Loading...
HomeMy WebLinkAboutMinutes - Investment & Finance Committee 04/28/2004Finance Department MEMORANDUM To: Rachelle Klassen, City Clerk From: Diana Leal, Administrative Secret Subject: Investment and Finance Committee Date: June 9, 2004 Attached is a copy of the April 28, 2004 minutes of the Investment and Finance Committee approved by the Committee on May 26, 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 Committee12002 Memos\City Clerk \2003\4-28-04 minutes.wpd CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE Minutes April 28, 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, April 28, 2004 at 10:31 a.m. II. ROLL CALL Present: Absent: Paul S. Gibson, Finance Director Buford Crites, Mayor Pro -Temp Bob Spiegel, Mayor Carlos Ortega, City Manager Thomas Jeffrey, Deputy City Treasurer Russ Campbell Everett Wood Bill Veazie Thomas Wormley Dave Erwin, City Attorney Also Present: Justin McCarthy, ACM/Director of Redevelopment Dennis Coleman, RDA Finance Manager Diana Leal, Recording Secretary Guests: Joseph Crowley, Vice President, Citigroup Carmen Vargas, Associate Municipal Securities, Citigroup Bradford Thiel, Director Municipal Securities, Citigroup I11. ORAL COMMUNICATIONS Mr. Gibson introduced Mr. Thomas Wormley, the newly appointed Investment and Finance Committee member. Mr. Wormley provided the committee with his work experience and background. The Committee welcomed Mr. Wormley. Mr. Coleman introduced Mr. Joseph Crowley, Ms. Carmen Vargas and Mr. Bradford Thiel representatives of Citigroup and said that they attended this meeting to provide a bond proposal. 1 42804 wpd INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 IV. COMMITTEE MEMBER REPORTS None. V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Campbell and seconded by Mr. Erwin to approve the Minutes of the March 24, 2004 meeting as submitted with Mr. Wormley abstaining. VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for March 2004 Mr. Jeffrey provided the Committee with a copy of the City's ICMA and Nationwide Deferred Comp statements for the quarter ended March 31, 2004. For the month ended March 31, 2004, Mr. Jeffrey reported that the book value of the City Portfolio was approximately $126,691,000. The City earned approximately $161,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.56%. For the month ended March 31, 2004, Mr. Jeffrey reported that the book value of the RDA Portfolio was approximately $163,515,000. The RDA earned approximately $174,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.20%. Mr. Jeffrey said that he recently attended the Califomia Municipal Treasurer's Association Annual Conference. Wells Fargo's Chief Economist had predicted that the Federal Open Market Committee would raise the Federal Funds Rate by 400-to-500 basis points over the next three -to -four years. Most of the speakers recommended maintaining a short portfolio duration so that investors could take advantage of interest rates as they rise. Mr. Jeffrey said that in the first quarter of 2004, the Ford Motor Company had more than doubled its profit over the same period prior year. This may signal the beginning of a recovery for Ford. 2 42804. wpd • INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 B. State of California Local Agency Investment Fund Balance for the month of March 2004 There being no business issues to report, discussion ensued to the next agenda item. C. California Asset Management Program (CAMP) March 2004 Statements There being no business issues to report, discussion ensued to the next agenda item. D. City and Redevelopment Agency Monthly Financial Report for City Council for March 2004 Mr. Gibson said that sales tax continues to thrive. His last estimate was $14 million, however, after the quarter numbers, his estimate will be higher than $14 million. Everything is going well with the City with the exception of the State subvention where $700,000 of Department of Motor Vehicle fees were taken. Mr. Campbell said that he read in the local newspaper that the mayor of the City of Rancho Mirage made a comment that their city had a shortfall and has run out of land. He asked how the City of Palm Desert was doing in relation to land and if there was a plan in case there were no land available. Mr. Gibson said that the City of Palm Desert is currently looking at increasing building permit fees as the City of Palm Desert charges the lowest rates in the valley. A staff report regarding the increase to the fees will go before the Council in May. The north sphere is all that the City has left to develop. It is projected that the available land can potentially be built out within 5 years. The interest rates will determine how many homes will be built, etc. Mr. Spiegel said that the City has a lot of commercial land left. The biggest land is the Gateway Project which is across from the Costco. This will bring in additional revenue for the general fund. Lowe's is planning to open a store on Monterey and Sears will open at the Westfield Shoppingtown in October 2004. The area near the freeway is designated commercial office professional. Mr. Spiegel said that the owner of the property just north of Country Club drive would like to build a grocery store there. The problem that they are having is that there is a tremendous amount of work that has to go into the old Albertson's building before anyone can occupy the space. The City of Palm Desert has a Business Support Manager whose primary task is to ensure that the City business buildings have no vacancies. 3 42804.wpd INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 Mr. Spiegel asked about the City of Palm Desert's transient occupancy tax. Mr. Gibson said that they were doing okay, however, he did not expect much growth revenue wise. He said that it is very difficult to project what revenues will be received as not many conventions are being booked for the future. The Marriott will have to rely on people coming from Los Angeles and Orange County. E. Parkview Professional Office Buildings - Financial Report for March 2004 Mr. Gibson said that the City of Palm Desert operates the Parkview Professional Office Building. The office complex is occupied with State tenants: Water Resources Board, Assemblyman Battin, Assemblyman Benoit, CVAG, and other quasi -governmental agencies. There are a couple of private businesses that occupy space at the complex. The funds derived from the complex are used to fund the park maintenance. Mr. Gibson said that he was contacted by Supervisor Wilson advising him that they intend to occupy a space. They are taking measurements of the space to determine what changes are necessary. The earliest they can move in will be July or August. Mr. Spiegel asked why there were more expenditures indicated for March. Mr. Gibson said that he is aware that some of the offices are being refurbished. He will ask the Senior Financial Analyst why there is a change in the amount expended and will provide the information at the next regularly scheduled meeting. F. Palm Desert Golf Course Facilities Corporation Financial Information for March 2004 Mr. Gibson said that Mr. Young is out of town this week to attend to personal business. Mr. Gibson said that Kemper Management, a third party management company, operates Desert Willow (DW) for the City of Palm Desert. They provide the City with monthly reports. Mr. Wormley asked how long DW has been in operation. Mr. Gibson said that it has been in operation since 1997. One of the goals for DW is to locate a hotel at the site. Mr. Spiegel said that the restaurant is doing a fabulous job. He said that he thinks that more and more locals are going to the restaurant. Mr. Gibson reported that the televisions approved by the Council have been installed at DW. 4 42804. wpd INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 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 Hiring Citigroup Global Markets, Inc. to Refund the 1995 Project Areas No. 1 and 2 Bond Issues Mr. Coleman said that his department deals with the municipal bonds. He said that a refunding candidate was identified by Citigroup. Citigroup representatives met Mr. Coleman at a conference and said that one of the City's issues were due for a refund. They contacted Mr. Coleman with some figures and submitted a proposal for consideration. Mr. Coleman said that staff was impressed with the proposal as they have good retail capabilities, a long time business aggressiveness on spreading of pricing. Citigroup Global, Inc. was formerly known as Salomon, Smith, Barney. Mr. Coleman said that the report he provided to the committee recommends that the Palm Desert Financing Authority to hire Citigroup to refund 1995 Project Area 1 and Project Area 2 bonds. The savings have changed since they first came to the City as the market has changed. At one point, staff was looking at about $2.4 million in savings, however now, they are looking at about a $1.2 million in Project Area No. 1 and about $200,000 in Project Area No. 2 that includes about $68,000 in new project money and $130,000 in debt service. He asked that representatives of Citigroup be present to introduce themselves and provide background information to the Committee. In attendance were: Vice President Joseph Crowley, Bradford Thiel, Director and Underwriter and Carmen Vargas, Associate. Mr. Crowley said that in addition to Mr. Coleman's analysis, they distributed a presentation booklet that provides a general overview of the firm's qualifications and capabilities. He said that they have at their disposal, nationwide, and here in California, distribution capabilities along with all market spectrums. He said that he wanted to highlight the retail credentials indicated on the retail segment. Their retail works under the name Smith and Barney. They have nearly 1,700 retail brokers focusing on the individual investor. They have a strong retail investment base at the disposal of the investor when pricing bond issues. The retail goes to the investor. It depends on the underlying strong credit quality of the Agency, the project areas and ultimately the bond insurance. The retail investors are Tess tri-sensitive in retail of 5 42804. wpd INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 institutional investors. This enhances the pricing advantage. They are staffed as a local firm. They have investment bankers in Los Angeles. They are able to focus on all clients. Their plan is to provide a customized service to clients regardless of size. Ms. Carmen Vargas, Associate said that since 1997 Citigroup has made an effort to focus on Califomia cities transactions. Most recently, they worked with the City of Santa Ana Redevelopment Agency, City of Oceanside, and the City of Palo Alto. She said that the booklet that was provided to the Committee included both negotiated and competitive transactions since 1999. They are currently working with the City of Desert Hot Springs. Mr. Bradford Thiel, Director and Underwriter said that the key to providing lowest rates on any bond transaction is distribution. This creates competition for bonds in a primary and secondary markets. He said that if they only invest for two or three major institutional customers, those customers will turn around and sell bonds at a higher price to the end user of the bonds. Citigroup acts as an end user and they cut the institutions out of the transaction. In many cases, with the market being such as it is, there are a lot players in the market place that are simply renting bonds for a short period of time. They are looking to buy a bond that they feel is key versus any type of an index, the government bonds, government futures, etc., and make it turn around and narrow that spread, then put the bonds back out into the street. What Citigroup tries to do is eliminate this practice and pass the savings along to their public finance clients. Over the years, this is what has made them number one. They continue to be number one, not based on the new clients, but rather for a tremendous amount of repeat business. A deal of this sort, where there are good customers that they are selling bonds, there is a secondary market provided. Their clients know that Citigroup runs a big operation and will always be there in case they need to sell their bonds for any reasons. Mr. Thiel said that Peter Bartlett, his supervisor, handles all national sales trading and underwriting operations out of Los Angeles. Peter Bartlett reports to the head of their department who is in New York. All other traders, underwriters and sales people report to Peter Bartlett. This affords the ability to get a lot accomplished. Mr. Crowley said that the California based funds are covered by 20 institutional sales people that cover over 300 accounts across the country. There are over 111 sales specialist that cover over 9,500 middle market type accounts. Mr. Coleman said that one of the reasons he would like to see Citigroup hired is the distribution base they offer and the other reason is for the compensation requested. He said that when staff saw this opportunity, they knew it was one that they would like to bring forward to the Committee to try out because Citigroup is a national firm. The Agency has never been targeted by a national 6 42804.wpd INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 firm. In taking a look at Citigroup's transactions within the last five years, one can note that it has done bonds as small as $1.7 million. Citigroup provided the Agency with an aggressive proposal which includes a retail distribution, an institutional distribution and it is accompanied by their solid reputation. Mr. Gibson said that one of the problems they have had in the past with the bonds is local distribution. Mr. Coleman said that in the past the bonds have only been offered to institutions with retail book. It has gone to these institutions because the money market funds need paper for performance. They are constantly turning over. Mr. McCarthy said that as the Redevelopment Agency (RDA) has matured, they have to acknowledge that this is the 6th largest Redevelopment Agency in the state of California. RDA is very active in the market. RDA warrants a more competitive position in the marketplace with respect to underwriting than it has in the past. This particular financing is opportunistic in nature, and not planned financing. RDA looked at both proposals received and gave them fair consideration. Staff is trying to institutionalize a practice of some sort of competitive process (i.e. RFQ, etc.) where a number of firms can be contacted to identify those firms that are appropriate for a long term relationship as opposed to competitively bidding each bond. A part of this will be to look at the future issuance strategy. Mr. Gibson said that an issuance strategy proposal will be presented to the committee at a future meeting. Mr. Veazie said that he did not believe that the Agency could find a finer group than Citigroup, Smith Barney and Solomon Brothers. He said that the difference between the two proposals was approximately $100,000. Mr. Coleman said that Citigroup has also offered to pay the underwriter's counsel to prepare the official statement, the bond purchase agreement and the continuing disclosure which is an additional $20,000-25,000. Mr. Wood said that he believes that the City is attractive to investors because there is value, need and the City of Palm Desert's reputation. Mr. McCarthy said that they will try to create a competitive environment where differentials get compressed as the market realizes that there are other competitors vying for underwriting opportunities. Mr. McCarthy said that given the aggressive proposal tendered by Citigroup, staff is recommending that the Committee consider hiring Citigroup. Motion made by Mr. Erwin and seconded by Mr. Veazie to forward the recommendation to hire Citigroup to Refund the 1995 Project Areas No. 1 and 2 Bond Issues to the City Council for approval. Motion carried. 7 42804.wpd -INVESTMENT & FINANCE COMMITTEE MINUTES April 28, 2004 X. NEXT MEETING - Wednesday, May 26, 2004 at 10:30 a.m. XI. ADJOURNMENT There being no further business, the meeting was adjourned by Mr. Erwin at 11:20 a.m. Respec IIy su• ••'tted 8 Dia " eal, - c • din ; Secretary 42804.wpd