DATE:
November 21, 2023
TO:
Mayor and Council Members
City Council, as Successor Agency to the Hesperia Community Redevelopment Agency Chair and Board Members, Hesperia Housing Authority
Chair and Commissioners, Community Development Commission Chair and Board Members, Hesperia Fire Protection District Chair and Board Members, Hesperia Water District
FROM:
Rachel Molina, City Manager
BY:
Casey Brooksher, Assistant City Manager
Anne Duke, Deputy Finance Director
Nichole Sheppard, Senior Accountant
SUBJECT:
2023-24 Statement of Investment Policy
RECOMMENDED ACTION
It is recommended that the Council/Board/Commission adopt Joint Resolution No. 2023-47, Successor Agency to the Hesperia Community Redevelopment Agency Resolution No.
SA 2023-01, Hesperia Housing Authority Resolution No. HHA 2023-08, Community Development Commission Resolution No. CDC 2023-02, Hesperia Fire Protection District Resolution No. HFPD 2023-08, and Hesperia Water District Resolution No. HWD 2023-15, approving the Fiscal Year 2023-24 Statement of Investment Policy.
BACKGROUND
The City Treasurer is authorized to invest public funds in accordance with California Government Code (CGC) Sections 53600 et seq. and 5922(d). The Statement of Investment Policy (Policy) that guides the investment activity of the City, Successor Agency to the Hesperia Redevelopment Agency, Hesperia Housing Authority, Community Development Commission, Fire District, and Water District was adopted by the City Council consistent with CGC Section 53646, and any changes to the Policy are considered by the Council on an annual basis. The external auditors of the Council/Agency/Authority/Commission/Districts also review the Statement of Investment Policy during the annual financial audit process.
ISSUES/ANALYSIS
During the past year, all funds under the control of the City Treasurer that were not required for the immediate cash flow needs of the City, or were otherwise invested in accordance with bond indentures and trust agreements, were placed with the State Local Agency Investment Fund (LAIF). The quarterly interest rates on funds invested with LAIF for the last four fiscal years are provided on the following page.
An advantage of investing in LAIF is that the funds are available same day, based upon the cash management needs of the City. LAIF is part of the Pooled Money Investment Account that was created by statue and governed by a five-member board which is chaired by the State Treasurer. Under Government Code Section 16429.3, funds deposited are precluded from being transferred or seized by any State agency. The FY 2023-24 Budget contains an estimated average interest rate of 2.96%. Due to grant and reimbursement-funded construction projects included in the FY 2023-24 Budget, such as the Ranchero Road Widening and Aqueduct Crossing projects, the ability to draw funds same day (free of penalties) for payment of peak cash flow obligations is important in the City’s ability to effectively manage cash for City operations. For this reason, continued investments with LAIF is recommended.
In comparing LAIF’s average annual rates with the following table, reflecting information provided by the Federal Reserve, the average annual LAIF rates are typically higher than the average annual rate of return of US Government securities with a three-month maturity. Due to multiple recent rate increases by the Federal Reserve however, LAIF rates for FY 2022-23 were 1.92% less than securities with a three-month maturity. For the reasons stated above related to construction cash flow needs, the City’s ability to withdraw immediately available funds is essential. Consistent with Government Code 53600.5, the City’s primary objective is to safeguard the principal of the funds under its control, with a secondary objective of meeting the liquidity needs of the organization, and a tertiary objective of achieving return on invested funds. As such, during FY 2023-24, staff will continue to monitor LAIF performance and, if improvement is not seen in the results, present an option for a more active investment function for consideration. This would require dedicated staffing to ensure proper oversight and reporting, along with an enhanced collaborative effort with Development Services staff to precisely project the timing of construction costs, in order to ensure the availability of sufficient liquid funds to pay the City’s obligations.
US Government Securities Rate of Interest with a three - month maturity per the Federal Reserve System
The Association of Public Treasurers of the United States and Canada Model Investment Policy, as well as the California Local Agency Investment Guidelines, were models used to guide the Policy. Further, the 2023 Local Agency Investment Guidelines (LAIG), as presented by the California Debt and Investment Advisory Commission, have been reviewed in order to identify statutory changes arising from the 2022 Legislative session for inclusion in the annual update to the Policy. The summary of statutory changes referenced Chapter 427, Statutes of 2022 (SB 1489), the Local Government Omnibus Act, which amended Government Code sections 53601 and 53646(b)(1) related to the investment of surplus funds by treasurers and extended reporting timeframes for quarterly reporting. Specifically, this bill amended Government Code Section 53601 to clarify that a public agency investment’s term or remaining maturity is to be measured from the settlement date to final maturity. In addition this code section was amended to prohibit the purchase of a security with a forward settlement date exceeding 45 days from the time of investment. Government Code Section 53646(b)(1) extends the timeline for quarterly reporting, from 30 to 45 days following the end of the quarter. The Policy has been updated for the applicable code section.
In addition to the limited changes referenced above, the dates referenced in the Policy have been updated to reflect that the Policy has been reviewed for any potential impact in statutory changes, along with a title change referencing the Assistant City Manager as City Treasurer. These changes to the Policy are as shown in a “track changes” version (Attachment 2) of the draft Statement of Investment Policy for Fiscal Year (FY) 2023-24. These changes have also been included in the “clean” version (Attachment 1) of the FY 2023-24 Policy and are recommended for approval.
FISCAL IMPACT
Adoption of the Statement of Investment Policy has no direct financial impact on the City’s Budget.
ALTERNATIVE(S)
Failure to adopt an update to the Statement of Investment Policy could result in an audit exception, as the Policy indicates the need for an annual review and approval by the City Council.
Provide alternative direction to staff.
ATTACHMENT(S)
Statement of Investment Policy for FY 2023-24 (clean)
Statement of Investment Policy for FY 2023-24 (track changes) Joint Resolution No. 2023-47, SA 2023-01, HHA 2023-08, CDC 2023-02, HFPD 2023-08, and HWD 2023-15 City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the City Council, Chair, and Board Members 2023-24 Statement of Investment Policy
November 21, 2023