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HomeMy WebLinkAboutMinutes - Investment & Finance Committee 05/26/2004Xe Finance Department MEMORANDUM To: Rachelle Klassen, City Clerk From: Diana Leal, Administrative Secreta Subject: Investment and Finance Committee Date: July 8, 2004 Attached is a copy of the May 26, 2004 minutes of the Investment and Finance Committee approved by the Committee on June 23, 2004. 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\2003\5-26-04 minutes.wpd CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE Minutes May 26, 2004, 10:30 a.m. North Wing Conference Room I. CALL TO ORDER A regular meeting was called to order by Chairman Gibson on Wednesday, May 26, 2004 at 10:31 a.m. II. ROLL CALL Present: Paul S. Gibson, Finance Director Buford Crites, Mayor Pro -Temp Carlos Ortega, City Manager Thomas Jeffrey, Deputy City Treasurer Everett Wood Bill Veazie Thomas Wormley Also Present: David Yrigoyen, Director of Redevelopment Dennis Coleman, RDA Finance Manager Jose Luis Espinoza, Assistant Finance Director Rodney Young, General Manager Desert Willow Diana Leal, Recording Secretary Guests: Jennifer Larson, Desert Sun Reporter III. ORAL COMMUNICATIONS Absent: Bob Spiegel, Mayor Russ Campbell Dave Erwin, City Attomey Mr. Gibson indicated that Jennifer Larson, a reporter from the Desert Sun was in attendance. IV. COMMITTEE MEMBER REPORTS None. 1 52604.wpd INVESTMENT & FINANCE COMMITTEE MINUTES May 26, 2004 V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Wood and seconded by Mr. Veazie to approve the Minutes of the April 28, 2004 meeting as submitted with Mr. Ortega and Mr. Crites abstaining. VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for April 2004 For the month ended April 30, 2004, Mr. Jeffrey reported that the book value of the City Portfolio was approximately $130.3 million. The City earned approximately $156,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.54%. For the month ended April 30, 2004, Mr. Jeffrey reported that the book value of the RDA Portfolio was approximately $152.7 million. The RDA earned approximately $156,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.22%. Mr. Wood asked if staff could e-mail the monthly investment report to committee members. Mr. Gibson responded that it would not be a speedy process at this point. Mr. Gibson suggested that committee members who might be interested in this option should provide their e-mail addresses to staff, so that staff could e-mail meeting agendas to them, and, eventually, the monthly investment report. Mr. Crites observed that not everyone might have a personal computer. If so, then e-mail would lead to an uneven dissemination of information among committee members. B. State of California Local Agency Investment Fund Balance for the month of April 2004 The City is maxed out in the LAIF accounts. 2 52604.wpd INVESTMENT & FINANCE COMMITTEE MINUTES May 26, 2004 C. Califomia Asset Management Program (CAMP) April 2004 Statements Mr. Gibson said that staff is monitoring the CAMP accounts to ensure that the cap is not exceeded. D. City and Redevelopment Agency Monthly Financial Report for City Council for April 2004. Mr. Gibson said that he was very pleased to see that the Transient Occupancy Tax was up $200,000 last month. Building permits continue to increase. The only negative footnote is the Department of Motor Vehicle funds taken by the state. Mr. Ortega asked if the $7.3 million was budgeted as of the end of April. Mr. Gibson said that companies typically have 30 days after the month closes to pay their bill, thus reporting is at least a month behind. He said that the City will easily reach the $7.3 million this year and may be slightly higher. Mr. Gibson said that the Riverside County Sheriffs department is now billing the City in a timely fashion which helps staff get a better picture as to expenditures. E. Parkview Professional Office Buildings - Financial Report for April 2004 Mr. Gibson said that he wanted to provide an answer to Mr. Spiegel's question posed at the last meeting regarding the increase in expenditures for March. He said that the increase in improvements was due to slurry sealing of the parking lot. Mr. Ortega said that he understands that the County has made a request to increase their rental space in order to bring the Economic Development Agency. Mr. Gibson said that he was not aware of that request, however, a tenant would be moving out and that there should be sufficient space available. Mr. Gibson said that next year, once UCR completes their building, they will be moving out of Parkview. Numerous companies have contacted Mr. Gibson to express their interest in the space once it becomes available. F. Palm Desert Golf Course Facilities Corporation Financial Information for April 2004 Mr. Young said that their revenue is up. He said that in July, August and September of last year they had lots of problems. In November there were golf course issues. They are experiencing a strong recovery. They are well ahead of budget. He is optimistic about Memorial Day weekend. He expects 3 52604.wpd INVESTMENT & FINANCE COMMITTEE MINUTES May 26, 2004 that Food and Beverage will be at budget or better. However, they are ahead of local golf courses without hotels. Golf courses with hotels have more rounds due to the packages they can offer along with hotel stays. Desert Willow's (DW) rounds are up (80,000 rounds). Course conditions are better than they have been, they have received positive comments from customers. They are using less than 700,000 gallons of water per day due to better water management. Mr. Ortega said that he believes it is due to the hiring of the new golf course superintendent. Mr. Young said that during that time he and his staff met with Coachella Valley Water District to review the Desert Willow's water usage and compared DW with other local golf courses. He thinks they will do a better job at utilizing the water. Mr. Young said that they are changing from two computer software packages to one computer so that all of the irrigation will be on a much improved irrigation system. They are also using new sprinkler heads and irrigation equipment. 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 at the last meeting, the Investment and Finance Committee recommended to the City Council the hiring of Citigroup Global Markets, Inc. to refund the 1995 Project Areas No. 1 and 2 bond issues. At the meeting of the City Council, the City Council acting as the Finance Authority, hired Citigroup. In terms of the refunding, Mr. Coleman had previously reported refunding for Project Area No. 1 and Project Area No. 2, however, they have decided to only refund Project Area No. 1 as the savings in Project Area 2 were not sufficient enough to pursue. For the past five years, the rates have been low and have afforded the opportunity to refund bonds and issue bonds for new money at a significantly low rate. As the rates rise, this affects the savings on refunding of the bonds. When staff was first alerted as to the savings for both of the bonds, Project Area No. 1 savings was about $2.2 million and now it is down to about 4 52604.wpd INVESTMENT & FINANCE COMMITTEE MINUTES May 26, 2004 $600,000 plus. There was a significant change in the market where the stocks soared, the treasuries took a dive. Staff is monitoring the market so that they can issue bonds for the same debt service to pull out a savings of $600,000. Staff is looking at restructuring the bond. By doing so, they can lower their maximum annual debt service. The maximum annual debt service is that point at which all of the Agency bonds in parity have the highest amount of debt service. This is important as whenever the Agency issues new bonds, it is based on the current income against the proposed maximum annual debt service. At this time, the maximum annual debt service in parity on these bonds is about $10.8 million. By restructuring the bond, they can bring it down to a $9.4 or $9.6 million. This is lower by $1.5 million. On Monday, the insurers came to the City of Palm Desert for a presentation. Citigroup felt that it was a strong enough credit that the Agency should have other insurers involved. In the past the Agency has tried to do this. They have had AMBAC take a look at insuring the Agency's bonds. FSA at some point also had the opportunity to review the bonds. Fidget was never approached to do this, however, when Fidget was owned by GE Capital they were very conservative and did not insure tax allocation bonds. XL Capital is a new company that insures California bonds. It was not until the year 2002 that they were allowed to insure California bonds. Staff participated in the presentations to the insurance companies. They had a conference call with Fidget of New York for an hour and a half to go over the presentation. In addition, a second firm, XL Capital sent Tammy Ames, an Analyst to view the presentation. Ms. Ames understands not only, the Redevelopment tax allocation credit, but the state budget considerations as well. Agency staff provided a presentation to MBIA, the third firm, over the phone. AMBAC and XL Capital was given a tour of Project Area No. 1. Mr. Coleman said that they were fortunate that Big Horn allowed the insurers to visit Big Horn. He said that he would provide the committee members with a copy of the 42- page presentation prepared by Citigroup. The presentation was the fiscal consultant's report. The fiscal consultant was hired to verify the Agency's revenue. The Agency has extremely good credit. In Project Area No. 1, the Agency is allowed to issue bonds according to every dollar of debt service. The Agency has to only have $1.15 covered. Most project areas in California do not have this. They are at about $1.20 - $1.25 for every dollar. The $1.15 coverage make some insurance companies uneasy. This is one of the few project areas in the state that has a $1.15 coverage. Staff expects to receive three bids. Fidget has expressed their interest in bidding. XL Capital indicate that if the Agency can obtain $1.15 through the credit committee, they will 5 52604.wpd INVESTMENT & FINANCE COMMITTEE MINUTES May 26, 2004 submit an aggressive bid because they want to increase their fixed rate portfolio in terms of California bonds. MBIA stated that they have no problem in providing a bid. The finalized fiscal consultant report will be sent out today. The preliminary official statement is being sent to a few insurers. The documents will go to the City Council, the Redevelopment Agency and the Financing Authority to authorize the specifics of the bond deal, in general, subject to being changed and subject to form. If the City Council approves, staff will be obtaining insurance commitments next week. After the insurance commitments are received, staff will reevaluate the savings and at that time will decide if they should go into the market. If everything goes well by the end of this month, the bond should be refunded. By the next Investment and Finance Committee staff will be able to inform the committee as to whether or not staff will be able to price and close the bond. Staff is scrambling to take advantage of this window of opportunity period because the economy has been strong. The producer price index numbers came out higher than what was expected. What typically happens is that the bonds get oversold. The bonds went down and the stock market took off. Everything balances out afterwards. The 30-year treasury was trading at 5.56%, today, they are closer to 5.38%. The 20 -year AAA municipal index, nationwide, was at a 5.08%. The Agency will not be issuing any new money for 2 or 3 years. On another note, the Governor has proposed a budget to local govemments for another $1.3 billion a year for two years. The Governor will work with the legislature to place the state constitutional amendment on the ballot which he will stand behind and endorse. The amendment would be such that after two years of ERAF it will prohibit the State from touching local government income. Local cities and the County were asked to give $350 million per year. This bill allows for the City to have the Redevelopment Agency pick up the City's share of cost. The Agency's portion for next year will be about $3,896,840. Earlier this month, the Agency sent a check to the County in the amount of $2,113,709. Previously, the Agency spent $1,184,000. This project area's portion is $2.4 million. Staff told the insurance companies that once ERAF goes away, the Agency will go back to the market and obtain new money. It is much easier when you don't have to worry about quantifying the ERAF cost. In 2006-2007 the Agency will have the capacity to bring in new money for all of the project areas. Staff is looking at Project Area No. 1 with a 6% interest rate overall. Mr. Veazie asked if staff would be requesting three bids. Mr. Coleman said that he believed that they would be able to obtain three bids. One of the issues is how will the surety work if MBIA is not hired. Perhaps the can have a surety on the basis of a stand-alone bond issue. MBIA has been insuring most 6 52604.wpd INVESTMENT & FINANCE COMMITTEE MINUTES May 26, 2004 of the Agency's bond issues with the exception of one done in 1985. The difference in the new surety versus the old surety is that the old surety that will disappear is $1,955,000 and staff is looking at a new surety of $400,000 by restructuring. By restructuring the principal, staff will bring the coverage for maximum annual debt service from $1.33 to $1.55. The reason it is high even though there is a coverage requirement of $1.15, is because staff has to bond around ERAF the last time out to satisfy the insurance company and the investment community. Mr. Veazie said he is not optimistic about interest rates going down when he considers the outlook of energy, crude oil and gasoline. Mr. Crites said that the City of Palm Desert is fortunate to have the means to have projects. Other cities are not as fortunate. He said that the City's projects are reviewed by outside expertise brought in by the members of the Investment and Finance Committee. He thanked staff and members of the committee for a job well done. Mr. Coleman said that the other news he had to offer is that the preliminary numbers as of fiscal year 2001-2002 show that the Agency was 6th in the State in terms of gross increment. San Francisco jumped from $35 million to $59 million. According to the numbers provided, San Francisco is down to $41 million, this places the Agency at 5th place. San Jose is first at $198 million, Los Angeles second at $89 million, Industry is at $60 million and San Diego is $55 million. The City of Palm Desert was at $50 million at the end of last fiscal year, slightly ahead of Oakland who is at $48 million. The City of Palm Desert's payment to ERAF is $3 million while San Jose's payment to ERAF is $18 million, plus they will pay for their City's portion which is another $11 million for a total of $29 million. ERAF depends on pass thru. X. NEXT MEETING - Wednesday, June 23, 2004 at 10:30 a.m. XI. ADJOURNMENT There being no further business, the meeting was adjourned by Mr. Gibson at 11:13 a.m. Respe 7 52604.wpd