City of San Bruno City Council Meetings 2020, 8 Dec 2020

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From YouTube: San Bruno City Council Meeting December 8, 2020 6a. Approve Amended City Investment Policy

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San Bruno City Council Meeting December 8, 2020
6a. Approve Amended City Investment Policy

A

Okay, now we are on to item six conductive business um and uh city clerk. If we can go to the first one, please.

B

C

Six: a approval of resolution approving amended city investment policy.

A

Okay, we are going to uh thank you, we're going to turn this over to the city manager to begin and he may be bringing in mr steele afterwards, city manager,.

C

Members of the city council uh and the public javon grogan city manager, our presentation tonight will be provided by jim steele, who is a consultant supporting our finance department and so jim. If you'll raise your camera up just a little bit as you get set, we have a powerpoint presentation and this is a investment policy report and jim. I need you to raise your camera up a little uh higher, so we can see your face there. We go, sir, thank you, mr steele, uh and so.

D

I'm just uh pulling up my um powerpoint and.

C

All right so without further ado I'll turn it uh forward again and he will provide the background and launch into the powerpoint, uh and I will be here to answer questions as the city council knows, I'm your city manager, but also uh as we are recruiting for. I can't move in that room, also the acting finance director so jim. Why don't you take it away.

D

Can you all see the uh powerpoint on your screen.

C

No jim, we don't uh will you, uh it says it says on screen.

D

C

Okay, but under display settings click uh display settings uh it's right at the top of your screen. It says still taskbar then display settings over to the left a little bit to the left and there's a drop down menu right at the top of your screen. Okay, now click click, duplicate, slideshow,.

C

All right, do you see it take.

D

It away yeah, okay, and I trust you can hear me as well.

D

So um my name is jim steele, I'm a financial consultant uh with management partners prior to working. There, I've been there about three and a half years. I was. uh I worked for city government for about 30 years 15 of those years. My last 15 years was with the city of south san francisco.

D

I started out as finance director and then in my career as assistant city manager, so I'm pleased to help jovan and your city right now, while you're searching for a new finance director, so I'm going to move through the slides and then we'll have time for questions what you have before. You is the annual investment policy report.

D

It makes sense from time to time for the city council to review the the current investment policy and make changes as needed and with your approval, you'd be adopting a resolution to approve those changes to the city's investment policy.

D

Cities are constrained, thankfully, in what they can and can't invest in. We don't want to have taxpayer money being invested in risky uh endeavors, so that's all governed in the california government code and there's three principle or primary objectives for managing public sector funds primarily and the most important is safeguarding principle not to lose money.

D

Second is meeting liquidity so that bills can be paid in a timely manner and third, only after those first two objectives have been met is achieving a rate of return earning interest on those investments.

D

The city's investment policy complies with the state code. It allows for allowable investments that the city can invest in. It protects principal dollars through safe investments and diversification, and it generates the maximum amount of income. That's consistent with those eligible investments while meeting the cash flow demands.

D

I just want to introduce three or four key concepts that I'll be talking a little bit more about, and these are also referred to in the staff report. I mean we all know u.s treasury bonds. Those are the gold standard, the most the safest instruments in the world, they're, backed by the full faith and credit of the u.s government, there's no restrictions on u.s treasury bonds in the city's investment policy and that's consistent across all cities in california.

D

Second u.s government agency issued bonds. Those are just a notch, less gold standard e, if you, if you will than treasury bonds only because they don't carry the full faith and credit of the government, but the full faith and credit is implied, and no u.s government agency has ever gone bankrupt or defaulted on obligations.

D

So these are almost as good as u.s treasury bonds, local agency investment fund leif, the state runs an investment pool that offers local agencies the opportunity to participate in a pool of investments, using investment, expertise of the state treasurer's office and there's no cost to taxpayers there, and these funds are completely excuse me. These funds are completely separated from the state's funds. Each city has its share. The state can't touch the money and they're absolutely protected.

D

These are very safe investments and they're, typically uh relatively short-term six months to 12 months in duration. So those are also a really good investment source.

D

Each county in california has its own investment pool. They they collect property taxes and they keep money for school districts. They also invest money on behalf of any cities that want to invest with them. So we have the san mateo county investment pool here.

D

Also in the policy we'll be discussing money market funds, those are uh extremely short-term, very short-term instruments that are aaa rated and they're always designed to maintain their principal value. An example of that would be a pool of in overnight bank reserves that uh are pooled together and and sold on the overnight money market so very short term, um very liquid, very safe and highly rated, and I believe the last concept I wanted to talk about is a laddered portfolio.

D

So, typically, once a city and a bigger city can do this, and san bruno does have sufficient cash in its portfolio to have a laddered portfolio once it has a target duration for its investments. You know usually a time horizon of two to three years.

D

It will go out and invest in new securities as it gets new cash out to the maximum amount of that ladder. So, let's say san bruno's target duration is two years um if all of a sudden one of its older investments matured and if it was for two million dollars.

D

Typically, a city would go out and reinvest that two million full out to the two years and it's its portfolio and what that does is the longer-term investments earn more and by diversifying you're always guaranteeing that you have cash flow coming due and there's diversification over time as interest rates change, so you're not all invested in one uh one type of instrument all at once.

D

So the the strategies um that we wish the council to consider are increasing the amount that the city can invest in life. Again, that's the state pool it's extremely safe and right now, it's particularly attractive because its interest rates are more uh favorable than u.s treasuries or u.s agencies.

D

We all know that inflation and and the bond market is at an. uh I guess the bond market is at an all-time high in a certain way, so interest rates are very, very low, so um leif becomes an attractive uh alternative to u.s treasuries and u.s agencies.

D

We also want council to consider in the future options to go with other public sector investment pools. One, for example, is caltrust, it's a joint powers authority and it has over 140 participating agencies at this time. We're not suggesting that san bruno joined that but we'd like to at least put that concept in the investment policy with council approval. What we would envision is in the future. A future finance director might want to join caltrust or another and would bring that to the council specifically for approval to invest there.

D

So that gets us to the policy changes that we're asking tonight. um We would like to increase leif. The maximum now is at uh 30 years, uh 30, sorry and we'd like to increase it to the state limit. The state uh currently has a limit of 65 million, it's very common for um cities to allow life to be invested in maximum.

D

uh It's a little bit unusual that the city would invest only 30, but that's been the the practice uh here and we recommend that you extend it to the to the maximum. I think that's consistent with other cities in the county, I believe san mateo and redwood city, both second to minimize risk.

D

We recommend that holdings in the san mateo county pool be reduced from the current maximum of 50 percent of the portfolio down to 20 percent, and this is primarily because the uh the county does hold certain um medium to longer term bonds that are uh slightly lower in investment grade and uh while they haven't lost money recently, I we think it's just uh prudent to reduce your exposure there and increase it in other vehicles that are more a little bit less risky and then finally- uh and I mentioned the the ability at a future time to invest in other public sector investment- pools finally to add to your policy to allow aaa rated money.

D

D

So uh with that, I'd like to close and uh I'm happy to answer questions, and we are asking you to adopt a resolution approving the amended city investment policy which is redlined in your packet. So you can see the changes that are proposed.

A

Thank you, mr steele. If you could unshare your screen and any questions or comments from my colleagues.

E

You're, the chair.

A

uh Vice mayor salazar,.

E

Thank you just one one question, so I would think that we would want our policy to be uh rigid enough where we are offering some protections against. uh You know not enough diversification or too much concentration, one pool, but at the same time I would think that we would want to avoid being so rigid that then we uh lock ourselves into something that may be disad.

E

You know it could put us at a disadvantage at some point down the low down the road so um in in reducing our ability to invest in the county uh pool I mean: should that pool uh you know over time become more attractive for whatever reason, whether because of the returns it's seeing or because they remove some of the the riskier uh portions of it and then we're now locked into a 20 limit on that. uh Wouldn't we want some flexibility and being able to go a little higher in that in that.

D

Pool. Thank you, mr vice mayor. um That's a great question, and that is a very reasonable approach. um I I guess what I would say is the county only allows cities to pull out twelve and a half percent of its holdings per month.

D

It will take months before the city gets down to twenty percent, the city at any time, if it, if it changes its mind, can come back to council and recommend that you reinstate a higher percentage um and the city also can go to other investment pools as as a key reason why we recommended uh the option for other jpa pools to be available.

E

Okay, all right, thank you.

C

To the mayor, if I, if.

A

I can enter.

C

A

I just want to elaborate on.

C

That a little bit so our policy currently limits us to 50 of our investment portfolio in the county pool other cities in the county have lower rates. For example, as noted in the report, the city of san mateo limits their portfolio to 30, redwood city limits, their portfolio to 50 million or the equivalent of 18 of their portfolio and south city.

B

C

Not allow any investment in the county pool. In addition, it's worth noting that during the 2008 financial collapse of lehman brothers, the county pool and a number of agencies lost significant money.

C

Just to the city of san bruno, uh we lost 1.46 million uh in that lehman brothers uh deal with the money we had invested in the county pool, and so that's part of the rationale for just being a little bit more strict on what we invest in the county pool, knowing that we can always up it. uh But we feel it's the most prudent step to take at this time and it will align us to where other cities are in the county.

A

Any other questions from colleagues.

A

uh Councilmember mason.

B

Hi, thank you thanks, mayor medina, um I just wanted to thank city manager, grogan and jim steele, because this is going to just put us in a more stable financial footing, and I really appreciate the report. I did just have one question: um if the paul, if this policy change is approved tonight, will is there any projections on how much could potentially be generated that we may not be generating now because of the existing policy.

D

There isn't councilwoman and um as you as you know, interest rates are at a very historic low right now so, and our goal right now isn't so much to earn more uh because even if we did earn more, it would be fairly modest, with rates being where they are.

D

Rather it's to position you so that, as interest rates do start to rise, you'll have money in life, sufficient liquid funds to go out and invest in that ladder that I talked about earlier, which will allow you over time to earn more because you'll be putting more funds at a longer maturity.

D

Once interest rates start rising, and we don't know at this point when that will be. No one really knows that.

B

Right and and also will there if there should be more of a downturn in the economy given covid and what expectations may be next year. Is this going to protect us more than what we currently have.

D

I would say yes because you're have you have so much liquid cash right now when revenues are so uncertain, that's not a bad position to be in um so if you need cash, it's it's readily available and your investments are very safe. Okay, thank.

B

A

Any other questions from colleagues- and I would just say I think I would just say you know this is uh so folks know this is annually done it used to be done by our city treasurer when we had an elected treasurer, uh would come forward every year to modify and to go through these and obviously, as that was phased out, it became to the finance director, in this case mr steele, for now. So this is a uh annual normal occurrence that that we review look at the market, get recommendations and take action.

A

So with not seeing any more questions, seeing no hands up from the audience uh the attendees, uh our residents, I'm going to ask it is a resolution. Is there any action.

E

And will we approve the resolution.

B

A

Motion made in second and roll call, please.

C

Council member davis, aye council member mason, hi councilmember rodina.

E

C

Vice mayor salazar,.

E

C

E