of each business day. Commonly, the excess cash is swept into a money market fund.”
US Bank would auto-sweep into the First American US Treasury Obligations Fund (FOCXX).
This investment is considered a money market fund and per the City’s Investment Policy is an allowable investment option under section J subsection 13. FOCXX has attained the highest ranking or the highest letter and numerical rating provide by not less than two NRSROs, as shown on the attached fact sheet. Currently, this fund is earning 2.75% annually. For additional information on the First American US Treasury Obligations Fund please see the attached Fact Sheet and Annual Report.
FINANCIAL IMPACT:
Using an estimated $3,000,000 balance held in the US Bank General Checking Account (3254) and an estimated rate of return of 2.75% would produce revenue of $82,500 annually.
Business Item 5c
Using Fund Balances as of the end of September 2022 $23,100 (28%) would go to the General Fund, $18,150 (22%) would go to the Water Fund, $32,175 (39%) would go to the Wastewater Fund, and the remaining $9,075 (11%) would be split amongst the remaining Funds held by the City.
Additionally, US Bank charges $2,700 a year for the auto-sweep function on Checking Accounts.
This expense would be split similar to the above Fund Balance percentages. If returns were to fall to the point where they no longer covered the annual expense the City could turn off the autosweep function for no additional charge and would no longer be charged that fee.
RECOMMENDED COUNCIL ACTION:
1. Receive staff presentation and allow discussion between council and staff
2. Open public comment
3. Close public comment
4. Motion to authorize the Finance Director to setup a US Bank sweep account on the City’s general checking account ending 3254. Voice vote.
ATTACHMENTS:
First American US Treasury Obligations Fund (FOCXX) Annual Report First American US Treasury Obligations Fund (FOCXX) Fact Sheet