Agenda Report
Fullerton City Council
MEETING DATE: MAY 3, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
FROM: JEFFREY W. COLLIER, ACTING CITY MANAGER
PREPARED BY: ELLIS CHANG, DIRECTOR OF ADMINISTRATIVE SERVICES SUBJECT: TREASURY – ENHANCED CASH PORTFOLIO
SUMMARY
City Council ratification of an enhanced cash portfolio with Public Trust Advisors, to supplement the City’s investment of operating capital in the state Local Agency Investment Fund (LAIF). The Investment Advisory Committee received a presentation of new enhanced cash portfolio on April 21, 2022 and voted to support this recommendation.
RECOMMENDATION
Ratify investment in enhanced cash portfolio.
Ratify authorization of City Treasurer / Director of Administrative Services to manage and administer enhanced cash portfolio.
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
The cost of investing in the enhanced cash strategy portfolio with Public Trust Advisors is four (0.04%) basis points, $400 annually for each million invested. The City Treasurer anticipates investing between $10 to $15 million and no more than $30 million of City operating capital in the enhanced cash portfolio. Based on interest rates as of April 25, 2022, the City may earn an average additional yield of 0.70%, net of the 0.04% fee, compared to the bank earnings credit rate of 0.45%. This would provide an additional net $7,000 annually for each million invested. Actual yields and earnings will depend on rates and maturities at time of purchase.
DISCUSSION
The state Local Agency Investment Fund (LAIF) offers local agencies the opportunity to participate in a state investment portfolio using the investment expertise of the State Treasurer’s Office at no additional cost to the taxpayer. The City utilizes LAIF to invest operating capital above what it needs on a short-term basis to support operating, debt service and capital payments.
LAIF limits City investment to a maximum of $75 million. With receipt of the first $16.3 million tranche of American Rescue Plan Act (ARPA) allocation, increased reserve levels and anticipated receipt of the second tranche of ARPA in May / June 2022, the City will shortly exceed the LAIF maximum. The LAIF rate equals approximately 0.32% as of quarter ended March 31, 2022 and the City’s general checking account provides a net return of 0.45%.
The City contracts with Public Trust Advisors (PTA) as the City’s investment advisory firm to invest the City’s temporary idle cash. The City operating portfolio including LAIF totaled $177.21 million as of quarter ended March 31, 2022, of which the City had $71.16 million invested in LAIF and the balance invested with PTA.
The increase in liquidity balances provides an investment opportunity in keeping with the City’s Investment Policy primary goals of:
Compliance with all federal, state and local laws governing the investment of public funds under the control of the City Treasurer.
Protection of principal monies.
Achieving a reasonable rate of return within the parameters of prudent risk management while minimizing the potential for capital losses arising from market changes or issuer default.
The City’s investment policy has primary goals of safety, then liquidity and then return. In keeping with these goals, PTA, at the request of the City Treasurer, developed an enhanced cash portfolio (EC Portfolio) to supplement the City’s operating capital investment options beyond LAIF.
The EC Portfolio provides an opportunity to invest in securities that mature in one year or less. PTA recommends an initial strategy of maturities laddered between three and nine months. The EC Portfolio strategy complies with the City’s investment policy and within the scope of the investment advisory agreement with PTA.
Current interest rates may provide a rate of up to 0.70%, compared to the current bank deposit rate, based on U.S. Treasury rates as of April 25, 2022. The EC Portfolio creates an opportunity to further diversify the City’s investment program, increase interest earnings and provide liquidity throughout the fiscal year, while maintaining the safety first investment objective.
The City Treasurer / Director of Administrative Services will review each maturity with PTA to evaluate and determine re-investment in the EC Portfolio at maturity based on anticipated liquidity needs balanced against investment yields between LAIF and the bank deposit rate and yields offered for short term securities.
Two of the City’s large payments occur in June / July: the semi-annual import water payments and the City’s annual Unfunded Accrued Liability payment to CalPERS, which will reduce the current LAIF balances. In addition, as the City expends ARPA funds, it anticipates the need to utilize the EC Portfolio may reduce gradually over time.
Attachments:
Attachment 1 – Short Term Investment Strategy April 2022 Treasury – Enhanced Cash Portfolio
May 3, 2022 - Page 3