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HomeMy WebLinkAboutMinutes - Investment & Finance Committee 10/29/2004XF3 CITY OF PALM DESERT FINANCE DEPARTMENT INTEROFFICE MEMORANDUM TO: RACHELLE KLASSEN, CITY CLERK FROM: NIAMH ORTEGA, ADMINISTRATIVE SECRETARAU'V DATE: OCTOBER 29, 2004 SUBJECT: INVESTMENT & FINANCE COMMITTEE MINUTES Attached are the Minutes of the September 22, 2004 Investment & Finance Committee meeting, approved by the Committee at its October 27, 2004 meeting. Please place this item on the next City Council agenda for review. Please feel free to contact me at Ext. 382 if you have any questions. Thank you. nmo G:\Finance\Niamh Ortega\Wpdocs\Memos\rklassen minutes.wpd CITY OF PALM DESERT INVESTMENT & FINANCE COMMITTEE Minutes September 22, 2004 I. CALL TO ORDER A regular meeting was called to order by Chairman Gibson on Wednesday, September 22, 2004 at 10:31 a.m. II. ROLL CALL Present: Absent: Paul Gibson, Director of Finance Buford Crites, Mayor Pro-Tem Thomas Jeffrey, Deputy City Treasurer Carlos Ortega, City Manager Bob Hargreaves, City Attorney Bill Veazie Russ Campbell Everett Wood Thomas Wormley Also Present: Steve Aryan, Assistant to the City Manager Dennis Coleman, RDA/ Housing Finance Manager Veronica Tapia, Redevelopment Accountant Diana Leal, Recording Secretary Guests: Joseph Crowley, Citigroup Carmen Vargas, Citigroup Mike Cavanaugh, Wedbush Morgan Securities III. ORAL COMMUNICATIONS None. IV. COMMITTEE MEMBER REPORTS None. 1 Bob Spiegel, Mayor 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 V. CONSENT CALENDAR A. Approval of Minutes Motion was made by Mr. Campbell and seconded by Mr. Veazie to approve the Minutes of the July 28, 2004 meeting as submitted. VI. CONSENT ITEMS HELD OVER None. VII. NEW BUSINESS A. 1. City and Redevelopment Agency Investment Schedules and Summary of Cash Reports for July and August 2004 For the month ended July 31, 2004, Mr. Jeffrey reported that the book value of the City Portfolio was approximately $141,451,000. The City earned approximately $187,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.68%. For the month ended July 31, 2004, Mr. Jeffrey reported that the book value of the RDA Portfolio was approximately $175,310,000. The City earned approximately $229,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.53%. Mr. Gibson added that the state has begun to take its 25% share of sales taxes, reducing the monthly allocations. Additionally, the DMV fees have also been decreased by 67%, greatly reducing cash flow. Payments will be received under property taxes under the new state rules being adopted. That will be in effect in January and June. For the month ended August 31, 2004, Mr. Jeffrey reported that the book value of the City Portfolio was approximately $136,975,000. The City earned approximately $195,000 in interest during that month. Portfolio yield -to - maturity was approximately 1.74%. For the month ended August 31, 2004, Mr. Jeffrey reported that the book value of the RDA Portfolio was approximately $161,119,000. The City earned approximately $223,000 in interest during that month. Portfolio yield - to -maturity was approximately 1.51 %. 2 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 2. Review of Statement of Investment Policy 2005 Mr. Jeffrey reminded the Committee that State law requires that the City review its investment policy on an annual basis. He then discussed significant policy changes. First, Staff commented that although there is only enough regular business to support four brokers, a fifth broker is needed when competitive offerings are done for the investment of bond proceeds. Recently, the City required competitive offerings for municipal bond proceeds, and received only two bids, well below the IRS threshold of three bids for a "safe harbor." One broker declined to bid at the last minute, and another simply did not have any inventory for the date required. Staff therefore proposed increasing the authorized number of brokers in the investment policy from four to five. Second, in conjunction with the foregoing change, Staff recommended that the Finance Committee relist Zions Bank of Salt Lake City, Utah as a primary dealer on the List of Authorized Financial Institutions. The City Council had approved Zions Bank as an authorized broker in 1999, and the City had subsequently done business with Zions on a satisfactory basis. In 2000, however, it became evident that the City did not have enough business to support five brokers, so the Finance Committee elected to take Zions off the authorized list since it was the most recent addition to that list. Third, Staff recommended adding language which stated that the City would not transact business with a broker until all of the documentation that is required by both parties has been executed. Fourth, Staff recommended adding express language which stated that the City could reject a broker's application if it contained false or misleading information, in which case, the broker would be prohibited from applying for the City's business for another five years. Mr. Ortega asked who would determine if the information was false. Mr. Gibson replied that Staff runs a background check on all broker applicants. Mr. Ortega recommended adding a sentence that stated, "If, in the City's opinion, the information is false or misleading..." Fifth, Staff recommended adding language that would in put the City in compliance with a new GASB Pronouncement, which took effect on June 15, 2004. The changes dealt with additional internal reporting requirements. Motion was made by Mr. Wood and seconded by Mr. Campbell that the Finance Committee recommend that the City Council approve Palm Desert "State of Investment Policy 2005," with the changes indicated. Motion carried. 3 092204.wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 3. Renewal of Banking and Custodial Relationship with Union Bank Mr. Jeffrey stated that Union Bank has been the City's primary banker and securities custodian since 1997. The relationship has been quite satisfactory. Union has state -of -the art banking technology, and the City's account representative is the former Finance Director of the City of Riverside. He therefore has a keen sense of what the City's needs are. In terms of the custodial relationship, Union processes securities transactions that are not related to the City's municipal bonds. The altematives to Union are Bank of America and Wells Fargo Bank. Based upon the City's prior history with Bank of America, it was not recommended. With respect to Wells Fargo, in December 2003, the City of La Quinta had taken RFPs from Union Bank and Wells Fargo for a banking relationship. La Quinta was kind enough to forward to Palm Desert a comparison of both bids (this analysis was provided to the Finance Committee in the form of an attached table). Backing out armored car and sweep account costs (Palm Desert does not use either service), Union had the lower bid. In view of this and in view of the City's satisfactory relationship with Union Bank, Staff recommended that the banking and custodial relationship be renewed for another five years. Mr. Wood asked if banking was usually put out to bid every five years. Mr. Gibson replied that it had not been done in the past. If it were, and another bank were selected, then it would create additional work since City would have to change its check stock, and all of its banking services and transactions. If the City subsequently wished to terminate its relationship with Union Bank, then it could do so with 30 days' notice pursuant to contract. Motion was made by Mr. Campbell and seconded by Mr. Wood that the Finance Committee recommend that the City Council approve the renewal of the City's banking and custodial relationship with Union Bank for another five years. Motion carried. 4. Renewal of Corporate Trust Relationship with Bank of New York Mr. Jeffrey said that the corporate trust relationship with Bank of New York (BONY) was due to expire soon. BONY is current the top provider of corporate trust services in the United States. The City's relationship with BONY has, on the whole, been satisfactory. The City has a fee arrangement with BONY that saves the City an estimated $60,000 per year. Based upon the relationship and the shrinking number of corporate trustees due to mergers and acquisitions, Staff recommends renewal of the City's corporate trust relationship with Bank of New York for another five years. 4 092204.wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 Mr. Gibson added that this approval should be contingent upon the favorable conclusion of renewal negotiations with BONY. Motion was made by Mr. Wood and seconded by Mr. Veazie that the Finance Committee recommend that the City Council approve the renewal of the City's corporate trust relationship with Bank of New York for another five years, subject to a favorable outcome in contract renewal negotiations. Motion carried. 5. Relisting of Zions Bank as a Broker -Dealer Mr. Jeffrey said that this item had been discussed earlier in Item A2. Staff had distributed two pieces of correspondence to the Committee. One was a Staff Report that the City Council had approved in 1999, authorizing Zions Bank to be added as a Primary Dealer to the City's List of Authorized Financial Institutions. The second was a letter from that City Treasurer had sent to Zions in 2000, indicating that the Finance Committee had authorized the delisting of Zions from the Financial Institutions List due to a substantial and prolonged decline in the City's trading volume. Mr. Crites asked if the City had a backup bank in case Zions showed no interest in being relisted. Mr. Gibson said that Staff had already contacted Zions to see if there was any interest, and Zions had responded affirmatively. If not, then the City could do a broker solicitation. Motion was made by Mr. Campbell and seconded by Mr. Ortega that the Finance Committee relist Zions Bank as a Primary Dealer on the List of Authorized Financial Institutions. Motion carried. 6. Appointment of Paul Gibson to C.A.M.P. Board of Trustees Mr. Jeffrey noticed the Finance Committee that City Treasurer Paul Gibson had been selected from a statewide slate of candidates to sit on the Board of Trustees of the California Asset Management Program (CAMP), a statewide investment pool that competes with LAIF. The City Attorney had indicated that there would not be a conflict -of -interest since CAMP is a Joint Powers Authority (JPA). Mr. Gibson's appointment will be effective November 2004. The CAMP Board will meet quarterly. CAMP will pay for Mr. Gibson's travel, lodging, and meal costs as they relate to his attendance of CAMP Board meetings. B. State of California Local Agency Investment Fund Balance for the Month of August 2004 Mr. Gibson said that the City is maxed out in both the City and Redevelopment Agency accounts. 5 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 C. California Asset Management Program (CAMP) August 2004 Mr. Gibson said that due to the fact that there has been a decrease in cash flow, the City is having to withdraw from CAMP to cover costs. D. City and Redevelopment Agency Monthly Financial Reports for City Council for July and August 2004 Mr. Gibson said that the first couple of months staff is accruing revenues that are in July and August back to the prior fiscal year. This is why there is a zero is shown for the prior year. The amounts indicated have not been reversed. The State is taking the reallocations away from the City. Expenditures are within budget. The only concern with the sales tax is the timing if the City has increases over the prior year, it will be the following year before the increases are shown. This will be monitored through the sales tax consultant. E. Parkview Professional Office Buildings - Financial Report for March 2003 Mr. Gibson said that the landscaping staff presented the City Council with a separate contract for the landscape around the office complex. That cost will be showing up soon. Supervisor Roy Wilson moved in to his suite. The complex is at full occupancy until UCR and the Palm Desert Chamber of Commerce moves into their new buildings. There is a waiting list of interested tenants. F Palm Desert Golf Course Facilities Corporation Financial Information for July and August 2004 Mr. Gibson said that at year end Desert Willow was close to approximately $500,000 on the positive side for cash flow. In both July and August they were ahead of what they anticipated. The Committee is awaiting an answer as to whether this was due to the participation of the Palm Desert Greens. Mr. Ortega said that he thinks the answer to that question was that the resident rounds were down. However, the reason more money received was due to the average higher per round revenue meaning that there was a lot of outside play. Mr. Wood asked when the budget will show that it is in the black. Mr. Gibson said that it is shown typically from January through April. The rest of the months the expenditures are higher due to reseeding and other course preparation. Mr. Ortega said that the money shown does not include the money that comes in from developers. Mr. Wood said that the monies from developers will end. Mr. Gibson said that monies submitted have decreased based on the current agreement in place. At the moment, the developers 6 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 have not been expanding their time share project, therefore, he does not foresee an increase. 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. 1. Bond Issuance by Palm Desert Financing Authority Mr. Coleman introduced Joseph Crowley and Carmen Vargas of Citigroup, who presented a reference guide with summaries and details regarding the bond transaction. Mr. Crowley thanked the Committee for the opportunity to serve as the senior manager for the 2004 Series A bonds. Ms. Vargas outlined the contents of the reference guide. She said that one of the keys of this transaction was receiving bids from all four insurance agencies for bond insurance. The guide includes a copy of the preliminary official statement and the official statement. It also includes a sales memorandum which is distributed throughout their national retail system. This is a marketing tool they use to obtain pricing. Mr. Crowley said that the transaction summary shows a significant savings. He pointed out that 56% of the bonds went to retail investors, which was very important in securing the lowest costs. Approximately 17% of the transaction was purchased by institutional investors. He said that this was indicative of strong credit and a strong financing team. Mr. Coleman said that he discussed the reimbursement policy for staff cost associated with land -based financing at the last Investment and Finance Committee meeting. A reimbursement schedule can be based on 75 basis points for the first $5 million, 50 basis points for $5 - $10 million and 25 basis points above $10 million. One of the things discussed at the last meeting was that a cap was not placed, however, he would like to have a floor cap of $50,000 placed. Staff looked at the IRS standpoint in terms of what was charged. The other issue was whether or not staff needs to be sensitive to Prop 218. Staff can look at actual staff time cost which can be obtained at the end of the year. If not enough money was charged for staff time, more would be charged for the administrative cost on the property rolls to balance it out. If more than the staff time was charged, a refund would be provided at that point. The Committee asked staff to have legal counsel review the policy. Legal counsel is still in the process of reviewing the policy. Legal counsel feels that from a Prop 218 standpoint, the Agency is okay. However, legal counsel suggested that when this item is brought before the City Council for adoption it should be presented as any other fee whereby it 7 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 is placed on a public hearing agenda. The policy has been modified and the following sentence has been added for the section of refinanced bond issues and the section under new bond issues: The actual staff cost provided for each new bond issue or refinanced bond issue shall be tracked and staff shall make proper adjustments for the administrative charges on the property tax rolls in preceding years. Staff will either give a credit or will increase the administrative charges for costs not reimbursed with the initial charges. Mr. Ortega said that if it is taken through the 218 process, costs must be equal to expenses. This is a benefit to the developer. He wants to make sure that it is included in an agreement with the developer. If the developer wants the City to finance the project, then there will be a specific cost associated with the financing. Mr. Coleman said that Robin (Harris), legal counsel, said that she was not sure that it would be Prop 218. She said that since it is a fee it should be taken through the public hearing process before it is adopted and not necessarily the Prop 218 process. Mr. Crites said that the attorney should be asked whether it is a fee or if it is part of an agreement between two parties. Mr. Hargreaves said that the developer is not required to come to the City as they have other options. The City needs to show that what it is doing is reasonable under the circumstances. Mr. Crites said that a fee is charged for services being provided. In this case the City is recovering the costs of a mutually agreed upon agreement between the City and the developer. Mr. Gibson said that the dilemma that staff is facing is if a policy is done it is based on a fee basis. If it is worked out through a development agreement then some of the issues with regard to fee based costs are handled differently. Mr. Coleman said that he would ask legal counsel whether or not it is a fee or a charge. Mr. Ortega said that in the past, with regard to the assessment districts, any time a fee changed, staff had to go through a public hearing and the fees were not passed. Mr. Hargreaves said that on typical fees there is no voter approval process. It is based on reimbursement equal to cost. If challenged, the City must show that the fees charged are reasonable. 8 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 Mr. Gibson said that if it is charged to a bond issue, it comes with more restrictions. If it comes directly from the developer, it is not charged to the bond issue. Mr. Crites suggested that staff request an opinion from both the City attorney and the RDA legal counsel. Mr. Ortega said that before is presented to Council, the pros and cons must be discussed. Mr. Coleman said that City Council asked that staff look at the bonding capacity. Staff has reviewed bonding capacity. Staff has taken a look at the preliminary numbers on the tax increment. Last fiscal year, staff bought in just under $56 million in tax increment. Of that, staff passed through about $21 million to the affected tax entities. There was about $13 million in debt service and administration was about $3.2 million with respect to the Agency, consultant costs and reimbursements to the City for City staff time spent on Agency projects. This year the RDA has reimbursed the City for about $940,000 for staff time. Next year they are projecting, subtracting the money that the County takes for administration of about $58.6 million. Based on those figures, they asked their financial advisor to take a look at the bonding capacity. There are two scenarios for project area 2. 1) based on the current coverage ratio of 1.6 and a 1.2 taking into effect no ERAF charges. 2) What would happen if ERAF had to be subtracted. Currently, for the next two years, RDA is slated to pay the State about $3.89 million to ERAF. After the two years, staff does not know what will happen. If Prop 65 passes, RDA is okay. If the state brokered legislation passes, Redevelopment was left out. Even though they can not raid the Cities, they can still come back and do further shifts to redevelopment. Taking a look at RDA's bonding capacity it is about $95 - $110 million if RDA does not have to pay ERAF and in the neighborhood of about $65 million if they have to pay ERAF. He pointed out that in that bonding capacity, it does not take into effect that RDA has to cover administration costs and must pay the City $32,785,000. 2. Request for Qualifications for Bond Underwriting Services Mr. Coleman said that Mike Cavannaugh from Wedbush Morgan Securities was in attendance. He said that RDA was going to go out to request for qualifications for bond underwriting services. He asked the Committee how many qualified underwriting brokers he should have in the pool and would he have enough work to keep them all interested in doing work with the Agency. The Agency has been doing investments on a shorter term basis because they do not want to lock their money up. When he does a bond issue, it is on a longer term basis anywhere from 20-30 years. When there are refunding opportunities, the Agency does come back to discuss it. At this time there exists some opportunities for bonding capabilities. The Agency will have some refunding opportunities which will arise from some of the Agency's other bond issues. They still would like to have a pool. The question is how many brokers should be included as he thinks they will lose interest due to lack of sufficient work. He asked if the committee is inclined, two members 9 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 of the Committee can serve as a sub committee. In his proposal he asks that the firms waive their fees in terms of the type of financing. He would like to ask that fees be based on a range of financing. A non -rated financing of $5 million or below. Other items he would like to have reviewed based on rated but not insured and insured. He would like to set up a subcommittee to decide a time line and issue the requests for qualifications. After the requests are reviewed, a shortlist of firms can be provided to the Committee. At that time, the firms can make presentations to the committee on their qualifications. Then the Committee can make a recommendation to the City Council. Mr. Ortega said that the Committee needs to limit how many firms are included in the request for qualifications. He said that he recommends that the Committee look at the qualifications that meet the criteria and make a selection as is done with brokers. Mr. Veazie said that competitive bidding for the issuer is always the cheapest way to go. Mr. Coleman said that competitive bidding should be done when they have a plain bond that they sell. If there is a difficult bond with a story to tell it should be done on a negotiated basis because certain things need to be obtained. Perhaps costs would be saved, however, staff and the financial advisor would have to put more time into the marketing document which is the official statement to get the story out. If you are really sensitive in an interest market, you have to pull your bid back and reset it for another time. There is merit with respect to competitive bidding, however, there may be other times when it would be more beneficial to do a negotiated basis. He said that if the committee wants staff to review the bond bids on a competitive basis, it can be done. Mr. Veazie said that it is up to the financial advisor to convey the story so that the competitive bidders can know what is being bid. Additionally, there is insurance whereby you can acquire an additional cost by paying a fee. But, if you get an Ambac or MBIA on the deal it is automatically rated AAA. Mr. Coleman said that you cannot obtain insurance for most story bonds. Mr. Veazie said that if you cannot obtain insurance on a story bond, then you need to have a good financial advisor or you must negotiate your deal. Mr. Gibson asked if the Committee preferred a competitive bidding. Mr. Coleman suggested that a combination of both competitive and negotiated bond issues can be done. Mr. Ortega said that the current process used has given RDA good results. The following committee members agreed to participate in the subcommittee: Bill Veazie, Thomas Wormley, Dennis Coleman, Carlos Ortega and Paul Gibson. Meeting date and time will be announced at a later time. 10 092204 wpd INVESTMENT & FINANCE COMMITTEE MINUTES September 22, 2004 Mr. Crites said that with all that has happened in Florida, he was wondering what would happen to the ratings of issued bonds and insurance should there be a catastrophe such as an earthquake in Palm Desert. Mr. Ortega said that this is an issue that has been discussed with the rating agencies on numerous occasions as the City is near the San Andreas fault. Mr. Gibson said that each city is looked at uniquely depending on fund balances, cash flows and revenue streams. There is one rating agency that has come to the table and said that maybe they need to change their method on insurance purposes. Mr. Coleman said that if something happened here and the City lost the assessed valuation and taxes, the insurance would pay for the bonds. However, once it came back, the City would have to repay the insurance company. The premium is based on the debt service throughout the life of the bond. Mr. Veazie said that property taxes only represent about 10%, therefore, a disaster of proportion to property values would not injure the cash flow severely. Mr. Gibson asked the committee if the time of the Investment and Finance Committee meeting can be changed as it conflicts with the scheduled Entrada meeting. Mr. Ortega said that he would talk to the coordinators of the Entrada meeting and ask them to change their meeting time as the Investment and Finance Committee meeting has two members of the public that attend the meetings and it is difficult to schedule times to meet. X. NEXT MEETING - Wednesday, October 27, 2004 at 10:30 a.m. XI. ADJOURNMENT There being no further business, the meeting was adjourned by Mr. Gibson at 11:41 a.m. 11 Respectfully submitted, !ana Lea , - - cor • mg Secretary 092204 wpd