CITY OF FULLERTON
INVESTMENT ADVISORY COMMITTEE
Fullerton City Hall – 303 West Commonwealth Avenue
Third Floor- Room 301
Administrative Services Department Conference Room
Thursday, June 8, 2006 – 4:00 p.m.
CALL TO ORDER
Chair Lewczyk called the meeting to order at 4:07 p.m.
Members present: Frank Allen, Citizen Member
Phyllis Garrova, City Treasurer
Lynn Lauderdale, Vice Chair, Citizen Member
Stan Lewczyk, Chair
Glenn L. Steinbrink, Director of Administrative Services
Members absent: Chris Meyer, City Manager
Leland Wilson, Mayor
Guest: City of Fullerton Fiscal Services Manager Dianna Fenton
ACTION OR DISCUSSION ITEMS
Item 1. Approval of Minutes of May 19, 2005
Mr. Allen motioned to approve the minutes. Vice Chair Lauderdale seconded the motion. Motion unanimously approved.
Item 2. Status of Investment Portfolio
The 03/31/06 quarterly report distributed by City Treasurer Phyllis Garrova provided the following:
1. Portfolio balances as of 01/31/06, 02/28/06, and 03/31/06.
2. Types of investments, with percentages of portfolio invested in each type, and change from last report.
3. List of maturities between 01/01/06 and 03/31/06.
4. List of purchases between 01/01/06 and 03/31/06.
Ms. Garrova reviewed the Summary by Issuer, noting that as of March 31, the City held 15 Federal Farm Credits and 18 Federal Home Loans. Mr. Allen noticed that the average days to maturity appeared to be consistently about a year, and asked if the short duration was because of interest rates. Ms. Garrova confirmed that when interest rates were down, she had extended out to capture a better yield, but as interest rates have been rising, it would not be wise to extend into the three to five-year range.
Ms. Garrova indicated that because Fannie Mae and Freddie Mac are still having "accounting" problems, the City will continue to stay out of those areas. She further noted that she had purchased more commercial papers than normal because for the short-term investment, the rates were better than even the federal agency discount note.
Vice Chair Lauderdale indicated that perhaps LAIF would be an attractive investment at this point, considering short-term yields are moving up. Ms. Garrova confirmed that LAIF is starting to look very attractive, but pointed out that with LAIF there is a six-month lag, so funds would be moved into LAIF as soon as rates move up.
Chair Lewczyk questioned the portfolio's drop from $93 million January 1 to $86 million March 31. Ms. Garrova explained there had been significant expenditures for capital projects during the reporting period, e.g., Hillcrest Reservoir, Harbor Boulevard improvements, Water Main Replacement, Richman Park, Laguna Lake, Independence Park, and others. She further noted that between February and March there are typically no significant revenues of property tax or sales tax.
Mr. Steinbrink explained that while the capital project expenditures were initially disbursed from the City's portfolio, capital projects are typically paid for with bond proceeds, and the City would receive reimbursement for most of the capital project expenditures.
Item 3. Annual Review of Investment Policy
City Treasurer Garrova indicated that she would not be proposing any changes to the Investment Policy for 2006. She did, however, point out to the committee that two separate bills had passed in 2004 which changed the Government Code.
Senate Bill 1165, which included 21 minor changes to state law, included one that dealt with local investment (Government Code Section 53630). Previously the Government Code wording pertaining to investments in corporations (commercial paper) could have been interpreted as to preclude investment in LLCs (limited liability companies). SB 1165 included an addition to the Government Code Section 53630 (paragraph "j") defining "corporation" to include a limited liability company.
Ms. Garrova explained there was no need to change the wording of the City's Investment Policy as a result of SB 1165, since the policy already included wording that the City is to comply with the Government Code and any changes thereto.
Assembly Bill 2853 dealt with amending several of the codes relating to local governments, specifically local mandates. Government Code Section 53646 previously required the treasurer to submit a statement of investment policy annually to City Council and any oversight committee. It also required that the treasurer provide quarterly investment portfolio reports. Because these were state-mandated reports, the State, under SB 90, reimbursed the local agency for the agency's costs to produce the mandated reports. Since SB 90 funding was eliminated, AB 2853 amended the Government Code to reflect that an agency "may" render the investment policy annually and "may" render a quarterly report of investments.
Ms. Garrova recommended that no changes be made to the City of Fullerton Investment Policy's requirements to submit the City's Investment Policy annually to the City Council for approval, as well as monthly treasurer's (investment) reports.
Mr. Allen so moved. Vice Chair Lauderdale seconded. Motion carried unanimously.
Mr. Allen questioned Section 2. Objective, Paragraph C. Yield, of the City's Investment Policy. He noted that the market-average rate objective is defined as the "average return on a six-month U.S. Treasury Bill." He pointed out that the definition was confusing because the way it was written, technically, you could have a different six-month yield rate every day of the week since there is no time reference in the objective. He further noted that in a rising rate environment, you would always be behind in the objective, and in a declining rate environment, you would always be ahead. He indicated you would need to pick a time period that would be reflective of the time in which you made the investment choice in order to establish a benchmark.
Vice Chair Lauderdale asked if there was any process in place to see how the yield was performing relative to the six-month benchmark, i.e., is there any accountability for that objective. Chair Lewczyk stated that since it is a defined objective set forth by the Investment Policy, the City Treasurer would need to define how to measure her investment performance and establish that the objective had been met.
Ms. Garrova indicated she would investigate the matter, noting that she would need to chart the six-month Treasury Bill performance for the period of time appropriate to each investment purchase made. She stated she would provide a graph representation of the performance to the Committee members for their review.
With no other issues remaining regarding the Investment Policy, Chair Lewczyk asked for a motion to approve the 2006 Investment Policy and forward it to the City Council with the Investment Advisory Committee's recommendation for approval.
Mr. Allen so moved. Chair Lewczyk seconded. Motion unanimously carried.
Item 4. Confirmation of Remaining Meeting Dates for 2006 (August 17, November 16)
The remaining two meetings of the Investment Advisory Committee in 2006 were confirmed for August 17 and November 16 at 4:00 p.m. in the Administrative Services Department Conference Room.
There being no further business, Chair Lewczyk asked for a motion to adjourn. Mr. Allen so moved, Ms. Lauderdale seconded, and the meeting was adjourned at 4:52 p.m. by unanimous vote.