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HomeMy WebLinkAbout2002-09-25 IFC Regular Meeting Agenda PacketCOMMITTEE MEETING WORKSHEET Meeting Description Investment Committee Meeting Date 9/25/02 Location North Wino Conference Room Time Convene Adjournment I 2-05nm. 1'-4-7 r.m., Staff Members Attending Paul Gibson, Chairperson Council Member Council Member Dave Erwin, City Attorney Carlos Ortega, City Mgr. Thomas Jeffrey Public Members Attending 7 Russ Campbell 8 Murray Magloff 9 Bill Veazie 10 Everett Wood Follow-Ups/Tasks Assigned 1 2 3 4 5 6 7 8 a p y� v I' ni ymp,r1- IA Yes No Person Responsible Due Date Yes No ✓ nn__ Time 2:00 P.M. Mailed Agenda 9/18/02 Posted Agenda 9/18/02 Others Attending 11 Dennis Coleman 12 Justin McCarthy 13 Rodney Young 14 Recording Secretary 15 16 17 I 18 I 19 120 Guests Attending VretiCh 410 C bum Spoke Mtn (1) Mtn (2) MEE ING NOTES ann ' Ca 9 k.o ,, �n�Qt .err c °PGlit o��rjj�� I JPt MP IS 1 1 ?'V NC' ,A' I ( ' 3_wrf /flyer c �K a)-- Chi %11- rne- a tic DO d oov a t 00 cD irn .a -a 2 _prl- r t e r4 /tn-Q--F Srn ao 4c14--- . Cep4 nq 4tf (S.prg Ja41i a- _ 'E g)y � (f, ��T t �C�t CAS 464- &. 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Spoke Mtn (1) Mtn (2) MEETING NOTES NIA) te,4-uur `hi [YU( a cr,�� s 4 .,._ c 1i, 1 Y �I./I �� 1/IA_- ,jrA [� _`% �P / I hstir ae. /pLe. ( 41,0r) g" o724 / r '(MK op Cry. b P1 a j f (7 - / env, .4r- avi 1 /-fi ts_ ar 6_r Ids' ,8 .)C Y 1; ,<<`'i /, L .-1. , , � a 4 2/o6. 1OS . (T'1i0✓au/l 1 hiedi4 �_ ka 1.1. -P 5 . A X'-P � 0CAC. 's t A. ASP 7iS-F 16 RYA �L4n n,2-re_ 1 nii- QWW 1fsi-ea , i7ny ea eto iffn Jf if(kg ,v 4 � 4 > e-e J n * J xewL'eW / cat _ dit -fin 2rD64 -cc 4h a.ine vroomn C 1 —fie o o i Spoke Mtn (1) Mtn (2) IC,P;(-) Crt MEETING NOTES r Finance Department MEMORANDUM To: From: Diana Leal, Administrative Secretary Subject: Investment and Finance Committee Date: September 26, 2002 Gloria Martinez, Records Technician Attached, for your records, is a copy of the'September 25, 2002 Investment and Finance Committee meeting attendance register. Thank you for your assistance. Attachments (1) G.\Finance\Diana Leal \Wpdocs\Investment Committee\2002 Memos\City Clerk \9-25-02attendance.wpd 1 CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE AGENDA September 25,2002, 2:00 p.m. North Wing Conference Room I. CALL TO ORDER II. ROLL CALL III. ORAL COMMUNICATIONS A. Any person wishing to discuss any item not on the agenda may address the Investment and Finance Committee at this point by giving his/her name and address for the record. Remarks shall be limited to a maximum of five minutes, unless the Investment and Finance Committee authorizes additional time. B. This is the time and place for any person who wishes to comment on agenda items. It should be noted that at the Investment and Finance Committee's discretion, these comments may be deferred until such time on the agenda as the item is discussed. Remarks shall be limited to a maximum of five minutes, unless the Investment and Finance Committee authorizes additional time. IV. COMMITTEE MEMBER REPORTS V. CONSENT CALENDAR ALL MATTERS LISTED ON THE CONSENT CALENDAR ARE CONSIDERED TO BE ROUTINE AND WILL BE ENACTED BY ONE ROLL CALL VOTE. THERE WILL BE NO SEPARATE DISCUSSION OF THESE ITEMS UNLESS MEMBERS OF THE INVESTMENT & FINANCE COMMITTEE OR AUDIENCE REQUEST ITEMS BE REMOVED FROM THE CONSENT CALENDAR FOR SEPARATE DISCUSSION AND ACTION UNDER SECTION V. CONSENT ITEMS HELD OVER, OF THE AGENDA. A. Approval of Minutes Rec: Approve minutes of the regular meeting of July 24, 2002, as submitted. Action: 092502.wpd 1 INVESTMENT & FINANCE COMMITTEE AGENDA September 25, 2002 VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. Informational 1. Understandina Public Investment (A Handbook for Local Elected Public Officials) 2. Wall Street Journal Article Sour Energy Loans Hurt Smaller Banks, Too B. City and Redevelopment Aoencv Investment Schedules and Summary of Cash Reports for July and Auaust 2002 Rec: Review and submit for the next City Council agenda. Review the presentation on the investment graphs. Review the investment activity for July and August 2002. Action: C. State of California Local Aaencv Investment Fund Balance for the month of Auaust 2002 Rec: Informational item for the Committee to review. No action required D. California Asset Management Program (CAMP) Auaust Statement Rec: Informational item for the Committee to review. No action required E. City and Redevelopment Aoencv Monthly Financial Reports for Citv Council for July and Auaust 2002 Rec: Report and submit to City Council Action: 2 092502 wptl INVESTMENT & FINANCE COMMITTEE AGENDA September 25, 2002 F. Parkview Professional Office Buildinas - Financial Report for July and Auaust 2002 Rec: Review and file report Action: G. Palm Desert Golf Course Facilities Corporation Financial Information for July and Auaust 2002 (will be distributed at the meeting) Rec: Review and file report Action: VIII. CONTINUED BUSINESS None. IX. OLD BUSINESS A. Status of Public and Private Partnerships Backaround Checks Rec: Status report on background checks Action: B. Bond Issuance by Palm Desert Financing Authority Rec: Status report on issuing new bonds Action: X. NEXT MEETING - Wednesday, October 23, 2002 at 2:00 p.m. 3 092502.wpd INVESTMENT & FINANCE COMMITTEE AGENDA September 25, 2002 XI. ADJOURNMENT I hereby certify under penalty of perjury under the laws of the State of California, that the foregoing agenda for the Investment and Finance Committee was posted on the City Hall bulletin board not less than 72 hours prior to the meeting. Dated this 18th day of September, 2002. r Dia eal, RecorSe rotary 4 092502 wp0 Finance Department MEMORANDUM To: Rachelle Klassen, Deputy City Clerk From: Diana Leal, Administrative Secret Subject: Investment and Finance Committee Date: October 29, 2002 Attached is a copy of the September 25, 2002 minutes of the Investment and Finance Committee approved by the Committee on October 23, 2002. Please place on the next City Council agenda for approval thereof. Thank you for your assistance. Attachments (1) G:Winance\Diana Leal\Wpdocs\Investment Committee \2002 Memos\City Clerk\10-23-02.wpd CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE Minutes September 25, 2002, 2:00 p.m. North Wing Conference Room I. CALL TO ORDER A regular meeting was called to order by Chairman Gibsoh on Wednesday, September 25, 2002 at 2:05 p.m. II. ROLL CALL Present: Absent: Paul Gibson, Director of Finance Everett Wood Jean Benson, Mayor Pro-Tempore Bob Spiegel, Council Member Thomas Jeffrey, Investment Manager Carlos Ortega, City Manager David Erwin, City Attorney Murray Magloff Bill Veazie Russ Campbell Also Present: Dennis Coleman, Redevelopment Finance Manager Rodney Young, General Manager Desert Willow Diana Leal, Recording Secretary Guests: None III. ORAL COMMUNICATIONS - Mr. Magloff asked for the status of the incident reported that the police of Palm Desert assailed a french couple. Mr. Ortega said that an internal investigation is being conducted and the Police Department cannot comment on the matter until the investigation is complete. The results of the investigation will determine if the officers acted appropriately. In any case, if a law suit is brought against the officers, the City is held harmless in accordance with the agreement between the City and the County. 1 92502.wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 25, 2002 Mr. Gibson said that the City contracts for police services with the Riverside County Sheriff's Department and they have the responsibility of hiring, firing and monitoring the police officers. IV. COMMITTEE MEMBER REPORTS Mr. Ortega said that there was a, dispute the last time the City conducted the audit selection process. Therefore, Council directed staff to develop guidelines for selecting audit firms. Mr. Gibson distributed the draft Audit Policy to the committee for their review. The policy will be presented at the next committee meeting for any comments or changes. The policy suggests that a subcommittee comprised of the Investment and Finance Committee members be established. The Audit subcommittee will be responsible for interviewing the Audit firms and recommending the selection of a firm, reviewing auditor reports and any information relevant to the audit which requires review and approval. Mr. Gibson reminded the committee of the Committee/Commission Holiday Party and asked that the committee contact Pat Scully to inform her if they will be attending. Mr. Jeffrey distributed a memorandum regarding the enactment of the SB68 Bill • which was sponsored by the City. He said that the bill has been signed into law and has been chaptered into the California Government Code. This bill amends state law which previously classified all local agency money received by the Local Agency Investment Fund (LAIF) as "state money" that was subject to appropriation by the state of California. This bill will change the California Government Code whereby local agency money will be classified as "non -state money" and the state will have no legal basis for appropriating this money. The state treasurer will hold all local agency money in trust and State officials and agencies will be expressly prohibited from seizing local agency money in LAIF if a state budget has not been adopted. V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Spiegel and seconded by Ms. Benson to approve the Minutes of the July 24, 2002 meeting with the following corrections: Page 1: Page 2: LA Department of War and Power (LA DOWAPS) to LA Department of Water and Power (LA DEWAPS) As Ms. Benson did not attend the July 24 meeting, her name was replaced with Mr. Veazie which was the person who seconded the motion to approve the June 26, 2002 meeting minutes. Mr. Ortega abstained. 92502 wpd 2 • INVESTMENT & FINANCE COMMITTEE MINUTES September 25, 2002 VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. Informational 1. Understandino Public Investment (A Handbook for Local Elected Public Officials) Mr. Gibson said that this report was given to the City by the California Debt Advisory Commission. Mr. Ortega said that this report explains what the different ratings mean. He felt it would assist the committee greatly. 2. Wall Street Journal Article Sour Energy Loans Hurt Smaller Banks, Too Mr. Gibson said that this article indicates that smaller banks such as our bank was affected by what ishappening with respect to loans, etc. B. City and Redevelooment Aaencv Investment Schedules and Summary of Cash Reports for July and August 2002 Mr. Jeffrey said that for the month ended July, 2002, the book value of the City Portfolio was approximately $189,400,000. The City earned approximately $462,000 in interest. The portfolio yield -to -maturity was 2.88%. For the month ended July, 2002, the book value of the RDA Portfolio was approximately $115,000,000. The RDA earned approximately $216,000 in interest. The portfolio yield -to -maturity was 2.23%. Mr. Jeffrey said that the economic picture statistics are not bad. However, there is concern with the war starting with Iraq that there will be a lot of money going into treasuries which will depress the yield. It is thought that if the economy does stabilize, and there is a strong economic recovery, a hike in the yield is expected in the first quarter of 2003. For the month ended August, 2002, the book value of the City Portfolio was approximately $180,700,000. The City earned approximately $428,000 in interest. The portfolio yield -to -maturity was 2.64%. For the month ended August, 2002, the book value of the RDA Portfolio was approximately $100,100,000. The RDA earned approximately $199,000 in interest. The portfolio yield -to -maturity was 2.27%. 3 92502 wp0 • INVESTMENT & FINANCE COMMITTEE • MINUTES September 25, 2002 The City is continuing to purchase commercial paper. The City is only purchasing commercial paper from three companies (GE, Wells Fargo Bank and Harvard University). Mr. Jeffrey said that the gap between the City's portfolio and LAIF is due to the maturing of older securities with higher yields. C. State of California Local Aaencv Investment Fund Balance for the Month of August 2002 Mr. Gibson said that the accounts are maxed out. Ms. Benson asked if the same amount of money is being obtained on the money deposited. Mr. Gibson said that LAIF always earns more than CAMP. Mr. Gibson said that $7 million will be withdrawn tomorrow from CAMP to cover payments owed by the Redevelopment Agency. D. California Asset Management Proaram (CAMP) August 2002 The committee received a statement for the month of August, 2002. E. City and Redevelopment Aaencv Monthly Financial Reports for City Council for July and August 2002 Mr. Gibson said that the activity for July and August is accrual activity where they post prior year sales tax and transient occupancy tax. Mr. Gibson received a report from MRC, the City's sales tax consultant, which showed that the City was down another quarter (2.8%). Mr. Spiegel said that the City will get a better idea of what revenue to expect once the mall is fully operational. The mall will have the first garage completed by the 8' of November and the second garage will be open by the end of November. He asked what was budgeted for revenue. Mr. Gibson said that it is about $13.3 million for sales tax which is $200,000 over last year with the expenditures expected to be the same. F. Parkview Professional Office Buildings - Financial Report for July and August 2002 Mr. Gibson said that the lease with Goodwill was renewed. The Chamber of Commerce has signed a one year lease. UCR has asked for space. Mr. Spiegel asked if there is any vacancy. Mr. Gibson said that they have a small area available which will be reserved for the Mountain Conservancy as they requested space prior to UCR. Mr. Gibson expects to have the Mountain Conservancy move in within the next three months. 92502 wpd 4 • INVESTMENT & FINANCE COMMITTEE MINUTES September 25, 2002 G. Palm Desert Golf Course Facilities Corporation Financial Information for July and August 2002 Mr. Young said that golf rounds were down in July. They had a transition in their greens which made an impact on their revenues to some extent. Overall everything was controlled well. The merchandise sales are down dramatically from previous year, however, the cost of goods is also down. August was a good month. They were over in revenues. There were some reoccurring effects as far as spending money on sod and labor to get the course in good condition. Repairs and maintenance continue to be high due to old equipment. They are out to bid. Once the equipment is in place the repairs and maintenance costs will diminish dramatically. Mr. Spiegel asked if the reseeding of the courses has begun and if Desert Willow (DW) was working with Rancho Mirage on an agreement for their residents to play at Desert Willow. Mr. Young said that the Fire Cliff Course goes down as early as the middle of September to prepare for the Prestige. By not hosting a prestige this year they are able to alternate the golf course and move it over to Mountain View. Mountain View will be the first course to shut down. The water went off on Monday. They want to have a growing season for the Bermuda grass to get established causing less transition problems next year. Mr. Young said that they have a program with golf providers in town and from other areas where they offer special golf rates. The same type of program has been offered to the City of Rancho Mirage. If they chose to do so, they can offset their resident's rate of $120 by paying for part of the rate in order to provide a reduced rate to their residents. The City of Rancho Mirage has formed a committee which is conducting research on what programs are available. They have also approached the Westin Mission Hills. Mr. Young said that Mountain View will close on Sunday and will re -open November 1. Both courses will be open for about 10 days in November. Fire Cliff will be closed on the 10th or 11th of November through Christmas. Ms. Benson said that resident golf was up in August from 47 to 290. Mr. Young said that DW had a harder transition especially at the Fire Cliff Golf Course as it tends to be the favorite of the two for the summer -time crowd this could be the reason for the increase. Ms. Benson asked if DW plans to be open for additional hours of operation. Mr. Young said that breakfast was started in January. They had some events which included performers. Their banquet business has done very well. They are sold out through Christmas for Saturday night events. 92502 wpd 5 INVESTMENT & FINANCE COMMITTEE MINUTES September 25, 2002 Mr. Ortega said that when the lights are in place, he expects that DW will do better. Mr. Young said that there is a retirement development behind the fire station on Portola. Their program includes a clubhouse and dinner for all their residents. Because they expect to have their clubhouse completed within 6 months to a year, they would like to have their residents use DW as their clubhouse and have lunch and dinner at DW. Mr. Young calls them every month to check on status. If they can guarantee that their residents will come to DW, Mr. Young can make arrangements to accommodate them. Mr. Spiegel asked if DW makes money when the Chamber holds the Mayor's Breakfast at DW. Mr. Young said that DW does make money. He said that there are certain groups that they negotiate with to secure revenue. Mr. Young said that he hopes to have blinds installed. He said that the blinds that will be installed are the same as the blinds located in the private dining room. They propose to place a heavier type of blinds on the outside of the far banquet room to make the room dark for presentations. Ms. Benson suggested that they upgrade their speaker system. Mr. Young said that the speaker system was purchased last year and that he will contact the company to see if they can upgrade the system. Mr. Young said that their sales person, Guy Morris, has resigned. They will be reviewing applications and will begin interviews next week. They will have someone in place by the end of October. VIII. CONTINUED BUSINESS - None. IX. OLD BUSINESS A. Status of Public and Private Partnerships Background Checks There being no business issues to report, discussion ensued to the next agenda item. 6 92502.wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 25, 2002 B. Bond Issuance by Palm Desert Financina Authority Mr. Coleman provided the Committee with a handout which is the actual numbers from the housing bond. The final pricing of the bond was $12.1 million. It netted funds for construction and the acquisition of $11.6 million. He pointed out the way that they structured the insurance. Usually, they try to obtain the lowest coverage ratios they can in terms of leveraging cash flow. They took a slightly different approach with respect to housing because in doing the 40-year proforma they never really looked at the housing funds being leveraged as a lot of the projects they do they need cash, instead of tax exempt funds. They received two quotes from the insurance company, the bond insurers. One based on a 1.15 coverage and, one based on the 1.20 coverage. The difference in the basis of the premiums for the higher coverage were if they would have gone with the lower coverage of 1.15% they would be facing about 115 basis points to 125 in coverage. By looking at the 1.20 coverage they were able to get 75 basis points along with a cheaper surety. Instead of 4.50 they got it at 3.75. They opted to increase their coverage for the next set of additional bonds that they do and they will receive a cheaper basis points on their insurance. The yields that they received were fantastic as it is a good time to be issuing debt. The 30 year maturities were 5% discounted to yield 5.05. He said that they did overall better than they did on the first bond issue done in November for Project Area No. 4 where the yields were 4.9 and 4.8. The earlier yields were 1.4, 1.57, 1.9, 2.25. The earlier yields were about 3% when they did the bond issue in November. Overall, the arbitrage yield was 4.866, the net interest cost was 4.82 and at this time he doesn't have the all inclusive. However, they basically borrowed money overall at a rate of 5% for 30 years. The net (inclusive costs) was 4.8289. Mr. Coleman said that they are looking at a non -rated assessment district undergrounding of utilities. The Agency is paying half into the program and the residents are being assessed for the other half. It is expected to be a small bond. There are two candidates for refunding which are Merano and Sunterrace where they can save the residents money. They are looking at doing the two refundings, and one new money issues to share the cost of issuance and keep the cost down for all involved. They want to do a new money issue for Project Area No. 2, as an agreement has been reached with the Western Center, for the utilization of the money. They expect to close a bond at the end of January for Project Area No. 2 due to the requirements of the Housing Report. The Housing Report will be taken to Council sometime in November. It is expected to take 60 days for review and 1 day afterwards to price the bonds. They will do some capital financing in Project Area No. 3, where debt has not been issued, as they have the Canterra Apartments which are private apartments which will come on line. There will be two phases consisting of 300 apartments per phase. 7 92502.wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 25, 2002 Ms. Benson asked if there was sufficient room for 300 more apartments. Mr. Coleman said that he thought that they were not built out as of yet, however, they are not on the assessed valuation rolls. Mr. Ortega said that he thought they were built out. X. NEXT MEETING - Wednesday, October 23. 2002 at 2:00 p.m. XI. ADJOURNMENT There being no further business, the meeting was adjourned by Mr. Gibson at 2:47 p.m. Respecly sub It Di = ' • eal, • o)ddingecretary 8 92502 wpd MEMORANDUM DEPARTMENT OF COMMUNITY SERVICES To: Paul Gibson Director of Finance/City Treasurer From: Sheila R. Gilligan Assistant City Manager for Community Services Date: September 25, 2002 Re: COMMITTEE/COMMISSION HOLIDAY PARTY The time of year when we need to prepare invitations for the Committee/Commission Holiday Party, which will be held on Saturday, December 14th, is rapidly approaching. Please forward the roster of members and liaisons, along with their mailing addresses for the following committee to Pat Scully by the close of business on Friday, October 18, 2002. Investment & Finance Committee If you have any questions, please do not hesitate to contact my office. Thank you for your assistance. /SHEILA R. GILLIGAN ASSISTANT CITY MANAGER FOR COMMUNITY SERVICES CITY OF PALM DESERT OFFICE OF THE CITY TREASURER INTEROFFICE MEMORANDUM To: Finance and Investment Committee From: Paul S. Gibson, C.C.M.T., City Treasurer %%/ Date: September 25, 2002 Subject: ENACTMENT OF SB 68 (BATTIN-TORLAKSON) Governor Davis has signed SB 68 into law (Chapter 761, Statutes of 2002). The City of Palm Desert ("City") originated and sponsored this legislation, which has attracted statewide attention. Senator Jim Battin (R-La Quinta), Vice -Chair of the Senate Committee on Appropriations, and Senator Tom Torlakson (D-Antioch), Chair of the Senate Committee on Local Government, were the bill authors. State Treasurer Phil Angelides helped maneuver SB 68 through committee and 'interceded with Governor Davis on the City's behalf when the signing of SB 68 was delayed. SB 68 amends state law which previously classified all local agency money received by the Local Agency Investment Fund ("LAIF") as "state money" that was subject to appropriation by the State of California. Due to this classification, the State seized local agency money in LAIF in 1998 after Howard Jarvis Taxpayers Association obtained a court order that enjoined the State from spending "state money" until it had enacted a budget. As a result of this seizure, many smaller local agencies had difficulty paying their bills. Local agency money in LAIF currently amounts to $20 billion, or 40% of the State Treasury. SB 68 passed throuoh the Leo_ islature without a sinole opposition vote. The voting record was as follows: ➢ Senate Committee on Local Government 5-0 (Pass) ➢ Senate Floor . 39-0 (Pass) ➢ Assembly Committee on Banking & Finance 13-0 (Pass) ➢ Assembly Committee on Local Government 9-0 (Pass) ➢ Assembly Committee on Appropriations 23-0 (Pass) ➢ Assembly Floor 78-0 (Pass) ➢ Senate Concurrence in Assembly Amendments 39-0 (Pass) H.\yeHrey\Word 2000\MEMORANDA\FINANCE COMMITTEE\SB 68 ENACTMENT.dot Thomas Jeffrey travelled to Sacramento to testify at committee hearings on SB 68. Lobbyist Anthony Gonsalves provided critical assistance in moving the bill through committee. The registered support for SB 68 was as follows: ➢ Sponsor: City of Palm Desert ➢ Support: League of California Cities California Municipal Treasurers's Association California State Association of Counties California Association of County Treasurers and Tax Collectors California Transportation Association County Sanitation Districts of Los Angeles County Cities of Long Beach, Menlo Park, La Quinta, Rancho Cucamonga There was no registered opposition. Effective immediately, SB 609 will change the California Government Code as follows: ➢ Local agency money in LAIF will be classified as "non -state money." Consequently, the State of California will no longer have any legal basis for appropriating this money. An unfavorable legal precedent has also been eliminated. ➢ Local agency money in LAIF will be invested alongside state money in the State Treasury. Previously, local agency money was commingled with state money in the State Treasury. This made local agency money vulnerable in the event of third -party litigation against the State. ➢ The State Treasurer will hold all local agency money in LAIF "in trust." Previously, there was no trust language in the LAIF enabling statutes. ➢ State officials and agencies will be expressly prohibited from seizing local agency money in LAIF if a State budget has not been adopted. The right of local agencies to continue to withdraw their LAIF money under such circumstances will be affirmed. I have enclosed a copy of an analysis that the Assembly Committee on Local Government prepared on SB 68; a California Municipal Finance Officers's Association article on LAIF and SB 68; and the chaptered version of SB 68. PSG:tj Enclosures: (1) Exhibit "A" (CMSFO article on LAIF and SB 68) (2) Exhibit "B" (Assembly Committee on Local Government Bill Analysis) (3) Exhibit "C" (SB 68 — Chaptered Version) cc: City Council H \9effrernord 2000\MEMORANOA\FINANCE COMMITTEE\SB 68 ENACTMENT.dot EXHIBIT "A" I CSMFOMiniNews June2002 g Frozen Out of the Local Agency Investment Fund Bob Torrez, CFO, City of Long Beach & Board Member, Local Agency Investment Advisory Board The Local Agency Investment Fund (LAIF) is a voluntary program created by statute in 1977 as an investment alternative for California's local governments and special districts. The program offers participating agencies the opportunity to participate in a major portfolio that uses the expertise of the State Treasurer's Office investment team to invest hundreds of millions of dollars daily. Currently the LAIF has 3,039 participants and a value of $19.5 bilhon. In 1998, during the time of surpluses that are now a distant memory, the Howard Jarvis Taxpayers' Association filed suit to prevent any warrants from being issued by the State until a budget was adopted. The intent of this suit was to prevent any state payments being made to vendors or programs. At the time, the unfortunate reaction of the state Attorney General and Controller was to freeze all assets managed by the LAIF. The frozen assets included not only state funds, but also local government assets. This action caused a hardship to those cities that had a sizable amount of their available cash in the LAIF; they could not access their own money to pay their bills and obligations. Now, as we face a budget crisis of unprecedented scope (and hopefully, limited duration) the Jarvis Taxpayers' Association suit continues to proceed through the legal system; according to a representative of the association, oral arguments have been heard and a decision by the court is pending. Only last week the LAIF staff told a conference of city treasurers that they could not guarantee that an asset freeze such as that which occurred in 1998 would not happen again. In fact there was the strong implication that cities should move their funds out of the LAIF, if they were concerned about such an eventuality. Clearly, this possibility could present even more difficulties during a time of budget constraints than it did in 1998. As financial professionals and as custodians of our agencies' fiords, we must remain aware of events in Sacramento, review our options, and make informed decisions regarding city funds deposited in LAIF. LAIF Update The appeal court decision regarding the 1998 Jarvis suit was released at the end of May. Initial reviews ofthedecision indicate that state employees, Prop 98 school funding and vendors will have the most to lose if a state budget is not passed by July 15. Early review of the opinion does not indicate that the issue of LAIF funds is addressed. A bill sponsored by the City of Palm Desert, SB 68 (Baffin), addresses the LAIF withdrawal situation that occurred in 1998 by identifying LAIF funds deposited by local government as funds held in trust that are specifically not State funds. The League of Califomia Cities and the California Municipal Treasurers Association both support the legislation. MARK YOUR CALENDARS GASB 34 Training June 24 - 26, 2002 Veteran's Building San/Luis Obispo, CA (registi!ation form attached) October 14 -16, 2002 Northern California January 2003 Southern California Please visit www.csmfo.ore for more information. Related Ortanizations GFOA Annual Conference - June 16-19, 2002 Denver, CO www. efoa. ore Member Updates Patrick Samsell Retired 7034 Bridgeport Circle Stockton, CA 95207-2359 (209)473-4725 (209) 473-4745 fax 1patrickl @aol.com The City of South Pasadena is pleased to announce that Ms. Maida Alcantara is joining them as Assistant Finance Director/Controller. Page 4 SB 68 Senate Bill - Bill Analysis Page 1 of 3 EXHIBIT "B" SB 68 Page 1 Date of Hearing: June 19, 2002 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Patricia Wiggins, Chair SB 68 (Battin) - As Amended: June 12, 2002 SENATE VOTE 39-0 SUBJECT Local agency investments. SUMMARY : Reiterates through clarifying language that funds deposited into the Local Agency Investment Fund (LAIF) are not state funds, and may not be withheld or appropriated by the state. Specifically, this bill . 1)Provides that all money in LAIF is deemed to be non -state and is to be held "in trust," with each trust deposit maintained in a separate account. 2)Provides that the right of any LAIF depositor to withdraw its deposited moneys from the LAIF upon demand, may not be altered, impaired, or denied in any way by any state official or state agency based upon the state's failure to adopt a state budget by July 1 of each new fiscal year. 3)Confirms that existing audit and handling procedures for LAIF deposits as "state money" shall continue to apply to LAIF deposits as "nonstate money." 4)Makes the measure an urgency bill. EXISTING LAW . 1)Establishes LAIF. 2)States that "money placed with the State Treasurer for deposit in LAIF shall not be subject to impoundment or seizure by any state official or agency." 3)Provides all money in the possession of or collected by any state agency or department is state money and is subject to provisions governing its deposit and handling in trust accounts. FISCAL EFFECT Unknown http://info.sen.ca.gov/pub/bill/sen/sb_0051-0100/sb_68_cfa 20020618_122347_asm_comm.html 9/24/02 SB 68 Senate Bill - Bill Analysis Page 2 of 3 SB 68 Page 2 COMMENTS . 1)LAIF was established in 1976 as an investment option for those monies that the local agency did not require for its immediate need. Idle cash can be temporarily placed in LAIF, earn interest, and be withdrawn when the local agency deems it appropriate. A local agency must obtain prior approval from its governing body before depositing funds into LAIF, and each local agency has its own separate corresponding trust account. Currently, LAIF has 3,039 participants and a value of $19.5 billion. 2)In July of 1998, the Howard Jarvis Taxpayers' Association filed suit to prevent any warrants from being issued by the state until a budget was adopted. The intent of the suit was to prevent any state payments being made to vendors or programs. The Attorney General and Controller responded by freezing all assets managed by LAIF. The frozen assets included not only state funds, but also local government assets. As a result, those local agencies with money in LAIF could not withdraw their funds and could not meet payroll, debt obligations and other routine financial transactions. 3)Section 16429.3 (b) of the Government Code clearly states that the "impoundment or seizure by any state official or state agency" of moneys placed by local agencies in LAIF is prohibited. However, this section did not prevent the state from freezing the funds and adversely affecting local agency cash management. 4)This bill would prevent future budget crisis from interfering with LAIF activity by: a) classifying voluntary local agency deposits in LAIF as "nonstate money;" b) eliminating continuing appropriation language with respect to LAIF deposits; c) expressly acknowledging the State Treasurer's trust responsibilities for LAIF deposits; and d) affirming the continued right of local agencies to withdraw their LAIF deposits if the state has not adopted a budget by July 1. 5)This bill is double -referred to the Committee on Banking and Finance, where it passed on a 13-0 vote, and to the Committee on Local Government. SB 68 Page 3 REGISTERED SUPPORT / OPPOSITION . http://info. sen.ca.gov/pub/bill/sen/sb_0051-0100/sb_68_cfa_20020618_122347_asm_comm.html 9/24/02 SB 68 Senate Bill - Bill Analysis Page 3 of 3 Support City of Palm Desert [SPONSOR] CA Association of County Treasurers and Tax Collectors CA State Association of Counties CA Municipal Treasurers Association CA Transportation Association Cities of La Quinta ,Long Beach, Menlo Park, Rancho Cucamonga County Sanitation Districts of Los Angeles County League of CA Cities Opposition None on file Analysis Prepared by Frances Chacon / L. GOV. / (916) 319-3958 http://info.sen.ca.gov/pub/bill/sen/sb_0051-0100/sb_68_cfa 20020618_122347_asm_comm.html 9/24/02 EXHIBIT "C" Senate Bill No. 68 CHAPTER 761 An act to amend Sections 16305.2, 16429.1, and 16480 of, and to add Sections 16305.9 and 16429.4 to, the Government Code, relating to local agency investments, and declaring the urgency thereof, to take effect immediately. [Approved by Governor September 20, 2002. Filed with Secretary of State September 21, 2002.1 LEGISLATIVE COUNSEL'S DIGEST SB 68, Battin. Local agency investments. Under existing law, all money in the possession of or collected by any state agency or department is state money and is subject to provisions governing its deposit and handling in trust accounts. Existing law also establishes the Local Agency Investment Fund, authorizes a local government having money in its treasury not required for immediate needs to remit it to the Treasurer for deposit in that fund for the purpose of investment, and prescribes the handling of that money. This bill would designate money in the Local Agency Investment Fund as nonstate money and would enact additional separate provisions governing the deposit and handling of that money in trust accounts. The bill would declare that it is to take effect immediately as an urgency statute. The people of the State of California do enact as follows: SECTION 1. Section 16305.2 of the Government Code is amended to read: 16305.2. All money in the possession of or collected by any state agency or department, except for money in the Local Agency Investment Fund, is subject to Sections 16305.3 to 16305.7, inclusive, and is hereafter referred to as state money. SEC. 2. Section 16305.9 is added to the Government Code, to read: 16305.9. (a) All money in the Local Agency Investment Fund shall be held in trust in the custody of the Treasurer. (b) All money in the Local Agency Investment Fund is nonstate money. That money shall be held in a trust account or accounts. The Controller shall be responsible for maintaining those accounts to record the Treasurer's accountability, and shall maintain a separate account for each trust deposit in the Local Agency Investment Fund. 93 P Ch. 761 — 2 — (c) That money shall be subject to audit by the Department of Finance and to cash count as provided for in Sections 13297, 13298, and 13299. It may be withdrawn only upon the order of the depositing entity or its disbursing officers. The system that the Director of Finance has established for the handling, receiving, holding, and disbursing of state agency money shall also be used for the money in the Local Agency Investment Fund. (d) All money in the Local Agency Investment Fund shall be deposited, invested, and reinvested in the same manner and to the same extent as if it were state money in the State Treasury. SEC. 3. Section 16429.1 of the Government Code is amended to read: 16429.1. (a) There is in trust in the custody of the Treasurer the Local Agency Investment Fund, which fund is hereby created. The Controller shall maintain a separate account for each governmental unit having deposits in this fund. (b) Notwithstanding any other provisions of law, a local governmental official, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment. (c) Notwithstanding any other provisions of law, an officer of any nonprofit corporation whose membership is confined to public agencies or public officials, or an officer of a qualified quasi -governmental agency, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment. (d) Notwithstanding any other provision of law or of this section, a local agency, with the approval of its governing body, may deposit in the Local Agency Investment Fund proceeds of the issuance of bonds, notes, certificates of participation, or other evidences of indebtedness of the agency pending expenditure of the proceeds for the authorized purpose of their issuance. In connection with these deposits of proceeds, the Local Agency Investment Fund is authorized to receive and disburse moneys, and to provide information, directly with or to an authorized officer of a trustee or fiscal agent engaged by the local agency, the Local Agency Investment Fund is authorized to hold investments in the name and for the account of that trustee or fiscal agent, and the Controller shall maintain a separate account for each deposit of proceeds. (e) The local governmental unit, the nonprofit corporation, or the quasi -governmental agency has the exclusive determination of the length of time its money will be on deposit with the Treasurer. 93 Ch. 761 (f) The trustee or fiscal agent of the local governmental unit has the exclusive determination of the length of time proceeds from the issuance of bonds will be on deposit with the Treasurer. (g) The Local Investment Advisory Board shall determine those quasi-govemmental agencies which qualify to participate in the Local Agency Investment Fund. (h) The Treasurer may refuse to accept deposits into the fund if, in the judgment of the Treasurer, the deposit would adversely affect the state's portfolio. (i) The Treasurer may invest the money of the fund in securities prescribed in Section 16430. The Treasurer may elect to have the money of the fund invested through the Surplus Money Investment Fund as provided in Article 4 (commencing with Section 16470) of Chapter 3 of Part 2 of Division 4 of Title 2. (j) Money in the fund shall be invested to achieve the objective of the fund which is to realize the maximum return consistent with safe and prudent treasury management. (k) All instruments of title of all investments of the fund shall remain in the Treasurer's vault or be held in safekeeping under control of the Treasurer in any federal reserve bank, or any branch thereof, or the Federal Home Loan Bank of San Francisco, with any trust company, or the trust department of any state or national bank. (1) Immediately at the conclusion of each calendar quarter, all interest earned and- other increment derived from investments shall be distributed by the Controller to the contributing governmental units or trustees or fiscal agents, nonprofit corporations, and quasi -governmental agencies in amounts directly proportionate to the respective amounts deposited in the Local Agency Investment Fund and the length of time the amounts remained therein. An amount equal to the reasonable costs incurred in carrying out the provisions of this section, not to exceed a maximum of one-half of 1 percent of the earnings of this • fund, shall be deducted from the earnings prior to distribution. The amount of this deduction shall be credited as reimbursements to the state agencies having incurred costs in carrying out the provisions of this section. (m) The Treasurer shall prepare for distribution a monthly report of investments made during the preceding month. (n) As used in this section, "local agency," "local governmental unit," and "local governmental official" includes a campus or other unit and an official, respectively, of the California State University who deposits moneys in funds described in Sections 89721, 89722, and 89725 of the Education Code. SEC. 4. Section 16429.4 is added to the Government Code, to read: 93 P Ch. 761 — 4 — 16429.4. The right of a city, county, city and county, special district, nonprofit corporation, or qualified quasi -governmental agency to withdraw its deposited moneys from the Local Agency Investment Fund, upon demand, may not be altered, impaired, or denied, in any way, by any state official or state agency based upon the state's failure to adopt a State Budget by July 1 of each new fiscal year. SEC. 5. Section 16480 of the Government Code is amended to read: 16480. All state money held by the State Treasurer in treasury trust accounts, and all money in the State Treasury, except money in the Unemployment Compensation Disability Fund during any period when an election under Section 16470 is not in effect, is appropriated for the purpose of investment and deposit as provided in this article. In addition, nonstate money held by the Treasurer in the Local Agency Investment Fund may be included in those investments and deposits as provided in this article. SEC. 6. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and ishall go into immediate effect. The facts constituting the necessity are: In order to preserve the ability of cities, counties, cities and counties, special districts, nonprofit corporations, and qualified quasi -government agencies that invest in the Local Agency Investment Fund to pay current expenditures, and to avoid potential claims or litigation against the State of California, it is necessary that this act take effect immediately. 0 93 1t CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE AGENDA September 25,2002, 2:00 p.m. North Wing Conference Room I. CALL TO ORDER II. ROLL CALL III. ORAL COMMUNICATIONS" A. Any person wishing to discuss any item not on the agenda may address the Investment and Finance Committee at this point by giving his/her name and address for the record. Remarks shall be limited to a maximum of five minutes, unless the Investment and Finance Committee authorizes additional time. B. This is the time and place for any person who wishes to comment on agenda items. It should be noted that at the Investment and Finance Committee's discretion, these comments may be deferred until such time on the agenda as the item is discussed. Remarks shall be limited to a maximum of five minutes, unless the Investment and Finance Committee authorizes additional time. IV. COMMITTEE MEMBER REPORTS V. CONSENT CALENDAR ALL MATTERS LISTED ON THE CONSENT CALENDAR ARE CONSIDERED TO BE ROUTINE AND WILL BE ENACTED BY ONE ROLL CALL VOTE. THERE WILL BE NO SEPARATE DISCUSSION OF THESE ITEMS UNLESS MEMBERS OF THE INVESTMENT & FINANCE COMMITTEE OR AUDIENCE REQUEST ITEMS BE REMOVED FROM THE CONSENT CALENDAR FOR SEPARATE DISCUSSION AND ACTION UNDER SECTION V. CONSENT ITEMS HELD OVER, OF THE AGENDA. A. Approval of Minutes Rec: Approve minutes of the regular meeting of July 24, 2002, as submitted. Action: 092502.wp0 1 INVESTMENT & FINANCE COMMITTEE AGENDA September 25, 2002 VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. Informational 1. Understanding Public Investment (A Handbook for Local Elected Public Officials) 2. Wall Street Journal Article Sour Energy Loans Hurt Smaller Banks, Too B. City and Redevelopment Aaencv Investment Schedules and Summary of Cash Reports for July and Auoust 2002 Rec: Review and submit for the next City Council agenda. Review the presentation on the investment graphs. Review the investment activity for July and August 2002. Action: C. State of California Local Agency Investment Fund Balance for the month of Auaust 2002 Rec: Informational item for the Committee to review. No action required D. California Asset Manaaement Program (CAMP) Auaust Statement Rec: Informational item for the Committee to review. No action required E. Citv and Redevelopment Aaencv Monthly Financial Reports for Citv Council for July and Auaust 2002 Rec: Report and submit to City Council Action: 2 092502 wpd INVESTMENT & FINANCE COMMITTEE AGENDA September 25, 2002 F. Parkview Professional Office Buildings - Financial Report for July and August 2002 Rec: Review and file report Action: G. Palm Desert Golf Course Facilities Corporation Financial Information for July and August 2002 (will be distributed at the meeting) Rec: Review and file report Action: VIII. CONTINUED BUSINESS None. IX. OLD BUSINESS A. Status of Public and Private Partnerships Background Checks Rec: Status report on background checks Action: B. Bond Issuance by Palm Desert Financing Authority Rec: Status report on issuing new bonds Action: X. NEXT MEETING - Wednesday, October 23, 2002 at 2:00 p.m. 3 092502.wpd INVESTMENT & FINANCE COMMITTEE AGENDA September 25, 2002 XI. ADJOURNMENT I hereby certify under penalty of perjury under the laws of the State of California, that the foregoing agenda for the Investment and Finance Committee was posted on the City Hall bulletin board not less than 72 hours prior to the meeting. Dated this 18`h day of September, 2002. Dia : eal, RecorrP'± Se "r-tary 4 092502.wp0 lRedexefori ertt gene or1f°lioS nt.,w ; RAMW Awe IANCE+ANALYSIS/AND$INVETM .41494.0, Paul S. Gibson, C.C.M.T., Treasurer Thomas W. Jeffrey, J.D., M.B.A., Deputy City Treasurer Treasurer's Commentary The Federal Open Market Committee (FOMC) met on 24 September and left the Federal Funds Rate unchanged at 1.75 percent. The equity markets reacted by dropping sharply, largely in reaction to a dissent by two FOMC members from the majority decision, suggesting the first disunity on the FOMC since 1995. The FOMC statement referred to the weakness of the economy, the lack of corporate spending as an issue, and the potentially adverse economic consequences of terrorism and of war with Iraq. The consensus in the investment community is that the FOMC opened the door wider to a rate cut than a month ago. The real risk is that consumer confidence, which is currently at a low, drops even more, causing purchases to be postponed. Then the economy could fall into a "double -dip" recession since consumer spending is the only thing holding it up. Although current economic indicators are decent, the recovery has been characterized as "sputter and spurt, with forward -looking indicators looking mixed at best. Even General Electric is not certain that it can continue its double-digit profit growth in 2003. The current thinking is that the stock market still has not bottomed (e.g., the final, great, panicked sell-off). If the economy stabilizes and a stronger recovery begins, then many economists believe that the FOMC will raise interest rates in first quarter 2003. Dollars in Thousands Pis QUsorrs C. r Treasurer PORTFOLIO STATISTICS AUG-02 JUL-02 CITY Month -End Book Value"' $ 180,743 $ 189,368 $ Month -End Market Value*** $ 181,096 $ 191,228 $ Paper Gain (Loss) $ 353 $ 1,860 $ Interest Earnings $ 428 $ 462 $ Yield -To -Maturity 2.64% 2.88% Weighted Maturity (Days) 222 285 Effective Duration 0.06 0.08 RDA Month -End Book Value*** Month -End Market Value "' Paper Gain (Loss) Interest Earnings Yield -To -Maturity Weighted Maturity (Days) Effective Duration "' Omits SLGSs. $ 100,125 $ 115,066 $ $ 102,313 $ 119,206 $ $ 2,188 $ 4,140 $ $ 199 $ 216 $ 2.27% 2.23% 142 139 0.14 0.13 JUN-02 MAY-02 APR-02 MAR-02 195,867 $ 189,180 $ 164,638 $ 163,593 197,955 $ 191,365 $ 166,845 $ 165,816 2,088 $ 2,185 $ 2,207 $ 2,223 453 $ 440 $ 420 $ 448 2.86% 2.92% 3.18% 3.17% 295 292 338 332 0.11 0.13 0.17 0.15 92,648 $ 99,197 $ 101,608 $ 129,595 94,673 $ 101,214 $ 103,579 $ 131,503 2,025 $ 2,017 $ 1,971 $ 1,908 198 $ 214 $ 232 $ 257 2.37% 2.38% 2.42% 2.28% 166 158 154 132 0.16 0.15 0.16 0.14 City Treasurer's Office 73-510 Fred Waring Drive Palm Desert, CA 92260-2578 760.346.0611 Dollars in Thousands Aaeina Interval <1M < 2M < 3M <6M c1YR <2YR < 3YR < 4YR <5YR > 5YR Total: Ratings * AAA AA A Al/P1 Unrated ** Total: Sector U.S. Treasury Federal Agency Money Market Funds Commercial Paper MTNs LAIF RDA Loan Total: Month Sep01 Oct Nov Dec Jan02 Feb Mar Apr May Jun Jul Aug City of Palm Desert - Portfolio Characteristics 31 August 2002 Market Value $ 70,211 8,060 2,004 12,001 8,101 100,377 Market Value $ 53,552 2,010 4,056 12,000 106,627 $ 178,245 Market Value $ 15,241 12,104 57,040 12,000 9,075 40,000 32,785 $ 178,245 City Yield LAIF Yield 4.28 4.35 3.98 3.79 3.69 3.53 3.54 3.26 3.27 3.07 3.27 2.97 3.17 2.86 3.18 2.85 3.06 2.74 2.86 2.69 2.88 2.71 2.64 2.59 Variance -0.07 0.19 0.17 0.28 0.20 0.31 0.31 0.34 0.32 0.18 0.17 0.04 General Fund Ageing so 60• 0 a 40. a 20 0 70 < 1M 'Credit Quality! 8 <2M 'Asset Allocation! Money Market Funds 32% Federal Agency 7% Performance) 35 5.5 - a V 4.5 - 2.5 U.S. Treasury 9% 12 8 2 ?' FF.71 0 <3M <6M <1YR <2YR i Commercial Paper 7j° MTNs 5% LAIF 22% RDA Loan 18% ifi, ,41,41 ri'I rn r . Sep01 Oct Nov Dec Jan02 Feb Mar Apr May Jun Jul Aug ID LAIF Yield © City Yield i * Standard and Poor's Credit Ratings ** LAIF, HighMark, CAMP, and City Loan to RDA Page 2 of 7 I Par Value I Issuer Medium -Term Notes $ 2,000,000 $ 2,000,000 $ 1,000,000 $ 4,000,000 9,000,000 DU PONT GENERAL ELECTRIC GENERAL ELECTRIC GENERAL MOTORS Subtotals Commercial Paper - Unsecured 2,030,000 6,000,000 2,015,000 2,023,000 12,068,000 GENERAL ELECTRIC GENERAL ELECTRIC MERRILL LYNCH WELLS FARGO BANK Subtotals Agencies - Discount $ 2,048,000 FED HOME LOAN BANK $ 2,000,000 FED HOME LOAN MTG CORP !$ 4,080,000 FED NATIONAL MTG ASSOC 2,000,000 FED NATIONAL MTG ASSOC 2,034,000 SALLIE MAE 12,162,000 Subtotals U.S. Treasury - Coupon $ 15,194,000 UNITED STATES TREASURY Subtotals $ 15,194,000 LGIP $ 39,999,864 $ 39,999,864 LGIP $ 27,390,839 I $ 27,390,839 L.A.I.F. Subtotals C.A.M.P. Subtotals Pooled Funds - AIM $ 23,198,666 PRIME PORTFOLIO I $ 23,198,666 Subtotals City of Palm Desert Portfolio Holdings 31 August 2002 I Coupon I Maturity I 6.75 6.52 6.65 5.95 10/15/02 $ 10/8/02 $ 9/3/02 $ 3/14/03 $ Market I Ratings Cost I YTM I Price I Value 1 Moody's' S & P 1,999,853 1,999,473 1,000,122 3,999,919 8,999,367 2.08 1/15/03 $ 1,999,036 1.76 1/6/03 $ 5,943,387 1.95 11/25/02 $ 1,995,354 2.01 12/26/02 $ 1,999,167 $ 11,936,944 2.34 10/7/02 2.35 10/10/02 2.21 3/14/03 1.81 9/16/02 2.13 2/7/03 $ 2,000,077 $ 1,952,608 $ 3,999,350 $ 1,985,621 $ 1,999,461 $ 11,937,116 6.81 6.80 4.36 5.94 6.15 2.17 1.83 2.00 2.10 1.96 2.45 2.46 2.31 1.85 2.22 2.266 5.88 9/30/02 $ 15,194,314 5.84 $ 15,194,314 5.84 0.00 9/1/02 $ 39,999,864 2.59 $ 39,999,864 2.59 0.00 9/1/02 $ 27,390,839 1.76 $ 27,390,839 1.76 0.00 9/1/02 $ 23,198,666 1.41 $ 23,198,666 1.41 100.53 100.42 100.00 101.41 99.36 99.40 99.59 99.45 99.84 99.83 99.13 99.94 99.28 $ 2,010,564 $ 2,008,318 $ 1,000,000 $ 4,056,364 $ 9,075,245 $ 2,016,944 $ 5,963,947 $ 2,006,769 $ 2,011,889 $ 11,999,548 $ 2,044,723 $ 1,996,600 $ 4,044,504 $ 1,998,800 $ 2,019,355 $ 12,103,983 100.31 $ 15,241,481 $ 15,241,481 100.00 $ 39,999,864 $ 39,999,864 100.00 $ 27,390,839 $ 27,390,839 100.00 $ 23,198,666 $ 23,198,666 Aa3 AA- Aaa AAA Aaa AAA A3 BBB+ 1 Aaa AAA Aaa AAA Aa3 AA- Aa2 A+ Aaa AM Aaa AAA Aaa AAA Aaa AM Aaa MA Aaa AAA NR NR N/A AAA Aaa AAA NR = Not Rated Page 3 of 7 Par Value I Pooled Funds - $ 4,407,287 $ 0 $ 447,661 $ 1,595,111 6,450,059 $ Issuer HighMark CITY MAIN SWEEP DESERT WILLOW SWEEP GOLF COURSE SWEEP OFFICE COMPLEX SWEEP Subtotals City Loan to RDA $ 32,785,480 CITY OF PALM DESERT $ 32,785,480 Subtotals Total Investments $ 178,248,908 Cash $ 49,960 $ 2,714,811 • $ 34,417 $ 11,892 $ 30,181 $ 9,204 $ . $ 2,850,464 OFFICE COMPLEX CHKG CITY MAIN CHKG DESERT WILLOW CHKG CPD GOLF COURSE OFFICE COMPLEX TRUST RECREATIONAL FAC CHKG VACATION INN CHKG Subtotals Cash and Investments $ 181,099,373 City of Palm Desert Portfolio Holdings 31 August 2002 I Coupon I Maturity I Cost 0.00 0.00 0.00 0.00 9/1/02 $ 4,407,287 9/1/02 $ 0 9/1/02 $ 447,661 9/1/02 $ 1,595,111 $ 6,450,059 Market I Ratings I YTM I Price I Value I Moody's' S & P 0.72 0.72 0.72 0.72 0.72 100.00 $ 4,407,287 100.00 $ 0 100.00 $ 447,661 100.00 $ 1,595,111 $ 6,450,059 0.00 9/1/32 $ 32,785,480 2.59 100.00 $ $ 32,785,480 2.59 $ NR NR NR NR 32,785,480 NR 32,785,480 $ 177,892,649 2.64 $ 178,245,166 NR NR NR NR 1 NR 1 0.00 9/1/02 $ 49,960 0.00 100.00 $ 49,960 NR NR 0.00 9/1/02 $ 2,714,811 0.00 100.00 $ 2,714,811 NR NR 0.00 9/1/02 $ 34,417 0.00 100.00 $ 34,417 NR NR 0.00 9/1/02 $ 11,892 0.00 100.00 $ 11,892 NR NR 0.00 9/1/02 $ 30,181 0.00 100.00 $ 30,181 NR NR 0.00 9/1/02 $ 9,204 0.00 100.00 $ 9,204 NR NR 0.00 9/1/02 $ - 0.00 100.00 $ NR NR $ 2,850,464 0.00 $ 2,850,464 $ 180,743,114 $ 181,095,630 NR = Not Rated Page 4 of 7 Dollars in Thousands Aaeina Interval <1M < 2M <3M <6M <1YR < 2YR <3YR <4YR <5YR >5YR Total: Palm Desert Redevelopment Agency - Portfolio Characteristics 31 August 2002 Market Value $ 76,343 'Portfolio Ageing w/o SLGSsi 100 se 196 90• ao Y 'W 865 7, 70- to 7,034 0 60 Tr 50 . V 40• o 1 20 - t 8 10.€ 0 0 0 1 171 0 0 $ 84,438 <1M <2M <3M <6M <1YR <2YR <3YR <4YR Quality' Market Value AAA $ 38,124 AA A - A1/P1 4,012 Unrated** 60,146 Total: $ 102,282 Sector Market Value U.S. Treasury $ 8,097 Federal Agency - Money Market Funds 35,970 LAIF 54,204 Commercial Paper 4,011 Corporate Bonds - Total: $ 102,282 Month RDA Yield LAIF Yield Variance Sep01 3.69 4.35 -0.66 Oct 3.04 3.79 -0.74 Nov 2.83 3.53 -0.69 Dec 2.59 3.26 -0.67 Jan02 2.46 3.07 -0.61 Feb 2.51 2.97 -0.46 Mar 2.28 2.86 -0.59 Apr 2.42 2.85 -0.43 May 2.38 2.74 -0.36 Jun 2.37 2.69 -0.32 Jul 2.23 2.71 -0.48 Aug 2.27 2.59 -0.33 'Credit Quality) 'Asset Allocation! Money Market Funds 37% IPerformancel 7.0 6.0 5.0 - 9 Ai 3.0 - 3.0 - 2.0 Sep01 Oc Unrated ** 59% Eh rodii rh.rLy6 Nov Dec Jan02 Feb Mar Apr May Jun Jul Aug 1 i IOLAIF Yield ®RDA Yield • i * Standard and Poor's Credit Ratings ** LAIF and HighMark Sweep - Page 5 of 7 Palm Desert Redevelopment Agency Portfolio Holdings 31 August 2002 Market I Ratings !Par Value I Issuer I Coupon I Maturity I Cost I YTM I Price I Value Moody'sl S & P Commercial Paper - Unsecured $ 4,014,000 WELLS FARGO BANK 1.75 9/12/02 $ 3,999,756 1.78 99,94 $ 4,011,672 P-1 A-1 $ 4,014,000 Subtotals $ 3,999,756 1.78 $ 4,011,672 U.S. Treasury - Discount $ 198,000 UNITED STATES TREASURY 4.70 2/15/03 $ 150,793 5.45 99.45 $ 196,921 Aaa AAA $ 181,000 UNITED STATES TREASURY 4.63 2/15/04 $ 130,168 5.51 97.46 $ 176,399 Aaa AAA $ 7,143,000 UNITED STATES TREASURY 4.59 8/15/04 $ 4,989,671 5.54 96.00 $ 6,857,494 Aaa AAA $ 532,400 UNITED STATES TREASURY 4.66 8/15/03 $ 394,279 5.47 98.73 $ 525,617 Aaa AAA $ 344,600 UNITED STATES TREASURY 4.66 8/15/03 $ 255,200 5.47 98.73 $ 340,210 Aaa AAA $ 8,399,000 Subtotals $ 5,920,112 5.53 $ 8,096,640 LGIPs $ 39,999,746 L.A.I.F. 0.00 9/1/02 $ 39,999,746 2.59 100.00 $ 39,999,746 NR NR $ 4,829,611 L.A.I.F. BOND PROCEEDS 0.00 9/1/02 $ 4,829,611 2.59 100.00 $ 4,829,611 NR NR $ 9,374,245 L.A.I.F. BOND PROCEEDS 0.00 9/1/02 $ 9,374,245 2.59 100.00 $ 9,374,245 NR NR $ 54,203,602 Subtotals $ 54,203,602 2.59 $ 54,203,602 Pooled Funds - AIM $ 30,027,433 PRIME PORTFOLIO 0.00 9/1/02 $ 30,027,433 1.41 100.00 $ 30,027,433 Aaa AAA 1 $ 30,027,433 Subtotals $ 30,027,433 1.41 $ 30,027,433 Pooled Funds - HighMark $ 5,729,777 HOUSING AUTH CHK SWEEP 0.00 9/1/02 $ 5,729,777 0.72 100.00 $ 5,729,777 NR NR $ 212,407 HOUSING AUTH TRT SWEEP 0.00 9/1/02 $ 212,407 0.72 100.00 $ 212,407 NR NR 1 $ 5,942,164 Subtotals $ 5,942,184 0.72 $ 5,942,184 Total Investments $ 102,586,219 $ 100,093,086 2.27 $ 102,281,531 Cash $ (9,989) HOUSING AUTH CHKG 0.00 9/1/02 $ (9,989) 0.00 100.00 $ (9,989) NR NR $ 41,672 HOUSING AUTH TRUST 0.00 9/1/02 $ 41,672 0.00 100.00 $ 41,672 NR NR $ 31,683 Subtotals $ 31,683 0.00 $ 31,683 Cash and Investments $ 102,617,902 $ 100,124,770 $ 102,313,214 1 1 NR=Not Rated Page6of7 STATEMENT OF COMPLIANCE The investment portfolios of the City of Palm Desert ('City') and the Palm Desert Redevelopment Agency ('RDA') are governed by federal, state, and local law. The City Treasurer's 'Statement of Investment Policy' is more restrictive than the California Government Code. The Palm Desert Investment Committee and the Palm Desert City Council review the Statement of Investment Policy annually. For the month ended 31 August 2002, the City and the RDA investment portfolios were in compliance with all applicable federal, state, and local laws and regulations. The City Treasury continued to pursue conservative and prudent investment strategies, based upon the stated objectives of safety, liquidity, and yield (in order of priority). Barring unforeseen events, the City Treasury should have sufficient cash to finance the operations of the City of Palm Desert and the Palm Desert Redevelopment Agency over the next six months. In addition, portions of either the City or the RDA portfolio could be liquidated in order to meet any significant, unexpected cash requirements. Bloomberg L.P. and Interactive Data Corporation provided the data and the analytical tools that were used to calculate the market value of all securities in the City and the RDA investment portfolios. State and Local Government Series securities are held in escrow accounts and are therefore not included in this report as assets. All balances are bank balances. Respectfully submitted on 25 September 2002, pis 6ilnotti C..C..,yr. City Treasurer CA Govt SUMMARY OF AUTHORIZED INVESTMENTS I California Government Code I City Investment Policy Maximum Maximum Quality Maximum Maximum Quality % of City % of RDA Code Investment Category Maturity Limit S&P/Mdys Maturity Limit S&P/Mdys Portfolio Portfolio 53601(a) Palm Desert Bonds J 5 Years J No Limit 5360.P(b) ;0>`:4U;S Tieasurie-4', ; ti5aY.ears',I :No:L°°irnit: 53601(c) CA State Debt 5 Years No Limit 53601(d) CA Local Agency Debt 5 Years No Limit ;53601(e)j „ Eederal`A ehcie's b; 54Years NthLirriit;i ¢53601(f) ;Barike�s'slAoceptancesk :180:Daya; R40%x",i'�t 53601(�)"(;t nComineicial Paper *, 270(Days 25°A;:+ 53601(h)'.'.( „`t„?Nefotiable_CDs aia' g5'„VeaTh'v e30%`r, .`, 53601'(i):•I�: -'z '4RePds- "�_' .s, N41WEeitt, ,tNo Limit-' 53601(i) Reverse Repos 92 Days 20% '153601(j)"�'s19Medium7Term Netairek E`S Years ' ,;;K30%: R 53601(k)'j} ?;ei:Mutual;F..iindsi .'r90;Daysx `x20%4; 53601(1) ( Trust Indenture Debt 53601(m) Secured Bank Deposits 5 Years No Limit 53601(n) Mortgage -Backed 5 Years 20% A (Issuer) & Securities AA (Security' '•16429 : I ;."iuu 9IL4IF: ^'"-'22's.0:Ur in'`z-CUlleNo Limit;'.:;43L ' ratV "+ Not Authorized (1) Not Authorized Not Authorized °itg �i a<5Ye9r$l530%h��"i, rilitk,°'f`n;??S w'a6f7%, `"tliC 1801D69 , s40%',''„_' *,if'&P.=..1i ,14: -z et v,'r, .- C, '`'- )A,,1+'o%Rt1• ;2700ays 4:::k25%1'a A 1'+& P 1 :h'617% Eig4.0%5W -v.*vir, °nr, teS;Yeaf3 ,e `; '30%rl AA» or' Aa3 _'3'VO=.',a crlelift:r4Peie a30`Daysw:N20%Yg AAA'&''Aaa' t-M e ,.�,3i�� Not Authorized «��,.M,)As3:Years'K ;�J,<,.30 /o„d ,``".;; A,:;tsr ',:,;45:,1%+l , t,: -=*,7 «7 °�AA'A'&"Aaa+ p90,Daysm ai.:020%a=)AAA:8,1A64;:32?1,%sa Z359%ch Not Authorized Not Authorized Not Authorized (1) The City loan to RDA, which is not a bond, has been approved by the Palm Desert City Council. 22'.5%? °w254:2%1A 81.6% I 100.0% Certified California Municipal Treasurer Page 7 of 7 CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE Minutes July 24, 2002, 2:00 p.m. North Wing Conference Room I. CALL TO ORDER A regular meeting was called to order by Chairman Gibson on Wednesday, July 24, 2002 at 2:07 p.m. II. ROLL CALL Present: Paul Gibson, Director of Finance Thomas Jeffrey, Investment Manager Jose Luis Espinoza, Fin. Oper. Mgr. Steve Aryan, Asst. to the City Manager Murray-Magloff- - - - Bill Veazie Russ Campbell Everett Wood Also Present: Absent: Dick Kelly, Mayor Jean Benson, Mayor Pro-Tempore David Erwin, City Attorney Carlos Ortega, City Manager Justin McCarthy, ACM Redevelopment Dennis Coleman, Redevelopment Finance Manager Rodney Young, General Manager Desert Willow Diana Leal, Recording Secretary Guests: None III. ORAL COMMUNICATIONS - Mr. Veazie said that one of the finest concepts of tax exempt bonds are public utility bonds, specifically, in the west coast, where they are called LA Department of war and power (LA DOWAPS), Sacramento Municipal Utility Districts (SACS Muds), etc. He believes that the concept is wonderful considerably. If a district can be formed, or perhaps added to the Coachella Valley Water District and be called the Coachella Valley Water District and Electric District or an electric district by itself. Have it approved by the state and able to float tax free bonds. The 1 72402.wpd INVESTMENT & FINANCE COMMITTEE MINUTES July 24, 2002 surrounding cities could benefit by obtaining money by floating a bond issue, tax free with a coverage estimate. The bond issue will cost a full month in interest at the time it is floated, however, they are estimating their revenues by comparing what other electric companies are making. He would hope that the City of Palm Desert would look into this concept. Mr. Gibson said that he believes that Council took action to go along with a study and if all of the other cities, through a cooperation, agree to move ahead, then the City of Palm Desert would be a participant. Unfortunately, at this point, the City of Palm Springs has expressed their desire to not move ahead. Therefore, the City of Palm Desert does not plan to move ahead. Another dilemma is that there is a price tag that the City would like to pay which may not be what Edison would like to have the City pay. Until these points are negotiated, it is unknown whether it would be reasonable or not. IV. COMMITTEE MEMBER REPORTS None. V. CONSENT CALENDAR A. Aoorovai of Minutes Motion was made by Mr. Campbell and seconded by Ms. Benson to approve the Minutes of the June 26, 2002 meeting as submitted. Motion carried. VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for June 2002 Mr. Jeffrey gave a brief overview of the June 2002 Investment Reports and said that they were not the final numbers for June. The final numbers will be obtained once the auditors have made the necessary adjustments for fiscal year end. For the month ended June 30, 2002, the book value of the City Portfolio was approximately $195,900,000. The City earned approximately $463,000 in interest. The portfolio yield -to -maturity was 2.86%. For the month ended June 30, 2002, the book value of the RDA Portfolio was approximately $92,600,000. The RDA earned approximately $198,000 in interest. The portfolio yield -to -maturity was 2.67%. 2 72402 wpd r,. INVESTMENT & FINANCE COMMITTEE MINUTES July 24, 2002 The asset allocation graph indicates that the amount of commercial paper has risen slightly. Basically, if there exists any excess cash staff is trying to fill up LAIF which is one of the high yielding assets. The final performance graph indicates that the difference between the City's portfolio yield and the LAIF portfolio yield is beginning to narrow in terms of the City's advantage over LAIF as some of the older securities are beginning to mature and staff is having to replace them with lower yielding securities. The Redevelopment Agency portfolio's variance, for the first time, is getting very close to LAIF. The reason being that it is the inverse of the City's situation with LAIF and the gap is narrowing between the two of them. Mr. Wood asked if there was a prediction of how the market would do. Mr. Jeffrey said that the stock market has not bottomed -out yet. He believes that bad news will continue through August. As far as the yield, the affect has been that there is a great deal of cash coming into the bond market. Some people think that when the stock market eventually does recover the cash will be coming out of the bond market. The federal funds counted 1.75%. They are running out of room to start making cuts, and there is no liquidity crisis in the market. The market is not in danger of a collapse. All of the corruption of the last 10 years is being corrected. The City is concentrating on commercial paper because it is about 10 basis points higher than federal agency discounts. B. State of California Local Aoencv Investment Fund Balance for the Month of June 2002 Mr. Magloff asked what LAIF does with the money and who is in charge of LAIF. Mr. Gibson said that they go out and invest the money. They match what their withdrawals are and the cash flow that comes in to determine what their needs are every day. Mr. Gibson said that the State Treasurer is the official person in charge, however, he has a board that oversees the LAIF accounts. Mr. Gibson said that since the State did not adopt a budget, there still remains a question as to whether the City can withdraw funds, if state warrants are not being issued. In light of this issue, the City deposited $30 million in funds into the California Asset Management Program (CAMP) and will have access to these funds if necessary. 72402.wpd 3 INVESTMENT & FINANCE COMMITTEE MINUTES July 24, 2002 C. California Asset Management Proaram (CAMP) Mr. Campbell asked how long will the funds in CAMP last. Mr. Gibson said that after the election is over, sometime in November, he expects that the budget will approved. Mr. Jeffrey said that after the budget has been approved, the money in the CAMP account will be placed in high yielding assets. A nominal balance will be kept to keep the account open in case there is future need. D. City and Redevelopment Aaencv Monthly Financial Reports for City Council for June 2002 The figures for year to date for the City's general fund from Mar. - Jun. 30. The City generally accrues in July and August for receipts received in those months that are actually for the previous fiscal year. This includes sales tax. The City typically receives monthly advances. The two months in July in August are determined by the Government Finance Officers Associations that the City accrue those funds so that the City will accrue an additional $1,800,000 to the sales tax account. Instead of $11,000,000, the ending sales tax will be $12,800,000. On the transient occupancy tax (TOT), based on receipts received up to July, there should be $7,300,000 in TOT. All of the other figures given remain the same as is in the budget or are based on the accrual year-to-date actual amounts. There is a total general fund revenue of $33,800,000 with all accruals added on. With regard to expenditures, currently there is $29,300,000 with approximately, at least, an additional $1,000,000 expenditures. A payment of one month remains for the biggest expenditure which is the Sheriff's Department. Mr. Gibson expects that the ending expenditures will be somewhere between $30 and $31 million including encumbrances. Mr. Veazie said that the figures for the year-to-date for the property taxes represent $2.5 million, total general fund revenue $30.7 million. About 8% in the general fund is represented in the form of property tax income. Mr. Gibson said that as the City's other revenues grow, it will continue. The agreement with the County and the State is that the City will only receive 7% because the City is a no low property tax city. The City was formed at the time that Proposition 13 rolled the taxes back. E. Parkview Professional Office Buildings - Financial Report for June 2002 Mr. Jeffrey asked if there has been a rent increase or any variances. Mr. Gibson said that there are a few tenants that have come in. The City will end up with a net income of $270,617. Next year the roof will be redone with a coating. Goodwill will be moving out. This will leave office space available. At 4 72402 wpd INVESTMENT & FINANCE COMMITTEE MINUTES July 24, 2002 this time, the City is considering using the available space for City staff as there is insufficient space at City hall. The City is in the process of doing a design for the Sheriff whereby they will move to another facility. Once the Sheriff Department moves out, their facility will become available. The City is also looking at City hall to better utilize space. Mr. Campbell asked where the Sheriff Department would be located. Mr. Gibson said that there was discussion of moving them across the street. F. Palm Desert Golf Course Facilities Corporation Financial Information for June 2002 Mr. Gibson said that a summary sheet was distributed to the committee which shows a comparison of the two fiscal years in total. Mr. Young said that the rounds are up. They have lost some groups, however, they will be aggressive in bringing the groups back. Mr. Wood inquired if there were any auxiliary revenues. Mr. Gibson said that with a corporation, the City and Redevelopment entered into an agreement with a time share product called Intrawest. They give the City fees based on the right field to play at Desert Willow. They will pay the City for the land they purchased to place the time shares on. If potential people buy the time shares, there will be a 50% discount for those individuals, plus a 20% discount to play at Desert Willow. Desert Willow utilizes those funds to pay for the Capital Improvements. Mr. Young said that if Desert Willow had a hotel, it would be easier to offer promotional deals. The Marriott has a promotion at this time whereby for $99 a person can have unlimited golf. They have 300 rounds a day. Mr. Young said that they have had special events at Desert Willow. A few days ago they had 36 kids from the Junior Golf Association. In addition, the National Golf Foundation has a type of "Bring your Daughter to Work Day" where Desert Willow offered a free clinic and 16 ladies that golfed. VIII. CONTINUED BUSINESS - None. IX. OLD BUSINESS A. Status of Public and Private Partnerships Background Checks There being no business issues to report, discussion ensued to the next agenda item. 5 72402 wpd INVESTMENT & FINANCE COMMITTEE MINUTES July 24, 2002 B. Bond Issuance by Palm Desert Financing Authority Mr. Coleman provided the Committee with. a pricing summary. The summary indicates July 17 and not the 11'h because it closed six days later due to a procedure error which occurred. The investment bankers were able to get the buyers to buy the bonds and keep them at the same rate. The investment for $15,604,000, the key note was basically the investment for the escrow. The bottom line is that the City pulled $1,177,000 out in new project funds and spent $4,000 more for the investment however it went in interest over to the City. The new bond issue is done. The yield and tax rate, in the 2022 maturity was a 5.00, discounted to yield 5.07. With the market at this time, a lot of money is going into bonds with depressingly yields. Mr. Coleman said that now that this bond is complete, they now have the bond they are working on to acquire 36 new housing units. This housing bond is approximately $12,155,000. The verification report is done on their increment and they have submitted it to MBIA and Ambac and are hoping to get commitments from both of them. Staff has tentatively budgeted a hundred basis points for the insurance commitment. The last time they obtained insurance on a housing bond it was about 45 basis points, it is unknown. The coverage they are looking at for this bond is almost at 2.15/1.00 in debt in parity after the other bonds are taken out. They are hoping to close this bond issue August 31 or thereabouts. They are going to beat the state as they are scheduled to get their ratings on their power bonds. Fortunately for the City, the State is activating their ratings and insurance commitment, they will be making presentations to buyers throughout the country. As this is being set up, the City will have time to get their bond done. If the rates hold to what has been seen in the last few days, this may be the second or third best bond in terms of yield because the City may be able to do a 30 year and a 5.10 yield which will be a very favorable rate. At the next meeting Mr. Coleman will have a pricing summary for the Committee. X. NEXT MEETING - Wednesday, September 25. 2002 at 2:00 p.m. XI. ADJOURNMENT There being no further business, the meeting was adjourned by Mr. Gibson at 2:44 p.m. Respectfully submitted, Diana Leal, Recording Secretary 6 72402 wpd Understanding Public Investment Reporting A Handbook for Local Elected Officials A publication of the California Debt and Investment Advisory Commission cf- The California Debt and Investment Advisory Commission The California Debt and investment Advisory Commission (CDIAC) provides research, education, and technical assistance to local public agencies and other public finance professionals on the topics of public debt and investments. CDIAC was created in 1981 with the passage of Chapter 1088, Statutes of 1981 (AB 1192, Costa). AB 1192 established CDIAC as the State's clearinghouse for public debt issuance information and required it to assist state and local agencies with the monitoring, issuance, and management of public debt. Chapter 833, Statutes of 1996 (AB 1197, Takasugi) expanded CDIAC's mission to include public investments. CDIAC's principal goals include assisting local governments to reduce the cost of debt issuance and maximize the security and benefits of their debt and investment transactions. CDIAC achieves this through education, research, and data collection. More information is available on the CDIAC website at www.treasurer.ca.gov/CDIAC. California Debt and Investment Advisory Commission 915 Capitol Mall, Room 400 Sacramento, CA 95814 (916) 653-3269 A Message from the State Treasurer The Goal of This Publication In California, the legislative body of a local government maintains the "fiduciary" responsibility for investments made by the local agency. While it is within the authority of the legislative body of a local agency to delegate the task of investing funds to a treasurer or fiscal officer, it may not delegate its fiduciary responsibility. In addition, state law requires county treasurers or chief fiscal officers of a local agency to submit a quarterly report to their chief executive officer, their internal auditor, and the legislative body of their local agency within 30 days of the end of the quarter covered by the report. The California Debt and Investment Advisory Commission (CDIAC) has produced this "quick -reference guide" to help elected and appointed local government officials, particularly members of a local agency's investment oversight committee or the agency's legislative body, to read and interpret investment reports. The guide discusses some of the basic principles of public fund investing and, then, considers the nature and content of public investment reports. This approach reflects the belief that reading and interpreting investment reports depends upon an understanding of why and how local agencies invest. Because the guide is not comprehensive and because differences abound between local agencies, some recommendations contained within the guide may not apply to all organizations. For a fuller discussion of public agency investment practices in California, we recommend CDIAC's forthcoming Investment Primer. CDIAC acknowledges the contributions of several individuals and organizations in the production of this pamphlet. Table of Contents Who Is Responsible For Investing Public Funds? Page X t� A Prudent Investor Defined Investment Services and Providers Types of Investment Service Providers Delegating Authority to Investment Advisors II. How Must Funds Be Invested? Safety Credit Ratings Liquidity Yield Investment Policies Can Address Balance between Safety, Liquidity, and Yield Page Xe) III. What Public Funds May Be Invested? Page X Types of Public Funds IV. What Investment Instruments May Be Used? Page X Investment Policies Can Set Limits Examples of Investment Limits Set by Investment Policies Reporting Compliance with Policies Cash Flows Affect the Selection of Investments V. What Do Investment Reports Contain? Investment Policies vs. Quarterly Reports Investment Report Contents Reviewing Investment Policies and Quarterly Reports Page X VI. Evaluating the Performance of Your Investments Page X • Establishing Parameters Benchmarking Checklist for Evaluating Your Agency's Investment Reporting Activities Selected Resources and Reference Materials Summary of Relevant Codes Glossary of Selected Terms Glossary of Investment Instruments Page X 4�7 Page X .. Page X • Page X Page X Who is Responsible for Investing Public Funds? California Government Code Sections 27000.3 and 53600.3 assign fiduciary responsibilities to the governing bodies of all local agencies or persons authorized to make investment decisions on behalf of local agencies. As such these individuals are subject to the "prudent investor standard." The prudent investor standard is founded upon the presumption that a fiduciary will make the same decisions with respect to the use of public funds that a prudent person, seeking to maintain principal and meet the agency's cash needs, would make if that person were provided the same information. The courts have strictly interpreted the fact that fiduciaries must act in the same manner as a prudent person who is familiar with public investing. In so doing, they have indirectly required that the governing body of a local agency be expert in the field of public investing. A Prudent Investor Defined As stated in law, a prudent investor is expected to use "care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." The governing body of a local agency may delegate its authority to invest the funds of a public agency to the treasurer of the local agency for a period of one year. The delegation may be renewed each year upon the review of the governing body. Local agencies are defined in this publication to mean "a county, city, city and county, school district, community college district, public district, superintendent of schools, or a public or municipal corporation." Throughout this pamphlet we refer to local agencies, local entities, and local governments synonymously. We also use the terms "legislative body" and "governing body" to refer to county boards of supervisors, city councils, and boards of directors of a special district or other local agency. In general, a governing body may delegate the authority to invest, but it cannot delegate its fiduciary responsibility. It remains obligated to meet the prudent investor standard whenever the local agency invests, reinvests, purchases, acquires, exchanges, sells, or manages public funds. Good public and financial policy dictate that both the treasurer and the board of supervisors consider themselves to be fiduciaries subject to the prudent investor standard even though Government Code Section 27000.3 allows a board of supervisors to delegate its fiduciary role to a treasurer. Investment Services and Providers Investment professionals lend invaluable service to local governments in establishing and managing an investment portfolio or in selecting and purchasing securities. The relationship between a local agency and a provider of investment services varies according to the individuals involved. Investment professionals may fill one of several roles, including brokers, dealers, and broker/dealers of financial securities, financial advisors, and investment advisors or managers of investment funds or pools. In describing these roles, we refer to the firm and not the individual who may carry out the functions assigned to a particular role. Furthermore, we acknowledge the difference between the roles played by brokers and broker/dealers and those played by investment advisors and investment fund managers, who are authorized to make investment decisions on behalf of a local agency, with respect to their fiduciary obligations. The fiduciary responsibility for investment transactions conducted through a broker or broker/dealer remains vested in the public official who has contracted for their services. Business practice holds that brokers and broker/dealers represent one side of an investment Types of Investment Service Providers Broker — Brokers mediate exchanges between buyers and sellers of securities, but seldom own the securities that are offered to buyers. A broker's compensation is derived from the difference between the bid and offer price applied to a transaction. The bid price is the price at which a broker is prepared to purchase a security while the offer price is the pnce at which a broker is prepared to sell a security. Broker/Dealers — Dealers, sometimes referred to as market makers, maintain an inventory of securities that they have purchased from issuers or other broker/dealers. A dealer's inventory becomes the storehouse of securities offered to buyers. A broker/dealer is a dealer who may perform broker functions alongside their dealer activities. Like brokerage firms, dealer firms derive their compensation from the difference between the bid and offer price of securities in secondary market transactions. In the case of new issuance or in the process of underwriting new securities, the dealer firm receives a concession from the issuing firm. Investment Advisors — Investment advisors are professional consultants who make investment recommendations to local agencies in concert with the agency's investment policy. Unlike brokers and dealers, who are compensated on the basis of' transactions they execute, investment advisors are usually paid on a fee -for -service basis. Investment advisors require no license or certification, but, depending upon the type of clients served or the amount of funds managed, must register with the Securities and Exchange Commission or the California Department of Corporations. The titles investment adviser, investment consultant, money manager, and investment manager are often used interchangeably. Investment Fund Managers — Investment fund managers are professional money managers who administer pooled investments on behalf of local governments. The Local Agency Investment Fund (LAIF), managed by the State Treasurer's Office, is an example of a pooled investment. Private investment fund managers are registered investment advisors. transaction and public officials represent the other. Investment advisors and investment fund managers who are authorized to make investment decisions on behalf of a local agency, on the other hand, have a fiduciary obligation when providing services to a public agency to put that agency's interests ahead of their own. Delegating Authority to Investment Advisors — Local agencies differ with regard to the authority they provide to investment advisors to invest public funds. A local agency may delegate discretionary or non -discretionary authority to an advisor. Discretionary authority allows the advisor to make trades proactively in compliance with a set of investment criteria. As long as the advisor meets the investment criteria, she may make trades without receiving the public agency's approval before each trade. A public agency may choose to use an investment advisor to give the agency advice on its investments and investment practices, including the selection of other investment professionals. Finally, a public agency may use an investment advisor to review the performance of the portfolio on a periodic basis and make recommendations that may improve performance or reduce risk. Take-aways Who Is Responsible? 1. Does your legislative body understand the "prudent investor" standard and the implications it contains with respect to investment expertise? 2. Is your legislative body aware of the different types of investment professionals and is it using the right combination to achieve its goals? 3. Has your legislative body delegated the authority to invest the agency's funds? 4. Taking into account provisions that allow county boards of supervisors to delegate to a treasurer its fiduciary responsibility, does your legislative body realize that it should maintain the fiduciary responsibility for all investment transactions made by brokers and broker/dealers on behalf of the public entity? How Must Public Funds Be Invested? The investment of public funds is driven by three primary objectives as prescribed by Government Code Section 53600.5. Local agencies must, first, safeguard the principal invested, then, meet the liquidity needs of the agency, and, finally, achieve a return. To meet these objectives, local agencies must develop investment programs that control their exposure to risk, including credit risk, liquidity risk, market risk, and reinvestment risk. We discuss each of these in their appropriate context. In focusing on these four types of risk, we do not discount other risks that affect public investments, including event risk or the chance that something unexpected will impede the ability of an issuer of a security to meet its obligations. Safety The foremost goal of any goveming body investing public funds is to preserve and protect capital. A local agency's ability to safeguard investment principal is primarily a function of its ability to account for credit risk among other things. Credit risk is the possibility that an issuer or guarantor of a security will be unable to make scheduled payments of interest and principal. Along with this is the concern that the market's perception of the issuer's credit will cause the fair market value of the security to decline even though a default is not imminent. The illustration below characterizes authorized public investments in California according to their underlying credit risk. It must be interpreted generally and with the understanding that a security's credit risk may be a function of other factors than the security, itself. These factors include market conditions, such as interest rates. Relative Credit Risk of Various Securities 4. ei Q.ro). O .,° a,s �D 5° 4 5 $ 5 ao tiro VG'G� °e 44, F `a, `°a¢ b 0 y.Y ,yC� �ro Q :'' �q." 4. J' 4 ASG° 4 C - � Less Credit Risk More Credit Risk Credit Ratings Credit ratings provide an important tool to measure credit risk by characterizing an issuer's ability to make future payments of the interest and principal owed on outstanding debt obligations in a timely manner Credit rating agencies provide, for a fee, an independent appraisal of credit quality and the likelihood of timely repayment of bond issues. Rating agencies charge fees for ratings that are paid by the issuer and may charge fees to investors for receiving credit reports. The three most widely cited credit rating firms are Moody's Investor Services, Standard & Poor's, and Fitch Ratings. Each major rating agency maintains a separate rating scale for long-term debt (generally defined as debt with a maturity over one year) and short- term debt (maturing within one year). The highest ratings assigned to long-term debt are "Aaa" (Moody's) or "AAA" (Standard & Poor's and Fitch Ratings). Issuers receiving these ratings provide the greatest assurance of debt repayment. For California local agencies, the lowest credit rating allowed for public funds investment is an "A" rating. Issuers rated lower than "A" are deemed to be less likely to meet their obligations on outstanding debt. These three credit rating agencies utilize distinct rating systems for short- term debt. The following tables illustrate the systems currently in place. Credit Rating Agency Grades for Long -Term Debt Investment Grade — The ratings in this range are generally considered to be of "investment grade." California public agencies, however, are permitted to invest only in securities rated A or better. Below Investment Grade — The ratings in this range are considered to be non - investment grade. In most cases, a bond that cannot achieve investment grade rating will not be rated at all. The rating agencies may, however, drop a rating previously rated investment grade to one of the lower categories if there is a substantial downtum in the repayment ability of the issuer or borrower. Moody's Bond Standard & Poor's FitchRatings Long - Rating Long -Term Ratings Term Ratings Aaa AAA AAA jlll Aaa AA AA A A A Baa BBB BBB Ba BB BB B B B Caa CCC CCC Ca CC CC C C C D DDD, DD, D (+) (-) AAA/Aaa: Highest quality, smallest degree of investment risk Usually applied to issuers with large margins for payment of debt and service. BBB/Baa: Medium grade, adequate security, susceptible over time to changing economic conditions and impairment. The financial community recognizes "BBB/Baa" to be investment grade even though California law prohibits public agencies from investing in securities with this rating. BB/Ba- Speculative, only moderate protection for debt service, adverse economic or financial conditions will likely impair ability to pay. C/D: Lowest class, extremely poor prospects for repayment, in default (D) or in imminent danger of default (C). Credit Rating Agency Grades for Short -Term Debt Standard & Poor's Commercial Paper Ratings A Standard & Poor's "D" rating is applied to debt rated in default. A Fitch Ratings "D" rating is applied when the issue is in actual or imminent danger of default. Fitch Ratings Short -Term Moody's Prime Rating Ratings System F-I+ F-I F-2 F-3 F-5 D P-I P-2 P-3 Not Pnme Issuers rated "P-3" have an acceptable level of repayment. Those rated "not prime" fall below this standard. Investments and Ratings Generally speaking, the lower the rating number, the higher the quality and the lower the investment risk. For those ratings at the top of each column there are established cash flows, superior liquidity support, or demonstrated ability to refinance. There is a strong capacity to make a timely payment of principal and interest The higher the rating number, the lower the quality, and the higher the investment nsk. Issues rated at the bottom of each column have a speculative capacity to pay principal and interest. The lower the rating generally, the more vulnerable the issue is to changes in financial circumstances Government Code Section 53601 limits certain local agency investments according to the rating of the security or the issuer. These include the following limits. • Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating. The issuing U. S. corporation must have total assets in excess of $500 million and carry an "A" rating or higher on debt issued other than commercial paper. • Mortgage pass -through securities, collateralized mortgage obligation, mortgage -backed or other pay -through bond, or consumer receivable -backed bond must be rated "A" or higher. Issuers of this type of debt must be rated "AA" or better. • Medium -term notes issued by corporations organized and operating within the U. S. or by depository institutions licensed and operating in the U. S. must be rated "A" or better. • Companies managing shares of beneficial interest (e.g., money market funds and mutual funds) must have the highest rating issued by two or three nationally recognized agencies. Liquidity Public agencies often seek to generate earnings by investing the cash that they hold in reserve or that is not otherwise dedicated to a specific purpose. At the same time, public agencies that invest cash may have to use some of that cash for operations. Exchanging cash for an investment security can limit an investor's access to that cash in the future. To describe the relationship between an investment security and the ease with which it may be exchanged for cash, analysts use the concept of liquidity. Liquidity is commonly understood to be a measure of the time that is expected to elapse before an investment is realized or converted into cash. Liquid investments include overnight repurchase agreements and deposits held in a state -managed investment pool. Less liquid investments include nonnegotiable bank certificates of deposit and U. S. agency bonds. The following graph recognizes relative differences in the liquidity of various investments. In applying it, however, it is important to understanding that the ability to exchange an investment for cash may be a function of several factors, including the market conditions prevailing at the time of sale and the demand for the security being offered for sale. Relative Liquidity of Various Securities �� 5� C. to be e,`�o ``m ocay e, 4• 7 s �` 4 . q., • qy ,.prat, o°y y� ���' omy G° Q§o �o c4 4' Ql esq a` ,*o �0 4" 4" �� ti� °°) Vo off' m0 y3 ro 4 4 C' `, 4 5 a, ,c F`� �c ar pro o• dro <51 Uo S 0 0 Gros 0 e• t4' ���• ro $ k S J -'cS Less liquidity Risk In an economic sense, all investments maintain a store of value that can make them liquid. In a practical sense, however, not all investments can be exchanged for the same amount of cash that the investor originally More liquidity Risk invested. All investors assume some liquidity risk whenever they purchase a security. Liquidity risk is the possibility that an investor will be forced to sell an investment asset for less than its fair value when exchanging it for cash or using it to pay off a liability. Liquidity risk is due, in part, to market forces that affect the pricing of a security, including the supply and demand for the security as well as the difference between the bid and offer price of the security. As a result of an oversupply, the market may value a particular security at a lower price than the investor originally paid for it. Likewise, a change in interest rates may cause the market to devalue a particular security with a coupon interest rate that is lower than an investor could obtain from a similar security today. More to the point, certain investment securities, including nonnegotiable CDs, require the holder to pay a penalty if they redeem the security prior to maturity. Credit Risk versus Liquidity Risk Local agencies may face a greater challenge from liquidity risk than from credit risk because liquidity needs may occur quickly due to unforeseen cash shortfalls. A decline in credit quality typically occurs over a longer period of time and can be anticipated with some success with the assistance of credit ratings and the regular review of financial statements. Mitigating credit risk is possible if an investor selects only highly rated securities and continues to monitor the credit rating of the issuer. Mitigating liquidity risk is more difficult and can be achieved only if local agencies regularly analyze their cash flows. The California State Legislature has acknowledged the importance of cash flows in reducing liquidity risk by requiring that treasurers and fiscal officers include in their quarterly investment reports a statement that the agency is able to meet its cash needs for the next six months. By purchasing investments that are regularly traded in the secondary markets, investors can minimize potential losses that are due to liquidity risk. The fact that an investment may lose value as a result of a shift in the market provides the basis for what is termed market risk. Market risk is the possibility that an asset will lose value as a consequence of changes in the market, including interest rates or supply. For example, a bond purchased for $1000 may be worth less in the future if interest rates rise. The prices of fixed income securities such as bonds move in the opposite direction of interest rates. Minimizing Credit and Market Risk Minimizing credit risk and market risk can involve several approaches, such as purchasing only the highest investment grade instruments (credit risk) or matching the maturities of investments to cash needs (market risk). For most local agencies, loss of principal or asset value is unacceptable. To compensate, they may carefully select and monitor their individual investments. Alternatively, they may diversify their portfolio to account for varying and unpredictable levels of credit and liquidity risk inherent in their individual investments. While both approaches seek to provide a hedge against credit and liquidity risk, the latter approach may result in greater volatility in price and return on individual investments. As a result, it may require more active management to ensure that the portfolio is properly balanced and to protect against credit and liquidity risk. Market risk is a function of time. The longer a security takes to mature, the greater the possibility that conditions within the market will change leading to a loss in asset value. However, market risk is of less concern to an investor that plans to hold a teiui- based investment until it matures. If the investor who purchased the $1000 bond in our example holds it until maturity, he will still receive $1000 upon delivery of the bond even though interest rates may have changed. Finally, the prospect of reinvesting funds in a lower rate environment, poses another form of risk called reinvestment risk. Reinvestment risk is the possibility that the cash derived from selling or exchanging an investment will be reinvested at a lower interest rate than the rate of the original investment. Investments that are subject to early redemption, such as securities that an issuer may call back (termed callable securities), bear greater reinvestment risk than securities with a fixed investment term. Yield While safety and liquidity should be primary considerations when structuring an investment portfolio, yield or return remains an important factor, as well. A straightforward relationship between expected return and risk exists. The greater the level of risk assumed by an investor the greater the investment return that investor should expect. Before committing to Yield and Risk Return is simply defined as the change in value from the investment of capital or securities. In order to consider the relationship between return and risk, we will define it as the rate of growth (loss) that distinguishes the value of the investment at the beginning of the period from the value at the end of the period. Yield is understood to be one measute of return (See box below). Value of Investment— Value of Investment Return = (Ending) Beginning) Total Value of Investment The expected return from a portfolio of investments is highly correlated with the risk taken on by that portfolio. The higher the risk, the greater the expected return. Low Return High Return an investment, an investor should assess whether the potential flow of funds from an investment justifies the risks assumed by making that investment. Investment Policies Can Address the Balance Between Safety, Liquidity, and Yield Government Code Section 53646 requires a county treasurer or local agency treasurer or chief fiscal officer to submit a statement of investment policy to the appropriate legislative body. A county's policy must be reviewed and approved by the board of supervisors at a public meeting while the legislative bodies of other local agencies must consider their agency's policy at a public meeting. Once adopted, these policies may only be changed with the approval or consideration of the legislative body. An investment policy establishes the procedures and guidelines that ensure the prudent management of public agency funds. To that end, policies can provide a way for local agencies to manage the various forms of investment risk. To limit credit risk, for example, a local agency may limit its investments to a set of highly rated securities. To limit market risk, an agency may link its buying and selling of investment securities with cash flow projections or limit the maturity of investment securities in its portfolio. Finally, the investment policy should allow those making the investment decisions the latitude and guidance to balance safety, liquidity, and yield needs of the agency. Calculating Yield Current yield (market) is obtained by dividing the annual coupon income from a security by the current market value of the security. Current yield (cost) is obtained by dividing the annual coupon income of a security by its cost. Yield -to -maturity is the return on an investment or a portfolio that equates the future cashflow (future value) to the initial cost (present value). Effective yield is similar to yield -to -maturity. It is the interest rate that makes the net present value of future principal and interest cash flows equal to the cost or value of the security. Take-aways How Must Public Funds Be Invested? 1. Do your legislative body and treasurer recognize the importance of maximizing safety and liquidity, while achieving a reasonable yield on public investments? 2. Do your legislative body and treasurer understand the complementary and contrasting relationships that exist between safety, liquidity, and yield? 3. Is your legislative body or treasurer aware of the types of risk to which your portfolio is exposed? 4. Do your legislative body and treasurer track the ratings of investment securities within the public entity's portfolio and monitor them regularly? 5. Does your agency have a plan in place to address rating changes when the ratings of investments held by the agency fall below the limit set by the agency's investment policy or state law? 6. How does your agency account for its cash flow needs when investing? 7. How does your agency manage its exposure to changes in market conditions, including interest rate changes? 8. Has your legislative body reviewed and approved or considered, as appropriate, the agency's investment policy and each revision at an open meeting? What Public Funds May Be Invested? The authority vested in treasurer or fiscal officer, to invest public funds is contained in two sections of the California state law. Government Code. Section 53601, et al addresses the authority of local agencies that do not pool money with other local agencies to invest moneys held in a sinking fund or that are not otherwise required for the immediate needs of the agency. Section 53635, et al expands that investment authority for counties, cities and counties, and those local agencies that do pool their funds with other local agencies. the legislative body, or by delegation to the Types of Public Funds General Deposits — The operating revenues of public entities derived from all general and special revenue sources and held in depository or demand accounts. Treasury Funds — Money held by a public entity but not required to maintain its operations. Pension Funds — Funds held in a trust account for the retirement benefits of designated pensioners. Bond Proceeds — Funds generated through the issuance of bond securities. Advance Refunding Proceeds — Advance refunding of a municipal bond refers to the sale of a refunding issue more than 90 days prior to the issue's next call date, with the proceeds held in trust. Redemption Funds — Funds held for the specific purpose of retiring a callable obligation, which matures in stages, or for purchasing such an obligation as funds become available. Pledged Funds — Moneys held by a trustee or fiscal agency and pledged to the payment or security of bonds or other forms of obligations, including leases, installment sales, or certificates of participation in bonds or other obligations. Sinking Funds — A reserve fund set -aside over a period of time for the purpose of liquidating or retiring an obligation, such as a bond issue, at maturity. Other laws or documents may control the investment of other funds, as well. For example, Section 53635.2 states, among other things, that money paid to the treasurer or other official of a public agency for the purpose of paying the principal, interest, or penalties on bonds must be deposited in a bank or other specified depository institution or may be invested according to Section 53601. Public agencies must invest bond proceeds according to the terms set forth in Government Code Sections 5903(e), 5922(d), and 53601(1), which, in general, allow the public agency to follow the controlling provisions of the bond resolutions and indentures. The investment of pension funds is controlled by Chapter 2, Article 1.5 of Division 2 of Title 5 of the Government Code, commencing with Section 53215. The State Legislature, in enacting Article 1.5, chose not to proscribe the investment decisions of the boards of a retirement system, allowing, instead, that they may invest in any form or type of investment deemed prudent by the board. The different requirements contained in these and other laws and documents place a burden on the local agency to consider the fit between the source of funds and the range of allowable investments applying to that source of funds. Take-aways What Public Funds may be Invested? 1. Does your agency administer different types of funds? 2. Does your agency handle the investment of these different types of funds? 3. If your agency invests these different funds, is it aware of the controlling authority that determines how the agency can invest? 4. If your agency invests these different funds, how does it account for gains and losses or transfers? What Investment Instruments Can Be Used? Government Code Sections 53601 and 53635 set forth most of the types of securities that can be purchased with money "in a sinking fund or money in its treasury not required for the immediate needs of the local agency." They also set forth the maximum percentage of a portfolio that may be invested in certain securities. Table 1, excerpted from CDIAC's "Local Agency Investment Guidelines: Update for 2002," provides a summary of relevant code sections. It is important to recognize that not all the investments appearing in Table 1 are appropriate for all local agencies. A local agency may reduce this list to reflect its capacities and investment strategy through its investment policy or specific investment parameters. The investment limits set by state law that appear in Table 1 must be applied at the time a security is purchased. Over time, local agencies may find that their portfolios do not conform to these limits. This does not constitute a violation of these limits. Investment Policies Can Set Limits As discussed in page YY, a local agency's investment policy may further delineate the type of securities the agency may use when investing treasury funds. It also may set forth other limits, such as the maturity and ratings of securities by the portfolio or the proportion of the portfolio committed to certain types of investments. Since some types of securities allowed by Section 53601, particularly corporate securities and certain federal agency securities, require comparatively more analysis and expertise to use properly, investment policies that limit the choice of securities available to the local agency acknowledge the agency's willingness and ability to invest in these securities. Because Examples of Investment Limits Set by Investment Policies Ratings — Investment policies may limit the amount of risk a local agency may assume in its investment portfolio by requiring that all debt instruments be rated "A" or better. Type of Issuer — Investment policies may limit the type of investments a local agency may purchase from specific issuers. For example, the agency may chose to invest only in U. S. government or agency -backed secunties. Distribution — Investment policies may limit risk by establishing maximum balances in different categories of investments. For example, it may require that the agency hold at least 40 percent of its portfolio in liquid assets, including cash, and invest no more than 5 percent in medium -term notes. Maturity — A local agency may limit market risk by limiting the proportion or maturity of long-term investments or the maximum maturity of its portfolio. For example, the agency may specify that the weighted average maturity of its portfolio may not exceed 2 years or 730 days. Exclusions — A local agency may limit its investment risk by excluding certain types of mvestments that involve greater oversight by staff to properly manage. agencies change, these policies must be reviewed from time to time to insure that they continue to reflect the changing capacities of the agency and market availability. Table 1 Allowable Investment Instruments Per State Government Code (as of January 1, 2002) i.:,,Investment Type.? Local Agency Bonds U. S. Treasury Obligations State of California Obligations CA Local Agency Obligations U. S. Agencies Bankers' Acceptances Commercial Paper —Select Agencies2 Commercial Paper —Others Agencies4 Negotiable Certificates of Deposit Repurchase Agreements Reverse Repurchase Agreements & Securities Lending Agreements Medium -Term Notes Mutual Funds Money Market Mutual Funds Collateralized Bank Deposits Mortgage Pass -Through Securities Time Deposits County Pooled Investment Funds Local Agency Investment Fund (LAIF) M iximum Specified , :' Minimum % of Portfolio -jct.: Quality Requirements, 5 years None None 5 years None None 5 years None None 5 years None None 5 years None None 180 days 40 percent' None 270 days 40 percent3 A1/Pl rating 270 days 25 percents AI/PI rating 5 years 30 percent None 1 year None None 92 days 20 percent combined None6 of base value 5 years 30 percent A rating N/A 20 percent' Multiples N/A 20 percent Multiple9 5 years None None 5 years 20 percent AA rating10 5 years None None N/A None None N/A None None Sources: Government Code Sections 16429.1, 53601, 53635, and 53684. 'No more than 30 percent of the surplus money may be in Bankers Acceptances of any one commercial bank. 'Recent legislative changes to Government Code 53635 [AB 609 (Kelley), Chapter 57, Statutes of 2001] specify that "all local agencies that pool money in deposits or investments with other local agencies that have separate governing bodies" may invest in commercial paper as specified in Figure 1 for select agencies However, existing language in the same code section still defines local agency as a county or a city and county (thereby, not including other local agencies such as JPAs and cities that would qualify under the new commercial paper investment guidelines). Cleanup language to correct this discrepancy likely will be introduced in 2002; the changes will not become effective until January 1, 2003 'No more than 10 percent of the local agency's money that may be invested pursuant to Government Code 53635 may be invested in outstanding commercial paper of any single corporate issuer Also, no more than 10 percent of the outstanding commercial paper of any single corporate issuer may be purchased by the local agency. °Applies to a local agency that is a city, a district. or other local agency that does not pool money in deposits or investments with other local agencies, other than local agencies that have the same goveming body. 'Local agencies may not hold more than 10 percent of the outstanding commercial paper of any single corporate issue °Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or state chartered bank that has a significant relationship with the local agency The issuer must have held the secunties used for the agreement for at least 30 days. No more than 10 percent of the agency's surplus funds may be invested in any one mutual fund °Must receive the highest ranking by not less than 2 nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least 5 years expenence investing in instruments authorized by the State Government Code Sections 53601 and 53635 'Must receive the highest ranking by not less than 2 nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), and has not less than 5 years experience managing money market funds with assets under management in excess of $500 million. 10Issuer must have an A rating or better for the issuer's debt as provided by a nationally recognized rating agency Cash Flows Affect the Selection of Investments Cash flows from investments directly affect the liquidity of the portfolio and are, therefore, important when a local agency is choosing between different investment securities. The link between investment choice and cash flows was codified in 1995 when the State Legislature required that treasurers and chief fiscal officers report on the agency's ability to meet its cash needs during the forthcoming six months. That requirement is contained in Government Code Section 53646. At the same time that a local agency considers its cash needs, it also must consider its investment returns. In a normal interest rate environment, long-term investments generate higher rates of return than short-term investments when all other factors are held equal, while short-term investments offer greater flexibility at lower yields than long-term investments. Given the tradeoff between yield and liquidity (see Page XX), local agencies must balance their yield objectives with the liquidity needs of their portfolio. Reporting Compliance with Policies A common practice among treasurers and fiscal officers is to provide a quick check of the portfolio's compliance with the agency's investment policy as a part of their quarterly investment reports. The purpose of doing so is to allow the legislative body to confirm that the agency's investment policies are being met. Some treasurers and fiscal officers state whether or not the portfolio complies with the agency's investment policies by making a single, comprehensive statement in the quarterly report. Others provide a more detailed account of compliance that compares each investment or category of investment with the agency's policy statement. For example, when reporting compliance with a policy that limits investments according to the credit ratmg of the security or the issuer of the security, a quarterly report might list the rating of each security or category of security held by the agency. When verifying a portfolio's compliance with the agency's investment policy, it should be recognized that investments might fall out of compliance over time. That is, an investment may have complied with the policy when it was purchased, but because of a credit rating downgrade or an increase in market value the investment no longer complies. Where a percentage limit is specified in Government Code Section 53601, a local agency must comply only at the time of purchase. Non-compliance as a consequence of changing conditions and values within a portfolio may be cause for evaluation but are not violations of Section 53601. Local agency cash flows are a function of the security and accessibility of the funds, themselves. A successful cash management program should incorporate the advantages that third party providers offer in safekeeping the agency's funds. Banks, savings associations, federal associations, credit unions, or federally insured industrial loan companies provide legal custody of public deposits, as well as accounting and recording services that increase the safe handling and accessibility of funds. Take-aways Reviewing Policies and Reports 1. Do the investments made by your agency conform to Government Code Section 53601 or 53635? 2. Do the investments made by your agency comply with the its investment policy? 3. Were the policies and reports processed and filed according to Government Code Section 53646? 4. Do the investments made by your agency reflect its future cash position? What Do Investment Reports Contain? With some exceptions, California Government Code Section 53646 requires treasurers and chief fiscal officers of local agencies to submit a quarterly investment report to the chief executive officer, the internal auditor, and the legislative body of the local agency within 30 days following the end of the quarter covered by the report. Section 53646 provides that a legislative body of a local agency may elect to receive the report on a monthly basis. Government Code Section 53646 also mandates that the quarterly investment reports of a local agency contain certain items. These include the type of investment, the issuer's name, the date of maturity of the security, the par amount of the instrument, and the dollar amount invested in each security. The report must include reference to all funds that are under the management of investment providers, such as investment advisors, investment managers, and the investment advisory functions of banks and brokers and dealers. (For more information on these providers, see page YY.) A local government's quarterly report also must state the portfolio's compliance with the agency's investment policy. In addition to quarterly reports, Government Code Section 53646 requires local agencies to produce an investment policy. In most cases, the policy sets forth the strategy the local agency will employ when investing its funds. It also may stipulate the types of allowable investments, the maximum percent to be represented by each type of security within the portfolio, the maximum maturity for individual investments or the portfolio, and benchmarks that will be used to evaluate yield performance. Investment Policies vs. Quarterly Reports Government Code Section 53646 refers to both investment policies and quarterly reports. While the code provides no formal definition of either term, their meanings have been established by common practice. Investment Policy — A statement of the local agency's objectives and methods of investing public funds. An investment policy may include a list of investment secunties that the legislative body has approved for use by the local agency. It also may include performance measures or benchmarks that will be used to evaluate the results of investments, standards of care for the management of funds, and minimum credit quality requirements for investment securities. Quarterly Reports — A statement of investments held, fund balances, activity, and return on investments made by the local agency. Quarterly reports should reflect the current position and past performance of a portfolio of investments for the period of time under consideration. Finally, the quarterly investment report must include a statement regarding the local agency's ability to meet its cash flow needs for the next six months. As the agency's investments mature, they provide a natural source of cash for operations or other uses. There are potential costs associated with not managing the agency's investment portfolio in relation to its cash needs. These costs include the loss of capital that may result from the agency selling investments prior to their maturity or the cost of reinvesting with a more expensive altemative. (For more information on cash flow see page YY.) Government Code Section 53646 allows the treasurer or fiscal officer of a local agency that invests solely in the California Local Agency Investment Fund (LAIF), an investment pool administered by the State Treasurer's Office, county pools, or other insured accounts specified by law to provide to the legislative body of the agency the most recent statement of the applicable fund, pool, or account. This provision exempts the treasurer or fiscal officer from the task of restating the information contained in an earnings statement in the same manner addressed above. The law presumes that the earnings statement contains sufficient information to allow the legislative body to review the activities of the portfolio. Investment Report Required Contents Pursuant to California Government Code Section 53646 1. Type of investment 2. Issuer name 3. Date of maturity 4. Par amount 5. Dollar amount invested in all securities 6. Investment and moneys held by the local agency 7. Description of any of the local agency's funds, investments, or programs under the management of contracted parties. 8. Current market value of all funds held by the local agency and under the management of any outside party that is not also a local agency or the California Local Agency Investment Fund. 9. The source of all market values. 10. Statement of compliance with local agency investment policy. 11. Statement of the local agency's ability to meet its cash flow needs for six months. Quarterly investment reports can contain information in addition to that required by Section 53646 that may be of particular interest to the legislative body or to the reporting officer. It can include, for example, a list of approved brokers and dealers or a reconciliation of cash flows used for investment purposes. The latter might entail a record of transfers to and from various cash accounts along with details on the uses and sources of each transfer. The report may go as far as to tie each disbursement to the appropriate trade confirmation received from a broker or dealer. While local agencies account for cash transfers as a part of their comprehensive financial reporting, paying special attention to these transfers in the context of a quarterly report increases accountability and supports the efforts of fiduciaries to meet their obligations. Finally, the quarterly investment report of some local agencies may include investments made using other types of funds than treasury funds, including general deposits or bond proceeds. While Section 53646 does not require it, including these investments allows the agency to provide a complete picture of the agency's risk exposure and potential return from investing public funds. Reviewing Investment Policies and Quarterly Reports Section 53646 requires that the board of supervisors of a county review . and approve the agency's investment policies at a public meeting. It also requires that the legislative body of other local agencies consider the agency's statement of investment policy at a public meeting. Subsequent changes to either a county's or other local agency's policy must be handled in the same manner. Section 53646 also provides the legislative body the right to request any additional information it deems necessary to carrying out its duties. Although state law does not specifically require the members of a legislative body to take action on the quarterly report, their fiduciary obligations make it incumbent upon them to review and understand its contents. A legislative body of a local agency generally cannot delegate its fiduciary responsibility although it may delegate the day-to-day authority to make investment decisions. When evaluating information provided by the report but not required by Section 53646 the legislative body should defer to the guidance provided by the agency's investment policy or other statements that reveal the rationale for providing the information. The legislative body could use a list of approved brokers and dealers, for example, to determine whether the agency has used professional services with discretion, but without bias. The legislative body may wish to track cash transfers reported in a quarterly investment report to verify that investment purchases and payments to brokers and dealers match. Finally, the legislative body may include investments made using other funds than those reported under Section 53646 in a comprehensive evaluation of the safety and liquidity needs of the local agency, as well as its yield needs. "Take-aways" Investment Report Contents 1. Does your agency's quarterly investment report contain all the information required by Government Code Section 53646, including type of investment, name of issuer, maturity date, and par and dollar amounts invested? 2. Does your agency's quarterly investment report provide sufficient information for the legislative body to fulfill its fiduciary obligations? 3. If applicable, do the statements provided by LAIF, a county pool, or another insured provider and incorporated into your agency's quarterly investment report contain sufficient information for your legislative body to fulfill its fiduciary obligation? 4. Does your local agency provide additional information within its quarterly investment report than is required by Section 53646? Is this information relevant and useful to a review of the investment activities of the local agency? Is there other information that would be helpful if included? 5. While state law requires that a treasurer or chief fiscal officer report on treasury funds only, your agency's quarterly report may include other funds. Does your agency report investments made using other funds than treasury funds? 6. Does your legislative body recognize the investment restrictions pertaining to each source of funds reported in your agency's quarterly report? 7. Were all public funds included in the quarterly report invested in a manner that was consistent with the investment policy of the agency and with state laws or other controlling documents, including bond indentures or notes of obligation? 8. Does your quarterly report state that the local agency can meet its cash flow needs for the next six months? Evaluating the Performance of Your Investments Since state statutes clearly set forth safety, liquidity, and yield as standards of performance for public investing, public agencies should seek to measure their investing activities with respect to these three outcomes. How they choose to do so may vary. In the simplest terms, safety, liquidity, and yield are functions of risk. Accounting for risk, then, provides an indirect measure of the performance of an agency's portfolio with respect to safety, liquidity, and yield. For example, a local agency may evaluate the safety of its investing activities by monitoring the ratings of its investments or the ratings of the issuers of the securities the agency holds. Alternatively, the agency may check to see whether the agency invested in only those securities allowed by its investment policy. A local agency may assess the liquidity of its portfolio by calculating the average maturity of its investments or duration, which reflects the length of time before the agency receives its money from those investments. Alternatively, it may calculate the cost or benefits from selling securities for cash needed to meet short-term objectives or the cost of missed investment opportunities from having to do so. Notwithstanding safety and liquidity, the common measure of investment performance is yield. Yield embodies many of the risks associated with safety and liquidity, including market risk and credit risk. The negative side of using yield as a performance measure, however, is the tendency to compare portfolio yields. Since portfolios differ in composition, maturity, and size, these comparisons may prove more misleading than productive. To account for differences between portfolios, investors have sought out benchmarks whose composition, maturity structure, and risk characteristics are known. Working backwards, then, investors can account for differences between their portfolio's yield and the yield of a benchmark. Benchmarking By definition, a benchmark is a passive index that represents the expected returns and expected risks that correspond to the investment objectives of the local agency's portfolio. Commonly accepted benchmarks for public agency investment portfolios are 3-month Treasury bills and a 1-3 year Treasury index. The best use of a benchmark is in assessing the outcome of its investments and in managing the portfolio's risk. In this way, a benchmark that closely approximates a local agency's pool of allowed investments as stated in its investment policy can be used to measure the effect of that policy on performance and risk management. Differences between the benchmark and the portfolio can be evaluated in terms of the costs and benefits of increasing performance or reducing risk. Differences between the benchmark and the allowable pool of investments provided for by the agency's investment policies with respect to type of securities, maturity, ratings, and underlying credit quality will weaken the correlation between the two. If the agency's portfolio is strongly correlated with a benchmark, changes in the portfolio's performance with respect to the benchmark will be a function of market values. However, if the portfolio is not strongly correlated with a benchmark, a change in performance may result from other conditions, including credit risk, and other forms of risk (i.e. market and reinvestment risk) within the portfolio. In reality, few portfolios contain the same composition of securities as their benchmark. This is because most benchmarks contain either a greater percentage of treasuries and federal agency securities than most public agency portfolios or they include securities that are not allowed under Government Code Section 53601. Portfolios are also subject to constraints that do not exist within a benchmark, including liquidity needs and future liabilities. If a portfolio's performance differs from that of its benchmark, it is critical to understand why. There may be good reason for the difference, including liquidity needs and future liabilities. Because the portfolios of most local agencies do not replicate available benchmarks, many agencies use the comparable maturity Treasury as a basis from which to assess the performance of their portfolios. Agencies that adopt this approach should be careful to account for the difference between their portfolio and the Treasury benchmarks by evaluating returns over a long period of time rather than one or two quarters. Checklist for Evaluating Your Agency's Investment Activities Members of the local agency's legislative body or its investment oversight committee can use the following checklist to evaluate the investment activities of their agency. 1. Does your local agency have an investment policy? 2. Does your local agency report its investment activities at least quarterly? 3. Does the quarterly investment report provided to your legislative body contain the information required by Government Code Section 53646? 4. Do the investments made by your local agency conform to state law and your investment policy? 5. Has your treasurer or fiscal officer indicated in the quarterly report whether the portfolio is in conformance with the state law and your agency's policy? 6. Has your treasurer or fiscal officer identified those investments, if any, that have fallen out of compliance with the agency's investment policy? 7. Does your agency have a plan for dealing with investments that are not in compliance? 8. Are your agency's investments sufficiently diversified to guard against the loss of principal? 9. Does your local agency deposit funds in a third party custodial account? Does your agency receive reports from this custodian that are clear and comprehensive? Are these reports incorporated into your agency's quarterly report or included as an attachment? 10. When an investment professional makes investments on behalf of your agency, does the agency have sufficient controls in place to guarantee that the investments conform to the agency's policies and to state law? 11. Has your agency instituted controls or accounting procedures that may include comparing the agency's bank statements with the trade confirmations provided by brokers and dealers of investment securities? 12. Has your treasurer or fiscal officer stated in the quarterly investment report that the agency's investments allow it to meet its cash flow needs for the next six months? 13. Does your agency use a benchmark to assess the performance and risk implied by its portfolio of investments? Does your legislative body understand the differences between this benchmark and the agency's portfolio of investments with respect to performance and risk? 14. If your agency is using a benchmark, how is your agency's portfolio performing relative to the benchmark? 15. Does your agency have a list of approved brokers and dealers? 16. Does your legislative body review the agency's use of brokers to ensure that the treasurer is not unduly relying on the services and advice of only a few? 17. Does your agency have a list of approved investment advisors? 18. Does your legislative body review the agency's use of investment advisors to ensure that the treasurer is not unduly relying on the services and advice of only a few? Selected Resources and Reference Materials A Public Investor's Guide to Money Market Instruments (Chicago, IL. The Government Finance Officers Association, 1994) Califomia Debt and Investment Advisory Commission's Investment Primer. (Sacramento, CA. California Debt and Investment Advisory Commission, forthcoming 2003) Local Agency Investment Guidelines: Update for 2002. (Sacramento, CA. California Debt and Investment Advisory Commission, 2002) Cash Management for Small Governments (Chicago, IL. The Government Finance Officers Association, 1989) Elected Officials Guide to Investments (Chicago, IL. The Government Finance Officers Association, 1996) Essentials of Cash Management (Newtown, CT. National Corporate Cash Management Association, 1989) Miller, Gerard. Investing Public Funds (Chicago, IL: The Government Finance Officers Association, 1994) City Treasurer's Handbook (California Municipal Treasurer's Association, 2002) Summary of Relevant Government Code Sections Section 27000.3. Prudent investor standard: use in transactions with public funds Summary — Establishes the board of supervisors as a fiduciary subject to the prudent investor standard with regard to county funds deposited in the county treasury. If the board of supervisors has delegated its authority to invest county funds according to Government Code Section 53607, it no longer serves as fiduciary and is not subject to the prudent investor standard. Requires a county treasurer or board of supervisors, as applicable, to exercise care, skill, prudence, and diligence when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds. Section 53600.3. Prudent investor standard: investments on behalf of local agencies Summary — Assigns trustee status to all governing bodies and persons authorized to make investment decisions on behalf of local agencies. Along with this status comes the fiduciary responsibility to protect the principal of funds invested. The actions of fiduciaries are subject to the prudent investor standard. Furthermore, fiduciaries must reflect certain attributes, including skill, care, prudence, and diligence, when making investment decisions. Section 53600.5. Objectives; managing public funds Summary — The primary objective of a trustee when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its control. Section 53601. Authorized investments; circumstances Summary — Defines the authorized investment securities in which a local agency may invest operating cash. Certain local agencies are provided additional authonty by Section 53635 when investing in commercial paper. Section 53601.1. Investment in Financial Futures or Financial Options Contracts Summary — Includes in the list of authorized investment securities financial futures or financial option contracts in any of the investment categories listed in Section 53601. Section 53601.5. Purchases of Investment Securities Summary — Requires a local agency to purchase authorized investments securities from either: 1) the issuer; 2) an institution licensed by the state as a broker -dealer; 3) a member of a federally regulated securities exchange; 4) a national or state -chartered bank; 5) a savings association or federal association; 6) a brokerage firm designated as a primary government dealer by the Federal Reserve Bank. Section 53601.6. Prohibited Investments Summary — Restricts local agencies from investing in certain types of investments, including inverse floaters, range notes, or mortgage -derived, interest -only strips. Further restricts Local agencies from investing in any security that could result in zero interest accrual if held to maturity. Section 53607. Delegation of duties to treasurer, monthly report Summary — Allows a legislative body to delegate its authority to invest or reinvest funds of the local agency to the treasurer of the local agency. The treasurer, once delegated, assumes full responsibility for all transactions and must make a monthly report to the legislative body. The delegation of authority may be renewed annually. Section 53635. Funds of Local Agency: Deposit or Investment Summary — Authorizes a county, city and a county, or other local agency that pools money in deposits or investments with other local agencies, other than local agencies that have the same governing body to invest in the same securities listed under Section 53601. Expands the flexibility of these agencies when investing in commercial paper. Section 53646. Investment Policy Statement; Review and Approval; Legislative Body or Oversight Committee; Reports Summary —Requires the treasurer or chief fiscal officer of a local agency to submit a statement of investment policy to the respective legislative body. The county board of supervisors is required to "review and approve" the policy at a public meeting while other legislative bodies are required to "consider" the policy at a public meeting. This same, applicable review process is to be used whenever the policy is changed by either agency. This section also requires the treasurer or chief fiscal officer to submit a quarterly report to the chief executive officer, the internal auditor, and the legislative body of a local agency. Finally, it sets forth the minimal content of the report and provides exemptions to certain local agencies. Glossary of Selected Terms While the following terms may have other uses, the definitions given here correspond to their usage in this document. Benchmark — A passive index used to compare the performance, relative to risk and return, of an investor's portfolio. Cash Flow — A comparison of cash receipts (revenues) to required payments (general, debt service and operating expenses). Credit Risk — The chance that an issuer will be unable to make scheduled payments of interest and principal on an outstanding obligation. A more common concern for investors is that the market's perception of a corporation's credit will cause the market value of a security to fall, even if default is not expected. Credit Rating — Various alphabetical and numerical designations used by institutional investors, Wall Street underwriters, and commercial rating companies to give relative indications of bond and note creditworthiness. Standard & Poor's and Fitch Ratings use the same system, starting with their highest rating, of AAA, AA, A, BBB, BB, B, CCC, CC, C, and D for default. Moody's Investors Service uses Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, and D. Each of the services use pluses (+), minuses (-), or numerical modifiers to indicate steps within each category. The top four letter categories are considered investment grade ratings Fiduciary — An individual who holds something in trust for another and bears liability for its safekeeping. Letter of Credit — An arrangement with a bank that provides additional security that moneys will be available to service an outstanding obligation. Liquidity — The ease with which an investment may be converted to cash, either by selling it in the secondary market or by demanding its repurchase pursuant to a put or other prearranged agreement with the issuer or another party. Liquidity Risk — The chance that a security, sold prior to maturity, will be sold at a loss of value. The liquidity risk can result in a difference between the price at which a buyer is willing to purchase a security and the price at which a seller is willing to sell the same security. For a local agency, the liquidity risk of an individual investment may not be as critical as how the overall liquidity of the portfolio allows the agency to meet its cash needs. Market Risk — The chance that the value of a security will change as interest rates rise and fall. In general, as interest rates fall, prices of fixed income securities rise. As interest rates rise, prices fall. Maturity — The stated date on which all or a stated portion of the principal amount of a security becomes due and payable. Net Present Value — An amount that equates future cash flows with their value in present terms. Par Amount or Par Value — The principal amount of a note or bond which must be paid at maturity. Par, also referred to as the Face Amount of a security, is the principal value stated on the face of the security. A par bond is one sold at a price of 100 percent of its principal amount. Pooled Investment — A market institution authorized under various sections of state law that represents the combined deposits of more than one local agency. Portfolio — The combined holdings of more than one investment asset held by an investor. Principal Amount — The face amount or par amount of a bond or issue of bonds payable on stated dates of maturity. Rating — The term "rating" means a designation used by a "rating agency" to signify the ability of an obligator to meet the principal and interest payments on an outstanding obligation as promised. Return — Income or loss of capital on an investment or portfolio of investments. Risk — The uncertainty of maintaining the principal or interest associated with an investment due to a variety of factors. Yield — For the purposes of this publication, return and yield are synonymous. .r. Glossary of Investment Instruments Asset -backed Securities — Securities that are supported by pools of assets, such as installment loans or leases, or by pools of revolving lines of credits. Asset -backed securities are structured as trusts in order to perfect a security interest in the underlying assets. Bank Notes — A senior, unsecured, direct obligation of a bank or U. S. branch of a foreign bank. Banker's Acceptance — A short-term bill of exchange that are accepted as payment by banks engaged in financing trade of physical assets or merchandise. Bonds — A debt obligation of a firm or public entity. A bond represents the agreement to repay the debt in principal and, typically, in interest on the principal. Certificates of Deposit — A short-term, secured loan of cash to a financial institution. The term "CD" by itself generally refers to negotiable certificates of deposit that can be resold to other parties. Commercial Paper — A short-term, unsecured promissory note issued by a corporation with a high credit rating. Corporate Notes and Bonds — Debt instruments, typically unsecured, issued by corporations, with original maturities in most cases greater than one year and less than 10 years. Federal Agencies and Instrumentalities — Obligations issued by a government -sponsored entity or a federally regulated institution. Mortgage Pass -through Obligations — Securities that are created when residential mortgages (or other mortgages) are pooled together and undivided interests or participations in the stream of revenues associated with the mortgages are sold. Municipal Notes, Bonds, and other Obligations — Obligations issued by state and local governments to finance capital and operating expenses. Notes — Unsecured debt, usually maturing in less than 15 years. Repurchase Agreements — Short-term, often overnight, sale of securities with an agreement to repurchase the securities at an agreed upon price. Reverse Repurchase Agreements — A repurchase agreement from the perspective of the purchaser of the original agreement. Differs from a repurchase agreement in the sense that a reverse repurchase agreement is a borrowing while the repurchase agreement is an investment. State and Local Investment Pools — The combined deposits of state and local agencies organized and operated by a state treasurer or a local official. These pools operate much like a mutual fund, with local agencies investing money together in order to increase efficiency and reduce costs. State Notes, Bonds, and Warrants — Obligations of the State of California or another state government. Zero -Interest Bond — A bond on which interest is not payable until maturity (or earlier redemption), but compounds periodically to accumulate to a stated maturity amount. much fun as it sounds. Some investors who got out before the ryrket tanked find themselves tiptoe- d ...y o,sy a. ,.. y nut to um airy wagging.. In fact, Mr. Hardy moved most of his portfolio into bonds three years ago, less than a year before wan a neighbor wnose mutual funds were [um- bling, she made sure to bring up her few bad calls. "I talked about BroadVision, Sun Microsystems SVntr Energy Loans Hurt Smaller Banks, Too UnionBanCal, Mellon Exposures, As Percentage of Nonperformers, Are Larger Than Citigroup's By CARRICK MOLLENKAMP HE FALLOUT FROM the nation's power and energy -trading industry has delivered a jolt to banks including Citigroup Inc., J.P. Morgan Chase & Co. and UnionBanCal Corp. UnionBanCal? Unfortunately for investors in bank -company stocks, exposure to souring loans in the energy industry doesn't stop with the nation's big New York -based banks. Problem loans have crept into portfolios of banks around the country, of all sizes. A Goldman Sachs Group Inc. report analyzed 10 utility and energy -trading companies and the banks that have lent those companies money. The study found Citigroup, the nation's largest bank, has less exposure as a percent- age of nonperforming loans than Northern Trust Corp., Bank One Corp. and Bank of New York Co. The real surprises were the two banks that have the greatest exposure as a percentage of non- performing loans, defined as those that are at least 90 days past due. Citigroup's exposure was 13%, while Mellon Financial Corp. had a 43% exposure and UnionBanCal, the parent of Union Bank of California in San Francisco, had a whopping 61% exposure, according to the Goldman Sachs study. Altogether, UnionBanCal, which is 67% owned by Japan's Bank of Tokyo -Mitsubishi Ltd., had $414 million in nonperforming loans, compared with total loans of $25.6 billion, as of June 30, while Mellon had $175 million in such souring DEALS d DEAL MAKERS THURSDAY, AUGUST 15, 2002 Bogged -Down by Energy As more struggling energy -trading and utility companies encounter financial difficulties, concern about the lender banks' exposure is growing. Below, estimated exposure of U.S. banks to ten energy -trading and utility companies as a percentage of nonperforming loans, based on original credit agreements.* - YEAR-TO-DATE SHARE EXPOSURE TO ENERGY -TRADING AND MLIIY COMPANIES AS A PERCENTAGE OF NONPERFORMING LOANS ' PERFORMANCE UnionBanCal Mellon Financial Bank of America yys, ag ryggi zr -sit 1.P. Morgan Chase BankofNewYork tiYakws;R,'7, Bank One Northern Trust Citlgmup74.12 ? Suntrust Banks FleetBoston Financial Comerica Wachovia 'Nonperforming loans are defined as those that are at least 90 days past due; data exclude credit facilities not fully disclosed and loan sales that may have occurred. loans and $9.8 billion of total loans, according to the company's financial reports. According to Goldman Sachs, UnionBanCal has lent money to Reliant Energy Inc. and AES Corp., and Pittsburgh -based Mellon has lent money to El Paso Corp. Energy traders and electricity and gas providers "have all faced a fair amount of pres- sure," said Lori Appelbaum, the Goldman Sachs Sou - 30.8% -17.8% + 2,3% -30.2% - 30.2% + 6.6% - 35.2% + 0.5% +13.5% company reports; Goldman Sachs Research estimates analyst who wrote the report. "We wanted to know where there potentially was an issue." To be sure, not all of the nation's power compa- nies will go bust and force banks to cover bad loans. And some lenders in the Goldman report may have sold their loans to the secondary market and erased the problems from their balance Please Turn to Page C5, Column 2 THE WALL STREET JOURNAL. F r d n 21 a tt tl T sr B d tt sr li ei fi ti cl P. c it sl [r JI yr Banks of All Kinds Deal With Sour Energy Loans Continued From Page C1 sheets. Goldman based its study on the original credit agreements between com- panies and banks. Still, there is enough concern about ex- posure to the power industry to keep bank- ing -stock prices, down 10%u this year, de- pressed. And in what is becoming a theme, the nation's smaller banks —along with foreign banks —are participating in large loan syndications and then ending up with the loans when they turn bad. Often, a bank then has to cut into earn- ings to set aside money to cover the loan. Big banks usually take the lead in syndi- cating, or selling, pieces of large loans by persuading smaller banks to join in the syn- dication. When WorldCom Inc. filed for bankruptcy protection, for example, J.P. Morgan Chase had $8 million in debt out- standing to WorldCom. Mellon, on the other hand, had a $100 million exposure. When Mellon reported second-quarter earnings, $100 mi Won of its $176 million in nonperform- ing assets came from WorldCom loans. A closer look at UnionBanCal and Mel- lon offers a window into how some banks end up with loans that can turn trouble- some. This isn't the first time UnionBan- Cal has run into choppy loan waters. In the fourth quarter of last year, the bank said it increased its loan-loss reserves to cover loans to PG&E Corp.'s Pacific Gas & Electric Co. and Edison International's Southern California Edison utilities. Bank analyst David Stumpf of invest- ment firm A.G. Edwards said UnionBanCal is unusual for a bank its size to be partici- pating in large loan syndications. But he said the bank— with assets of 535.8 bilkon, or a fraction of Citigroup's 51.08 trillion in assets —even employs energy experts to help navigate the complicated industry. "They operated with a big -bank men tality," Mr. Stumpf said. "I can't think of another bank its size that had that kind of syndicated loan book." A UnionBanCal representative said executives weren't available to discuss the loans or the Goldman Sachs report. Mr: Stumpf said the bank has dis- played signs it is improving its credit quality, but the energy loans "are the biggest hurdle" in cleaning up the bal- ance sheet. "The energy and power expo- sure is something we're all a little con- cerned about," he said. So far, however, flnionBanCars stock has sloughed off concerns about its loans. The stock has risen 14% this year on the New York Stock Exchange. Mellon, which at 533.4 billion in assets is slightly smaller than UnionBanCal, hasn't had the same luck with its stock; its shares are down 27% this year on the NYSE: A Mellon spokesman said the bank won't discuss individual credits such as the loans to El Paso. The spokesman, Kenneth Herz, said Mellon has worked to reduce its exposure to companies that trade energy. Mellon isn't even that big a lender. The bank's biggest businesses are asset man- agement, securities processing and trust • administration. Only 14% of the bank's rev- enue comes from net -interest income, or revenue generated from lending money. But to win the trust business, Mellon has been willing to extend loans to poten- tial clients of its trust business. Mr. Herz said the bank conducts an independent review of potential loans aside from any relationship with the bank. According to Mellon's second-quarter filing with securities regulators, Mellon has 113 borrowers in the energy and elec- tric and gas industries. Those companies have agreements, under what are called unfunded loan commitments, to borrow as much as $2.8 billion. Not all of that money will be borrowed, the bulk of the borrowers are investment grade and many of the commitments expire in a year. But the commitments still raise the risk Mellon could be forced to lend more money to a struggling industry. "If these companies decide to draw all their funding down, then boom!" said Christopher Marinac, an analyst at invest- ment firm SunTrust Robinson -Humphrey. In normal times, banks can dump loans by selling them into the so-called second- ary market, to buyers such as insurance companies and pension funds. But the sec- ondary market for the energy industry is sluggish because investors are hesitant to own loans that could go into default. Mr. Stumpf, the A.G. Edwards analyst, said because banks don't discuss specific loans, it is impossible to tell whether ' banks such as UnionBanCal and Mellon had already sold some of their loans. "Much of these credits can be di- vested, worked down. You don't know how much of it is in existing numbers," he said, adding if the banks have the loans now, they're out of luck. "Selling it now isn't going to do'much good." STATE OF CALIFORNIA PHILIP ANGELIDES, Treasurer OFFICE OF THE TREASURER SACRAMENTO PALM DESERT REDEVELOPMENT AGENCY Attn: TREASURER 73-510 FRED WARING DRIVE PALM DESERT Transactions Effective Date 08-14-2002 08-19-2002 Transaction Date Tran Type 08-14-2002 RD 08-19-2002 RD Account Summary Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 August, 2002 Statement CA 92260 Confirm Number Total Deposit : 3,227,000.00 Total Withdrawal : 0.00 Account Number : 65-33-015 Authorized Caller 881979 THOMAS W. JEFFREY 543521 THOMAS W. JEFFREY Beginning Balance : Ending Balance : Amount 3,000,000.00 227,000.00 36,772,746.22 39,999,746.22 Page : 1 of 1 STATE OF CALIFORNIA PHILIP ANGELIDES, Treasurer OFFICE OF THE TREASURER SACRAMENTO CITY OF PALM DESERT Attn: CITY TREASURER 73510 FRED WARING DRIVE PALM DESERT Transactions Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 (916) 653-3001 August, 2002 Statement CA 92260 Account Number : 98-33-621 Effective Transaction Tran Confirm Authorized Date Date Type Number Caller 08-14-2002 08-14-2002 RD 748580 THOMAS JEFFREY 08-19-2002 08-19-2002 RD 734142 THOMAS JEFFREY Account Summary Total Deposit : 3,240,000.00 Beginning Balance : Total Withdrawal : 0.00 Ending Balance : Amount 1,000,000.00 2,240,000.00 36,759,864.33 39,999,864.33 Page : 1 of 1 CALIFORNIA ASSET MANAGEMENT PROGRAM JOINT POWERS .\UTHORII 50 CALIFORNIA STREET 23IU) FLOOR SAN FRANCISCO CALIFORNIA 'ail I I CITY OF PALM DESERT ATTN: PAUL GIBSON 73-510 FRED WARING DRIVE PALM DESERT, CA 92260 Account Summary as bf 8/3112002' Statement Income Dividends Capital Gains Date Paid This Year Paid This Year 8/31/2002 $119,811.81 $0.00 I Transaction-Suminary,-for 8M72002.-;8/31/2,002-" -� Beginning Balance Purchases $30,346,234.64 Reinvestments $0.00 $44,604.21 STATEMENT FOR ACCOUNT INFORMATION: 800-729-7665 STATEMENT DATE: 8/31/2002 ACCOUNT NUMBER: 553-00 FUND NAME: Cash Reserve Portfolio Total Shares Owned 27,390,838.850 Redemptions $3,000,000.00 ; TRADE.- :POSTING •• • • ;' •.:. 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V "" 0 fs m 0 0 0000 0ten 0 o -- X Oi 00 O r+ M O O • o 0 0 0 0 0 0 O' -• Cq ' f Revenues Rental Dividends/Interest Total Revenues Expenses City of Palm Desert Parkview Office Complex Financial Statement for Fiscal Year 2002-2003 July-02 July-02 # % YTD YTD Budget Actual Variance Variance Budget Actual Variance Variance $ 68,500 $ 70,476 $ 1,976 102.88% $ 68,500 $ 70,476 $ 1,976 102 88% $ 4,375 $ 1,026 $ (3,349) 23.45% $ 4,375 $ 1,026 $ (3,349) 23 45% $ 72,875 $ 71,502 $ (1,373) 98.12% $ 72,875 $ 71,502 $ (1,373) 98.12% Professional -Accounting & Auditing $ 7,000 $ 7,000 $ - 100.00% $ 7,000 $ 7,000 $ - 100.00% Professional- Consultants $ 6,000 $ 6,152 $ (152) 102.53% . $ 6,000 $ 6,152 $ (152) 102.53% Tenant Improvements $ 2,500 $ 5,909 $ (3,409) 236.37% ' $ 2,500 $ 5,909 $ (3,409) 236.37% Repairs & Mamtenance Building $ 8,000 $ 1,477 $ 6,523 18.46% $ 8,000 $ 1,477 $ 6,523 18.46% Repairs & Maintenance - Landscaping $ 2,300 $ - $ 2,300 0.00% $ 2,300 $ - $ 2,300 0 00% Utilities -Water $ 250 $ 58 $ 192 23.18% . ' . - $ 250 $ 58 $ 192 23.18% Utilities-Gas/Electric $ 10,000 $ 7,825 $ 2,175 78.25% - $ 10,000 $ 7,825 $ 2,175 78 25% Utilities -Trash $ 700 $ - $ 700 0.00% - $ 700 $ - $ 700 0.00% Telephone $ 150 $ 119 $ 31 79.56% $ 150 $ 119 $ 31 79 56% Insurance $ 520 $ - $ 520 0.00% ' . _ $ 520 $ - $ 520 0 00% Total Expenses $ 37,420 $ 28,539 $ 8,881 76.27% $ 37,420 $ 28,539 $ 8,881 76.27% lOperatvrg Income 1 $ 3$,455$ 42,963 5 7,5001 : 121110o ' ,$' -35,455 $ .:42,963" ;$•. - 7,508..;121.18%1 Equipment Replacement Reserve $ 13,000 $ 13,000 $ Net Income ' $` 22,455" $'29;963. $ 7 P$ ; ,43,i';43°k $ 22,455 $?..29i963' $',•t7,50$'; 1-33;43%°( 100.00% $ 13,000 $ 13,000 $ - 100.00% 2003 Investment Reportlnv Report 2003 Suite No. City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite July 2002 Tenant 73-710 Fred Waring Drive - Two (2) Story Building Square Feet 100 Hanover 1,915 100A EPA 645 102 Bergren 1,360 103 Multiple Sclerosis 488 104 Arthritis Foundation 960 106 Coachella Valley Economic Partnership 928 108 Assemblyman Kelly 785 112 Senator Battin 1,406 114 Chamber of Commerce 1,478 118 Goodwill Industries 1,250 119 City/CVAG Conference Room 1,380 120 Duke Gerstal 1,750 200 CVAG 4,292 200A University of California Riverside 841 201 University of California Riverside 604 203 Vacant 480 205 Vacant 700 208 Alzheimer's Association 960 210 Wilson, Pesota & Pichardo 3,040 2003 Investment ReportVacancy Report City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite July 2002 211 State of California Department of Food & Agriculture 217 Joe B. McMillan,. Esq. 937 775 220 CA. State Dept. of Agriculture 1,607 222 Cove Commission - Fire Marshal 1,900 222 CITY Storage - Vacant 1,081 Total square footage (2 story Building) 31,562 Vacancy Rate-2,261/31,562= 7.16% 73-720 Fred Waring Drive- One Story Building 100 State of California - Water Resources 15,233 102 State of California - Rehabilitation Department 4,396 Total Square Footage 19,629 Vacancy Rate-0.00% Overall Vacancy Rate for Both Buildings: Vacancy Rate-2,261/51,191 Occupancy Rate - 48,930/51,191 0.00% 4.42% 95.58% Note: Parkview Office Complex is 100% occupied in terms of available space. Suite 106 is used as storage for the City of Palm Desert. 2003 Investment ReportVacancy Report Revenues Rental Dividends/Interest Total Revenues Expenses City of Palm Desert Parkview Office Complex Financial Statement for Fiscal Year 2002-2003 August-02 August-02 # % YTD YTD # % Budget Actual Variance Variance Budget Actual Variance Variance $ 68,500 $ 70,496 $ 1,996 102.91 % - $ 137,000 $ 140,972 $ 3,972 102 90% $ 4,375 $ 1,030 $ (3,345) 23.54% $ 8,750 $ 2,056 $ (6,694) 23 50% $ 72,875 $ 71,526 $ (1,349) 98.15% - $ 145,750 $ 143,028 $ (2,722) 98.13% Professional -Accounting & Auditing $ 7,000 $ 7,000 $ - 100.00% . $ 14,000 $ 14,000 $ - 100.00% Professional- Consultants $ 6,000 $ 5,553 $ 447 92.56% $ 12,000 $ 11,705 $ 295 97.54% Tenant Improvements $ 2,500 $ 5,909 $ (3,409) 236.37% .. $ 5,000 $ 11,818 $ (6,818) 236 37% Repairs & Maintenance Building $ 8,000 $ 11,778 $ (3,778) 147 23% . , $ 16,000 $ 13,255 $ 2,745 82.84% Repairs & Maintenance - Landscaping $ 2,300 $ - $ 2,300 0.00% . $ 4,600 $ - $ 4,600 0 00% Utilities -Water $ 250 $ 43 $ 207 17.13% ' $ 500 $ 101 $ 399 20 15% Utilities-Gas/Electric $ 10,000 $ 4,732 $ 5,268 47.32% $ 20,000 $ 12,557 $ 7,443 62.78% Utilities -Trash $ 700 $ - $ 700 0.00%, . : $ 1,400 $ - $ 1,400 0 00% Telephone $ 150 $ 188 $ (38) 125.26% • $ 300 $ 307 $ (7) 102.41 % Insurance $ 520 $ - $ 520 0.00% - $ 1,040 $ - $ 1,040 0.00% Total Expenses jOperatinglncome Equipment Replacement Reserve INet Dwaine _ $ 37,420 $ 35,204 $ 2,216 94.08% n $ 74,840 $ 63,743 $ 11,097 85.17% 5 35%}55 $ 36;322'- $ 13,000 $ 13,000 $ 100.00% 867 103:86%y .. . 70,910 "$' 79;285 $ 8,375 111.81%1 $ 26,000 $ 26,000 $ - 100.00 % $ $4,910 S 53,2$$ - $ :,8,375 118.65%1 2003 Investment Reportlnv Report 2003 Suite No. City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite August 2002 Tenant 73-710 Fred Waring Drive - Two (2) Story Building Square Feet 100 Hanover 1,915 100A EPA 645 102 Bergren 1,360 103 Multiple Sclerosis 488 104 Arthritis Foundation 960 106 Coachella Valley Economic Partnership 928 108 Assemblyman Kelly 785 112 Senator Battin 1,406 114 Chamber of Commerce 1,478 118 Goodwill Industries 1,250 119 City/CVAG Conference Room 1,380 120 Duke Gerstal 1,750 200 CVAG 200A University of California Riverside 201 University of California Riverside 203 Vacant 205 Vacant 208 Alzheimer's Association 210 Wilson , Pesota & Pichardo 2003 Investment ReportVacancy Report 4,292 841 604 480 700 960 3,040 City of Palm Desert Parkview Office Complex Vacancy Rate Schedule by Suite August 2002 211 State of California Department of Food & Agriculture 937 217 Joe B. McMillan,. Esq. 775 220 CA. State Dept. of Agriculture 1,607 222 Cove Commission - Fire Marshal 1,900 222 CITY Storage - Vacant 1,081 Total square footage (2 story Building) 31,562 Vacancy Rate-2,261/31,562= 7.16% 73-720 Fred Waring Drive- One Story Building 100 State of California - Water Resources 15,233 102 State of California - Rehabilitation Department 4,396 Total Square Footage 19,629 Vacancy Rate-0.00% Overall Vacancy Rate for Both Buildings: Vacancy Rate-2,261/51,191 Occuvancv Rate - 48,930/51,191 0.00% 4.42% 95.58% Note: Parkview Office Complex is 100% occupied in terms of available space. Suite 106 is used as storage for the City of Palm Desert. 2003 Investment ReportVacancy Report MEMORANDUM DEPARTMENT OF COMMUNITY SERVICES To: Paul Gibson Director of Finance/City Treasurer From: Sheila R. Gilligan Assistant City Manager for Community Services Date: September 25, 2002 Re: COMMITTEE/COMMISSION HOLIDAY PARTY The time of year when we need to prepare invitations for the Committee/Commission Holiday Party, which will be held on Saturday, December 14th, is rapidly approaching. Please forward the roster of members and liaisons, along with their mailing addresses for the following committee to Pat Scully by the close of business on Friday, October 18, 2002. Investment & Finance Committee If you have any questions, please do not hesitate to contact my office. Thank you for your assistance. SHEILA R. GILLIGAN ASSISTANT CITY MANAGER FOR COMMUNITY SERVICES Revenue Course & Ground Cans Golf Shop Range Food & Beverage Interest Income Total Revenues riainum JM1 n Iill Payroll Proshop Can Course & Ground Loll Operations General & Administration Food & Beverage Total Pat roll_.. i 1 n Other Expenditures Perimeter Landscaping Pros hop Proshop-COGS Cart Course & Ground -North Course Course & Ground -South Course Course & Ground -Desert Pallet-N Course & Ground -Desert Pallet-5 Golf Operations General & Administration Range Food & Beverage Food & Beverage COGS Management Fee Financing/Lease l Total Other Fxpenditures sp. a .. Desert Willem Golf Academy Desert Willow Golf Academy COGS - Merchandise °theg Expenditures Learning Center Income (Loss) Operating Income (Loss) Equipment Reserve Replacement Net Income (Loss City of Palm Desert Desert Willow Budget Vs Actual For the month of July 2002 Budgeted Actual Budgeted Actual July July $ Percentage Year to Year to $ Percentage 2002 2002 Variance Variance Date Date Variance Variance 5 109,997 $ 77,572 S (32,425) S 16,328 S 12,665 $ (3,663) $ 25,501 $ 17,762 $ (7,739) $ 550 $ 583 S 33 $ 55,298 $ 51,555 $ (3.743) S 1,100 $ 364 $ (736) 70 52% $ 109,997 $ 77,572 5 (32.425) 70 52% 77.57% $ 16,328 5 12,665 5 (3.663) 77 57% 69.65% $ 25.501 $ 17,762 5 (7,739) 6965$o 106.00% 8 550 5 583 5 33 100 00% 93.23% $ 55,298 S 51,555 $ (3,7431 93 23% 3309% $ 1,100 $ 364 5 (736) 330932, 208 774. 160 501 8 148.2731 76.88% S 208.774 S 160.501 5 (4R.273) 76.8R % I 5 - $ 1,013 $ (1,013) 5 18,900 S 17,914 5 986 $ 123.473 S 128,824 S (5,351) 5 22,676 $ 23,940 $ (1,264) 5 40,465 $ 38,402 $ 2,063 5 43,044 5 50,720 5 (7,676) S 248.558 $ 260 813 $ (s2 2951 umiin uu6081 S - 5 - $ - 5 595 $ 791 $ (196) $ 14,341 $ 11,344 S 2,997 S 12,995 5 11,857 5 1,138 $ 67,092 $ 66,224 $ 868 5 50,358 $ 55,156 S (4,798) 5 940 $ 492 $ 448 5 1,900 $ 492 $ 1,408 5 175 $ 683 $ (508) $ 59,532 $ 61,468 $ (1,936) 5 150 $ 297 $ (147) 5 7,933 S. 8,770 $ (837) S 17,569 $ 19,355 S (1.786) 5 25,000 5 25,000 S - 5 581 $ 3.075 5 (2,494) J 259-161 $ 265,004 $ (5,8431 5 5.600 $ 9,104 $ 3,504 (6,413) $ (4,960) $ 1.453 $ (2,375) $ (3,4551 $ (1.080) S (3,1881 5 689 S 3,877 5 (302,133) $ (364.627) S (62,494) 71,955 5 66,734 $ (5,221) s2, (374.088), S (431.3611, 5 (57.1731 100005', $ - 5 1,013 5 (1,013/ 1000050 94 78% 5 18,900 $ 17,914 5 986 94 78% 104 33% 5 123,473 5 128,824 5 (5.351) 104333', 105 57% 5 22.676 5 23 940 5 11 2641 105 57"° 94 90% $ 40.465 $ 38.402 5 2,063 94 0050 117.83% 5 43,044 5 50,720 5 (7.676) 117 535,2, 104.93°1 $ 248.558 $ 260.813 5 (12 255) _ 104.93%1 0.00% 5 - $ - 5 - 0 00°.6 132 94% 5 595 $ 791 5 1196) 132 94% 79 10% 5 14,341 5 11.344 5 2.997 791(190 91.24% S 12,995 $ 11,857 5 1,138 9I 24°%° 98 71% $ 67,092 $ 66.224 $ 868 98 71% 109.53% $ 50.358 5 55.156 5 (4798) 109535', 52.34% 3 940 5 492 5 448 52 34% 25.89% $ 1,900 $ 492 $ 1,408 25 8956 39029% $ 175 $ 683 5 (508) 3902956 103.25% $ 59,532 $ 61,468 5 (1.936) 10325°.° 198.00% $ 150 $ 297 $ (147) 198 0056 1105556 S 7,933 $ 8770 5 (837) 1105552, 11017% $ 17,569 $ 19,355 5 (1,7361 11017°.%• 100 00% 5 25,000 S 25,000 S - 10111111 529.26% 5 581 5 3,075 $ (2.494) 529 26% 102.25% 259.161 $ 265.004 �f5.843) 102.25%) 162.57% 5 5.600 $ 9.104 5 3504 162 57% 77 34% 5 (6.413) 5 (4.9601 S 1 453 7' 33% 145 47% 5 (2.375) 5 13.455) S (1.08(11 145 47", 5 -21 618$ S (3.1881 5 659 5 3 537 -21 of( 1206856 $ (302,133) 5 (364 627) S (62 4941 12112,57° 92 74% 5 71.955 $ 66,734 $ (5.2211 92 74% 1 115.3%, rS 1374.0881 143L3611 5 (57.273 I15.31%) .:s.sa,.:a,®,....,. am.. �,nw�_.,.°,.....�a3.°,,...,,.r: Snapshot of Golf Rounds Budgeted fmo) Actual (mo) Variance Variance % Budgeted (vtd) Actual (vtd) Variance Variance % Resident 385 308 (77) 80% 385 308 (771 80°-° \tin Resident 2,649 2,053 (596) 78% 2,649 2,053 (5961 78°'° Other - 58 58 100°J° - 58 58 IIHV'L Comniimentan 440 261 (1791 59% 440 261 11791 593'° Total 3,474 2,680 (794) 77% 3,474 2,680 (794) 77% Folder Desert Willow 2001 Dw2003,Finanaal Statement Page 1 4)§144 0 /\/ CO �/7 10 a ® ) | • 0 )�c cl • �®2© n a j)!)!a, a \t- § k° a. 0 1 2;§e°(,1 % |2 co -I~ ` § ; k O. j£0 0 ) . 2 st zroca NNWINNN NNNNNN ri at: at ztt NNNIFINN a_ wt NNNKNN O. P r R a o r Ni NNNOANN v ttt !' C41 c c J c _ N m P m n NNNNNN Mt ;741roflgr,24.2 _ am w o o onoo- ro w w bq w.-.WI... w w w ww w - v C _ C L e-q _ C ▪ U c E m yy oii0 T • V � u ^l 5 CC„CE d a. dC C valW a z Snansloi afGolf Hounds z C M a. 0 s $ ; ern ca isk a k -{ eri rn /srn » } a at 2 \ kel ( k at ca. }0t. 79. a\ - Vitt CD 9 to ca } to IC \ es 2 {/ 1-0 1-4 ss $ $ ! § �\co cc a 7\\ re ;se ® \ e 77. ad re \ \ \ \ \ tel ; \ \ \ s (\\ tiLi /to \\ § § a/ _ cc \ : ! \f 4 \ en 0 Si ) ) 0 sus es to Desert Willow Breakdown of Rounds per point of sale system DESERT WILLOW - Combined Analysis - JULY 2002 Resident 308 $ - $ - 11.49% Non -Resident 2,053 $ - $ - 76.60% Other 58 $ - $ - 2.16% Complimentary 261 $ - $ - 9.74% Desert Willow Totals 2,680 $ $ 100.00% Dw2003,POS AVG RD Page 9 Desert Willow Breakdown of Rounds per point of sale system FIRECLIFF COURSE- JULY 2002 Description No. Of Revenue Avg. Per Pct to Rounds Per POS Round Total Resident Rounds Resident Fee- Weekend 'Total Resident Non Resident 90 $ 2,780 $ 30.89 9.33% 90 $ 2,780 $ 30.89 9.33%1 Posted Weekend 35 $ 1,925 $ 55.00 3.63% IROC Des. PRTY Wknd 90 $ 3,375 $ 37.50 9.33% IROC Des. PRTY -Weekday 17 $ 683 $ 40.18 1.76% IROC MBR. Guest- Weekday 8 $ 352 $ 44.00 0.83% Wholesale Weekend 54 $ 2,438 $ 45.15 5.60% Wholesale Weekday 10 $ 450 $ 45.00 1.04% Twilight 276 $ 10,100 $ 36.59 28.60% Posted Replay 1 $ 25 $ 25.00 0.10% Passbook Weekday 8 $ 440 $ 55.00 0.83% Passbook Weekend 3.6 $ 1,620 $ 45.00 3.73% Fee Fire Pass 1 $ 25 $ 25.00 0.10% Fee Special Event Variable 174 $ 4,946 $ 28.43 18.03°!0 'Total Non Resident Rounds 710 $ 26,379 $ 37.15 73.58%I Other Rounds Junior Walking 35 350 $ 10.00 3.63% ITotalOther 35 350 $ 10.00 3.63%I Complimentary VIP 11 0 $ - 1.14% PGA Member 14 100 $ 7 14 1.45% Donation 68 50 $ 0.74 7.05% Employee _ 35 0 $ - 3.63% Employee Guest 2 0 $ - 0.21% jTota1 Complimentary 130 150 $ 1.15 13.47%j Total Round (FireClifi) 965 29,659 $ 30.73 100.00% Dw2003;POS AVG RD Page 10 Desert Willow Breakdown of Rounds per point of sale system MOUNTAINVIEW COURSE- JULY 2002 Description Resident Rounds Resident Fee- Weekend Resident Twilight Total Resident Non Resident No. Of Revenue Avg. Per Pct to Rounds Per POS Round Total 156 $ 5,460 $ 35.00 9.10% 62 $ 1,550 $ 25.00 3.62% 218 $ 7,010 $ 32.16 12.71%1 Posted Weekend 126 $ 6,930 $ 55.00 7.35% IROC Des. PRTY Wkdy 41 $ 1,458 $ 35.56 2.39% IROC Des. PRTY-Weekend _ 166 $ 6,225 $ 37.50 9.68% IROC MBR. - Weekday 6 $ 312 $ 52.00 0.35% Wholesale Weekend _ _ _ 75 $ 3,200 $ 42.67 4.37% Wholesale Replay 8 $ 25 $ 3.13 0.47% Twilight 446 $ 15,530 $ 34.82 26.01% Passbook Weekend 57 $ 2,780 $ 48.77 3.32% Fee Special Event Variable 418 $ 16,083 $ 38.48 24.37% Total Non Resident Rounds 1,343 $ 52,543 $ 39.12 78.31%1 Other Rounds Junior Walking 23 $ 230 $ 10.00 1.34% Total Other 23 $ 230 $ 10.00 1.34%1 Complimentary VIP 23 $ - $ - 134% PGA Member 27 $ 375 $ 13.89 1.57% Donation __ 7 $ 125 $ 17.86 0.41% Employee / Employee Guest 74 $ $ - 4.31% Total Complimentary 131 $ 500 $ 3.82 7.64%1 Total Rounds (Mountainview) 1,715 $ 60,283 $ 35.15 100%1 Dw2003;POS AVG RD Page 11 Cash Reserve Analysis 'Required Reserve Cash on Hand I Variance- Favorable ( Unfavorable) City of Palm Desert Desert Willow Cash Reserve Analysis for the month of July 2002 I 1 1 One Month $ 500,000.00 $ 579,384.00 I $ 79,384.00 1 1 1 Page 12 Food & Beverage Revenues Total Revenues PalmDesert Recreation Facilities Corporation Income Statement Jul-02 Jul-02 1/ Budget Actual Variance Variance $55,298 $51,555 ($3,743) 93.23% $55,298 $51,555 ($3,743) 93.23% Salaries $43,044 $50,720 ($7,676) 117.83% Cost of Goods Sold-F&B $17,569 $19,355 ($1,786) 110.17% Food & Beverage Expense $7,933 $8,770 ($837) 110.55% Total Expenses $68,546 $78,845 ($10,299) 115.02%u Net Income (Loss) ($13,248) ($27,290) ($14,042) 205.99% Dw2003;PDRFC Budget Page 1 City of Palm Desert Desert Willow Budget Vs Actual For the month of August 2002 Budgeted Actual Budgeted Actual August August $ Percentage Year to Year to $ Percentage Revenue 2002 2002 Variance Variance Date Date Variance Variance Course & Ground S 93,436 $ 107,959 $ 14,523 115.54% $ 203,433 $ 185,531 $ (17,902) 91 20% Carts $ 13,961 $ 16,640 $ 2,679 . 119.19% $ 30,289 $ 29,305 $ (984) 96 75% Golf Shop $ 22,947 $ 20,170 $ (2,777) 8790% $ 48,448 $ 37,932 $ (10,516) 78 29% Range $ 500 $ 527 $ 27 105.40% $ 1,050 $ 1,110 $ 60 10571% Food & Beverage $ 45,714 $ 44,846 $ (868) 98.10% $ 101,012 $ 96,401 $ (4,611) 95 44% Interest Income $ 900 $ 311 $ (589) 34.56% $ 2,000 $ 675 $ (1,325) 33 75% l Total Revenues vS 177.458 $ 1904 3 S 12.9911 107.32°(r $ 386.232 $ 350.954 $ (35.278) 90.87° Payroll Proshop Cart Course & Ground Golf Operations General & Administration Food & Beverage Total Payroll Other Expenditures Perimeter Landscaping Proshop Proshop-COGS Cart Course & Ground -North Course Course & Ground -South Course Course & Ground -Desert Pallet-N Course & Ground -Desert Pallet-S Golf Operations General & Administration Range Food & Beverage Food & Beverage COGS Management Fee Financing/Lease I Tntal Other Fxnenditure Desert Willow Golf Academy Desert Willow Golf Academy COGS - Merchandise Other Expenditures Learning Center Income (Loss) Operating Income (Loss) Equipment Reserve Replacement Net 1 come o s) ISnanshot of Golf Rounds Resident Non Resident Other Comnlimentary Total $ - $ 1,105 $ (1,105) 100.00% $ - $ 2,118 $ (2,118) 100 00% $ 18,267 $ .14,957 $ 3,310 81 88% $ 37,167 $ 32,871 $ 4,296 88 44% S 123,622 $ 125,395 $ (1,773) 101.43% $ 247,095 S 254,219 $ (7,124) 102 88% S 22,676 $ 24,069 $ (1,393) 106.14% $ 45,352 S 48,009 $ (2,657) 105 86% $ 40,465 $ 38,831 $ 1,634 95 96% $ 80,930 $ 77,233 S 3,697 95 43% $ 42,832 $ 46,271 $ (3,439) 108.03% $ 85,876 $ 96,991 S (11,115) 112 94 % 247.862 $ 250.628 $ (2.7661 11g.12 /°_ . 496,420 $ 51t.441 $ (15.0211 103.03% $ - $ - $ - 0.00% $ - $ - $ - 000% $ 845 $ 848 $ (3) 100.36% $ 1,440 $ 1,639 $ (199) 11382% S 12,838 $ 11,165 $ 1,673 86.97% $ 27,179 $ 22,509 $ 4,670 82 82% $ 12,995 $ 17,010 $ (4,015) 130.90% $ 25,990 $ 28,867 $ (2,877) 111.07 % S 61,607 $ 53,307 $ 8,300 86.53% $ 128,699 $ 119,531 $ 9,168 92 88% $ 56,622 $ 54,265 $ 2,357 95 84% $ 106,980 $ 109,421 $ (2,441) 102.28% $ 1,540 $ 958 $ 582 62.21% $ 2,480 $ 1,450 $ 1,030 58 47% S 1,300 $ 1,155 $ 145 88 85% $ 3,200 $ 1,647 $ 1,553 51 47% S 490 $ 4,435 $ (3,945) 905.10% $ 665 $ 5,118 $ (4,453) 769.62% S 53,333 $ 61,852 $ (8,519) 115.97% $ 112,865 S 123,320 $ (10,455) 109.26 % S 150 $ - $ 150 0.00% $ 300 $ 297 $ 3 99 00% S 8,333 $ 6,675 $ 1,658 80.10% $ 16,266 $ 15,445 $ 821 94 95 $ 14,604 $ 15,800 $ (1,196) 108.19% $ 32,173 $ 35,155 S (2,982) 109 27% $ 25,000 $ 25,000 $ - 100 00% $ 50,000 $ 50,000 $ - 100 00% S 498 $ 1,937 $ (1,439) 388 96% $ 1,079 $ 5,012 $ (3,933) 464 50% 25 -155 5 254407 S )42521 1111.71(% S 50916 $ 519.411 S 110.0951 101.98% $ 4,100 $ 3,411 $ (689) 83.20% $ 9,700 $ 12,515 $ 2,815 129 02% $ (5,209) $ (5,863) $ (654) 112.56% $ (11,622) $ (10,823) $ 799 93 13% $ (2,325) $ (2,691) $ (366) 115.74% $ (4,700) $ (6,146) $ (1,446) 130 77% $ $ (3,434) $ (5,1431 $ 11,709) 149.77% $ (6,622) $ (4,4541 $ 2,168 67 26% $ (323,993) $ (319,725) $ 4,268 98.68% $ (626,126) $ (684,352) $ (58,226) 10930% $ 71,955 $ 66,734 $ (5,221) 92.74% $ 143,910 $ 133,468 5 (10,442) 92 74% 395.94:) ,,. (386.459$ 9.489 97.6 ° 77 0 61 (817 8201 $ (47.7841 106.21% I fill Ira Budgeted (mo) Actual (mo) Variance Variance % Budgeted (vtd) Actual (vtd) Variance Variance % 290 447 157 154% 675 755 80 112% 2,345 2,659 314 113% 4,994 4,712 (282) 94% 91 91 100% - 149 149 100% 400 233 (167) 58% 840 494 (346) 59% 3,035 3,430 395 113% 6,509 6,110 (399) 94 % Folder. Desert Willow 2001 Dw2003,Financial Statement Page 1 0 40 \ r ; @ o �§ J , ` - A § co 2 § | | ] ) / f )/k B a47gtg \\k/}\\ / 0060 ƒ\ k )« co ] \/ 0 ) }/ - .1 )@ )` {m 0 ; h $ ) en a. aaaaaa tug aaaaaa Naaaaa !}!�!\ nif fg ;| oo aaaaaa Unaaaaa gen n ;I/; }}§!7!"4M § !!7!!§l;Ii! }ornn4 f\}¥ { HaanaaNaaaaaa \()\\\ \ c\§Agl”"Y\/( \ 0a40N, r 0.400'l.0K.¢ _-- - 00l.=0;.O•!f :7- 7 " ,!- ;;;_ ! Z(\)\\ d --0'0 &}\t \ aaaaaa 0 E J. 0 ca ) , .. Ell Go W12 }}} era oga ! e. ! pa oo \ Actual AUG 02 Snapshot of Golf Rounds aegg 40,4 sz rrzeo § \ } 0 N 8 N 0 0 N M of Q 04 11y IA M d • ~ N N rd CirS o °i 0 o % o N8 as�N Uell 8 O N i+ 0 ea 04 as V i i 1 U 0 A rl Ir o m�N 1 J OO tie Ct. u $ co so *1 MP P 44 r4 a to * ‘? % p.R cy 0 N wo, n 0 to g ad seV nee 0 Al- F w QO b u.� o Vg z o g M .M > 0 w p Y$ c a y w a a v� V. a `- r-' i v �r 0; too HO He - ^ P cc ra a. a P -• N % Tj � iinn - g c p $ O O' • .f F Z m `^ v �p wf ens'. 6 14 N p• N, t-t• O a O O - x> U v N O Q S N f O a ? 8no - 'rz 3� as o y y� a O 'a& O • Y' G g u, x .up .. F N _ 0 v 1g en Fa 1 et< a F. F p 1 e r' F o t qlF o ;at 7 ° ct �ace �Vie 'e ta UTA ad e oW�6 U ? m +V �4 0 K t to TA nk %{ % r4 lee \ 441 .44 z en .444 r r- up ea tel eie en ,§ \» n 1 ik \ (\$ $ % \ ; % \ » + \ \ \ + ! \ ;} \ ,� 9 Desert Willow Breakdown of Rounds per point of sale system Resident Non -Resident Other Complimentary DESERT WILLOW - Combined Analysis- AUGUST 2002 447 $ 2,659 $ 91 $ 233 $ (Desert Willow Totals 3,430 $ 115,728 - 14,085 $ 31.51 1 13.03% 100,633 IS 37.85 ' 77.52% 910 j ! $ 10.00 2.65% 100 ; $ 0.43 6.79% $ 33.74 100.00%1 Dw2003,POS AVG RD Page 9 Desert Willow Breakdown of Rounds per point of sale system FIRECLIFF COURSE- AUGUST 2002 Description No. Of Revenue Avg. Per Rounds Per POS Round Resident Rounds Pct to Total Resident Fee- Weekend 27 $ 945 ; 1 $ 35.00 1.17% Resident Fee -Weekday 147 $ 5,145 1 $ 35.00 6.39% Resident Fee -Weekday 106 $ 2,650 $ 25.00 4.61% Total Resident 280 $ 8,740 1 $ 31.21 12.17% Non Resident Posted Weekend IROC Des. PRTY - Weekend IROC Des. PRTY - Weekday IROC MBR. - Weekend IROC MBR. - Weekday Wholesale Weekend Wholesale Weekday Twilight Posted Replay Passbook Weekday Passbook Weekend Stamp Book / Fire Pass Fee Special Event Variable 'Total Non Resident Rounds Other Rounds Junior Walking iTotal Other Complimentary 229 $ 11,395 $ 49.76 j 9.96% 105 $ 3,937 $ 37.50 4.57% 38 $ 1,425 1 $ 37.50 1 1.65% 2 $ 1,210 r $ 605.00 0.09% 27 $ 1,188 1 $ 44.00 1.17%I 63 $ 2,849 $ 45.22 2.74%I 49 $ 1,987 $ 40.55 2.13°AI 863 $ 25,850 $ 29.95 37.52%I 16 $ 400 $ 25.00 0.70%I 26 $ 1,170 $ 45.00 1.13°l0 13 $ 715 $ 55.00 0.57% 1 $ 25 $ 25.00 0.04% 355 $ 14,551 1 $ 40.99 15.43% 1,787 $ 66,702 $ 37.33 77.70% 62 62 VIP 49 PGA Member 55 Donation 2 Employee/ Employee Guest 65 TTotal Complimentary Total Round (FireCliff) 620 $ 10.00 2.70% 1 620 $ 10.00 2.70%1 1 1 0 $ 2.13%I 100 $ 1.82 2.39%I 0 $ 0.09%I 0 $ - 2.83% 171 2,300 100 $ 0.58 7.43% 76,1621 +$ 33.11 100.00%j Dw2003;POS AVG RD Page 10 Desert Willow Breakdown of Rounds per point of sale system Description Resident Rounds Resident Fee- Weekend Resident Fee -Weekday Resident Twilight Total Resident Non Resident Posted Weekend Posted Weekday Posted Replay IROC Des. PRTY- WKDY IROC Des. PRTY- WKND IROC MBR./ Guest - Weekend Wholesale Weekend Wholesale Weekday Twilight Passbook Weekday Passbook Weekend Stamp Book / Fire Pass Fee Special Event Variable (Total Non Resident Rounds Other Rounds Junior Walking Total Other Complimentary MOUNTAINVIEW COURSE- AUGUST 2002 No. Of Revenue Avg. Per Pct to Rounds Per POS Round Total VIP PGA Member Donation Employee Total Complimentary Total Round (Mountainview) 49 $ 1,715 I $ 35.00 j 4.34% 68 $ 2,380 ! $ 35.00 6.02% 50 $ 1,250 ! $ 25.00 4.42% 167 $ 5,345 $ 32.01 14.78%1 15 $ 1,125 $ 75.00 1.33% 108 $ 5,940 I$ 55.00 9.56% 9 $ 225 $ 25.00 0.80% 20 $ 750 $ 37.50 1.77% 100 $ 3,750 $ 37.50 8.85% 10 $ 600 $ 60.00 0.88% 32 $ 1,415 $ 44.22 2.83% 11 $ 392 $ 35.64 0.97% 389 $ 12,535 ! $ 32.22 34.42% 14 $ 630 $ 45.00 1.24% 5 $ 275 $ 55.00 0.44% 1 $ 75 $ 75.00 0.09% 158 $ 6,219 $ 39.36 13.98% 872 $ 33,931 $ 38.91 77.17% 29 $ 29 $ 22 $ 10 $ 4 $ 26 $ 62 $ 290 1-$ 10.00 2.57% 290 $ 10.00 1,130 ! $ 39,566 2.57% $ - 1.95% $ 0.88% $ 0.35% $ - 2.30% 5.49% $ 35.01 100% Dw2003;POS AVG RD Page 11 Cash Reserve Analysis Required Reserve [Cash on Hand Variance- Favorable ( Unfavorable) City of Palm Desert Desert Willow Cash Reserve Analysis for the month of August 2002 1 1 1 One Month 1 $ 500,000.00 1 $ 518,604.00 1 $ 18,604.00 1 Page 12 Food & Beverage Revenues Total Revenues PalmDesert Recreation Facilities Corporation Income Statement Aug-02 Aug-02 # % Budget Actual Variance Variance $45,714 $44,846 ($868) 98.10% $45,714 $44,846 ($868) 98.10% Salaries $42,832 $46,271 ($3,439) 108.03% Cost of Goods Sold-F&B $14,604 $15,800 ($1,196) 108.19% Food & Beverage Expense $8,333 $6,675 $1,658 80.10% Total Expenses $65,769 $68,746 ($2,977) 104.53% Net Income (Loss) ($20,055) ($23,900) ($3,845) 119.17% Note: The above revenues and expenditures are also included in the Desert Willow analysis. Dw2003;PDRFC Budget Page 1