Finance and Management Committee May 28, 2024
AGENDA REPORTTO:Jestin D. JohnsonFROM:Erin Roseman City Administrator Director of FinanceSUBJECT: Cash Management Report For FY 2023-2024 Third Quarter Ended March 31, 2024 DATE:April 29th, 2024 City Administrator Approval Date: RECOMMENDATION Staff Recommends That The City Council Receive The Informational Cash Management Report For Fiscal Year 2023-2024 Third Quarter Ended March 31, 2024. 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 Fiscal Year 2023-2024 Third Quarter ending March 31, 2024, the City’s Operating Pool Portfolio had a balance of $2.15 billion and yielded 4.52 percent, while the Successor Agency’s Portfolio had a balance of $15.97 million and yielded 5.30 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, 2024, the portfolios comply with the Investment Policy of the City for Fiscal Year (FY) 2023-24. 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. Attachment A provides each portfolio’s current market value and yield as of March 31, 2024, 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 (May 14, 2024 08:53 PDT)
May 14, 2024
Jestin D. Johnson, City Administrator Subject: Cash Management Report For FY 2023-2024 Third Quarter Ended March 31st 2024 Date: April 26, 2024Page 2 Finance and Management Committee May 28, 2024
ANALYSIS AND POLICY ALTERNATIVESCash Position The City’s Operating Pool Portfolio balances increased from $2.08 billion as of December 31, 2023, to $2.15 billion as of March 31, 2024. This net balance increase was mainly due to the following: receipt of $101.33 million in business tax revenues, and receipt of $69.45 million in property tax revenues, offset by debt service payments of approximately $29.1 million. The remaining balance decrease of approximately $70.96 million is due to the receipt of other revenues, such as Sales Tax, offset by operational expenses, such as payroll and vendor payments. The Successor Agency’s portfolio increased from a balance of $14.96 million as of December 31, 2023, to a balance of $15.97 million as of March 31, 2024. The portfolio increased due to the receipt of $16.35 million for the Recognized Obligation Payment Schedule (“ROPS”), offset by debt service and transfer payments of approximately $15.78 million, as well as other vendor payments. The City’s and Successor Agency’s investment portfolios are effectively managed for safety, liquidity, and yield, in compliance with the City’s Investment Policy, which supports the Citywide priority of responsive and trustworthy government. Yield Comparison The effective rate of return on total assets in the City’s Operating Pool Portfolio for the month ending March 31, 2024, was 4.52 percent. The effective rate of return on total assets in the Successor Agency’s Portfolio for the month ending March 31, 2024, was 5.30 percent. The yields differ 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 agency benchmark, which had a yield of 5.14 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 a yield of 4.23 percent. The performance comparison to LAIF, should be considered in the context of LAIF’s historical tendency to lag market changes in 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.
Jestin D. Johnson, City Administrator Subject: Cash Management Report For FY 2023-2024 Third Quarter Ended March 31st 2024 Date: April 26, 2024Page 3 Finance and Management Committee May 28, 2024
FISCAL IMPACTThis item is for informational purposes only and does not have a direct fiscal impact or cost. PUBLIC OUTREACH / INTEREST This item did not require additional public outreach other than posting on the City’s website. COORDINATION This report was prepared by the Finance Department and Treasury Bureau. SUSTAINABLE OPPORTUNITIES Economic: The Cash Management Report summarizes the characteristics of the investment portfolios for the quarter. The portfolios’ credit quality remains high and well within the City’s Investment Policy parameters. Liquidity for both portfolios remain 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: There are no race & opportunities associated with this report.
Jestin D. Johnson, City Administrator Subject: Cash Management Report For FY 2023-2024 Third Quarter Ended March 31st 2024 Date: April 26, 2024Page 4 Finance and Management Committee May 28, 2024
ACTION REQUESTED OF THE CITY COUNCILStaff Recommends that The City Council Receive The Informational Cash Management Report For Fiscal Year 2023-2024 Third Quarter Ended March 31, 2024. 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: Vivian Woo, Treasury Analyst III Treasury Bureau Attachments (1): A: Cash Management Report for Fiscal Year 2023-2024 Third Quarter Ended March 31, 2024