Agenda Item Wording:
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Accept the City of Visalia Cash and Investment Report for the second quarter of the fiscal year which consists of months October, November, and December 2022.
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Deadline for Action: 3/20/2023
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Jason Montgomery, 4425
Department Recommendation:
Staff recommends that Council accept the City of Visalia Cash and Investment Report for the second quarter of the fiscal year which consists of months October, November, and December 2022.
Background Discussion:
The City accumulates significant cash assets before they are spent on a variety of governmental operations. For example, several large capital projects have accumulated substantial cash as they approach the start of the projects in the near future, or in some cases, have already begun. Some of these projects are the downtown street light project, cape seal of various streets and the major rehab of Caldwell Avenue from Akers to Shady and Santa Fe to Lovers Lane. Some examples of large projects that cash has been accumulated for that have not started are the Civic Center Phase 2 project, and any potential mandated upgrades to the Water Reclamation Facility.
The quarterly investment report is intended to inform the City Council and community about the status of City investments, and holds staff accountable for the investment and management of these funds.
City Investment Policy
The City’s investments are diversified by the various maturities and credit types which are allowed under the City’s Investment Policy and California Government Code Section 53600 et seq. It is the policy of the City to invest public funds in a manner which will provide the greatest security with the maximum investment return while meeting the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of public funds.
The City continues to be conservative and prudent with the investment objectives, which in order of priority is safety, liquidity, and yield, while maintaining compliance with federal, state, and local laws and regulations. These investments will enable the City to meet expenditure requirements for the next six months, as required by state law.
Economic Outlook
At December 31, 2022, the national unemployment rate was at 3.5%. The Consumer Price Index was at 6.50%, a decrease from the September 2022 rate of 8.20%. More currently, at its February 1, 2023 meeting, the Federal Open Market Committee (FOMC) raised the Federal Funds Rate (the rate at which institutions borrow and lend overnight funds to each other) by 25 basis points to the current range of 4.50% to 4.75%, its highest level in 15 years, indicating that they are continuing to try and lower inflation.
Movements of the Federal Funds Rate are closely linked to Treasury Security rates; as the Federal Funds Rate increases, typically so do Treasury Security rates. Treasury Securities are investments that the City can purchase and are key benchmarks for other financial assets that the City can purchase (i.e.: Federal Agency’s). Table I shows the rate comparison of the Federal Funds Rate and short term Treasury Securities between the first and second quarter of the fiscal year as well as the current rates. Rates have continued to increase across shorter-term maturities, however, have remained lower in the longer maturity ranges as fears of a recession mount. The City has continued to remain laddered across all maturities.
Portfolio Performance
The December 31, 2022 investment portfolio managed balance was $480,990,753.
The earnings rate as of December 31, 2022 was 1.93%. Key benchmarks and performance statistics for the City’s portfolio are shown in Table II, Managed Portfolio Performance Statistics.
Table II: Managed Portfolio Performance Statistics (dollars in millions)
The following Charts I and II show the portfolio ladder and distribution as of December 31, 2022. The portfolio ladder (Chart I - Maturity Ladder) shows our investments based on when they are to mature (ie. 1 year and under, 1-2 years, 2-3 years, etc…). The City invests in different maturity dates to take advantage of different earnings rates (usually the longer the maturity, the higher the earning rate) as well as to spread out maturities so that the proceeds are reinvested at regular intervals. In addition, the City will keep funds needed for operating costs in short term maturities, while investing funds in longer term maturities for those funds that are not yet needed (future projects). Chart II - Maturity Distribution shows what percent each maturity level is of the total investment portfolio.
Chart I
Maturity Ladder
• Note: Percent above each bar represents the average interest earnings rate for that maturity level
Chart II
Maturity Distribution
Table III: 2cnd Quarter Investment Activity, shows investment activity for the quarter (October 2022 - December 2022).
Table III: 2cnd Quarter Investment Activity
Fiscal Impact:
n/a
Prior Council Action: City of Visalia Cash and Investment Reports are reviewed and accepted quarterly.
Other: n/a
Alternatives: n/a
Recommended Motion (and Alternative Motions if expected):
recommendation
Move to accept the City of Visalia Cash and Investment Report for the second quarter of the fiscal year which consist of months October, November, and December 2022.
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Environmental Assessment Status: n/a
CEQA Review: n/a
Attachments: Attachment #1, City of Visalia Cash and Investment Summary Attachment #2, City of Visalia Investment Report by Maturity Date