Agenda Report
Fullerton City Council
MEETING DATE: February 7, 2023
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: ellis chang, director of administrative services / City treasurer PREPARED BY: ELLIS CHANG, DIRECTOR OF ADMINISTRATIVE SERVICES / city treasurer SUBJECT: city INVESTMENT POLICY UPDATES and portfolio duration redistribution
SUMMARY
City Council consideration of updates to the City Investment Policy and request for ratification directing City Treasurer to redistribute the City’s investment portfolio to a 50 / 50 distribution between the one-to-three year duration portfolio and the one-to-five year duration portfolio.
RECOMMENDATION
Approve 2023 updates to the Investment Policy.
Ratify redistribution of the City investment portfolio to a 50 / 50 distribution between the one-to-three year duration portfolio and the one-to-five year duration portfolio.
CITY MANAGER REMARKS
The redistribution of the City investment portfolio being recommended is consistent with the investment advisors’ recommendation.
In addition, the City Manager and Administrative Services Director recommend moving their roles to advisory support which is consistent with the typical roles to policy committees and commissions.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
No direct fiscal impact from action items in this agenda report.
DISCUSSION
2023 Investment Policy Updates
The California Debt and Investment Advisory Commission (CDIAC) is an arm of the State of California Treasurer’s office that provides information, education and technical assistance on debt issuance and public funds investments to local agencies. CDIAC provides occasional updates to the types of investments in which local agencies may invest. The proposed updates to the Investment Policy follow local agency guidelines. The primary updates add Prime Asset-Backed Commercial Paper and AAA rated Joint Power Authority Pools as permitted investments.
Staff proposes updating the Investment Policy to change the Director of Administrative Services / City Treasurer and the City Manager roles on the Investment Advisory Committee from committee members to advisory support for the committee.
The Investment Advisory Committee reviewed the proposed updates on January 19, 2023 meeting and recommends the Investment Policy updates.
Duration Redistribution
Per CDIAC guidelines, a local agency may not invest beyond a final maturity of five years so it may meet the primary goals of investments are security, liquidity and returns.
The City currently invests its temporarily idle cash in two duration portfolios: a one-to-three-year portfolio and a one-to-five-year portfolio. The book value of the City’s investments in the one-to-three-year portfolio and the one-to-five-year portfolio totaled $76.8 million and $32.6 million, respectively, as of December 31, 2023. This current distribution splits about 70 / 30 between the one-to-three-year and the one-to-five-year portfolios.
The Investment Committee approved the addition of a one-to-five-year portfolio in June 2017 that the City initially funded at $20 million and subsequently increased to its current $30 million balance in 2021. The City based the decision to reallocate funds from the one-to-three-year to the one-to-five-year portfolio on a review of the City’s cash flow and liquidity needs as well as historical investment balances and anticipated investment performance. Historically, over longer-term investment horizons and interest rate cycles, the one-to-five-year strategy has provided greater income and higher investment returns. While the slightly longer maturity profile of the one-to-five-year portfolio entails somewhat greater market value volatility, the City’s liquidity position mitigates the need to unexpectedly liquidate balances prior to maturity.
The proposed portfolio redistribution provides the City an opportunity to enhance expected investment income with a portion of total portfolio assets identified as reserve assets and, therefore, not needed for short-term expenses. The proposed redistribution would further enhance the yield curve diversification of the City’s investment program while remaining compliant with the City’s investment policy and California Government Code with focus on the prioritized safety and liquidity objectives.
As of December 31, 2023, the City had $60.0 million invested in the Local Agency Investment Fund (LAIF), managed by the State Treasurer and $30.2 million in the Enhanced Cash portfolio. The City’s LAIF holdings provide daily liquidity needs, while the Enhanced Cash portfolio provide near-term laddered liquidity.
The City Treasurer manages all permitted investment resources to ensure safety, then liquidity and, lastly, returns. All permitted investments are highly rated for safety with sufficient daily and near-term investments for liquidity and lastly by duration and diversification for returns.
The Investment Advisory Committee recommends the duration redistribution of the City’s one-to-three -year and one-to-five-year portfolio from holdings of 70 / 30 to 50 / 50.
Attachments:
Attachment 1 – Proposed 2023 Investment Policy redline
cc: City Manager Eric J. Levitt
2023 Investment Policy Updates and Portfolio Duration Redistribution February 7, 2023 - Page 2