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Home My WebLink About1994-08-02; City Council; 12815; ANNUAL REPORT OF INVESTMENT PORTFOLIO.. 0 n Cw OF CARLSBAD - AGEWA BILL $/ - AB # @I &/ 5 TITLE: MTG. 8-2- ?y ANNUAL REPORT OF INVESTMENT PORTFOLIO CITY ATT DEPT. TRS I I I RECOMMENDED ACTION: Accept and file report. ITEM EXPLANATION: City policy requires the City Treasurer to render an annual report of the City’s investment portfolio. This report is for the fiscal year ended June 30, 1994 (FY 93- 94). Assets in the investment portfolio averaged $1 08.4 million in FY 93-94, an increase of $500,000 million from the FY 92-93 average. This was the smallest increase in average portfolio assets in the past five years. Market interest rates increased in FY 93-94, reversing a cyclical trend that saw interest rates decrease for four previous consecutive years. The average yield of the portfolio fell to 5.99% from 6.55% the year before. Interest income totaled $6.1 million of which $1.8 million went to the General fund. I EXHIBIT: u M 0 a a k a 5 a u a a a c) (d c) 4 .rl $ U 0 1, City Treasurer’s Annual Report of Investment Portfolio dated June 30, 1004. =I 2 L i, 4 i 8 z 3 t i e 0 EXHIBIT 1 CITY TREASURER ANNUAL REPORT OF INVESTMENT PORTFOLIO . FOR THE FISCAL YEAR ENDED JUNE 30, 1994 The city Treasurer is charged with the responsibility of cash management, which includes, among other activities, forecasting all cash receipts and expenditures; and investing, accounting, and reporting all inactive cash. Accurate cash forecasts are the bases for optimizing interest revenues. This ranges from developing a cash budget for the fiscal year to the daily monitoring of individual deposits and 'checks as they are entered by the bank., The City Treasurer has on-line access to the bank's computer, Only sufficient cash is kept in the bank to cover checks that are expected to clear the account that day. It is only after this process that cash available for investment can be identified. Forecasts of interest rates for up to five years are then made to determine how far on the yield curve investments could or should be made. All inactive cash is then promptly invested by the City Treasurer in accordance with the policy adopted by the City Council. Investments are made in accordance with the City's Investment Policy, which stipulates the investment objectives of safety, liquidity, and yield, in that order. A buy and hold investment policy is generally followedto ensure greater safety of principal; it is also designed to achieve an average yield through economic cycles. Since investments made several years ago are held in the portfolio until maturity, an environment of rising market interest rates will cause increases in yield from portfolio investments to lag behind increases in market rates. The reverse is true when market interest rates. are decreasing. The investment portfolio is a pool of assets representing inactive cash from the various funds of the City. A fund is an accounting mechanism used to distinguish the purpose for which cash was received and expended. Cash received into the pool is invested without regard to the fund from which it originated. Accounts are maintained, however, that identify the amount of cash each fund has contributed to,the investment pool. This report summarizes and analyzes the activities of the investment portfolio for the fiscal year ended June 30, 1994 (FY93- 94). Amount of assets, source of assets, yield achieved, and cash income generated .are presented. To give perspective to these measurements, movements in market interest rates are provided, and comparisons are made with the preceding four fiscal years. Finally,. a statement is offered regarding the prospects for the fiscal year commencing July 1, 1994 (FY94-95). A 0 e FY93-94 SUMMARY Average assets in the investment pool remained virtually unchanged from the preceding fiscal year. Portfolio assets averaged $108.4 million in FY93-94, an increase of only $500,000 from the FY92-93 average of $107.9 million. This is the first time in the past 5 years that the investment pool has not experienced an increase in average assets. The lack luster economy is considered to be the primary 'cause of this' status QUO. - 1 . INVESTMENT PORTFOLIO 1 Dollar Amount of Assets * 120 I Mllllona I 100 _. - - - - - - ao------------- " FY 89-90 FY 90-91 PI 91-92 FY 92-93 FY 93-94 :I I 67.6 I 75.5 I 96.6 I 107.9 I 108.4 1 Fiscal Year Averages SOURCE OF POOL ASSETS As Of June 30,1994 vterpnse $35.8 $1 17.9Million The investment 'pool totaled $117.9 million at the close of the fiscal year, June 30, 1994. Inactive cash from the Capital Projects fund and the Enterprise fund together represented over 62% of the fiscal Year, assets representing inactive cash of the General fund were $12.8 million, of which approximately $5.4 million was for projects and services that had already been approved. pool. At the end of this I I 0. a Average market interest rates increased this past fiscal year, reversing a cyclical trend that saw interest rates decrease for four consecutive years. One-year treasury bills averaged 4.07% in FY93-94, an increase of 59 basis points from the average of 3.48% the preceding year. Five-year treasury notes, on the other FY93-94, an increase of One, Three, & Five-Year Rates 3 basis points from the average of 5.55% the Market Rates preceding year. Short- term rates are controlled by the Federal Reserve; longer- 6 term rates, on the other 5. hand, are controlled by 4. market forces. Interest 3 was-89 FY~Q-~O FYSO-91 ~~91-92 ~92-93 ~93-94 rates of one-year maturities reacted quickly to the short- One-Year * ended on June 30, 1994 were more pronounced in the shorter the events. As a consequence, average increases for the year as it longer-term maturities waited for the market's interpretation of while increases in Reserve in FY93-94, imposed by the Federal. *Fiscal Year Averages term rate increases 4.07 3.48 4.77 7.01 8.13 8.75 hand, averaged 5058% in COMPARATIVE INTEREST RATES* . - - - - - - - - - - - - - - - - - - - -\- - r. - -"*+ - \ 4.. . 9ed - - - - - - - - - - - - - - 4- - - -a- - Five-Year - 5.02 4.72 5.98 7.6 8.28 8.93 Three-Year =i= 5.58 5.55 6.7 7.98 8.31 8.96 maturities. - ~~~~ ~ ~~~ ~ PORTFOLIO YIELDS * With LAIF & One-Year T-Bill Yields * Percent 87-88 88-89 89-90 90-91 91-92 92-93 93-94 Portfolio 4.07 3.48 4.77 7.01 8.13 8.75 7.28 T-Bill 4.39 4.76 6.32 8.11 8.7 8.59 7.88 LA1 F 5.99 6.55 7.37 8.23 8'.87 8.51 7.8 - The portfolio yield averaged 5.99% for FY93- 94, a decline from the 6.55% the year before. At the same time, the Local Agency Investment Fund (LAIF) declined to 4.39% from 4.76%, while one-year treasury bills rose to 4.07% from 3.48%. LAIF is an investment pool managed by the State Treasurer. It is used as a performance benchmark since assets deposited - Portfolio + LAIF * T-Bill in LAIF are invested Fhcsl ymar avwagea using the same general parameters as those followed by the City Treasurer. Comparison with one-year treasury bills is also useful because the City's investment policy requires that a minimum of 50% of the portfolio mature within one year. 4 e e Cash income from I 1 portfolio investments was $6.1 million in FY93-94. Of this amount, the General fund received approximately $1.8 million. The General fund receives interest income to a greater degree than its share of the pool assets because interest not required to be held by other funds reverts to the General fund. Cash income is a function of the assets . in the PORTFOLIO CASH INCOME For Fical Years Indicated ~~ 81 Mllllons I 7""""""- 6" - ~ - -,- "_"" 1 FY 89-90 FY 90-91 FY 91-92 FY 92-93 FY 93-94 I 5.8 1 6 I 7.2 I 7 I 6.1 portfolio,' the market I I rates at the time of the investments, and the interest payment schedules of the issues. FY94-95 FORECAST Inactive cash from the General fund should remain at approximately the same level as that in FY93-94. Cash receipts from principal General fund sources (property tax and sales tax) are not expected to show much increase. The California economy, while growing somewhat, is lagging behind the rest of the country. Total assets in the portfolio, therefore, are expected to remain at approximately the same level they were at the end of FY93-94,i.e., $117 million. 1 e @ The yield curve on June 30, 1994 shifted upward from its position one year earlier, but still remained fairly steep. Increases in the short end represent actions of the Federal Reserve, while increases in the long end represent the market's expectations of inflation. The market was signalling that a resumption of inflation was a good possibility. Although the market is means a universal signal, this is by no 6130191, 6130193, 6130194 still sending the same YIELD CURVE* expectation. ;::: I :;++ - - - - - - - - ~ -. " _* _- - - - - - - - - - - The Federal Reserve will L A+ - - probably again increase 4.5 . - . - - - - - - -;-&"e- - - - - - - - - short-term rates before the end of 1994 -- consumer inflation 6/30/91 -- 5.77 6.44 expectations have risen; 6/30/93 4- 2.58 price increases have been recorded in x3 Mth Money Market & US Treas industrial commodities, energy, agriculture, and precious metals; unemployment is down nationally to 6% (considered by many to be the %atural'I rate)'; and the dollar is weak against some foreign currencies. On the other hand, inflation is still modest, retail sales and housing sales are below expectations, and our major foreign trading partners continue to fight recession. It appears that long-term rates will remain the same for FY94-95. The yield curve should flatten as a result. Approximately $31 million, or 26% of the portfolio, will mature in FY94-95. Most of these investments are at yields below the market interest rates that are expected at the time the investments mature. Proceeds from these maturing investments will be .reinvested at higher market rates, causing the yield of the portfolio to increase. While the portfolio achieved an average yield of 5.99% in FY93-94, it is expected that this will increase to 6.3% in FY94-95. Market Rates 8.5 ....- 5.5 . - - _"" _" A>- 3.5 ' - - >-+ -" - - - _""""" " 2.5 3 Mth 1 Yr 3 Yr 5 Yr 10 Yr 7.45 5.8 5.04 4.39 3.48 8.45 7.96 -6/30/94 m 3.65 5.48 6.45 6.95 7.37