HomeMy WebLinkAboutJoint Study Session - City Council and the Investment Adviso CITY OF HUNTINGTON BEACH -"
INVESTMENT ADVISORY BOARD (IAB)
ANNUAL REPORT TO THE CITY COUNCIL
FOR THE PERIOD OCTOBER 1, 2002 TO SEPTEMBER 30, 2003
October 1, 2003
Establishment of Board
The LAB was created to act in an advisory capacity to the City Council and City
Treasurer in matters pertaining to all of the City's investments by the City Council in
May 1995 by Resolution #3284. The seven Board members are appointed by a member
of the City Council and are as follows:
Name Council Member o T
Bob Glass, Chair Pam Houchen w _=
Paul Arms Connie Boardman o
Vacant Cathy Green �-
Joe Foye Debbie Cook
Edward Kerins Dave Sullivan
Diann Shelton Gil Coerper
James Steinkirchner Jill Hardy N
0
Board Activities
The meetings of the Board for the fiscal year ended September 30, 2003 were open to the
public as required by Government Code 54950 and held on the following dates in City
Hall:
October 23, 2002
November 18, 2002
January 22, 2003
April 23, 2003
July 23, 2003
In addition, a joint study session with the City Council is scheduled to be held on
November 17, 2003.
The two major activities of the Board consisted of reviewing each monthly investment
report and reviewing the City of Huntington Beach Investment Policy annually, prior to
their presentation at a City Council meeting.
As required under HB Municipal Code 2.110.040(b), the Board has reviewed matters
pertaining to the City's investments in the following areas:
• Reviewed the annual Investment Policy
Current Economic- and Interest Rate Environment
• Fed is keeping Fed Funds low to: 1 — Stimulate the economy
2 — Avert deflation
3 — Improve the employment
situation
Fed funds lowered to 1 .00 on 5/6/03
• Yield curve is steep
• 2yr T-note yield bottomed at 1 .03 on 6/13/03 and has been over 2.00
since
• Syr T-note yield bottomed at 2.08 on 6/13/03 and has been over 3.50
since
• Rates got excessively low on "Fear of Deflation"
8
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FORECAST
Economy is .building a sufficient base for a
sustained expansion
• Rates will rise modestly next year but will
likely remain range-bound for several more
months
• Yield curve will remain steeply sloped
• Fed will remain accomodative well into next
year
• Risk to this forecast: External Shocks
12
Interest Strategies for a Flat to
Rising Rate Environment
• Insure ample liquidity
• Ride the yield curve, but not too long
• Overweight callable securities and cushion
callables
• Overweight corporates if justified by extra yield
13
• Reviewed the Management Letter from the City's independent financial auditor in
conjunction with the annual financial audit which includes the investments and the
cash audit update from the City's independent financial auditor
• Discussed Cash Management and ensured that there was sufficient liquidity to meet
the next six month's estimated expenditures for all funds including the General Fund.
• Reviewed Risk-Return Analysis as it relates to Safety, Liquidity, and Yield
• Reviewed Long Term Investments and how cash flow forecasting will enable the City
to match investments to budgeted expenditures
• Reviewed New Investment Sources, as appropriate
• Reviewed Proposed State Legislation impacting the City's Investments
• Reviewed any Anticipated Exposure to Loss by looking at liquidity, credit & market
value
• Reviewed Quarterly Reports prior to them being presented to the City Council
• Reviewed Quarterly Compliance with Investment Policy and identified exceptions, if
any
• Monitored Broker-Dealer Selection and performance
Based on the information reviewed by the Board for the period October 1, 2002 to
September 30, 2003 it appears that the City Treasurer has maintained compliance with all
requirements in the City's Investment Policy.
Respectfully submitted,
Bob Glass
Chair—Investment Advisory Board
xc: Shari L. Freidenrich, City Treasurer
G:\treas\iab\iab annual report fy2003.doc
Joint S
1AB/City
Investment Advisory Board Members:
Bob Glass, Chair;
Paul Arms, Joe Foye, Ed Kerins,
Diann Shelton, James Steinkirchner
1
November 17, 2003
Study Session Topics
• Overview of year - IAB report
• Accomplishments
• Investment opportunities in a flat to
rising interest rate environment
z
Overview of IAB Annual Report
• Investment policy compliance
• Broker/dealer review
• Legislation impacting investments
• Cash management
• Monthly/quarterly investment report
• Annual audit management letter
3
Accomplishments
• Cash management program
• Awards
• Re-Certified California Municipal Treasurer
• Investment quality
• Interest income versus budget
4
Budget Vs . Actual
Quarterly Interest Income
$1,400,000
$1,200,000
$1,000,000
$800,000 A 0 Budget
s
$6009000 4=52_ Actual
$400,000 E
$2009000 M g
12/31/2002 3/31/2003 6/30/2003 9/30/2003
5
Investment Opportunities in a
Flat to Rising Interest Rate
Environment
• Interest rate yield curve: 0 to 30 yrs
* Current Economic and Interest Rate
Environment
* Current Economic Forecast
• Inveshnent strategies
6
Interest Rate Yield Curve
7.00
6.00 — Dec-99
5.00 — May-00
— May-Ol
4.00
— Nov-02
3.00
— Oct-03
2.00
1.00
Fed 3mo 6mo 2yr Syr 10yr 30yr
Funds
7
Conclusion
* Overview of year - IAB report
• Accomplishments
• Investment opportunities in a flat to
rising interest rate environment
14