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HomeMy WebLinkAbout2003-02-26 IFC Regular Meeting Agenda Packet • COMMITTEE MEETING WORKSHEET Meeting Description Investment Committee Meeting Date 2/26/03 Time 2:00 p.m. Location North Winq Conference Room Mailed Agenda 2/19/03 Posted Agenda 2/19/03 Time Convene Adjournment 2. 05 p,m. 2. S5p,m Staff Members Attending Yes/ No Others Attending Yes No 1 Paul Gibson, Chairperson ' 11 Dennis Coleman 2 Council Member ✓ j 12 Justin McCarthy 3 Council Member V 1)) 13 Rodney Young ✓ 4 Dave Erwin, City Attorney 14 Recording Secretary 5 Carlos Ortega, City Mgr. V iiiCP,L.4 LC aptn 07a , te 6 Thomas Jeffrey 1,/ Public Members Attending Guests Attending 7 Russ Campbell / 15 8 Murray Magloff V/ 16 9 Bill Veazie V 17 _ 10 Everett Wood t- 18 19 20 Follow-Ups/Tasks ssigned nj , Person Responsible Due Date 1 1U aad pAY�, Q , 2 \Y Q A , S iii.A 3n —ralb a 4 V I,, e t ,- ca4pvP < '4/ 5 m g-,f/ /d 5,�, (6.1 CC) 6 �7'm / ,7G 20 . f�e , 4,/� 7 `Ttyt1� v /fir )74s/ ,rSiV 8 .SLc ,ti V ' p ;s l /-PM S r��eXi kin pth-± HI l4 r • • Spoke Mtn (1) Mtn (2) MEETING NOTES —6 . :MA /94)-\C 1 lir clr aria, '"6 , i it= a I rk t:e ILA . r�Sf.lisswA9 Alf--e bil QA r-Lo 71 5 s tip 9 �6e 6,4t kG rig/ • moo, - 9re cQSL t- cr t-<S4- - 01 �cs Eh/�r. ytD sLt �— / -- re(ec.1 , A and 9-o fc r vera.. 'pi c is . -° e '- cry 6 inq -7 e444.011A4 rn-ile._e ark .40 ,s G a ��-s '70 414- 2� c,ik-f iSu /, 2 410 sI /ate et-A - Tj r-/- it 40, , ditiv(ity 0 Li) Flfl-dik-S ,oc IVA)r171W <CO-Vc .rl.4feC-f off- wet- ( l .r � � Bred `-1`) . are VPk v /Sa al k «. 19 . 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S hi boaro kd, S , care /x) -(1 7t, pry- y / 1(414k 121011,1 My/4 cli a-0 ,Qn,d1c?n q)4 -PC f rut 71-( c ec! e-cti. ,�.ii(P1 In )yrS rid) .Cm r hGaQ� e7 Co cr � -in tee_ a 2 iy eme: I Refill j-�o 'iv Ehr / apt ch 41 � � en -� i fl y%, • Spoke Mtn (1) Mtn (2) MEETING NOTES tl,ri 9, ThAre rdneeruo vv_e , boa„ i --�z� .gyp- q� �y ]-� v-e /n Jcl2.on(r _ w¢Q* /0 Al 3 I/ I7- ��' q 0 (N 1T'r�1 Fuvrd, D Arfi (At ± m P aM t.�I��- ci',Vl ' ice . // &f> `tr , -v ,, raWe 60 ac ,- A> , ityci_44, , „p.p. , / ,12„:1„, / ) t i m_s prernirerf.) ,,, 41 I Mira, i 4{'>j> 1 Mz 1,44,4 -.5t3 To/Q �i,o.r--1,r9 ,�i f yr, ny fe Irn fr puficyjahrio(.( „oar- -fivut h &j-74 rvt,n(A ( _ Siii ca_rf - ea P,4\geor "i2 64-( 44414o4.4 tOrir AiK kty,tAv 90 try.. 46,--- �r_412,7 _ __ fr:, 1 � rd n 0/e 5 � -iv i aLv, Ajar r • • Spoke Mtn (1) Mtn (2) MEETING NOTES 176 - .(,ci,cp seI //-946 f\ -04 C - ,,(M (ii, Pitir. o treAloz--1 zroikinim. h • fr , `io" hGA if 6 it ova, ' "o ce-;� ruf / r�rr��1a/ /C10. 4 "/ ore_ lar d ?� �� - Q-y ,' , , ben Al ` , !s in1 5D )�(- ©� Ai /d r�. 2a bra l h9, ,VGc *coA.P rf ) itre-dwv0--2-. � , - t5/ I f '7ff 4trl ' J p6(Ler 5 pa ( tOy 6v . _ ktyv ca--6 virrti , kedazeleAw -ar- C eilo - ' d . j -7 - ' i ke Lit �9 n f ilui e C(Zige 1, RID 1 I1/4k -ey iq 5, 20 V 9 ' 4iii44J0 ,/ . NO 4, i Ai,/ )2,, .74„,,,,,/-4t F6 ctid rL , 99`v,t f I' „,& tic-- of) :11ADA Aki 49 )13—Q- 'I • • • • - v.) Finance Department Apt t :` MEMORANDUM To: Rachelle Klassen, City Clerk From: Diana Leal, Administrative Secretary,- i Subject: Investment and Finance Committee Date: April 14, 2003 Attached is a copy of the February 26, 2003 minutes of the Investment and Finance Committee approved by the Committee on March 26, 2003. Please place on the next City Council agenda for approval thereof. Thank you for your assistance. Attachments (1) G:\Finance\Diana Leal\Wpdocs\investment Committee\2002 Memos\City Clerk\2-26-03 minutes.wpd ................. CITY OF PALM DEFRT I..._ INVESTMENT & FINANCE COMMITTEE rif Minutes A`r; h;h February 26, 2003, 2:00 p.m. Vim" North Wing Conference Room noricos I. CALL TO ORDER A regular meeting was called to order by Chairman Gibson on Wednesday, February 26, 2003 at 2:00 p.m. II. ROLL CALL Present: Absent: Paul Gibson, Director of Finance Everett Wood Jean Benson, Mayor Bob Spiegel, Mayor Pro-Temp Thomas Jeffrey, Deputy City Treasurer David Erwin, City Attorney Carlos Ortega, City Manager Jose Luis Espinoza, Finance Operations Manager Bill Veazie Murray Magloff Russ Campbell Also Present: Justin McCarthy, ACM Redevelopment Dennis Coleman, RDA Finance Manager Rodney Young, Desert Willow General Manager Diana Leal, Recording Secretary Guests: None III. ORAL COMMUNICATIONS - None. IV. COMMITTEE MEMBER REPORTS None. 1 22603.wpd INVESTMENT &•ANCE OVIMITTEE • .MINUTES February 26, 2003 V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Campbell and seconded by Mr. Veazie to approve the Minutes of the January 22, 2003 meeting as submitted. VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for January 2003 Mr Jeffrey reported that, for the month ended January 31, 2003, the book value of the City Portfolio was approximately $174.2 million. The City earned approximately $212,000 in interest. Portfolio yield-to-maturity was approximately 1.63%. For the month ended January 31, 2003, the book value of the RDA Portfolio was approximately $105 million. The RDA earned approximately $152,000 in interest. Portfolio yield-to-maturity was approximately 1.76%. B. State of California Local Agency Investment Fund Balance for the Month of. January 2003 Mr. Gibson stated that the City's and the Redevelopment Agency's LAIF accounts are maxed out at $40 million each. C. California Asset Management Program (CAMP) January 2003 Mr. Gibson said that the City is getting close to the maximum amount they can have in the account. The City is allowed to have 20% in the City and 20% in the Redevelopment Agency for a total of 40% combined. Mr. Campbell asked if the amount was going to be increased. Mr. Jeffrey said that last year before interest rates began to fall, the City didn't think that they would be doing any local agency polls. The City tried to shorting the City's $20 million policy, they removed it. Mr. Campbell asked what happens when CAMP gets maxed out. Mr. Gibson said that at that point the City will have to consider short term investments as long term investments would be foolish at this point. The economist said that 2 22603.wpd INVESTMENT &SANCE irMITTEE MINUTES • • February 26, 2003 once the economy starts picking up he expects the federal government to raise the rates by 100 basis points within a matter of one month. It is not worth the risk if market values drop. D. City and Redevelopment Agency Monthly Financial Reports for City Council for December 2002 Mr. Gibson said that sales tax is based on a quarterly basis. They typically give the City advances on a monthly basis. The City is still ahead on the transient occupancy tax (TOT) with the exclusion of collecting monies from Vacation Inn. The City requested that the auditor visit (8) agencies to conduct TOT audits. The Marriott and Embassy Suites will be included. Vacation Inn will be audited due to the bankruptcy. Mr. Spiegel asked if the Vacation Inn's new owners were paying the past due TOT. Mr. Gibson said that they paid December and said that they would pay January. Mr. Gibson said that through the State budget process, the governor has not reimbursed the City for the mandated costs. The City is submitting a request for reimbursement just in case they decide to pay it in future years. If you don't, within a year's time, the City forfeits their chance of ever getting reimbursed. Mr. Ortega said with the exception of the subventions, in all cases, when one looks at last year versus this year, the City is ahead. Mr. Gibson said that the only exception was the interest income received as it is lower due to the rates being lower. E. Parkview Professional Office Buildings - Financial Report for January 2003 Mr. Gibson said that the roof repairs will begin next week. Repairs were placed on hold due to rain. The carpeting was placed at the Water Resources facilities. Most of the tenant improvements have been completed. Ms. Benson asked if there were any bad leaks which required repairing. Mr. Gibson said that the State Rehabilitation (SR) has an office that has a steady leak and until the tar paper is torn off and the roof is redone completely, they will continue to have leaks. Ms. Benson asked if there was interior damage. Mr. Gibson said that there is interior damage, however, he has informed SR that the necessary work cannot be completed until the roof is done. The lab is experiencing a similar problem. This is due to the fact that they are using strong chemicals in the lab. The chemicals are carried through the vent and onto the roof. The chemicals are causing the deterioration of the roof. Something of substance will be placed on the roof so that it can prevent the chemicals are traveling onto the roof and causing its erosion. 3 22603.wpd INVESTMENT &•ANCE grIMITTEE • • MINUTES February 26, 2003 Mr. McCarthy asked if the City was indemnified for the damages on the building. Mr. Gibson said that the City was not indemnified as this was a gross lease and the City has to pay for carpet changes, etc. F. Palm Desert Golf Course Facilities Corporation Financial Information for December 2002 Mr. Young said that Food and Beverage did well. The banquet business continues to grow. He credits the department heads, managers and staff who are doing a great job. Golf continues to struggle a bit. Group rounds are down, and they are getting the larger groups in. They lost approximately $70,000 for the four days when it rained. Expenses and payroll are in line. Net income is ahead of budget for year to date. Mr. Spiegel asked if Mr. Young had looked into extending the hours of operation to include dinner. Mr. Young said that dinner is a tough market to enter into as there is a great deal of competition. The staff, plates, and the food is very well planned and there is very little waste. In the beginning, there would be a lot of waste if there are not enough guests. He thinks that it would be wise to wait to offer dinner when a hotel comes onsite. Further, they are doing very well with the banquets. They have Saturday nights booked through 2003. They need to focus on booking large groups. It is difficult to keep the necessary margins with the smaller groups. They are not booking too far in advance just in case they need to book a special event. They plan to have a theme night once a month/week. Mr. Spiegel asked what the maximum amount of people Desert Willow could hold. Mr. Young said that it can hold 240 people without a dance floor and 210 people with a dance floor. Mr. Veazie said that he was impressed with the number of people that Desert Willow accommodates. Ms. Benson said that she met with someone from a local group yesterday who was not aware that Desert Willow could be used as a banquet facility as they did not see any advertisements. Mr. Young said that they advertise through local wedding planners, florists, etc. They could include a flyer with the bill that is given to the lunch customers. Mr. Gibson suggested that an ad be included in the City's newsletter. Ms. Benson said that there is no restaurant in Palm Desert that is big enough to accommodate a large number of people. Mr. Spiegel said that Kristy Kneiding, the City's marketing manager, could develop a one page ad that can be added to the bill. Mr. Young said that there is space to grow. He will take a look at it. Mr. Young said that golf shop revenue is down for the year. The income is only down $1,000 and revenues are down $54,000. He thinks that next year they can maintain costs at 56%. 4 22603 wpd MINUTES &•ANCE�MITTEE • • February 26, 2003 Mr. Spiegel said that the City has a new golf course. The Coachella Valley Recreation and Park District (CVRPD) owns the executive golf course, however, the City provides them with a minimum stipend to get the course in shape, and the City will give them $30,000 annually to maintain the course. Mr. Young said that he has it on his list to contact them to coordinate golf programs. Mr. Spiegel said that Mr. Don Martin is the person he should contact. Ms. Benson said that she was approached by senior residents who inquired about having a "senior day" or something special for seniors at Desert Willow when member play is down. Mr. Young said that resident dollars are up because higher paying rounds are down. The course is sold out until 2:00 p.m. everyday. He would have to displace a higher paying play for a discount. He does not need the rounds. He would like to help them out if he could find a slot to do it. It is difficult to make the revenues they need. Mr. Ortega suggested a 9-hole senior day after everyone else has played at about 2:00 p.m. or 3:00 p.m. Mr. Young said that he will take a look at the possibility. At this time the greens are getting beat up badly. They are looking at their rate schedule and with evening events they are looking to offer to businesses. After 3:00 p.m. on Tuesdays, Wednesdays and Thursdays local businesses they can play at Desert Willow for $25. Mr. Spiegel said that the new CVRPD golf course will hold a senior day once a week for $14 -$16. Ms. Benson said that this would be a good alternative for those people who do not want to play an 18-hole course. Mr. Ortega said that Desert Willow is not a golf course that is easy to play, some people might prefer a smaller course. G. Informational 1. Wall Street Journal Article Review & Outlook: Cronyism at Calpers 2. Markets Article Calpers Cools Down Mr. Campbell said that the State went into long term care. One of the provisions is tied to the premiums that they have assumed that there will be a certain number of people that will drop out of the plan, will die or will draw benefits. The industry feels that the numbers they used are incorrect. There will be more people staying on the plan. Generally the people that stay on the plan are the unhealthy people. If people drop out, then the rates will be raised. They have a right to go into their pension plan to supplement the premiums and pay benefits. Not many people are aware of this. He had a client who came across this fact. Mr. Veazie challenged the State and he received a definitive answer. The State said that they can go into the pension plan. 5 22603.wpd INVESTMENT &•ANCESMMITTEE • • MINUTES February 26, 2003 Mr. Gibson said that at the Finance Officers' Conference they discussed the rates for next year and the years to follow. They indicated that the safety members, i.e. police officers, firefighters will be 47% of salary will be the rate that they will be charging PERS members. 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. B. Bond Issuance by Palm Desert Financing Authority Mr. Coleman said that he has attended previous board and council meetings where he spoke about the bond issue for Project Area No. 3. He said that they did not analyze how much money they could issue for bonds in Project Area No. 2. They are at a capacity to issue $35 million. As the State budget started unraveling, the Governor unveiled what he wanted to do in terms of the State budget. One item he wanted to look at in particular was redevelopment. The Governor wanted to take the permanent $250 million from Redevelopment Agencies via ERAF and give the money to schools and lower the school bills via general fund commitment to the schools. They also wanted to raise it until they permanently gave 100% of the schools' share of pass throughs to them. In addition, the Governor had mid year cuts within the budget to take a half billion dollars in Redevelopment housing funds and transferring the money to the general fund. The good news is that no such action was taken. None of the parties, legislature, assembly or the senate, wanted to have the money transferred to the general fund. The senate local government committee and the housing and community development committee both were supportive of redevelopment. The City, the Redevelopment Agency and some of the local redevelopment agencies said that they do not want to give anything. The best staff was looking at was a one-time hit to the redevelopment agencies collectively of $200 - $500 million. A $500 million hit, based upon the ERAF formula that is in place at this time, the Palm Desert Redevelopment Agency would be hit by close to $8 million. 6 22603.wpd INVESTMENT &111ANCE MMITTEE • •MINUTES • February 26, 2003 The Redevelopment Agency has some things that they feel they need to accomplish in Project Area No. 2. For instance, the 171 acres from ART. The Agency put some money down and took a note on the property. They approached the bond insurer and offered an issue of$13-$14 million in bonds instead of the $35 million. This left the Agency with enough money on the table to continue paying interest, obligations and administration. Mr. Coleman said that he is happy to report that they have bond insurance for the Project Area No. 2 bond. Staff received a commitment from MBIA to issue up to $20 million, and they received an insurance policy for 80 basis points, which is very reasonable. They also obtained a surety substitution for reserve funds. The Agency's strategy is to take whatever money they can bond and request more money after the State budget is resolved. At this point, it is difficult to guess when the state budget will be resolved. The good news is that there are a group of moderates, twelve (seven democrats and five republicans), who have been meeting to get some sort of dialogue because there is such an impasse. Staff is looking to issue a bond with debt service that will be $2 million plus. They will continue to pay the City loans and other obligations. Right now, it will net at least $12 million or more. The bad news, from an investment standpoint, is that the rates are bad. However, if you seek to borrow money the rates are very good. They are looking at 30 year serial bonds at about 5 to 5 1/4. They are looking at a borrowing environment whereby they can obtain a cheaper rate. The Agency is scheduled to go to the market to price their bonds. This will be the next big test to see how the market will receive RDA's credit. They are looking to price the bonds on March 11 and to close on March 26. They have approached the bond insurers and said that based upon the model they have came up with, they would like to look at Project Area No. 1. There again is the philosophy that they want to buy what they feel they really want to have within the next few months, and then they will go back later to take the rest. Mr. Coleman said that they are also looking at a possible bond in Project Area No. 3 based on that model. They are being prudent not to issue to the maximum amount especially when the requirements for ERAF state that if the Redevelopment Agency can not pay, the general fund will pay. The Agency does not want to put the general fund in harms way. Mr. Campbell asked if this was due to the concern as to what is or is not committed as viewed by the State. Mr. Coleman said that in terms of committed and not committed with respect to the housing funds, the State is looking at what is obligated in contracts. There would be a liability if the Agency could not pay their obligations. The State is being cautious. 7 22603.wpd INVESTMENT &•ANCEAMMITTEE • •MINUTES • February 26, 2003 Mr. Campbell said that he does not fully understand how the State will look at what is considered committed or when the money is considered committed. Mr. Gibson said that there are a lot of questions on that which remain unanswered. Mr. Ortega said that the historical interpretation is that if an agency has debt, it is obligated. Mr. Veazie asked if the City or the Redevelopment Agency has any outstanding bonds that are not insured. Mr. Coleman said that the Agency does not have any uninsured bonds, they are all triple A. The Agency has some assessment districts that are not only not insured, but also nonrated, however, they are backed by the property. They have been fortunate to obtain insurance. The only time they got nervous was in November 2001 they did a bond issue in Project Area No. 4. The first time they said that they were not going to make a commitment. They paid 150 basis points for that insurance policy as opposed to 80 basis point for the current one. If they can not get insurance the other way to go is to go via rating. When an agency goes via rating, the Agency helps to shape the way the deal is made in terms of the coverage. The bond must be fully funded and there must be a reserve fund. The way they are doing it with the bond insurance is by buying a surety policy. They can do less debt for the reserve purposes, however, they have an insurance policy there in case they can not make payments. They have two policies: 1) a policy that insures the bond, 2) an insurance policy that sits into the reserve fund which allows the Agency to use more of the balance they leverage for projects. Mr. Veazie asked if Mr. Coleman foresees a wave of rating reduction on bonds as the State of California recently had one. He would like to know as it relates to cities, counties and redevelopment agencies throughout California. Mr. Coleman said that some municipals can have them. It depends on the outstanding debt they have and their capacity to pay. He said that he is not sure that redevelopment agencies would be involved as much. He thought that it would be interesting to find out how the school districts will be hit as they do general obligation bonds. He thinks that Los Angeles Unified School District (LAUSD) took a slight hit on some of the ratings. They just issued a $2 billion bond. The only good thing at this time is that there are lower interest rates on the general obligation bonds. They are looking at an interest rate of 5.30, 5.29 for their 30 year debt. Mr. Gibson said that there will be another bond issue for the assessment district for the undergrounding. Mr. Coleman said that it is dependent upon the approval of the assessment district. 8 22603.wptl • • : P. I finance Department 0. 2 i :r MEMORANDUM To: Records Technician From: Diana Leal, Administrative Secret • Subject: Investment and Finance Committee Date: March 3, 2003 • Attached, for your records, is a copy of the February 26, 2003 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\2-26-03.wpd • • L. % ] 2 \ k 4 c " tt e ƒ ) ) \ L § y tin \ k 6 # s. § { \ o u 6 u e 7 © 3 , « ) / j ) { / ® $ ) ® q _ & ` � � § S ) � \ / \ \ \ / \ 2 \_ ® ¥ ) [ \ ) C\ » / •\ • 0 1. m ° . � �\ � � & V / ' / . , �� \ � \ y.\ ,‘‘ � � \ ' q . \ \ p ...iq _ ) � / \ \ 1 ' 8 k i �� I � \ CITY OF PALM DESERT rAir, �l INVESTMENT & FINANCE COMMITTEE AGENDA �t .41. February 26, 2003, 2:00 p.m. Ay "At i' ,p,' North Wing Conference Room ••Q•:°ice rate 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 January 22, 2003, as submitted. Action: 1 22603.wpd INVESTMENT & FINANCE fitlMITTEE • AGENDA February 26, 2003 VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for January 2003 Rec: Review and submit for the next City Council agenda. Review the presentation on the investment graphs. Review the investment activity for January 2003. Action: B. State of California Local Agency Investment Fund Balance for the month of January 2003 Rec: Informational item for the Committee to review. No action required C. California Asset Management Program (CAMP) January 2003 Statement Rec: Informational item for the Committee to review. No action required D. City and Redevelopment Agency Monthly Financial Reports for City Council for January 2003 Rec: Report and submit to City Council Action: E. Parkview Professional Office Buildings - Financial Report for January 2003 Rec: Review and file report Action: 2 22603.wpd INVESTMENT & FINANCE OMMITTEE • AGENDA February 26, 2003 F. Palm Desert Golf Course Facilities Corporation Financial Information for December 2002 Rec: Review and file report Action: G. Informational 1. Wall Street Journal Article Review & Outlook: Cronyism at Calpers 2. Markets Article Calpers Cools Down Rec: Informational items for the Committee to review. No action • required 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: 3 22603 wpd INVESTMENT & FINANCEOMMITTEE • AGENDA February 26, 2003 X. NEXT MEETING - Wednesday, March 26, 2003 at 2:00 p.m. 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 19th dayrof February, 2003. D a L a , o in Secretary 4 22603.wpd k t- Finance Department ` C, MKMORANDUM To: Rachelle Klassen, City Clerk • From: Diana Leal, Administrative Secretary,/ Subject: Investment and Finance Committee Date: March 3, 2003 Attached is a copy of the January 22, 2003 minutes of the Investment and Finance Committee approved by the Committee on February 26,2003. Please place on the next City Council agenda for approval thereof. Thank you for your assistance. Attachments(I) • • • G:\Finance\Diana Leal\Wpdocs\Investment Committee\2002 Memos\City Clerk\I-22-03 minutes.wpd "' • CITY OF PALM DART ��_ ` INVESTMENT & FINANCE COMMITTEE r ; i Minutes 1. r�ti / January 22, 2003, 2:00 p.m. \It "'ill North Wing Conference Room I. CALL TO ORDER A regular meeting was called to order by Chairman Gibson on Wednesday, January 22, 2003 at 2:00 p.m. II. ROLL CALL Present: Absent: Paul Gibson, Director of Finance None Jean Benson, Mayor Bob Spiegel, Mayor Pro-Temp Thomas Jeffrey, Deputy City Treasurer Jose Luis Espinoza, Finance Operations Manager David Erwin, City Attorney Carlos Ortega, City Manager Everett Wood Bill Veazie Murray Magloff Russ Campbell Also Present: Justin McCarthy, ACM Redevelopment Rodney Young, Desert Willow General Manager Diana Leal, Recording Secretary Guests: Richard Kikuchi, Lance, Soli & Lunghard, LLP III. ORAL COMMUNICATIONS Mr. Gibson introduced Mr. Richard Kikuchi, a representative from Lance, Soil and Lunghard, LLP, the current year auditor. Mr. Gibson said that Mr. Kikuchi was in attendance to answer any questions the Committee might have with regard to the audit. 1 12203.wpd INVESTMENT & FINANCEOMMITTEE • MINUTES January 22, 2003 IV. COMMITTEE MEMBER REPORTS None. V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Wood and seconded by Mr. Campbell to approve the Minutes of the December 18, 2002 meeting as submitted. VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for December 2002 Mr. Jeffrey said that the economy is on hold, awaiting the start and finish of the Iraq war. A mild U.S. economic recovery is expected to start in late 2003. The big concern currently is that Asian and European investors will exit the U.S. securities markets because of the sliding U.S. dollar. When the Asians and Europeans repatriate their US earnings into their native currencies, they sustain heavy losses due to an unfavorable exchange rate. Mr Jeffrey reported that for the month ended December 31, 2002, the book value of the City Portfolio was approximately $136.7 million. The City earned approximately $225,000 in interest. Portfolio yield-to-maturity was approximately 1.93%. For the month ended December 31, 2002, the book value of the RDA Portfolio was approximately $92.8 million. The RDA earned approximately $153,000 in interest. Portfolio yield-to-maturity was approximately 1.95%. Mr. Jeffrey has included a new statistic in the investments reports -- "Prior Year Book Variance." This statistic measures portfolio size (increase/ decrease) in dollars on a year-to-year basis. 2 12203.xpd INVESTMENT & FINANCE•VIMITTEE • MINUTES January 22, 2003 Mr. Spiegel asked if it would make sense for the City to buy individual securities with longer maturities, as opposed to buying shares in money market funds and short-term investment pools. Mr. Gibson responded that if the City were to buy longer-term securities, then the market value of the portfolio would decline once market yields increased. It would be better to ride out the current market in a liquid position so that the City can immediately benefit from rising interest rates when that occurs. Mr. Jeffrey commented that the best time to lock in is just before interest rates begin to fall, not when they are about to rise. Unfortunately, such events are difficult to predict. B. State of California Local Agency Investment Fund Balance for the Month of December 2002 Mr. Gibson stated that the City's and the Redevelopment Agency's LAIF accounts are maxed out at $40 million each. Mr. Ortega asked if the City is going to continue to deposit money into CAMP since Palm Desert's bill, SB 68, which was recently enacted, has clarified that LAIF deposits do not belong to and cannot be appropriated by the State. Mr. Gibson responded that the City plans to continue to use CAMP even though its pool yield is below LAIF's, because buying shares in CAMP is more profitable than buying individual money market securities at current yields. Mr. Jeffrey said that since the City joined CAMP, the CAMP investment pool has grown by 50%, from $800 million to $1.2 Billion. Because local agencies have no other alternative to LAIF, they are investing in CAMP, which offers 10 basis points more than individual money market securities, on average. The CAMP Board of Trustees is comprised entirely of local agencies. Furthermore, LAIF is reportedly resisting any attempt to increase its deposit limits. Ms. Benson asked why only $27 million is deposited in CAMP, as opposed to the $30 million that was originally withdrawn from LAIF for that purpose. Mr. Jeffrey responded that money has been withdrawn periodically as necessary. In addition, money is placed in sweep accounts to cover any checks to receive .3 rather than 1.738 in CAMP. C. California Asset Management Program (CAMP) December 2002 Mr. Gibson said that the account contains approximately $18 million. D. Annual Review of City Investment Policy Mr. Gibson said that the City's Investment Policy is amended annually depending on legislation changes. Approximately 8 years ago the City was 3 12203.wpd INVESTMENT & FINANCE OVIMITTEE • MINUTES January 22, 2003 certified by the National Treasurers Association (NTA) that the City's policy was sufficient. Staff will be submitting the policy once again to the NTA to have them review and certify the policy. Mr. Jeffrey said that staff had to make a few changes to the current policy to closely resemble the NTA's format. The most substantial changes were the following: Page 4 Investment Procedures was previously combined with another section in the previous policy. It now has its own section. Page 12 Number 12. Asset-backed commercial paper. Two other entities have been added, asset-back commercial paper trust and limited liability companies. Number 13. Multi-government investment pools was previously pulled out because staff did not think they would be investing in these pools. However, they did not anticipate that the interest rates would tumble to where they are currently. This section is being reinstated staying at the same terms of 20% as the money market fund in LAIF. This would be CAMP. Page 13 This was something new that came out of the national template for investment policies from NTA. This information was previously obtained, however, this creates a more formal structure for doing the questionnaire. Most of the funds that staff will be looking at provide for the declaration of trust and other documents. This would deal with the annual Redevelopment Agency trust accounts. Page 17 This was a boiler plate that was inserted to be in line with the NTA's template policy. This is a general statement on how the portfolio will be managed. Motion was made by Mr. Spiegel and seconded by Mr. Wood to approve the changes made to the Investment Policy. Motion carried. E. Comprehensive Annual Financial Report 6/30/02 Overview presentation by Lance, Soil and Lunghard, LLP Mr. Kikuchi thanked the committee for allowing him the opportunity of making a presentation. He said that he has been with the firm of Lance, Soil & Lunghard (LSL) for over 13 years. The firm has been in business for about 75 years. He said that LSL specializes in auditing municipalities. Over 60% of 4 12203.wpd INVESTMENT & FINANCE 0 MITTEE MINUTES January 22, 2003 their revenue is derived from auditing cities and municipalities. Currently, they audit approximately 40 cities. They spread out from Lancaster to Imperial Beach. Municipal auditing is their main focus which they do all year round. He • said that one point that he stress with Mr. Gibson was that his firm provides qualified individuals to do the City's audit. Mr. Kikuchi said that he felt that this year's audit went well. Mr. Gibson said that every report that he has received from Desert Willow, the Redevelopment Agency and the Finance staff, indicate that everyone is happy with the audit. Mr. Kikuchi said that a big part of the audit is the supervision of audit staff. He made sure that he is present during the audit as much as possible to learn the system and become familiar with the City staff. The staff that he assigned to the City of Palm Desert's audit were experienced managers. This is a practice that he likes to do for all his new clients. They do traditional-type audit procedures. They assess the internal controls (i.e. payroll, disbursement, receipts, etc.). Many tests were conducted as well as confirmations of assets for the City and the Redevelopment Agency were requested. They look at the general ledger, focusing on the larger accounts. Because they audit cities, they know what to look for and what should exist. If something looks odd, they investigate further. In addition, they do cut-off procedures where they look at checks written and receipts from July 1 forward to check if checks or receipts should have been recorded in the prior year. Further, they prepared draft reports which they presented to staff. He felt this made for an efficient audit. They came in early with the final audit. He thinks that Mr. Gibson and Mr. Espinoza deserve a pat on the back as the books were in good order. The City of Palm Desert is an organized city. Ms. Benson said that she thought it was a credit to Mr. Gibson and Mr. Espinoza that the audit was done well. Mr. Kikuchi said that various audits were conducted: the main CAFR which includes the City and all its component units; the Redevelopment Agency CAFR which includes the Housing Authority; and Desert Willow. They are currently in the process of completing the single audit (an audit that is triggered when a city spends more than $300,000 in federal monies). He is very pleased that everything went well. A highlight of the results of the CAFR is the general fund equity as it increased by $3.6 million. The City is on a new reporting format. Now, the City not only has fund equity, it also has net assets. The statement of net assets indicates that the total assets increased by $12.8 million. General fund revenue exceeded budgeted revenue by a little over $1 million. General fund expenditures were below that appropriated by a little over $4 million. As far 5 12203.wpd INVESTMENT & FINANCE SIIMITTEE ✓✓ MINUTESJanuary 22, 2003 as the financial health of the city, based on the numbers, is that everything is looking pretty good. Ms. Benson asked if the net assets include all the apartments the City owns. Mr. Gibson said that net assets include everything owned by the City as a whole including the Redevelopment Agency, Desert Willow, etc. Mr. Spiegel asked if the auditors prepare a document that discuss any discrepancies, or if something is not being done properly, and if said document is distributed. Mr. Kikuchi said that they do prepare such a document. There were no reportable significant conditions. Usually the first year the auditors review the numbers and do internal control work. If there were anything significant, they would have seen it. If there were any minor items, it is likely that they will be seen next year. However, as far as any major deficiencies in the internal controls or financial reporting system, there does not exist any. They did a test on 100 Housing Authority tenants for compliance work. In the past, there were significant deficiencies in those files. This was an issue that was brought up with the Housing Authority. This year they found a minor item. Mr. Gibson said that the employee that was causing the problems there is no longer working at the Housing Authority. Ms. Benson said that the apartments are a major part of the Redevelopment Agency budget. She would like to know what amount of money is invested so that if she is asked by a resident, she can provide this information. Mr. Gibson said that he can provide her with that information. Mr. Kikuchi said that the information she seeks can be found in the Redevelopment Agency CAFR. Mr. Ortega said that the CAFR report states what money was put into the apartments, however, it does not show what they are worth. Mr. Spiegel said that the City came in $4.5 million under what was budgeted to be spent in the general fund with approximately $2 million being used for resurfacing. He asked why this was if extra money was placed in the budget last year because staff felt that more needed to be done. Mr. Ortega said that some of the projects did not necessarily come from the general fund. Mr. Gibson said that it is all due to the weather as resurfacing is dependent on the heat. Typically, they try to let the contract out in May and do the work either in June or July. There is a variance from year to year as to when the contracts start and when the actual costs are paid out. When the reserve money does not get used, they do a carry over in the budget or an encumbrance of the contract, thus the funds are not lost. There also exists a maintenance of effort required from the State in order to receive Measure A and Traffic Congestion funding. If the maintenance of effort is not met, the money has to be returned to the State. 6 12203.WPd INVESTMENT & FINANCE MITTEE MINUTES ® January 22, 2003 Mr. Magloff said that the City uses a lot of equipment to do their work and when the City owns a piece of equipment it is an asset. He asked who takes care of the leases for the equipment that is leased. Mr. Gibson said that the department utilizing the equipment takes care of issuing a purchase order to enter into a lease agreement. The only true leases currently on the books are Xerox machines, golf carts and golf cart equipment. Otherwise, leases are made on a day by day basis as needed. Mr. Ortega said that the City does not generally lease equipment like is the practice of other big companies. Mr. Gibson said that the City has funds in the general fund for equipment replacement so that as vehicles need to be replaced there are funds set aside for that purpose. This coming year they will separate these funds from the general fund to better track money utilized for equipment replacement. Mr. Wood said that Mr. Kikuchi indicated that the City was found to be in good shape and that LSL used mostly experienced staff on this audit to expedite it and provide for an efficient audit. He asked if LSL would continue with this practice or if it would change as the City was well run and well organized. He said that he was concerned that the City would be used as a training ground. Mr. Kikuchi said that they shy away from using their clients as a training ground. They have the new auditors shadow an experienced auditor to learn. He said that because the audit went very well, and because of the desirable atmosphere, many of the auditors have asked to be scheduled to do the Palm Desert Audit. Therefore, most of the auditors with seniority will be sent to Palm Desert. He spends a lot of time finding the right people. He is very confident of the managers that have been working for LSL as they have been there for more than ten years. Mr. Wood said that he admired that Mr. Kikuchi spoke well of his staff. He asked if the costs for the audit would remain the same or change and if there would be less auditing done now as the initial auditing service was completed. Mr. Gibson said that when the bid for auditing services was done, they requested a five-year proposal indicating cost for each year. The first year is when the auditors incur their highest cost as they have to review the controls. Thereafter, they recover some of the extra cost. Mr. Gibson asked if the committee was satisfied with the CAFR report. Mr. Spiegel said that he liked the detail. Ms. Benson said that she felt it was well written. Mr. Ortega said that he had a chance to go through the separate financials and did not see anything out of order. The auditor said that there were no findings in the management letter. Findings would mean that the City is doing something wrong accounting wise. If there are findings, they would be presented to the City Council and the Council would seek correction of the deficiencies in the following year's audit. 7 12203.wpd INVESTMENT & FINANCE liMMITTEE MINUTES ® January 22, 2003 Mr. Gibson said that one of the weaknesses in the past, accounting wise, were dealing with both the Housing Authority and Desert Willow where there is a third party manager. However, things have improved drastically since Rodney Young and his controller, Kathy Anderson have come aboard. Motion was unanimously made by the committee to add the auditor's contract to the agenda for action. A second motion was made by Mr. Campbell and seconded by Mr. Magloff to recommend to the City Council that they approve continuing the contract with Lance, Soil and Lunghard (LSL) for Audit Services for one more year. Motion carried. F. City and Redevelopment Agency Monthly Financial Reports for City Council for December 2002 Mr. Gibson said that the City received the quarter end report for sales tax. There was a little over a 2% increase over the prior year in terms of the quarter ending in November 14. This included the September 11 period of time. Some time thereafter Mr. Spiegel commented to Mr. Gibson that the mall did well. Mr. Spiegel said that JC Penney was 24% ahead, Robinsons-May and Macy's were running about 5 or 6%. Ms. Benson said that she has received many positive comments from the community regarding the parking structure. Mr. Spiegel said that he received comments that the structure lighting is bright and people feel safe parking there. Mr. Gibson said that in regard to the Transient Occupancy Tax (TOT), the City has not yet collected from the Vacation Inn. He heard that they may file for bankruptcy under the receivership and therefore the City may lose a portion of TOT. He said that Doug Phillips of Best, Best & Krieger, the City Attorney's firm, will be following up on this matter. In addition, the Marriott has been down. Mr. Gibson set up a meeting to discuss what is happening now and what is expected for next year. He spoke with Rodney Young of Desert Willow. Mr. Young indicated that they have had a lot of leads. Mr. Young said that forecasts for 2004 pre-bookings are up compared to the last six to seven years. Mr. Gibson said that the City's cash receipts and TOT are about $50,000 ahead of last year. Building permits are equal to last year. With regard to the State subvention that the City receives from the State which is over $1.7 million a year, the State of California introduced the Governor's budget which includes taking away this funding that the State currently backfills. This funding makes up about 67.5% from the State's general fund to 8 12203.wpd INVESTMENT & FINANCEMITTEE MINUTES • January 22, 2003 the cities and counties. This amount equals the amount that was refunded or rebated on the motor vehicle license fees. This is an annual fee that is paid on motor vehicles. The leaders have indicated to the cities that they will attempt to propose, through the senate and assembly, backfilling through increasing the tax. Whether they are successful or not, it is uncertain. Mr. Ortega said that the law that they adopted when they lowered the amount contains certain provisions. One of the provisions was that if the State ran out of money, they would cut the subventions. There was also language that the fee would be re- worked to the prior levels. Many feel that because of the pressure, the vehicle license fee will be instated. Mr. Gibson said that another item in the Governor's proposal is booking fees which is about $133,000 per year. The Redevelopment Agency would take another hit of approximately $250 million per year to a point where they receive 100% of all the schools' tax increment amount. The governor is proposing to take it all away eventually. Mr. Spiegel asked if this could be done. Mr. Gibson said that the legality of the State's ability to do this will be challenged within the next six months. Mr. Spiegel said that he read about the State taking away low income housing. Mr. Gibson said that it was discussed in the Governor's mid-year proposal. He proposed that $500 million be taken from the low mod fund based on the cash balances. Since then, public hearings on the subject have been held. They have indicated that it was not a good idea to take from the low mod fund, however, they can take it from the 80% Redevelopment fund. They have not finalized what will be done. Currently there is a proposed bill with language to take money from the low mod. Mr. Spiegel asked if low mod funding has been expended. Mr. Gibson said that low mod funding has been committed. Mr. Ortega said that unfortunately they revert to definitions, what is committed and not committed, and the report that is filed with the State, sometimes, is not helpful with how committed money is defined. The State thought that because some cities had not spent the money provided, the money was considered available. However, after closer examination, they found that there was less money available than what they thought. The City' position is going to be to try to salvage everything, both the VLF and the 80% housing. The City will know the outcome by October. Mr. Spiegel asked about the sales tax. Mr. Gibson said that it is related to pass through programs that the State currently does through the County level and not through the City. Mr. Ortega said that the City does not qualify for that type of funding as the State defines local services as those offered by the County. The State is being generous in saying to the Counties that they will give them an additional 1% of sales tax and providing them with additional programs. Mr. Gibson said that at this time these programs will be funded, however, he is not sure that they will be funded in the future. 9 12203.wild INVESTMENT & FINANCEOMMITTEE MINUTES • January 22, 2003 G. Parkview Professional Office Buildings - Financial Report for December 2002 Mr. Gibson said that the roofing contract will begin at the end of the month. The State Department of Agriculture has pulled out of one of the office spaces. The office is approximately 1,600 square feet. The American Cancer Society has indicated their desire to take over the space. It is a matter of working out the lease arrangements. H. Palm Desert Golf Course Facilities Corporation Financial Information for November 2002 Mr. Young provided a report for December 2002. Food and beverage and every day play is down. Net income was about $29,000 which was better than budget. January started off poorly. They had to pre-wet the course for a couple of weeks. Ms. Benson asked why the revenues and expenses for the Firecliff course were almost the same and the Mountainview Course had a huge difference on the current and actuals. Mr. Young said that for the month of December Mountainview was open and Firecliff was closed for the entire month due to overseeding. Mr. Young said that in order to improve golf course conditions in the months of January, February and March, where more revenue is received, they moved the overseeding back. The golf course was open from October 16 through the November 10. They had to get a little more than three weeks where the two golf courses were open. They lost two full weeks of revenue. He thinks that they will catch up to equal last year. If weather permits, they should be in good shape. Mr. Wood asked who made the decision as to when the golf course is closed for overseeding. Mr. Young said that the he and the superintendent look at the prior year's weather, pre-bookings, etc. and make a prediction as to what the following year will be like and based on their findings they make their decision. Revenue is lost when the weather is too hot. They have to turn people away because they can not have them play. They try to balance what is needed, condition-wise, on the golf course, and balance what the revenue will be according to their forecasting. They work closely with the Marriott and other hotels to receive overflow golf. Mr. Spiegel asked if they get overflow golf from the Marriott time shares. Mr. Young said that they do get overflow and they also offer their time shares with the opportunity to golf at other golf courses. Mr. Young distributes Desert Willow flyers at different hotel concierges. In addition, they provided certificates for free breakfast to promote their breakfast. 10 nz03.wpd INVESTMENT & FINANCE INVIMITTEE MINUTES • January 22, 2003 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. B. Bond Issuance by Palm Desert Financing Authority Mr. McCarthy said that Mr. Coleman was not present because he went to Sacramento for some of the hearings relative to the budget. Mr. McCarthy said that they are planning to do some fairly large bond issues. They are currently conducting analysis in terms of"worst-case scenario" if the State takes what they are proposing to take from the Redevelopment Agency. At this time, these are merely exercises as they have not seen any legislation giving any specific concept as to how much money they will take from the Redevelopment Agency. Mr. McCarthy said that they have had communication efforts with a number of the local legislators to educate them as to the benefits of redevelopment to the local economy. A lot of the Redevelopment Agency bond issues have been placed on hold for the moment. X. NEXT MEETING - Wednesday, February 26. 2003 at 2:00 p.m. Xl. ADJOURNMENT There being no further business, the meeting was adjourned by Mr. Gibson at 3:05 p.m. Respectf Ily submitted, iana ea co ding Secretary 11 12203 wpd it ": rf a4 lr .� � �� '� e`d�=����A e11C POftfO1QS ,�,5� 1 .v.. i y nws � ry � � � , t1 11 . .` F N 0INVESTMENT,iR PQ i . , ,4b ��a.P � v._gat. VpE e[N Y � ti u d; r r ysk +^'4�r ` 'f,, vr,• . C y;'4eii: m.; .1 ., ,`. a -a a, 2003'? 7' � � g"°, . , y� epti ,,.. 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 29 January and left interest rates unchanged. The FOMC believes that the geopolitical and oil price risks that are currently restraining business hiring and spending, are short-term events that will lift. Recent comments by Chairman Greenspan, however, suggest that the FOMC is leaning towards another interest rate cut if the economy fails to rebound as expected. Whether there will be a war with Iraq, and the length and severity of such a war, is difficult to assess. If there is a spike in oil prices due to a war, however, then U.S. economic growth may be lower than expected during the second half of 2003. Oil prices may not come down immediately after the conclusion of the war, as they did in 1991. Worldwide oil inventories are quite low; supplies from Venezuela are constrained; and the Iraqi oil fields have not been maintained for many years. Rising oil prices could act as a deflationary force since they put downward pressure on Gross Domestic Product. The psychological effects of any new terrorist strikes in the U.S., in addition to tensions on the Korean peninsula, could further constrain consumer spending and business investment. Consumer confidence is already at a nine-year low. A continued flight of capital from the stock market into the bond market would maintain pressure on short-term,fixed income yields, which are already depressed. There might not be any significant improvement in yield profitability for the remainder of 2003. PauLS. Ohio ns C-C.A>-T. Treasurer PORTFOLIO STATISTICS Dollars in Thousands JAN-03 DEC-02 NOV-02 OCT-02 SEP-02 AUG-02 CITY Month-End Book Value*** $ 174,152 $ 136,687 $ 142,520 $ 144,054 $ 170,423 $ 180,743 Month-End Market Value*** $ 174,276 $ 136,899 $ 142,742 $ 144,259 $ 170,723 $ 181,096 Paper Gain (Loss) $ 124 $ 212 $ 222 $ 205 $ 300 $ 353 Prior Year Book Variance $ (5,672) $ (26,850) $ (23,866) $ (21,277) $ 696 $ 6,952 Interest Earnings $ 212 $ 225 $ 238 $ 271 $ 390 $ 428 Yield-To-Maturity 1.63% 1.93% 2.00% 2.15% 2.22% 2.64% Weighted Maturity(Days) 29 49 50 52 70 222 Effective Duration 0.01 0.01 0.03 0.04 0.04 0.06 RDA Month-End Book Value"' $ 105,023 $ 92,787 $ 92,761 $ 94,884 $ 99,221 $ 100,125 Month-End Market Value"' $ 107,333 $ 95,022 $ 94,996 $ 97,147 $ 101,468 $ 102,313 Paper Gain (Loss) $ 2,310 $ 2,235 $ 2,235 $ 2,263 $ 2,247 $ 2,188 Prior Year Book Variance $ 19,541 $ 7,655 $ 7,826 $ 24,963 $ 28,723 $ (46,564) Interest Earnings $ 162 $ 153 $ 162 $ 185 $ 191 $ 199 Yield-To-Maturity 1.76% 1.95% 2.06% 2.23% 2.26% 2.27% Weighted Maturity (Days) 133 150 150 147 141 142 Effective Duration 0.10 0.12 0.13 0.13 0.13 0.14 ~ Citf Palm Desert—Portfolio Characteristics 31 January 2003 Dollars in Thousands Ageing Interval Market Value r < 1M $ 70,400 General Fund Ageing" <2M 8,094 <3M - 100 gp <6M - 80- <1YR - 7 <2YR - o 60' <3YR - t 40 - <4YR - o. <5YR - 20 - 10 >5YR - 0 ri 0 0 0 0 Total: $ 78,494 <1M <2M c3M <6M < 1YR <2YR Ratings' Market Value Credit Quality A Al/P1 AAA $ 25,175 2% a AA - AAA A 4,000 14% Unrated** A1/P1 - 84% Unrated" 144,977 AA Total: $ 174,152 0 \ J r \ Sector Market Value Asset Allocation` MTNs U.S. Treasury $ - 1 2% Federal Agency 5,999 Money Market Q Comm Paper Money Market Funds 91,368 Funds 7% Commercial Paper 53'i MTNs 4,000 U.S.Treasury di 23t) % MTF 4 ,000 0% 23I RDA Loan 32,785 Fed Agency Total: $ 174,152 6% RDA Loan 19% Month City Yield LAIF Yield Variance IPertormancel Feb02 3.27 2.97 0.31 Mar 3.17 2.86 0.31 3.5 Apr 3.18 2.85 0.34 May 3.06 2.74 0.32 :y Jun 2.86 2.69 0.18 X > ; Jul 2.88 2.71 0.17 1 2.5 , II =: zii, S260 - V `. blt 033 15 ' ', "' g '� Nov 2.00 2.30 -0.31 Feb02 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan03 Dec 1.93 2.20 -0.27 Jan03 1.63 2.10 -0.47 D LAIF Yield©City Yield \ / ' Standard and Poor's Credit Ratings ** LAIF, HighMark, and City Loan to RDA Page 2 of 7 ea>,c *ea); avr,'s i1 0:0,a ace a sae.,re OOO,i- 000,0A n c , t City of Palm Desert Portfolio Holdings 31 January 2003 Market Ratings Par Value I Issuer I Coupon I Maturity' Cost I YTM Price I Value Moody's' S&P Medium-Term Notes $ 4,000,000 GENERAL MOTORS 5.95 3/14/03 $ 3,999,982 5.94 100.35 $ 4,014,052 A2 BBB $ 4,000,000 Subtotal $ 3,999,982 5.94 $ 4,014,052 Agencies-Discount $ 4,080,000 FED NATIONAL MTG ASSOC 2.21 3/14/03 $ 3,999,350 2.31 99.87 $ 4,074,696 Aaa AAA $ 2,034,000 SALLIEMAE 2.13 2/7/03 $ 1,999,461 2.22 99.99 $ 2,033,797 Aaa AAA $ 6,114,000 Subtotal $ 5,998,811 2.28 $ 6,108,493 LGIP $ 40,000,000 LAIR 0.00 2/1/03 $ 40,000,000 2.10 100.00 $ 40,000,000 NR NR $ 40,000,000 Subtotal $ 40,000,000 2.10 $ 40,000,000 LGIP $ 54,336,542 C.A.M.P. 0.00 2/1/03 $ 54,336,542 1.28 100.00 $ 54,336,542 N/A AAA $ 54,336,542 Subtotal $ 54,336,542 1.28 $ 54,336,542 Pooled Funds--AIM $ 19,066,328 PRIME PORTFOLIO 0.00 2/1/03 $ 19,066,328 0.93 100.00 $ 19,066,328 Aaa AAA $ 19,066,328 Subtotal $ 19,066,328 0.93 $ 19,066,328 Pooled Funds-HighMark $ 15,908,032 CITY MAIN SWEEP 0.00 2/1/03 $ 15,908,032 0.36 100.00 $ 15,908,032 NR NR $ 91,000 DESERT WILLOW SWEEP 0.00 2/1/03 $ 91,000 0.36 100.00 $ 91,000 NR NR $ 105,465 GOLF COURSE SWEEP 0.00 2/1/03 $ 105,465 0.36 100.00 $ 105,465 NR NR $ 1,860,541 OFFICE COMPLEX SWEEP 0.00 2/1/03 $ 1,860,541 0.36 100.00 $ 1,860,541 NR NR $ 17,965,038 Subtotal $ 17,965,038 0.36 $ 17,965,038 City Loan to RDA $ 32,785,480 CITY OF PALM DESERT 0.00 2/1/03 $ 32,785,480 2.10 100.00 $ 32,785,480 NR NR $ 32,785,480 Subtotal $ 32,785,480 2.10 $ 32,785,480 Total Investments $ 174,267,388 $ 174,152,181 1.63 $ 174,275,932 NR=Not Rated Page 3 of 7 • • City of Palm Desert Portfolio Holdings 31 January 2003 Market Ratings Par Value Issuer t Coupon [Maturity Cost YTM Price Value Moody's S&P Cash $ 50,152 OFFICECOMPLEXCHKG 0.00 2/1/03 $ 50,152 0.00 100.00 $ 50,152 NR NR $ (13,998,426) CITY MAIN CHKG 0.00 2/1/03 $ (13,998,426) 0.00 100.00 $ (13,998,426) NR NR $ 167,743 DESERT WILLOW CHKG 0.00 2/1/03 $ 167,743 0.00 100.00 $ 167,743 NR NR $ 15,754 CPD GOLF COURSE CHKG 0.00 2/1/03 $ 15,754 0.00 100.00 $ 15,754 NR NR $ 30,181 OFFICE COMPLEX TRUST 0.00 2/1/03 $ 30,181 0.00 100.00 $ 30,181 NR NR $ 40,666 RECREATIONAL FAC CHKG 0.00 2/1/03 $ 40,666 0.00 100.00 $ 40,666 NR NR $ - VACATION INN CHECKING 0.00 2/1/03 $ - 0.00 100.00 $ - NR NR I $ (13,693,930) Subtotal $ (13,693,930) $ (13,693,930) Total Cash and Investments $ 160,573,458 $ 160,458,251 $ 160,582,002 NR=Not Rated Page 4 of 7 Palm Deserlevelopment Agency- Portfolio Char eristics 31 January 2003 Dollars in Thousands Ageing Interval Market Value <1 M $ 69,651 Portfolio Ageing w/o SLGSsI <2M - <3M - 100 g0 <6M - 80- < 1 Y R 870 a° 70- <2YR 7,159 c 60- <3YR $ 50- E 40- <4YR - o° 30 - <5YR - 20 - 9 10 - 0 0 0 1 n 0 0 >5YR - 0 , Total: $ 77,680 c1M <2M c3M <6M <1YR c2YR <3YR <4YR Quality* Market Value Credit Quality' MAc- / $ 46,587 AAA Al/P1 4,% 0% AA - A - Unrated** At/P1 57(o Unrated" 60,746 0% A Total: $ 107,333 0% \ / r Federal Agency Sector Market Value Asset Allocation (7> 0% U.S.Treasury $ 8,230 Federal Agency - Money Market Money Market Funds 44,707 Funds • 42% LAIF 54,396 Commercial Paper - LAIF Corporate Bonds - U.S.Treasury 50% Total: $ 107,333 8% Month RDA Yield LAW Yield Variance Performance Feb02 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 V 2.6 Jul 2.23 2.71 -0.48 t Aug 2.27 2.59 -0.33 'l 4 II .i f Sep 2.26 2.60 -0.35 1l �l �', I 1J '1I ' i f r .f� .GI r Oct 2.23 2.49 -0.25 1.6 Nov 2.06 2.30 -0.25 Feb02 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan03 Dec 1.95 2.20 -0.25 Jan03 1.76 2.10 -0.34 ■LAIF Yield CI RDA Yield I - * Standard and Poor's Credit Ratings LAIF and HighMark Sweep Page 5 of 7 Palm Desert Redevelopment Agency Portfolio Holdings 31 January 2003 Market Ratings I Par Value I Issuer I Coupon I Maturity I Cost I YTM Price I Value Moody's' S&P U.S.Treasury-Discount $ 198,000 UNITED STATES TREASURY 4.70 2/15/03 $ 150,793 5.45 99.96 $ 197,917 Aaa AAA $ 181,000 UNITED STATES TREASURY 4.63 2/15/04 $ 130,168 5.51 98.70 $ 178,647 Aaa AAA $ 7,143,000 UNITED STATES TREASURY 4.59 8/15/04 $ 4,989,671 5.54 97.75 $ 6,982,283 Aaa AAA $ 532,400 UNITED STATES TREASURY 4.66 8/15/03 $ 394,279 5.47 99.33 $ 528,817 Aaa AM $ 344,600 UNITED STATES TREASURY 4.66 8/15/03 $ 255,200 5.47 99.33 $ 342,281 Aaa AAA $ 8,399,000 Subtotal $ 5,920,112 5.53 $ 8,229,944 LGIP $ 40,000,000 L.A.I.F. 0.00 2/1/03 $ 40,000,000 2.10 100.00 $ 40,000,000 NR NR $ 4,894,821 L.A.I.F. BOND PROCEEDS 0.00 2/1/03 $ 4,894,821 2.10 100.00 $ 4,894,821 NR NR $ 9,500,829 L.A.I.F. BOND PROCEEDS 0.00 2/1/03 $ 9,500,829 2.10 100.00 $ 9,500,829 NR NR $ 54,395,649 Subtotal $ 54,395,649 2.10 $ 54,395,649 . Pooled Funds-AIM $ 38,357,145 PRIME PORTFOLIO 0.00 2/1/03 $ 38,357,145 0.93 100.00 $ 38,357,145 Aaa MA $ 38,357,145 Subtotal $ 38,357,145 0.93 $ 38,357,145 Pooled Funds-HighMark $ 6,130,339 HOUSING AUTH CHK SWEEP 0.00 2/1/03 $ 6,130,339 0.36 100.00 $ 6,130,339 NR NR $ 220,014 HOUSING AUTH TRT SWEEP 0.00 2/1/03 $ 220,014 0.36 100.00 $ 220,014 NR NR $ 6,350,353 Subtotal $ 6,350,353 0.36 $ 6,350,353 Total Investments $ 107,502,147 $ 105,023,259 1.76 $ 107,333,091 Cash $ 58,662 HOUSING AUTH CHKG 0.00 2/1/03 $ 58,662 0.00 100.00 $ 58,662 NR NR $ 51,003 HOUSING AUTH TRUST 0.00 2/1/03 $ 51,003 0.00 100.00 $ 51,003 NR NR $ 109,665 Subtotal $ 109,665 $ 109,665 Total Cash and Investments $ 107,611,812 $ 105,132,924 $ 107,442,756 NR=Not Rated Page 6 017 • • 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 January 2003,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 26 February 2003, ps absonsc.c.M r. City Treasurer SUMMARY OF AUTHORIZED INVESTMENTS ICalifornia Government Code I City Investment Policy CA Govt 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 5 Years No Limit Not Authorized 1) 53601(b) U.S. Treasuries 5 Years No Limit 5 Years I No Limit I f 0.0% { 5.6% 53601(c) CA State Debt 5 Years No Limit Not Authorized 53601(d) CA Local Agency Debt 5 Years No Limit Not Authorized 53601(e) Federal Agencies 5 Years No Limit 5 Years 30% 3.4% 0.0% 53601(f) Bankers's Acceptances 180 Days 40% 180 Days .40% A-1 & P-1 - 53601(g) Commercial Paper 270 Days 25% A-1+or P-1 270 Days 25% A-1+or P-1 0.0% 0.0% 53601(h) Negotiable CDs 5 Years 30% 5 Years 30% AA-or Aaa - - 536010) Repos 1 Year No Limit 30 Days 20% AAA&Aaa - 53601(i) Reverse Repos 92 Days 20% Not Authorized 53601(j) Medium-Term Notes 5 Years 30% A 3 Years ' 30% ' A 2.3% 0.0% _ 53601(k) Mutual Funds 90 Days 20% AAA&Aaa 90 Days 20% AAA&Aaa 52.5% 42.6% 53601(1) Trust Indenture Debt Not Authorized 53601(m) Secured Bank Deposits 5 Years No Limit Not Authorized 53601(n) Mortgage-Backed 5 Years 20% A(Issuer)& Not Authorized Securities AA(Security) 16429 LAIF No Limit I No Limit y 23.0% 51.8% 81.2% 100.0% (1) The City loan to RDA, which is not a bond, has been approved by the Palm Desert City Council. Certified California Municipal Treasurer Page 7 of 7 STATE OF CALIFORNIA PHILIP ANGELIDES, Treasurer OFFICE OF THE TREASURER. • SACRAMENTO " k Local Agency Investment Fund PO Box 942809 Sacramento, CA 94209-0001 <U!.' '. ' ,.`- '' I (916) 653-3001 January, 2003 Statement CITY OF PALM DESERT Account Number : 98-33-621 Attn: CITY TREASURER 73510 FRED WARING DRIVE PALM DESERT CA 92260 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 01-15-2003 01-14-2003 QRD SYSTEM 233,253.37 01-21-2003 01-17-2003 RW 264538 THOMAS JEFFREY - 233,253.37 Account Summary Total Deposit : 233,253.37 Beginning Balance : 40,000,000.00 Total Withdrawal : - 233,253.37 Ending Balance : 40,000,000.00 Page : 1 of 1 STATE OF CALIFORNIA PHILIP ANGELIDES, Treasurer OFFICE OF THE TREASURER • • SACRAMENTO RECEIVED Local Agency Investment Fun4 PO Box 942809 FEB 1 1 2003 Sacramento, CA 94209-0001 (916) 653-3001 P.D. REDEVELOPMENT AGENCY January, 2003 Statement PALM DESERT REDEVELOPMENT AGENCY Account Number : 65-33-015 Attn: TREASURER 73-510 FRED WARING DRIVE PALM DESERT CA 92260 Transactions Effective Transaction Tran Confirm Authorized Amount Date Date Type Number Caller 01-15-2003 01-14-2003 QRD SYSTEM 233,257.12 01-21-2003 01-17-2003 RW 125345 THOMAS W. JEFFREY - 233,257.12 Account Summary Total Deposit : 233,257.12 Beginning Balance : 40,000,000.00 Total Withdrawal : - 233,257.12 Ending Balance : 40,000,000.00 Page : 1 of 1 • • i s CALIFORNIA ASSET STATEMENT MANAGEMENT PROGRAM JOINT POWERS AUTHORITY 50 CALIFORNIA S REIT 23RD FLOOR sAN FRANCISCO CALIFORNIA,+III FOR ACCOUNT INFORMATION: 800-729-7665 STATEMENT DATE: 1/31/2003 CITY OF PALM DESERT ACCOUNT NUMBER: 553-00 OPERATING FUND 73-510 FRED WARING DRIVE FUND NAME: Cash Reserve Portfolio PALM DESERT,CA 92260 Page 1 of 1 Statement Income Dividends Capital Gains Total Shares Account Date Paid This Year Paid This Year Owned Value .1/31/2003 $30,639.66 $0.00 54,336,542.300 $54,336,542.30 B .vx. .y �.aP6f `hj^C^ -xKh .:1 .. 4Tvn »➢ Q - 11 ra sactto 1/ 2003� �0�.� i.,.n�,. .�,... Beginning'Balance . Purchases Reinvestments Redemptions Ending Balance $21,805,902.64 •. $35,000,000.00 $30,639.66 $2,500,000.00 $54,336,542.30 a I+g`, RAD POSTI - A S CT10 L' .b ay -ANSACTION L6..1 TRANSACTIO a OWNED 01/01/03 . 01/01/03 Beginning Balance nw 21,805,902.640 01/07/03 01/07/03 Purchase-Wire Pur. $6,000,000.00 $1.00 6,000,000.000 27,805,902.640 01/13/03 01/13/03 Redemption-Wire Red. $1,000,000.00- $1.00 1,000,000.000- 26,805,902.640 01/17/03 01/17/03 Purchase-Wire Pur. $3,000,000.00 $1.00 3,000,000.000 29,805,902.640 01/28/03 01/28/03 Redemption-Wire Red. $1,500,000.00- $1.00 1,500,000.000- 28,305,902.640 01/31/03 01/31/03 Purchase-Wire Pur. $26,000,000.00 $1.00 26,000,000.000 54,305,902.640 01/31/03 01/31/03 Accrual Income Div Reinvestment-DIV $30,639.66 $1.00 30,639.660 54,336,542.300 Message Line: THE DIVIDEND YIELD FOR THE MONTH IS 1.28%. THE ANNUALIZED YIELD IS 1.290%. 1 ,i 1 N O 4. O rn U ° 3 c o c m d Z in. O OS C. 3 g' .2 �T °? o . o li T > H cra Qm : ` IIII wv om a z La ' Cl) ZCZ re OO OAOOy O e O O O N^ ' Gma 01 W I o � a I. TO . Q 0 ' e O _ 1 N v1 - a\ co O o0 ry M .n N R N N O in 10 ...' Q 0 F COc No no°gvvko � v - A nro - o`000 o _ 0 ` /� y, ? N - - O O . . O CL CL M 7 M - N O - Gk a O a oco Lr Q ` 4 4 n' ®s Gy I. �e o M M M 7 o M y % E ' N o0 rd+i o O O 2 ° b O O O O O O. O IfU *aften W M N — cr CO 0 N ON N en M 0 Cl N N N C' EO S O �O '0 V 7 O d' QN ‘O CL N - In Q, C - an O 4. �i aI. O CO O- �1 7 in Ln 1 Ens ate. •7 7 en N O -• �D O '4--. �n N - •-- O O - 0 — d M 4 7 — M N — — y 0Uo 0 Fy CO — ao o 0 O en O O O, en 7 0 d o' 7 c O 7 O rn O c.., 9 O - V N In Cl ON C1 N 7 7 - N in C\ 0 C 0 O I? N rt O 0- vl In to Cl cr.In N 07 - M O N O w' 'n CJ - - O 6 - 0 en xi h '0 h - 4 6 4 - v 0 n N 0 r F. i 9 O co co O O No oo \O C • Co '.00-O 0 "Co CT 0 n 7 y� _ .d. CO 0 M 'n O \O M O oo co C. N G\ f N V M O C N L M 0 7 it — ten 0 N N y O N O M O .n M O NE .a M 1"- to N N N N — D a 0 O N O O M O — M co am 2 e m Q Q v 'V 0 b I, T 0 .- C` N 7 h j iY elN N O 1� 0 C\ N N p o C o — N v3 N n — Inn .- U N 'a DO - en( n T C C .. '�, = 'I- 0. U N C ea w '.�sl 0 co O t " O II 0 FLi C o. c CO o T Z O. co g co i ; 4 saiP �f P E a ai CO 0 `v cl F d a fa? i o Y >.in O �_' W •moo j' o ° om M y10% a4 �' = .c m 101 E v ° c c U 1`a4 0 F LL n ❑ o0. O o E„ m 4 3. .0 y z U °- co - - a •• 1 ev 4+ a: m 1. o n ,OA O "C v '�' c y Y E F g z N To F .J M Grr.. 4 rn Q O O. a C7 O. a U ^ OF • • City of Palm Desert • Parkview Office Complex 1 Financial Statement for Fiscal Year 2002-2003 January-03 January-03 # % YTD YTD # '9, Budget Actual Variance Variance Budget Actual Variance Variance Revenues Rental $ 68,500 $ 72,565 $ 4,065 105.93% $ 479,500 $ 495,882 $ 16,382 103.42% Dividends/Interest $ 4,375 $ 632 $ (3,743) 14.44%1 $ 30,625 $ 6,485 $ (24,140) 21.18% 1 Total Revenues $ 72,875 $ 73,197 $ 322 100.44%j r" ;:j $ 510,125 $ 502,368 $ (7,757) 98.48% Expenses Professional-Accounting&Auditing $ 7,000 $ 7,000 $ - 100.00% $ 49,000 $ 49,000 $ - 100.00% Professional-Consultants $ 6,000 $ 6,205 $ (205) 103.42% " " $ 42,000 $ 40,120 $ 1,880 95.52% Tenant Improvements $ 2,500 $ - $ 2,500 0.00% , ' $ 17,500 $ 27,870 $ (10,370) 159.25% Repairs&Maintenance Building $ 8,000 $ 7,221 $ 779 90.26% a $ 56,000 $ 49,554 $ 6,446 88.49% Repairs&Maintenance-Landscaping $ 2,300 $ - $ 2,300 0.00% r'` $ 16,100 $ - $ 16,100 0.00% Utilities-Water $ 250 $ 103 $ 147 41.10% " `• - $ 1,750 $ 643 $ 1,107 36.77% Utilities-Gas/Electric $ 5,000 $ 4,342 $ 658 86.83% i, cr - $ 56,000 $ 51,398 $ 4,602 91.78% Utilities-Trash $ 700 $ 526 $ 174 75.14% "' $ 4,900 $ 2,630 $ 2,270 53.67% Telephone $ 150 $ 160 $ (10) 106.81% $ 1,050 $ 940 $ 110 89.54% Insurance $ 521 $ - $ 521 0.00% j $ 3,645 $ - $ 3,645 0.00% k J1,_I Total Expenses $ 32,421 $ 25,556 $ 6,865 78.83n/01`5 1 441 $ 247,945 $ 222,155 $ 25,790 89.60% s 7fi Operating nsame -,S.._ 40, $" 47,641 $ 7,187 757.77% 711:- $ 26218Qw$ 280,212 $ 18,032.1. 106.88 Equipment Replacement Reserve $ 13,000 $ 13,000 $ - 100.00% $ 91,000 $ 91,000 $ - 100.00% {Net Income- w, . ' ,„v ,27i45`k. S 34 641 $ 7,187 1261$2:4, .s,. .L_ ,.,-,'T1711.0 ST78' 212 f$ ;18,0,32 i1053Vq • 2003 Investment Reportlnv Report 2003 City of Palm Desert • Parkview Office Complex Vacancy Rate Schedule by Suite January 2003 Suite Square No. Tenant Feet 73-710 Fred Waring Drive-Two (2) Story Building 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 Assembly Rules Committee 785 ( Property Manager is negotiating with Sen. Battin and Assemblyman Benoit regarding redesigning the suites to provide additional space to Sen. Battin and leasing the remainder of suite 108 to Assemblyman Benoit) 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 Property Manager is Currently Negotiating with Mountain. 480 Conservancy (State Agency) 2003 Investment ReportVacancy Report City of Palm Desert • Parkview Office Complex Vacancy Rate Schedule by Suite January 2003 205 Vacant 700 208 Alzheimer's Association 960 210 Wilson, Pesota & Pichardo 3,040 211 State of California Department of Food & Agriculture 937 217 Joe B. McMillan,. Esq. 775 220 CA.State Dept.of Agriculture 1,607 (Space will be vacated as of February 1,2003;The property manager is currently negotiating a lease with The Cancer Society) 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"/t, 0.00% Overall Vacancy Rate for Both Buildings: Vacancy Rate--2,261/51,191 4.42% Occupancy Rate-48,930/51,191 95.58"/00 2003 Investment ReportVacancy Report . O t • Q W m r Q a m o cn O O O .I LC) O p CO r .D 0 CO N m O O. 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W K 0 o 0K f 2 n Q O Z a p co z to4'1 0 U U o Q ¢ O 2 Q W Z ? z Z w w v O `a wo< ~ w 7 H O Q zWF �? w *ea I- z _ a. o IWaz UWao zOaC w Q J .va O 2 �a z aI- Wcc I- 1- 4z7� i_ acc xw 0 LLa LLMLLz 0o 0 az 1- p 0o f City of Palm Desert Desert Willow • t • Budget Vs Actual • f For the month of December 2002 Budgeted Actual Budgeted Actual December December $ Percentage Year to Year to 5 Percentage Revenue 2002 2002 Variance Variance Date Date Variance Variance Course&Ground 5 301,449 S 249,683 $ (51.766) 82.83% $ 1.425.391 $ 1.367.104 5 (58.287) 95.91% Cans $ 39.423 S 19,950 5 (19.473) 50.60% $ 147.442 5 123,790 5 (23.6521 83.96% (iulfShop $ 58.352 $ 63.211 S 4,859 108.33% 5 285.255 S 274.658 S (10.597) 96.2980 Range S 6,300 S 4.798 S (1.502) 76.16% S 14.350 S 14.061 S (289) 979980 Food& Beverage S 124,140 $ 147,996 S 23.856 119.22% $ 559.031 S 576.289 S 17.258 163.09".. Interest Income $ 400 $ 176 $ (224) 44.00% $ 3,850 $ 1.451 S (2.399) 37.69".n Tot 1 Revenues $ 530 064 S 485 B14 5 44 250 91,65% S 2 435,319 S 2.357,353 $ 77,9661 96.80%1 Payroll Prothup S 6,634 $ 5.998 S 636 90.41% S 20,619 S 18.044 5 2.575 87.51% Can $ 20.781 5 19.716 $ 1.065 94.88% $ 118.968 S 111.476 5 7.492 93.70% Course&Ground $ 124,771 $ 116,247 $ 8.524 93.17% 5 770,821 $ 755.044 $ 15.777 97.95% Golf Operations $ 29.287 $ 24,689 $ 4.598 84.30% $ 155.291 $ 147.558 S 7.733 95,1)7_% General&Administration $ 41,590 5 35,616 $ 5,974 85.64% $ 244,558 S 210.923 S 33.635 '8a 258" Food&Beverage $ 60,710 S 69.177 S (8467) 113.95% S 302,595 S 342.219 S (39,624) 113 09 Tm l Payroll $ 283,773 $ 271,443 5 12,330 95.65% 5 1,612,852 $ 1.585,264 S 27,588 98.29Y Other Expenditures Perimeter Landscaping S - $ - $ - 0.00% $ - $ - 5 - 0.00% Proshop 5 2,205 $ 4401 $ (2,196) 199 59% $ 14,085 $ 16.109 S (2.024) 114.37% Proshop-COGS $ 31.351 $ 18.927 $ 12.424 60.37% S 155.613 $ 117.505 S 38.108 75.51% Can $ 13,195 $ 13569 S (374) 102.83% $ 83,920 5 82,043 $ 1.877 97.76% ('nurse&Ground-North Course S 41.347 $ 53,853 S (12,506) 130.25% $ 426.127 $ 386,558 5 39.569 90.72 Course&Ground-South Course $ 37.312 $ 38.212 $ (900) 102.41% S 405,136 $ 377.652 5 27484 93.22% Course&Ground-Desert Pallet-N 5 1,500 $ 4,920 $ (3,420) 328.00% $ 7,430 S 8,567 S 11,137) 115.30% Course&Ground-Desen Pallet-S $ 890 $ 1,258 $ (368) 141,35% $ 8,110 S 5,787 $ 2.323 71.36% Gol(Operations S 555 $ 627 S (72) 112.97% S 8,940 $ 6.833 $ 2.107 76.43% General&Administration S 74,568 $ 75,936 $ (1,368) 101.83% $ 402,155 S 429,479 S (2)324) 106.79% Range $ 700 $ 381 $ 319 54.43% 5 10,600 $ 7.835 5 2.765 73.92% Food&Beverage $ 18,833 S 16,818 S 2,015 89.30% $ 82.248 5 76.572 5 5.676 93.10% Food&Beverage COGS $ 38,964 5 49,877 S (10.913) 128.01% 5 176.231 $ 188,654 5 (12.423) 107.05% Management Fee $ 25.000 S 25,000 S - 100.00% S 150.000 S 150,000 S - I(81.00% Financing/Lease $ 3,674 $ 7,758 $ (4,084) ' 211.16% $ 5,894 5 18.229 S (12,335) 309.28% Total Other Expenditures 290 4 311 537 21 443) 107.39% $ 1 936489. 871 323 64,666 96.66%1 Desert Willow Golf Academy Deseft Willow Golf Academy $ 12,650 $ 5,794 $ (6,856) 45.80% 5 56.050 5 33.192 5 (22.858) 50.22% COGS-Merchandise 5 (8,013) $ (3,503) $ 4,510 43.72% S (40,549) 5 (27,1131 S 13436 66.$6% Other Expenditures $ (1,716) $ (1,543) $ 173 89.92% 5 (13.3231 S (13.0411 $ 282 97.88% S - LearningCenterIncome(Loss) S 2.921 S 748 S (2.173) 25.61% S 2.178 5 (6.962) 5 (9.140) -319.65% Operating Income(Loss) 5 (40.882) $ (96,418) $ (55,536) 235.84% $ (1,111.844) 5 (1.106,696) $ 5.148 99.54% Equipment Reserve Replacement $ 71,955 $ 66.734 $ (5.221) 92.74% $ 431.730 S 400.404 $ (31.326) 92.74% Net I[come Loss 112537 163,152 50,315 144.59% 1,543,574 1.507,100 36,474 97.64% Snap+hot of Golf Rounds Budgeted(mo) Actual(mo) Variance Variance% Budgeted Old) Actual(vtd) Variance Variance Resident 1,095 1,402 307 128% 5.840 6,386 546 109% Non Resident 3,152 2.292 (860) 73% 18,283 17.125 (1.158) 94% Other - - - 0% - 177 177 100% Complimentary 200 286 86 143% 1,815 1,599 (216) 88% 'total 4,447 3,980 (467) 89%- 25,938 25,287 (651) 97% • Folder:Desert Willow 2001:Dw2003;Financial Statement Page 1 O (0 (O W rn rn N Ln y�ti a • N a, fO �' O 0] ,O W • rn 2 O W O rO O N C N. 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' 2 0 § t _ . §! - 4 C: `! 03 - { � ° ) � - CV /} , r ` : $ * $ k ! ƒ 2 - ; a kg. . ; j | 7 /■ \ � ! z I ) 2 TI- \ t::(! ! a 41 ft ° ` gl , � U 'VM \ § ! ) p \ \ Desert Willow Breakdown of Rounds • • per point of sale system Desert Willow - Combined Analysis- December 2002 Resident 1,402 $ 63,090 $ 45.00 35.23% Non-Resident 2,292 $ 195,832 S 85.44 57.59% Other - $ - $ - 0.00% Complimentary 286 S 900 $ 3.15 7.19% Desert Willow Totals 3,980 $ 259,822 $ 65.28 100.00% • • Dw2003:POS AVG RD Page 9 Desert Willow Breakdown of Rounds • per point of sale system FIRECLIFF COURSE- DECEMBER 2002 Description No. Of Revenue Avg. Per Pet to Rounds Per POS Round Total Resident Rounds Resident Fee-Weekday 259 $ 11,655 $ 45.00 6.67/ Resident -Twilight 22 990 $ 45.00 0.57% Total Resident 281 $ 12,645 $ 45.00 7.24 Non Resident Posted Weekday 89 $ 15,050 $ 169.10 2.29% IROC Des. PRTY- Weekday 45 $ 3,713 $ 82.50 1.16% IROC Mbr. Guest - Weekday 13 $ 1,716 $ 132.00 0.33% Wholesale Weekday 101 $ 8,020 $ 79.41 2.60% Twilight _ 187 $ 15,785 $ 84.41 4.82% Players Club - Weekday 2 $ - _ $ - 0.05% Fee Special Event Variable 6 $ 24 $ 4.00 0.15`%. Total Non Resident Rounds 443 $ 44,308 $ 100.02 11.41% Other Rounds Junior Walking - $ - $ - 0.00% Total Other - $ - S - 0.00% Complimentary VIP 25 $ 350 $ 14,00 0.64% PGA Member 5 $ - $ - 0.13% Employee 16 $ - $ - 0.41% Total Complimentary 46 $ 350 $ 7,61 1.19% Total Round (FireCliff} 770 $ 57,303 $ 74.42 19.84% I2w'2003;POS AVG RD Page 10 ® Desert Willow Breakdown of Rounds • per point of sale system • MOUNTAINVIEW COURSE- DECEMBER 2002 Description No. Of Revenue Avg. Per Pct to Rounds Per POS Round Total Resident Rounds Resident Pee- Weekend 6 $ 270 $ 45.00 0.19% Resident Fee-Weekday 1,115 $ 50.175 $ 45.00 34.74% • Total Resident 1,121 $ 50,445 $ 45.00 34.92% Non Resident Posted Weekend 4 $ 560 $ 140.00 0.12% Posted Weekday 375 $ 43,750 $ 116.67 11.68% IROC Des. PRTY- Weekday 208 $ 15,270 $ 73.41 6.48% IROC Mbr / Guest -weekday 62 $ 7,056 $ 113.81 1.93% Wholesale Weekend _ 33 $ 2,190 _ $ 66.36 _ 1.03% Wholesale Weekday 512 $ 39,600 $ 77.34 15.95% Twilight 121 $ 9,425 $ 77.89 3.77% Players Club - Weekday _ 2 $ 175 $ 87.50 0.06% Fee Special Event Variable 532 $ 33,498 $ 62.97 16.57% Total Non Resident Rounds 1,849 $ 151,524 $ 81.95 57.60% Other Rounds Junior Walking - $ - $ - 0.00% Total Other - $ - $ - 0.00% Complimentary VIP 91 $ 475 $ 5.22 2.83% PGA Member 14 _ $ - $ - 0.44% Employee 135 $ 75 $ 0.56 4.21% Total Complimentary 240 $ 550 $ 2.29 7.48% Total Round (Mountainview) 3,210 $ 202,519 $ 63.09 100% Dw2003;POS AVG RD Page 11 • City of Palm Desert• Desert Willow Cash Reserve Analysis for the month of - December 2002 Cash Reserve Analysis One Month LRequired Reserve l S 500.000.00 Cash on Hand S 403.435.37 Variance- Favorable ( Unfavorable) S (96.564.63) Page 12 Palmlert Recreation Facilities Corpoi[ion Income Statement Dec-02 Dec-02 /t % Budget Actual Variance Variance Food & Beverage Revenues $124,140 $147,996 $23,856 119.22% Total Revenues $124,140 $147,996 $23,856 119.22% Salaries $60,710 $69,177 ($8,467) 113.95% Cost of Goods Sold-F&B $38,964 $49,877 ($10,913) 128.01% Food & Beverage Expense $18,833 $16,818 $2,015 89.30% Total Expenses $118,507 $135,872 ($17,365) 114.65% Net Income (Loss) $5,633 $12,124 $6,491 215.23% Note: The above revenues and expenditures are also included in the Desert Willow analysis. Dw2003;PDRFC Budget Page 1 -C? ,. P------ , . .., it 111 1 7 . Ci ,, ., . . ._t . ,. ( z , _ pOPo° ° N MII►ZUH.OS�, O.0 Bit . IDN BURDEN .0; t i . ,1 .fie rf .0 GOLDMAN SACHS° - °` i. ; %i , TVs „ll71 t MIIILLI0NAIIRESe . l�, �" 9'e 3. ,' f ';r ' �, ` o _ a 1•`�sn ? �a-tc. �' ;a ' t Otis, i 4 `,- ;, HEDGE FUNDS � � ,' u 4.4k Y �, t , *+, `��,,t•.. ,, °�, �v 'Aa ,,i+- �.'. 't�� 4, " ".fir ra his.—f. k... FOR MASSES., s3°, 3, ; .>p kl- , � ,' . >a ;F • r , ti,` k, e., o ; t v Xy� m ' t11 'tnf>c a -7�> s 4ri4,.x;.4, rs zr�t h }�1 CALPERS .„, `� 4� �t� '5 ` � .4 • COOLS DOWN Y'w d fifi� i ro w, .G ry6 ' wfs r+3�Ye° 3 .S R ` i}�phlt5 vs m 1 1 I 1 sr rt era - fi z� ns+s' ..w„ r.tt i1 lt�sra. ' •: F "�F.c'ri t .e1 i>. _ 'sY E.tyG'7, t 'F ` c "; t :'-'v' .t . e E a.°,r5f� 'W d�tn zwlN� s % *` �a,�^ yi e, ^??�y t_." \ ,r S •a ° e �.a ,Q°..t w. 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L:324IM THOMAS JEFFREY FINANCE 64PIC9 `= CITY OF PALM DESERT 73-5.10 FRED RARING DRIVE PALM DESERT CA 42260-2570 I11IIII ILIai Jdi 6ldlU1 ,,hhi hilliJihliil iieiilliiii i o !!!io !;z226 r I 111 r 'd g Bleember-g Markets I ,' p ® io March 2003 ,-57 n! 33 ' t ta F t � ,� a Y yg,. r''H k e s; F.. ^i-d 'p�, a' • . n 1€ • .,_W 1 fi A 4�I. i Once a trailblazer in shareholder activism, .1, 4. the largest pension fund in the U.S. is racking up complaints from its own members—and losses. r t ;: I By Ida Picker s.Z 41 i 4 In the early 1990s,the California Public Employees'Retirement System,the I m lr largest U.S.pension fund,with$133 billion in investments,was a standard-bear- t s�• . 'i er df shareholder activism.Chief Executive Dale Hanson and General Counsel Richard Koppes hounded the boards of U.S.companies that were losing money or }. - underperforming,demanding to know what management was doing to boost I earnings.In January1993 alone,the chief executives of three companies Calpers had criticized—American Express Co.,International Business Machines Corp. • and Westinghouse Electric Corp.—resigned. . 1 I Lately,Calpers has been behaving less like a champion of shareholder causes. The pension fund that advocates better disclosure from the companies it invests • in withheld the results of its own investments in venture capital and buyoutfunds, -'.'-arts. sparking a lawsuit and angering Calpers pensioners such as Charlie Oates,75, °• - a retired police officer in Torrance,California."They lost money,and they don't want anybody to know they're losing that kind of money,"says Oates,who pub- • " ' - lishes a newsletter about Calpers called The Outlook."I don't call that investing, -.y in some of these things; it's speculation:' Calpers also kept quiet when it learned that Enron Corp.Chief Financial Of- ficer Andrew Fastow had been wearing two hats: He was both managing invest- '= ,•:'_;,,. ment partnerships and investing in the partnerships himself.Calpers,which had - invested in several of the partnerships, declined to invest in any more of them. T ,__�___� "It was not our job as an investor to tell other investors there's something we don't ;¢.}; -1 CEO Fred ~ i like;says Calpers President William Crist. "It was the job of Enron's attorneys t Buenrostro, • a k� F and accountants and auditors."Enron filed for bankruptcy in December 2001. $ right,with Gener- ' a t rr 2' al Counsel Peter I The Calpers Board of Administration in June failed to act on its own invest- a?'tti',t , Mixon,needs to % ment staff's recommendation that companies report the cost of stock options as '„.. 1, - I.boost returns. , 2�},. ` an expense."Deducting option costs is the honest thing to do,"says Peg O'Hara, a,\ X> managing director at the Washington, D.C.-based Council of Institutional In- L\' vestors,which represents pension funds on legislative issues."We had a near " ,:."i .- unanimous vote of our membership this spring.Calpers was there." h_- I x- - cr e.. t Bloomberg Mark. - i ..„ "<'rw +" 58 March 2003 `,.. ' ` 1. 4, Kathleen Connell,who until January was California state `.. �}""aJ r�' controller and sat on the Calpers board,says the board de- ! u a '.' ti 'tided not to take a position on the issue."We had a very ",. rig '�+ strong feeling that this was a national matter and we should i * _ " ,) ,,,, II' not comment on national legislation,"she says. 4r s i Calpers made its name as a shareholder activist by publicly ' Aat ' �+, y t o ;..).1 I j p criticizing companies that didn't live up to its standards of @ , :I I stock performance and corporate governance.Every year since 1 i I 1992,the pension fund has published a document it calls the ri I I Focus List.The document lists companies Calpers has invest- ,' 1 I ed in that aren't performing as well as market benchmarks or ...0 s .'- I lack independent directors.Calpers officials then meet with , ,, �. . I il - -a+ 'r� ,1 xr7. l' 1 the companies'managers to try to convince them to improve. .. er ;I Among the companies on the latest Calpers Focus List, re- • .,- i; leased in March 2002,are GatewayInc.,Lucent Technologies .- I Inc.and Qwest Communications International Inc. 1. 1` ' "Calpers is not perfect,but they're far ahead of 99.9 per- ;!I cent of other pension funds in the country in terms of their _, willingness to be public,out front,critical,"says Nell Mmow, ,: $ ., 1 editor of the Corporate Library,which studies company 444 President William Crlst on Enron's conflicts of interest:'It F ' !.1 responsibility to shareholders. was not our job to tell.' I. I Calpers isn't ahead of its peers when it comes to perform- , ance.In the 12 months ended June 30,2002,Calpers invest- generation ages. California has 9.8 million baby boomers— { F ments declined 5.9 percent compared with a median loss of those currently aged 38-56—compared with about 7.5 mil- l) 5.82 percent for public funds with a total market value greater lion people in the same age range in 1990,according to data Vg than$1 billion,according to Wilshire Associates'Trust Uni- from the U.S.Bureau of the Census. Iverse Comparison Service.In the previous 12-month period, In hopes of covering rising pension costs,the Calpers y Calpers investments fell 7.2 percent compared with a median board decided in October to put more of its money in riskier, I drop of 6.1 percent.In the same two-year period,total assets longer-term instruments such as private equity,venture cap- I j !, I`, shrank 16.7 percent to $143.4 billion,from $172.2 billion. ital and real estate.The board voted to decrease its target for I ; ? The stock market decline in which the Standard&Poor's bond holdings to 26 percent of its total investments from 28 9 500 Index has fallen by 29.4 percent and to increase so-called alternative investments, sCALPF.jRS SHRINKS ` percent in the two years ended which include venture capital and buyout funds,to 7 percent J I l calpft5s Ss.t;,Wrewwenthh 6yll Jan. 10, 2003, is partlyto from 6percent,according to minutes of the meeting.Calpers j 1 $ `;rartFetandPeilnAiiMb0ash P SP blame. More than half of also increased its investments in real estate to about 9 per- 1 Calpers's assets under management Calpers's money is in stocks, cent of the total from 8 percent.The remaining 58 percent of ��� i q In billions with 80 percent of that in Calpers investments is in stocks. ; ' 170 1652 , index funds that mirror mar- Investing in private equity and buyout funds,hedge funds j150.6 1518 1326 I ket returns. Last November, and venture capital can be risky.In the 12 months ended June I I 2 Calpers ended two fund man- 30,2002,venture capital funds lost an average of 27 percent, agement contracts with Mer- buyout funds were down 11.4 percent and all private equity rill Lynch Asset Management was down 16.5 percent,according to Thomson Venture Eco- Iand Credit Suisse Asset Man- nomics. The S&P 500 was down 18.1 percent in the same I agement, covering a total of period, according to Bloomberg data. Calpers's real estate I . i I about$1.94 billion,citing the investments gained 9.5 percent in the period. '97 '98 '99 '00 '01 '02" 5 managers'performance as one Unlike stocks or bonds,the alternative investments aren't :11x 7,y,.... ' reason. Merrill and Credit publicly listed,which makes them hard to evaluate,says pen- -As of at 31 Source.Calpers Suisse declined to comment. sion consultant Geoffrey Bobroff of Bobroff Consulting Inc. Calpers needs to earn more on its assets so it can cover its in East Greenwich,Rhode Island.Hedge funds also offer less I I obligations,which totaled some $6.3 billion of pension investor protection than traditional mutual funds do, he checks for its 388,126 retirees in the fiscal year ended June adds. Hedge fund and private equity offering documents •' 30,2002.Calpers's 795,785 active members—comprising po- aren't reviewed by the U.S. Securities and Exchange Com- `') lice officers,judges,teachers and other state employees—and mission like mutual fund documents are."There's no free their employers contributed just half of that amount.The lunch,"Bobroff says."These products,to produce a higher j ' fj shortfall will become greater in the future as the baby boomer rate of return,are riskier than traditional investments." 01,4 ' CALF. CONTROVERSY Bloomberg cberg Markets 2003 L59 n ar"^ --r' — --h INCREASING R SK" t _` i 1990, they've often offered returns of 20 percent or more, Calpers.th€'bigg$stpension_Ifund it thtirU&'raised its equity and real 1 according to the Calpers Web site. a estate ta"Pgets and wered b lowered u(vestgfents for 2001")."„" '&,.mac. •+r i Some private equity analysts say Calpers's increase in pri- k: Calpers's assets,2002• vote equity investments last year was well-timed."They have i 1. l wisely chosen to increase their investments when assets are I down,as opposed to other investors who are cutting and run-. U.S.equities.38.5% ninth,"says David Snow,editor of Web site privateequitycen- u.s.fixed income:22.9 tral.net."Now is a better time to invest,when valuations are 0, International equities:181 so much lower than in 2000." Real estate:9.2 A I Private equity**..5.2 a alpers's profitable alternative investments included one r International fixed income'4.7 made in Jedi I,a partnership arranged by Enron, Cash:1.4 ` 1" which Calpers sold back to the energy trader in No- i Total:5132.E billion - vmber 1997 for a profit of$132.5 million,according to a fact • -, sheet Calpers issued about its investments with Enron. 'As ot Oct.31**4ncucies otheraite,natise investments such as heckle fundssa,ce.raicers Calpers says it invested $175 million in Jedi II,for which it ' Calpers angered some of its members as well as outsiders received $171 million in earnings.Calpers also invested in when it decided in December 2001 to remove from its Web Enron stocks and bonds,losing more than$100 million. site the results of individual private equity funds it had in- Calpers is diverging from its peers when it comes to sup- vested in.Even some members of the Calpers board had mis- porting the expensing of stock options.Just prior to the June givings:"I'm concerned that we take every action we can[in 17 board meeting,Lawrence Sonsini—chairman and CEO of order]to not be accused of hiding things that the public has Wilson,Sonsini,Goodrich&Rosati in Palo Alto,California, a right to know,"said board member Sidney Abrams,accord- representing the technology industry lobbying group Tech • - ing to minutes of the Dec. 17 board meeting.Abrams,who Net—argued that expensing stock options would make them was appointed to the board by California's governor to rep- too expensive for companies to award to employees,thereby resent the insurance industry,nonetheless voted in favor of hurting recruiting and retention for technology companies, withholding the results,according to the minutes."The staff many of which are headquartered in California. made it clear that total disclosure would jeopardize our rela- There's no doubt that the expensing of stock options tionship with some of the best private equity firms,"he says. would be costly for companies. In October, rating agency "I was persuaded by that argument." Standard&Poor's created a core earnings system for the S&P Calpers Senior Investment Officer Richard Hayes said at 500 that includes the cost of company-issued stock options. • the December meeting that some of the funds Calpers invests According to Howard Silverblatt,editor of S&P's Quantitative in had asked that their results be removed,according to the minutes.Hayes said it was in Calpers's interest to comply 'bc .r$A •yyWr '� sty+ • .t,' . +` - with that request if it wanted to keep its status as an"investor :11 • 3K.1Z b ' ' +- of choice"with the funds,according to a report he presented • fit.; ^" to the board's investment committee at the December meet- f a '" ^ v in Manyto tier private equity firms had previouslybeen •" I • • . a f,f' g- P- P q ty i• % a. at i unwilling to do business with Calpers,Hayes said in the re- '-;M" a C t t- i • port.Among the private equity funds Calpers now invests in ' ,. ' i1Rr w ' „y4. are those run by Apollo Management LP and Blackstone • v'--'*a ' Group LP,says Calpers spokesman Brad Pacheco. Cheryl y v' -�`; - - • &¢ Gordon,a partner in charge of investor relations at Apollo, i .. < says the funds'results are not public and that Apollo did not • c . , ask Calpers to withdraw the results from its Web site.Black- - r ,,, stone Senior Managing Director Ken Whitney also said the - '' - ""°± `' results are not public and that Blackstone did not ask Calpers `' Y , P. !. o i< to stop disclosing them. In November,a California judge ordered Calpers to dis- .• _ close the returns,which are now on its Web site. Retiree - _ Oates's assertion that the alternative investments made loss- _ - - • es was correct Calpers said it had invested $19.5 billion in T. 1,, ,Y ` ' 342 different alternative investments,which lost 10.1 percent • - i .. ' _ last year, 10.2 percent in 2001 and 15.9 percent in 2000. i Former California Controller Connell warns of a state budget crunch. i Since Calpers first began making alternative investments in 1 4- r Bloomberg Markets I i Et-] March 2003 O CALPERS C•VERSY . • I L ' Services department,the expensing of stock options reduced state personnel director.General Counsel Kayla Gillan also average earnings among S&P 500 companies to $18.48 per resigned and was replaced by Peter Mixon."A lot of my friends share from$26.74 per share."We're not talking about a small in Sacramento shook their heads and asked,'Why did you take { expense here,"says Silverblatt. that job?You guys just lost$35 billion in the last two years," i 1 Buenrostro said on Oct.24 at a Manhattan conference of the jalifornia technology companies are important to the New America Alliance,a three-year-old Hispanic business '{ revenue and taxes of the state of California,which group that had lobbied Calpers's board members to elect him. I Imakes contributions to the pension fund,Calpers Pres- Buenrostro,who'd previously served on the Calpers board for hl ident Crist says.James McRitchie—editor of the corpgov.net 12 years,declined to he interviewed for this article. Web site and chief of environmental analysis,regulations and Calpers's other main activity—buying and administering audits at a unit of the California Environmental Protection health insurance for its 1.4 million members—illustrates the i Agency—says members of the board who are elected officials difficulty of Buenrostro's job.Premiums for health insurance i ' ' i get campaign contributions from technology companies. rose by an average of 26 percent to $3.3 billion in January 1 , "When you're in an election and trying to raise a lot of money, 2003, according to Clark McKinley, a Calpers spokesman. 1 you'd be committing suicide to go against Silicon Valley," Calpers passed on some of the higher costs to the state and McRitchie says."They contribute a lot of money to cam- local government employers and some to its members by t i+ paigns."California state Treasurer Phil Angelides received raising copayments for medicatiehs and doctor visits. $50,000.from Amtel Corp.,a San Jose maker of computer As costs continue to climb;Calpers's room to maneuver . !. circuits,in December 2001, according to documents from becomes limited.Many retirees can't afford more increases, 1 California's secretary of state.Calpers's 13-member board and the state is running a deficit."The state is not in a posi- iJ includes two elected public officials—the state treasurer and tion to increase employer contributions,"says former con- ' the state controller. troller Connell."This is the awkward situation we're in." } Calpers has experienced a lot of turnover.Since Jan. 1, For the formerly outspoken pension fund,such awkward • 2002,three of the 13 board members have left.In addition, situations are getting more frequent.D. ] � ; CEO James Burton left and was replaced in December by Fred IDA PICKER is a senior writer at Bloomberg News in New York. j Buenrostro,a52-year-old attorney who was previously deputy (picker@bloomberg.net • �. d II ; ' BLOOMBERG TOOLS I ' �.• - Building an Equity Search • .Calpers creates its,Focus ,•--_� . r, re it& QSRC 1 List of companies to target 1 Enter I U3 to select feel d, <TAB> for key word I uol:uP. ' Ri0> for clef Intl ons. Iii ''- 1 -- - EQUITY-SEARCH-FIECDS '1 1 for;corporate'governance - - ---- — 1, eaiY liflif -Fields Pe,ge �11 Ll reform by starting,with a I , , Current Field : No Search Field Selected ' ,universe of 1,900 stocks and i I ll _ . Category - I " 'narrowing the list to 15 -{ i - Enter S<GO> to select search field I 1 ' final caniljdates,according _ i Select Field By Category In i •, - i • to Ted.White,.director of j{ Li - I - { { corporate governance at ` 1 41 Return 1 t Calpers.Youcanuse the LI' Equity Search(QSRC)func• - - - - -- tion to sort through.a similarly large list of stocks based . generate a list of stocks via QSRC. For example,.type 2 I on a range of criteria you define.Type QSRC<Go>28 ' <Go>and click on Return in the list at the left side of the i -<Go>to create a new search.Type 18<Go>to search screen,as shown above.Click on Total Return 1 Year Pct ' through only members of a broad market index,such as . to search based on stock price return for the last calendar • t'he Russell 1000 Index.Click on North/Latin America on year.Tab in tb the MINIMUM field,and enter a minimum I i the left side of the screen.Press<Page Fwd>,select Rus- value for one-year return for the stocks you're including in sell 1000 Index from the list on the right side of the the search.Follow the same steps to add more criteria to I# i ' • screen and press<Menu>. the search,enter a name in the SEARCH TITLE field and 9 I l When narrowing the list of candidates for its Focus press<Go>.Then type 1<Go>three times to generate a 1 List,Calpers uses criteria such as stock price performance list of results. and efficient use of capital.You can use similar criteria to JOHN DIXON . 1 For CaLpers's Web site, type 3261Z US <Equity> CWP. 1. REVIEW & OUTLOOK W 5 T Cronyism at Calpers I-31-03 How have the mighty fallen. And how vestment returns stay robust, that fiduciary quickly.For decades,Calpers,the gi- duty has been satisfied. ant California state pension fund,set Well,during this period of increasing politi- a standard of excellence in investment per- cization Calpers's investment returns have formance and probity.Lately,however,Calp- taken a dive. Since 2000 the fund's investments ers has become the have underperformed poster-plan for bad r 1 other large pension performance, crony- j Willie Brown heads I funds. In the three ism and lousy corpo- for where the money is. J years ending Septem- rate governance. ber 30, 2002, returns And it's about to get worse. posted a negative 2.5%.Between June 2000 and Calpers's slide is a familiar tale of Califor- the end of October 2002,Calpers's assets dwin- nia politics,and one almost ordained given the died to $136.6 billion from $172 billion—a de- makeup of Calpers's board of trustees. There dine of more than 20%. If returns don't im- are 13 members—six elected by members of prove, the fund may show unfunded liabilities Calpers, four appointed by the Governor and by the end of its fiscal year. three state officials designated by statute. Diminishing returns leaves Calpers with Since Governor Gray Davis has enormous two choices. Either contributions to the fund influence over board membership, it's no sur- must be increased, in this case from employ- prise that a majority represents, or is sup- ers, or the risk-return investment trade-off ported by, labor or the Democratic Party. But must be tilted toward higher risks, higher re- Mr. Davis's choices to run the largest pension turns. fund in the country are especially question- Calpers has decided to do both. The fund able.His most recent appointee,San Francisco has already informed employers that they are Mayor Willie Brown,is a classic political favor- on the hook;state school districts,for example, grantor and insider. And a great chum of Mr. have been told will have to start contributing Davis. about 2.8%of payroll. Under this board, investment strategy has More interesting, however, is the Calpers become increasingly twisted toward what the portfolio allocation.Less risky fixed-income in- board calls socially responsible investing, but vestments constitute about 28%, riskier equi- what others see as the pursuit of the political ties log in at 62%and much riskier real estate dictates of its union-affiliated members. Some accounts for 9.2%. The really risky allocation, also detect an investment strategy designed to alternative investments,accounts for 4.9%—al- reward the Democratic faithful. though when private equity is included, the Last year Calpers invested$100 million in a share allocated to alternative investments real estate partnership run by Richard Wollack, leaps to 16%. a major fund-raiser for Mr. Davis. Calpers also invested more than$760 million in funds run by That's a very aggressive strategy for a pub- Ronald Burkle, a big contributor to Mr. Davis lic pension fund.Calpers says its benchmark re- and to two state officials who served on the turn for these risky alternative investments is board,Treasurer Philip Angelides and Control- 15%,but those returns are now negative.In the ler Kathleen Connell. Mr. Burkle has also con- year ending June 30,2002, they were negative tributed to the various campaigns of Willie 7. 5°. Brown and has employed Mr. Brown to do legal Into this lethal mix of politics and despera- work for his companies. Both Mr. Brown and tion comes the election of a new president by Mr. Angelides (former state Democratic Party the Calpers board next month. The first two chairman) voted in favor of giving$760 million candidates to declare themselves were Sean to Mr. Burkle. The state's taxpayers deserve to Harrigan, a boss of the Food and Commercial know how this not-so-little investment turns out. Workers Union who became a Calpers board And then there are the conflicts of interest. member after Governor Davis appointed him Members of the board are allowed to own stock to the State Personnel Board, and Bob Carson, that is also held by Calpers. Mayor Brown not a retired general counsel for the State Depart- only held shares in firms owned by Calpers but ment of Transportation. Then a third candi- also received campaign money from compa- date popped up—with the support of Mr.Davis— nies in which Calpers has invested. Mayor Brown. The board of course has a fiduciary respon- If Calpers were a private investment fund, sibility to the beneficiaries of the pension fund. this would all be hilariously high comedy. But While the persnickety might question these ap- Calpers is a public fund. Ultimately the buck parent conflicts of interest and cronyism, the stops with the taxpayers of California. For less fastidious might argue that as long as in- them, it might turn out to be pure tragedy. 1 rig ,fl(h r •V}EEW & OUTLOOK Iws:r Cronyism at Calpers i 31-03 How have the mighty fallen. And how vestment returns stay robust, that fiduciary quickly. For decades,Calpers,the gi- duty has been satisfied. ant California state pension fund,set Well,during this period of increasing politi- a standard of excellence in investment per- cization Calpers's investment returns have formance and probity.Lately,however,Calp- taken a dive. Since 2000 the fund's investments ers has become the have underperformed poster-plan for bad • other large pension performance, crony- Willie Brown. heads 1 I funds. In the three ism and lousy corpo- for where the money is. J years ending Septem- rate governance. ber 30, 2002, returns And it's about to get worse. posted a negative 2.5%.Between June 2000 and Calpers's slide is a familiar tale of Califor- the end of October 2002,Calpers's assets dwin- nia politics,and one almost ordained given the died to $136.6 billion from $172 billion—a de- makeup of Calpers's board of trustees. There dine of more than 20%0. If returns don't im- are 13 members—six elected by members of prove,the fund may show unfunded liabilities Calpers, four appointed by the Governor and by the end of its fiscal year. ' three state officials designated by statute. Diminishing returns leaves Calpers with Since Governor Gray Davis has enormous two choices. Either contributions,to the fund influence over board membership, it's no sur- must be increased, in this case from employ- prise that a majority represents, or is sup- ers, or the risk-return investment trade-off ported by, labor or the Democratic Party. But must be tilted toward higher risks, higher re- Mr. Davis's choices to run the largest pension turns. fund in the country are especially question- Calpers has decided to do both. The fund able.His most recent appointee,San Francisco has already informed employers that they are Mayor Willie Brown,is a classic political favor- on the hook;state school districts,for example, grantor and insider. And a great.chum of Mr. have been told will have to start contributing Davis. • about 2.8%of payroll. Under this board, investment strategy has More interesting, however, is the Calpers become increasingly twisted toward what the portfolio allocation.Less risky fixed-income in- board calls socially responsible investing, but vestments constitute about 28%, riskier equf- what others see as the pursuit of the political ties log in at 62% and much riskier real estate dictates of its union-affiliated members. Some accounts for 9.2%. The really risky allocation, • also detect an investment strategy designed to alternative investments,accounts for 4.9%-al- reward the Democratic faithful. though whenprivate equity Last year Calpers invested$100 million in a g 9 to is included,m the share allocated to alternative investments real estate partnership run by Richard Wollack, leaps to 16%. a major fund-raiser for Mr. Davis.Calpers also invested more than$760 million in funds run by That's a very aggressive strategy for a pub- Ronald Burkle, a big contributor to Mr. Davis lic pension fund.Calpers says its benchmark re- and to two state officials who served on the turn for these risky alternative investments is board,Treasurer Philip Angelides and Control- 15%,but those returns are now negative.In the ler Kathleen Connell. Mr. Burkle has also con- year ending June 30, 2002, they were negative tributed to the various campaigns of Willie 7.1%. • ' Brown and has employed Mr.Brown to do legal Into this lethal mix of politics and despera- work for his companies. Both Mr. Brown and tion comes the election of a new president by Mr. Angelides (former state Democratic Party the Calpers board next month. The'first two chairman) voted in favor of giving$760 million candidates to declare themselves were Sean to Mr. Burkle. The state's taxpayers deserve to Harrigan, a boss of the Food and Commercial know how this not-so-little investment turns out. Workers Union who.became a Calpers board And then there are the conflicts of interest. member after Governor Davis appointed him • Members of the board are allowed to own stock to the State Personnel Board,and Bob Carson, that is also held by Calpers. Mayor Brown not a retired general counsel for the State Depart- only held shares in firms owned by Calpers but ment of Transportation. Then a third candi- also received campaign money from compa- date popped up—with the support of Mr.Davis— flies in which Calpers has invested. Mayor Brown. , The board of course has a fiduciary respon- If Calpers were a private investment fund, sibility to the beneficiaries of the pension fund. this would all be hilariously high comedy. But While the persnickety might question these ap- Calpers is a public fund. Ultimately the buck parent conflicts of interest and cronyism, the stops with the taxpayers of California. For less fastidious might argue that as long as in- them,it might turn out to be pure tragedy.