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Agenda Report
September 16, 2024
TO: Honorable Mayor and City Council
THROUGH: Finance Committee (September 9, 2024)
FROM: Department of Finance
SUBJECT: QUARTERLY INVESTMENT REPORT - QUARTER ENDING
JUNE 30, 2024
RECOMMENDATION:
This report is for information only.
BACKGROUND:
Government Code Section 53646 (2)(b)(1) states that in the case of a local agency, the Treasurer or Chief Fiscal Officer (CFO) may render a quarterly report to the legislative body of the local agency containing detailed information on: 1) all securities, investments, and moneys of the local agency; 2) a statement of compliance of the portfolio with the statement of investment policy; and 3) a statement of the local agency's ability to meet its pool's expenditure requirements for the next six-months. By making these reports optional, this bill does not impose a state-mandated local program; however, encourages local agencies to continue to report. The bill also states that the Treasurer or CFO may report whatever additional information or data may be required by the legislative body of the local agency.
The quarterly report shall include the following:
1. The type of investment, name of the issuer, date of maturity, par, dollar amountinvested in each security, and money within the treasury;
2. The weighted average maturity of the investments within the treasury;
3. Any funds, investments, or programs, including loans, that are under themanagement of contracted parties;
4. The market value as of the date of the report and the source of this valuation for any security within the treasury; and
5. A description of the compliance with the Statement of Investment Policy.
MEETING OF.9/16/2024AGENDA ITEM NO. _4____
Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
Economic Summary:
The US economy started 2024 with positive performance in the first and second quarter (Q1, Q2) of 2024. Here's a breakdown of key indicators:
Growth : Real Gross Domestic Product (GDP) grew at an annualized rate of 2.8% for Q2 of 2024, according to the latest estimates of the U.S. Bureau of Economic Analysis. This was higher than the forecasted 2.0% growth, coming in above analyst expectations. The Q2 growth increased from a 1.4% expansion in Q1 2024.
R<<3DP: Fl>^rc^r»t change from F>r^c:^ding c|uar-tc?r
s
4 2
0 Q.1 0.2 Q.3
2023
U.S. Bureau c*f Ecortorriic Analys.is
Ci,^i •0.. T <:3>.2
2024^
Seasonally adjusted annual rates
Labor Market: The US added a significant number of jobs in the first three-months of 2024, but cooled in the Q2 of the year per the latest report from the Bureau of Labor Statics. Job creation in April, May, and June was in line with census estimates, with 175,000, 272,000, and 206,000 jobs added to the U.S. economy in each of the respective months. The unemployment rate however ticked up to 4.1% in June, up from
3.9% and 4.0% in April and May and increased to 4.3% in July. totployn-Kenkers Touent Wort
jobOpeinson6/30/24
Dec.Jun
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Dec r 2021
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Inflation: Inflation has eased since its June 2022 peak of 9.1 %, and this trend continued in Q2 of 2024. As measured by the consumer price index, headline inflation over the year through June 2024 had slowed to 3.0 %. During Q2, the average monthly Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
rate of inflation was just 0.1 % (or 1.1 % at an annual rate), slowing from an average of
0.4 % per month (4.6 % annualized) during Q1 of this year.
Headline CPI ; 2.894750
Core CPI (excludes Food and Energy) 3.171270
Personal Consumption Expenditure Core On 6/30/24 2.630270 PPI Final Demand . ^ 2.249220
12.000000
•+• 10.000000
........+-8.000000
Inflation Indicators
6.000000
•r 4.000000
2.894750
TargetFed
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2013 2014 2015 2016 2017 Z018 2019 2020 2021 2022 2023 2024 C.P1 Y'oy'^nriew. WS^P-I. Ur&an'CofsuTyers Yo'Y' Fi'S.s,') w'hiteCP: vs-Cof&vs PCt Horafhly 12JL-N201Z-15.AL--G2^24Copyright^ 202.4- StooT-'-t's'^ Fir.aace L.P, l.A-Aus-Z-024 05-.W>:2A
Consumer Spending: Consumer spending continued to be a source of strength for the U.S. economy accounting for nearly 70% of the Q2, GDP growth. It grew 2.3% year-over-year adjusted for inflation in Q2. The increase reflected higher spending on both goods and services. Retail sales recorded a solid increase in July, up by 1% month-over-month compared to 0% growth rate the prior month and 0.4% growth expectation by the market survey.
Housing Market: The housing market slowed in Q2. Elevated mortgage rates and higher home prices, lead to a sales drop in both existing and new homes. The inventory-to-sales ratios for new and existing homes increased as the supply of homes arriving on the market rose more than sales. The Housing Starts month-over- month declined by 6.8% in July and the month-to-month Building Permits dropped by 4%.
Equity Markets: The stock market started 2024 on a positive trend and the trend continued in Q2. For the first six-months of 2024, the Dow Jones Industrial Average was up 4.8%, the S&P 500 was up 15.3%, and the NASDAQ was up 18.6%. The equity market rapidly recovered after it dipped by as much as 7% the first week of August and as of August 21, 2024, the Dow Industrial Average was up 8.39% for the year, the S&P was up 17.66% and the NASDAQ was up 19%.
Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
l5>ocri^-42.500
1S500-1S&P 500 Index (Rl>
Nasdaq Index, (Ll>
Dow Jones Index <R2)
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On August 21, 2024, the Bureau of Labor Statistics (BLS), in preliminary data, marked down the U.S. payroll numbers by the most it had done since 2009. The US job growth was far less robust as reported by the BLS and is expected to be revised down by 818,000 jobs for the twelve-month period ending March 2024. The financial market has already priced in Fed Funds rate cuts in September, November, and December and the recent payroll number revision by the BLS encouraged the traders of the interest rate futures to price in Fed Funds rate cuts by as much as 1% by the end of 2024.
Total Funds Under Management
The table below represents total City funds under management based on their market values as of June 30, 2024.
6/30/2024 3/31/2024
Pooled Investment Portfolio
Capital Endowment
Stranded Investment Reserve Portfolio
Special Funds
Investments Held with Fiscal Agents
PARS Section 115 Trust
Total Funds Under Management
Change
$740,104,042
1,976,617
42,265,492
18,584,855
35,574,151
15,707,890
$723,191,335
1,955,294
41,890,618
18,400,619
40,453,898
15,581,239
$16,912,707
21,323
374,874
184,236
(4,879,747)
126,651
$854,213,047 $841,473,003 $12,740,044
Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
The Pooled Investment Portfolio value increased by a net $16,912,707 due to the following cash transactions during the quarter:
Net Investment Earnings (Fair Market Value Change plus Interest Income) | $ 7,583,948 Deposits and Credit Card Receipts136,105,658
Property Tax Revenues52,909,306
Sales Tax and Other State Apportionments17,647,728
HDD Receipts Net of Payments and Loans3,758,996
Payroll and Payroll-related Expenses(90,779,938)
Vendor Payments and Accounts Payable Checks(63,403,820) Debt Service Payments Net of Reimbursements and Subsidies(18,601,131) Water and Power Payments Net of Receipts(20,133,739)
Net Transfer from Other Funds(1,815,640)
Purchase Property on 2111 E Walnut(3,858,661)
PCOC Loan for 10 year per Council Approval(2,500,000)
Total$ 16,912,707
The Capital Endowment Fund increased by $21,323, representing $6,158 investment earnings for the period and an increase in market value of investments by $15,165.
The Stranded Investment Reserve portfolio increase by $374,874 representing investment earnings for the period adjusted by the change in market value of investments.
Special Funds increased by $184,236 representing investment earnings and the net increase in the market value of investments.
Investments held with fiscal agents decreased by a net $4,879,747 due to a $4,760,191 debt service payment made to the 2008 Paseo Bonds and the 2016A Rose Bowl Bonds and a decrease of $119,556 representing investment earnings adjusted by the change in market value of the investments.
The PARS Section 115 Trust account increase by $126,651. The change was comprised of a $145,450 increase in market value of investments adjusted by $18,799 of investment expenses.
The City pools all internal funds to gain economies of scale and to simplify the investment function. There are over 100 funds in the Pooled Investment Portfolio. As of June 30, 2024, the General Fund's investment balance was estimated at $117.7 million representing 15.90% of the June 30, 2024, Pooled Portfolio value. The General Fund's cash balance fluctuates daily based on the timing of revenues receipts and payment of expenditures. Investments in the Capital Endowment Fund, the Stranded Investment Reserve Fund, the Special Funds, the PARS Section 115 Trust account, and funds held with fiscal agents are restricted funds or bond proceeds reserved in accordance with the City Charter, City ordinances, bond indentures, and Trust Agreements. The City targets Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
an average duration oftwo-years in managing the pooled portfolio with an effective historic duration range of 1.5 to 2.5 years based on market conditions and the portfolio's risk and return evaluation, the Treasury yield curve, and industry best practices as it pertains to public funds management. As of June 30, 2024, the portfolio's effective duration was 1.42 years.
Per government code requirements, attached are reports by each fund indicating the type of investments, date of maturity, par and dollar amount invested in each security, and investment and moneys within the Treasury with market values as of March 31, 2024. On a monthly basis, the City Treasurer prices the pooled portfolio and all other funds and investments under management. The market values are obtained from Interactive Data Corporation (IDC) and from Bloomberg Financial System. IDC is an independent third-party whose sole service is to provide market prices for all types of securities.
The types of securities held in the portfolio and their percentage allocation to the total are in compliance with the City's Fiscal Year 2024 Investment Policy, which was adopted by the City Council on June 12, 2023, and Section 53600 of the State Government Code. The City Treasurer targets to maintain at least $70 million short- term, liquid investments (1-to-QO-day maturities), which represents approximately 1/12th of the City's total aggregate annual Operating Budget. As of June 30, 2024, the portfolio had $92.6 million in overnight short-term investments. This balance, along with anticipated cash flows into the City's account, represents a strong liquidity position to meet budgeted expenditures for the next three-months.
The yield to maturity on the pooled portfolio began gradually increasing beginning April 2023 as a result of the Fed tightening the monetary policy by raising the Fed Funds rate. Interest rates across the treasury yield curve increased with the most increases occurring on the six-month to two-year maturities. The yield on the pooled portfolio more than doubled in the last twelve-months and is expected to continue to increase over the next 12-month period. The earnings rate on the pooled portfolio as of the quarter ending June 2024 was 3.057%.
Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
The graph below represents the historic yield of the Pooled Portfolio from July 2021 to July 31, 2024:
Pooled Portfolio earnings rate
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
II
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This quarterly report supports the City Council's strategic planning goal to maintain fiscal responsibility and stability.
Quarterly Investment Report - Quarter Ending June 30, 2024 September 16, 2024
FISCAL IMPACT:
There is no fiscal impact as a result of this action report, nor will it have any indirect or support cost requirements. There is no anticipated impact to other operational programs or capital projects.
Respectfully submittedI
^A^X.
MATTHEW £. HAWKESWORTH
Director of Finance
Preparedby;
Vie Erg^nian
City TI-easurer/Deputy Director of Finance
Approved by:
MIGUH-I^IARQUEZ
City Manager
Attachment: (1)
Attachment A - Quarterly Investment Report - Quarter Ending June 30,2024