TITLE
Recommendation to receive and file Investment Report for quarter ending March 31, 2006. (Citywide)
DISCUSSION
The Department of Financial Management, City Treasurer's Office, invests City funds in compliance with the California Government Code, Section 53600 et seq., and the City's Investment Policy. As of March 31, 2006, these funds had a market value of approximately $1.361 billion, with approximately $464.3 million, or 34 percent of funds, maturing within six months, ensuring that sufficient funds are available to meet the City's budgeted expenditure requirements during this time period.
Compliance
All investment transactions have been executed in conformance with the City's Investment Policy and the California Government Code. According to the California Government Code, the maturity term of all investments is limited to a maximum of five years unless the local agency legislative body gives prior approval to exceed this limitation. The City's Investment Policy currently requires that all funds invested in the City's investment pool not exceed an average weighted maturity of three years. In addition, the Investment Advisory Committee, composed of a representative from the City Manager's office, Assistant City Auditor, Chief Assistant City Attorney, Director of Financial Management, City Treasurer, City Controller, Budget Manager and the financial officers of the Harbor, Water and Community Development Departments, meets quarterly, or as needed, to review investment policies, strategies and performance.
Rating Section
The City's investment holdings received a re-affirmation from Standard and Poor's of their highest credit rating of AAA and the lowest volatility rating of S1 in March 2005.
Investment Performance
The City Treasurer's Office invests in a variety of fixed-income securities that vary in maturity from one day to five years (excluding the Health SAVRS loan) as authorized by the City's Investment Policy and the California Government Code. The City's adopted 2006 Investment
Policy divides the City's investment portfolio into two segments: a short-term maturity and a long-term maturity. The short-term portfolio is benchmarked against the Three-Month U.S.
Treasury Bill, although the investments can range up to five years depending on the forecasted cash needs. The long-term portfolio is benchmarked against the Merrill Lynch One-to- Three-Year Treasury/Agency index.
At March 31, 2006, the City's investment pool market yield was 3.64 percent compared to 3.27 percent at December 30, 2005. The following table summarizes Investment Pool yield performance for the quarter ending March 31,2006:
SEE ATTACHMENT
The following table summarizes the purchase yield of the City's new investments in the shortterm portfolio by month for the quarter ending March 31,2006:
SEE ATTACHMENT
The following table summarizes the purchase yield of the City's new investments in the longterm portfolio by month for the quarter ending March 31,2006:
SEE ATTACHMENT
A complete listing of investment balances, portfolio distribution and performance values can be found in Attachment A.
The City's investment pool consists of all City funds except Subsidence, certain bond proceeds, and special assessment district proceeds. The non-pooled investments are invested separately in accordance with bond indenture provisions or other legal requirements.
Investment Environment
On March 28, 2006, the Federal Open Market Committee (FOMC) raised the Federal Funds Target rate an additional 25 basis points to 4.75 percent. The bond market expects another 25 basis points increase at the May Federal Reserve Governor's meeting, with a 50 percent probability of another 25 basis points increase in June. During the first quarter, the economy grew at a brisk rate of 5 percent, while the employment rate fell to 4.7 percent, the lowest rate since July 2001. The FOMC's concern is that inflation may be looming.
Short-Term Investment Strategy
The City has adopted an investment strategy for the short-term portfolio that maintains sufficient liquidity within a rolling 12-month period to continue to satisfy the City's cash needs.
Long-Term Investment Strategy
The City will continue to weigh new instruments at the 18-month to 30-month part of the yield curve in order to meet or exceed the benchmark yield and duration.
Treasury staff continues to monitor market conditions and market spreads daily in order to take advantage of opportunities to enhance earnings, while at the same time maintaining safety of principal and adequate liquidity.
Cash Management Goals
The City's cash management goals are to maintain and preserve the safety of funds in custody and provide liquidity for anticipated expenditure needs. As of March 31, 2006, the General Fund represents approximately $34.2 million or 2.06 percent of the pooled funds.
This report was reviewed by Assistant City Attorney Heather A. Mahood and Budget Management Officer David Wodynski on April 24, 2006.
TIMING CONSIDERATIONS
This item is not time critical.
FISCAL IMPACT
There is no fiscal impact associated with this action.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
MICHAEL A. KILLEBREW |
APPROVED: |
DIRECTOR OF FINANCIAL MANAGEMENT |
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GERALD R. MILLER |
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CITY MANAGER |