Agenda Item Wording:
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Accept the City of Visalia Cash and Investment report for the third quarter of the fiscal year which consists of months January, February, and March 2022.
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Deadline for Action: 6/20/2022
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 third quarter of the fiscal year which consists of months January, February, and March 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 Cape Seal of various streets and the major rehabs of the 198/Akers interchange and Caldwell Avenue from Akers to Shady.
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 March 31, 2022, the national unemployment rate continued to improve and was at 3.6%. The Consumer Price Index climbed to 8.54%, a continued increase from the December 2021 rate of 7.04%. At its May 4, 2022 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 50 basis points to the current range of .75% to 1.00% as they stated, “Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
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 1 shows the rate comparison of the Federal Funds Rate and short term Treasury Securities between the second and third quarter of the current fiscal year and May 2022. Recently, rates have been increasing across all maturity ranges. The City has begun purchasing more longer term maturities to lock in higher interest rates but will continue to remain laddered across all maturities to ensure funds are available for future increases anticipated to be implemented by the FOMC.
Portfolio Performance
The March 31, 2022 investment portfolio managed balance was $426,160,929.
The earnings rate as of March 31, 2022 was .98%. 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)
Future Management
The City manages the portfolio partly by considering the weighted average maturity (WAM) based upon management’s expectations for rising, neutral or declining interest rates. Usually, the longer an investment’s maturity, the higher the interest rate will be. However, the longer the maturity, the more at risk the portfolio is to market gains or losses due to interest rate changes.
As a result, the City has a target WAM based upon expected interest rate environments as shown on Table III, Target Weighted Average Maturity (WAM) Based on Interest Rate Expectations.
At the end of March 31, 2022, the portfolio WAM was 622 days or 1.71 years.
Charts I and II show the portfolio ladder and distribution as of March 31, 2022.
Chart I
Maturity Ladder
• Note: Percent above each bar represents the average interest earnings rate for that maturity level
Chart II
Maturity Distribution
Table IV: 3rd Quarter Investment Activity, shows investment activity for the quarter (January 2022 - March 2022).
Table IV: 3rd 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 third quarter of the fiscal year which consists of months January, February, and March 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