AGENDA REPORTTO:Jestin D. JohnsonFROM:Erin Roseman City Administrator Director of FinanceSUBJECT: Cash Management Informational Report For the Quarter Ended March 31, 2023 DATE:June 14, 2023 City Administrator Approval Date: RECOMMENDATION Staff Recommends That The City Council Receive The Informational Cash Management Report For The Quarter Ended March 31, 2023. EXECUTIVE SUMMARY As a continued best practice and in accordance with the City’s Investment Policy, the Finance Department submits a quarterly informational cash management report to the City Council. For the quarter ended March 31, 2023, the City’s Operating Pool Portfolio had a balance of $1.98 billion and yielded 3.45 percent, while the Successor Agency’s Portfolio had a balance of $11.97 million and yielded 4.57 percent. BACKGROUND / LEGISLATIVE HISTORY The Cash Management Report summarizes the characteristics of the investment portfolios for the quarter. The City and Successor Agency’s Portfolio composition includes safety, creditworthiness, liquidity, and diversity. As of March 31, 2023, the portfolios are in compliance with the Investment Policy of the City for Fiscal Year (FY) 2022-23. The portfolios’ credit quality remains high and well within Investment Policy parameters. Liquidity remains sufficient to meet projected cash flow needs for the next six months. Provided in Attachment A are each portfolio’s current market value and yield as of March 31, 2023, as well as comparisons to other market benchmarks. This report confirms that no leverage (use of debt to supplement investments) was utilized nor were derivatives (such as interest rate swaps, futures, or options) held during the reporting period. Also included are reviews of key economic factors that may affect the portfolio’s potential investment results.
Jestin Johnson (Jun 30, 2023 01:44 PDT)
Jun 30, 2023
Jestin D. Johnson, City Administrator Subject: Cash Management Report For the Quarter Ended March 31st2023 Date: June 14, 2023Page 2 Finance and Management Committee July 11, 2023
ANALYSIS AND POLICY ALTERNATIVES Cash Position The City’s Operating Pool Portfolio balances increased from $1.94 billion as of December 31, 2022, to $1.98 billion as of March 31, 2023. This net balance increase was mainly due to the following: receipt of $49.59 million in business tax revenues, receipt of $68.48 million in property tax revenues, offset by debt service payments of approximately $80.52 million. The remaining balance increase of approximately $2.45 million is due to receipt of other revenues, such as Sales Tax offset by operational expenses such as payroll and vendor payments. The Successor Agency’s portfolio remained with a balance of $11.97 million as of December 31, 2022, to a balance of $11.97 million as of March 31, 2023. The portfolio maintained its balance during the quarter. Yield Comparison The effective rate of return on total assets in the City’s Operating Pool Portfolio for the month ending March 31, 2023, was 3.45 percent. The effective rate of return on total assets in the Successor Agency’s Portfolio for the month ending March 31, 2023, was 4.57 percent. The yields are different between the City and Successor Portfolios because the Successor Portfolio has a lower fund balance and a shorter investment horizon due to cash flow needs. The City Portfolio has a more stable long-term investment horizon, allowing for longer-term securities that typically have higher yields. Note that the current yield curve is relatively inverted, and short-term securities are yielding higher returns than long term securities. The City Portfolio underperformed the one-year government agencies benchmark, which had a yield of 4.63 percent, as the 1-year government agency yield has already priced in future interest rate expectations, and City Portfolio slightly outperformed the Local Agency Investment Fund (LAIF), which had yield of 2.83 percent. The performance comparison to LAIF, should be considered in context of LAIF’s historical tendency to lag market changes in both rising and falling interest rate environments. Moreover, the City does not actively sell securities in the portfolio to take advantage of cyclical swings in the market, which could result in the loss of principal. Rather, the primary investment objective of the City for the portfolio is to maximize safety, liquidity, and return in that respective order. FISCAL IMPACT There are no budget implications associated with this informational report.
Jestin D. Johnson, City Administrator Subject: Cash Management Report For the Quarter Ended March 31st2023 Date: June 14, 2023Page 3 Finance and Management Committee July 11, 2023
PUBLIC OUTREACH / INTEREST This item did not require any additional public outreach other than posting on the City’s website. COORDINATION This report was prepared by the Finance Department, Treasury Bureau. SUSTAINABLE OPPORTUNITIESEconomic: The Cash Management Report summarizes the characteristics of the investment portfolios for the quarter. The portfolios’ credit quality remains high and well within the parameters of the City’s Investment Policy. Liquidity for both portfolios remains sufficient to meet the City’s projected needs. Environmental: To the extent that new investment opportunities are found in companies if or when financially prudent that are involved in environmentally positive activities, the City will consider investing in these companies (i.e. Commercial Paper, Medium Term Notes, etc.) if permitted by the City Investment Policy. Race & Equity: Investment Policies and Cash Management approaches are heavily regulated by federal regulations and not conducive to Race and Equity analyses without a large investment of time and resources. This approach has been a long-standing practice of the City that has not been examined through the racial equity practice framework adopted by the City in more recent years.
Jestin D. Johnson, City Administrator Subject: Cash Management Report For the Quarter Ended March 31st2023 Date: June 14, 2023Page 4 Finance and Management Committee July 11, 2023
ACTION REQUESTED OF THE CITY COUNCIL Staff Recommends That The City Council Receive The Cash Management Report For The Quarter Ended March 31, 2023. For questions regarding this report, please contact David Jones, Treasury Administrator, at (510) 238-6508. Respectfully submitted, ERIN ROSEMAN Director of Finance, Finance Department Reviewed by: David Jones, Treasury Administrator Treasury Bureau Max Kumar, Investment & Operations Manager Treasury Bureau Prepared by: Jason Lu, Treasury Analyst III Treasury Bureau Attachments (1): A: Cash Management Report for the Quarter Ended March 31, 2023