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HomeMy WebLinkAboutMinutes - Invstmnt & Finance Committee 02/25/2004Finance Department MEMORANDUM To: Rachelle Klassen, City Clerk From: Diana Leal, Administrative Secret Subject: Investment and Finance Committee Date: April 27, 2004 Attached is a copy of the February 25, 2004 min tes fand Council agenda for Finance Committee approved by the Committee on March 24, 2004. Please place on the next C approval thereof. Thank you for your assistance. Attachments (1) G:\Finance\Diana Leal\Wpdocs\Investment Committee\Memos\City Clerk\1-28-04 minutes.wpd CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE Minutes February 25, 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, February 25, 2004 at 10:31 a.m. II. ROLL CALL Present: Absent: None. Paul S. Gibson, Finance Director Bob Spiegel, Mayor Buford Crites, Mayor Pro -Temp Thomas Jeffrey, Deputy City Treasurer Carlos Ortega, City Manager Russ Campbell Everett Wood Bill Veazie Dave Erwin, City Attorney Also Present: Steve Aryan, Asst. to the City Manager Justin McCarthy, ACM/Director of Redevelopment Jose Luis Espinoza, Assistant Finance Director Dennis Coleman, RDA Finance Manager Diana Leal, Recording Secretary Guests: Richard Kikuchi, Lance, Soll & Lunghard III. ORAL COMMUNICATIONS Mr. Gibson introduced Richard Kikuchi, auditor representing Lance, Soll & Lunghard who will make a presentation of the City of Palm Desert's audit reports. IV. COMMITTEE MEMBER REPORTS None. 1 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Spiegel and seconded by Mr. Crites to approve the Minutes of the January 28, 2004 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 2004 For the month ended January 31, 2004, Mr. Jeffrey reported that the book value of the City Portfolio was approximately $127.8 million. The City earned approximately $168,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.58%. For the month ended January 31, 2004, Mr. Jeffrey reported that the book value of the RDA Portfolio was approximately $163.1 million. The RDA earned approximately $151,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.24%. Mr. Jeffrey said that a separate handout was distributed reference the purchases made. The City purchased $35 million worth of securities in the month of January. Most of it was predominantly for the Redevelopment Agency portfolio. As usual, staff focused on guilt -edged corporate names. Mr. Wood asked if the investments were mostly short-term investments. Mr. Jeffrey replied that the longest term investments were for the Retiree Health Program. Those investments would mature in four -to -five years. Currently, the City Treasurer's Office is investing short-term (12 months or less) because Staff expects interest rates to rise by year-end. Mr. Wood stated that the City of Rancho Mirage has a portfolio yield of 2.2 percent, and asked how it had achieved it. Mr. Jeffrey responded that, in the current environment, Rancho Mirage could only achieve that yield if it were holding old, high -coupon securities or investing farther out on the yield curve, and thereby increasing interest -rate risk. Mr. Ortega suggested that the City of Palm Desert obtain Rancho Mirage's portfolio for comparison purposes, since it is in the public domain. 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 Mr. Jeffrey next discussed the annual review of the City's authorized commercial paper and medium -term note lists. This year, he had attached a short information summary on regional banks that were proposed additions to the lists. Mr. Spiegel asked why Duke University did not have any long-term credit ratings. Mr. Jeffrey replied that, based upon Bloomberg, Duke probably does not issue any long-term debt. Many elite universities have large endowments (e.g., Harvard University has a $14 billion endowment). Motion was made by Mr. Campbell and seconded by Mr. Spiegel to approve the proposed issuer lists for unsecured commercial paper and medium -term notes for 2004. Motion carried. Mr. Jeffrey then discussed the quarterly statements for the Deferred Compensation Plan statements that were included in Finance Committee packet. These were the latest 457 statements that the City had received, and they were being presented to the Finance Committee pursuant to formal notice requirements. State of California Local Agency Investment Fund Balance for the month of January 2004 Mr. Gibson stated that the City and RDA LAIF accounts were maxed out at $40 million each. Mr. Wood asked if the State could seize this money. Mr. Gibson responded that the City had successfully sponsored legislation two years ago that prevented the state from seizing local agency monies in LAIF. Mr. Jeffrey added that the City's legislation had completely severed LAIF deposits from the State's appropriation process. Prior to the passage of this legislation, the State had appropriated all money that local agencies had sent to LAIF for deposit. Now, there is explicit language stating that the State Treasurer holds local agency deposits in trust. D. California Asset Management Program (CAMP) January 2004 Statements Mr. Gibson said that Staff had recently withdrawn $10.5 million from the City C.A.M.P. so that it could be invested. E. Audit Reports for City of Palm Desert and the Palm Desert Redevelopment Agency Mr. Richard Kikuchi, a partner of the CPA firm of Lance, Soil, and Lunghard the City of Palm Desert's auditors said that he was in attendance to present the financial statements. During the audit, he sent four of his staff members to 3 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 the City of Palm Desert to look at the system of internal controls of the City and the Redevelopment Agency. They did a random sampling of the disbursement checks, revenue items, payroll, approval forms and computations. They were gearing up for the year end test work. The auditors returned to the City in the last week of August when they stayed for about two weeks. At that time, the auditors conducted an in depth balance sheet test work of the City and the Redevelopment Agency. Part of that audit was preparing an independent third party confirmations on cash and investments where they confirmed what was reported to be on bank reconciliations, etc. They performed cut-off procedures, to ensure that the revenues and expenditures are reported in the proper period. Their audit work entailed auditing and the preparation of the financial statements for the City, the Redevelopment Agency, the Housing Authority and Desert Willow. Recently, they completed the single audit which is mandated by the federal government any time a City receives federal grant funds and spends over $300,000. Mr. Wood asked if Lance, Soli and Lunghard came in to the City at different times of the year to perform test checking. Mr. Kikuchi agreed and said that they come to the City of Palm Desert two to three times a year. He said that the revenues exceeded the budgeted revenues by over $1 million. The general fund expenditures exceeded the budgeted by over $3.5 million.and the overall net assets increased about $112 million. Mr. Spiegel asked why the report showed an increase of $9 million, not $1 million under the City's governmental activities net assets. Mr. Kikuchi said that the report shows the amount prior to the period adjustment for fixed assets. Mr. Gibson said that the fixed asset adjustment was for the right of ways which are portions of land. Originally, when the GASB 34 ruling was done, the City put in the land for the streets, however, the right of way was not included. Mr. Kikuchi said that as a result of the audit they look at the supporting documentation and review how procedures are done. As a part of that process they tested 100 random tenant files at the Housing Authority properties. They tested the amount of rent paid, eligibility, etc. They found that two tenants were overcharged rent. This was reported to the City in a management letter. Mr. Kikuchi said that they look at internal controls. In the upcoming fiscal year, they are mandated by auditing standards to increase their test work as far as "fraud" is concerned. This mainly involves inquiry of various departments within the City. At this time, they randomly test payroll checks, disbursement checks, etc. Because of the new requirements, they will be required to select people within the City and ask certain questions to check if they noticed anything and document the information obtained. They will also be doing some work on the City's investment portfolio. 4 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 Mr. Kikuchi thanked the Finance Department for being top notch individuals. He said that the City's staff is helpful, and very organized. His firm specializes in the audits of municipalities, a little under 40 cities in California, the City of Palm Desert is at the top as far as ended organization and b worellki ewith his firm. He feels the City staff should be comm J Mr. Spiegel asked what the City has in reserve. Mr. Kikuchi said that the reserve amount can be found on page 18 of the financial report provided. The first component of the fund balance shows the reserve portions. The far right shows the total governmental funds reserve. Mr. Spiegel asked if it was $220 million. Mr. Kikuchi said that the $220 million includes unreserved undesignated reserves as well. It was approximately $110 million at June 30, 2003. Mr. Gibson said that the City can count on the $23 million in the general fund as they are undesignated funds. The remaining amount for debt service and special revenue funds are restricted funds that cannot be used for any other purpose. A $32 million loan was issued to the Redevelopment Agency, however, in the future, the State can decide that all revenues/tax increments that are given to RDA need to be returned to the State, then funds cannot be expected to be repaid to the City. Mr. Gibson said that periodically the City requests that the auditors review the City's investments in more detail than what is done during the regular audit. He said that he was providing the committee with 9 potential reviews that he wanted the committee to review and make recommendations at the next meeting so that staff can make a final decision before June 30. Mr. Kikuchi said that as part of the regular City audit, when they review the cash investments, they check if the City is in compliance with the City's investment policy. Mr. Wood asked why the reserves are not shown as reserves restricted or reserves unrestricted. Mr. Kikuchi said that the standard reporting format for Cities is used. Mr. Gibson said that more information can be included in the notes as the City is limited as to what can be included in the report. Motion was made by Mr. Spiegel and seconded by Mr. Campbell to approve the audit reports. Motion carried. Mr. Gibson requested to adda oauditors theo agenda tghenC'i y for next yearnn on . The contract a Lance, Soli & Lunghard as 5-year contract that is reviewed on a yearly basis for renewal. Motion was made by Mr. Campbell and seconded by Mr. Spiegel to add the item onto the agenda. The item was added onto the agenda by 2/3rds vote. 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 Motion was made by Mr. Spiegel and seconded by Mr. Erwin to approve the Lance, Soll & Lunghard to continue for one more year as the City's auditors. F. City and Redevelopment Agency Monthly Financial Report for City Council for January 2004 Mr. Gibson said that the City will be at $14 million. Until he receives the next quarter, he will not be able to give a better number. Mr. Spiegel said that the Westfield Shopping Mall is doing well. Mr. Gibson said that transient occupancy tax received from Marriott was received. Mr. Spiegel asked if the $800,000 given to the state would be returned to the City. Mr. Gibson said that the state is scheduled to return the money in 2006. G. Parkview Professional Office Buildings - Financial Report for January 2004 Mr. Gibson said that he met with Roy Wilson and walked the site. The only concern Mr. Wilson had was that most of his staff lives in North Shore and therefore Indio is a closer distance to those employees. Mr. Wilson is waiting to hear if this will be a deciding factor as to whether or not they will move into the Parkview office complex. He will notify City staff of his decision by May 1. Mr. Gibson said that Council took action on the use of parking funds to allocate the funds to the parks. Staff suggested using these funds to backfiil the general fund if the State requests more money. This item will need to be brought before the Council for action. H. Palm Desert Golf Course Facilities Corporation Financial Information for January 2004 Mr. Gibson said that Mr. Young is out of state and asked if he could provide his report at the next meeting. Mr. Ortega said that Desert Willow did well in December and January. Revenues are above budget, especially, in food and beverage. VIII. CONTINUED BUSINESS - None. 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 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. Ortega said that at a recent council meeting there was a question on whether the City utilizes the best procedures when issuing bonds. He said that a year ago Mr. Gibson prepared a report that referred to the various ways that bonds could be issued. If the City negotiates bonds with the underwriters ahead of time then seek out the best deals based on what is happening on the market. They use a consultant hired by City staff independent of the issuer and the people that are backing the bonds. The underwriter provides the City with up-to-the-minute information on what the best deals are for bond issues. One of the council members raised the question as to whether that was the best procedure. The Investment and Finance committee looked at the procedure and concurred with Council that the way the City issued bonds by negotiations was getting the City good results. Mr. Gibson said that Council asked if the City was charging Bighorn for doing the process. The City invoiced Bighorn $7,500 and said amount has been received. The City will also be charging $50,000 for formation. Mr. Coleman said that he is looking into getting costs back for refunding of the bond. A policy will be presented to the Committee in the near future for recommendation to the Council. This particular bond issue was closed on the 19th of February. Bighorn is happy because the City will save them, in the long run, $5.4 million in future value dollars and $1.41 million in present value. The underwriter did a great job in moving the bond forward. Mr. Veazie asked if the true interest cost of 4.77% included everything. Mr. Coleman said that it doesn't include the underwriter's discounts and the cost of insurance which is in the all inclusive. Mr. Veazie asked what OIP and UD meant. Mr. Coleman said that OID is the Original Issue Discount and OIP is the Original Issue Premium of which there were none on this bond issue. The UD means the underwriter's discount. This was a non -rated and non-insured bond issue. The coupon was 5.10 discounted with a yield of 5.20. 7 22504.wpd INVESTMENT & FINANCE COMMITTEE MINUTES February 25, 2004 Mr. Coleman said that he reported to the committee in February that he was to make a presentation at the bond conference. He has copies of the presentation available if anyone is interested. The power point provides statistics on the project areas, the outstanding indebtedness and the ratios of debt service. It also provides a conservative estimate on how much money they will bring in. This year it will be about $54 million with a chance of RDA receiving $55 million in increment as of fiscal year 2002. The Palm Desert Redevelopment Agency is no longer the 4th largest redevelopment agency, it is the 6th largest agency in terms of tax increment. The statistics provided are not current by 18 months. At that time, the Palm Desert RDA was $300,000 behind San Diego. Last year, the PDRDA was at $50 million in increment. He thinks PDRDA will hit $54 million in tax increment this year. Mr. Coleman said that the ERAF payment to the state will be $2,113,000 this fiscal year. Last year, it was approximately $1.2 million. In the Governor's proposed budget it is $2.114 million with property tax escalating with the growth. X. NEXT MEETING- Wednesday, March 24, 2004 at 10:30 a.m. XI. ADJOURNMENT There being no further business, the meeting was adjourned by Chairman Gibson at 11:12 a.m. Respectf submitted, 8 Di = - Leal, c • ding Secretary 22504.wpd