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Home My WebLink About08/16/2016 06E 2nd Quarter 2016 Treasury Report N 111111 m i 101, i enwo BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 6.E. For Meeting of: August 16, 2016 ITEM TITLE: 2nd Quarter 2016 Treasury Report SUBMITTED BY: Cindy Epperson, Director of Finance & Budget Tara Lewis, Financial Services Manager SUMMARY EXPLANATION: The Treasury Report for the second quarter of 2016 is attached and consists of the following: 1. Memo: Summary and Narrative 2. Reports • Cash and Investment Summary • Investment Portfolio — Inventory by Agency • Investment Portfolio — Detail of Activity • Bonded Debt Schedule • I nterfund Borrowings and Investments ITEM BUDGETED: NA STRATEGIC PRIORITY: Public Trust and Accountability APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: Accept report. BOARD /COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Type D 2nd Quarter 2016 Treasury If` nlFrt::rt 8/8/2016 01 On "sir Memo D 2nd Quarter 2016 Treasury alerts 8/8/2016 1Backup Material Memorandum To: The Honorable Mayor and Members of City Council From: Cindy Epperson, Director of Finance and Budget Tara Lewis, Financial Services Manager Date: August 16, 2016 Re: 2016 — 2nd Quarter Treasury Report: Summary and Narrative The City's Investment Portfolio The City's investment activities are governed by State regulations and the City of Yakima's Investment Policy, as revised September 6, 2011. The City's Investment Portfolio can be divided into two general categories: 1) A Liquidity Portfolio of overnight investments. This category generally consists of funds invested in the Local Government Investment Pool (LGIP or "Pool ") managed by the State Treasurer, and currently, a savings account held by a local financial institution. 2) An Investment Portfolio of time deposits and various securities with maturities normally not to exceed five years except when conditions warrant, and then up to eight years. The City's Investment Portfolio had a small flurry of activity during the second quarter of 2016 due to several calls of securities by issuing agencies. Rates dropped by just fractions of percentage points, but that was enough to entice several agencies to call securities that they could then refinance at lower rates. It is the City's practice to hold investments to maturity if they are not called (refinanced) by the issuer. Interest rates have been extremely low over the past several years beginning when the Federal Reserve drastically lowered the federal funds rate over the course of 2008 from 4.25% to almost zero. An historic first for the Fed, the rate was held at nearly zero until December 16, 2015 when they raised it one quarter of one percent to 0.25 %. Despite the Fed's action, the economy has gained only tentative traction and the Recovery continues to flag, stall and then move cautiously forward again. During the quarter five investments were called. The coupon rates were paying between 1.29% and 1.625 %. As these securities got to within 2 or 3 years of maturity, it was to the advantage of the issuers to refinance them at rates commensurate with a 2 or 3 year maturity, which are well below 1.0 %. Most of the funds realized from these calls were reinvested at around 1.5 %, but with rates remaining so low, it is questionable whether any of these will make it to maturity. The LGIP (Local Government Investment Pool) earnings rate has improved significantly due to the Fed's rate hike in December. After closing 2014 at 0.10 %, 2015 LGIP rates hovered around 0.13% - 0.14% all year until December which closed 2015 at 0.25 %. The yield averaged 0.42% during the first quarter 2016 and 0.45% in the second. Rates in the LGIP tend to be lower due to the short term nature of the investments. The City can access these funds overnight without penalty. This feature means that the State Treasurer must keep a significant amount of the LGIP portfolio in lower paying, short term investments. Longer term rates are generally higher than short term rates due to increased risk. Long term rates have risen more than short term, but the City does not generally purchase investments with maturities of more than 5 years due to risk and liquidity concerns. Even so, long term rates are still far below pre- recession levels. While this is good news for home buyers and agencies issuing new debt, the volatility adds extra risk to the debt marketplace. An issuer can get lucky on a downturn or find themselves with a higher rate than anticipated due to an upswing. The City's Bonded Debt Schedule The City's debt is typically structured with debt principal payments in the second and fourth quarter. A number of General Obligation principal payments were made totaling almost $2.9 million in overall debt reduction. Interfund Borrowings and Investments Ordinance 2013 -011 authorizes the Director of Finance and Budget to execute Interfund loans when appropriate. Interfund borrowing is financially advantageous in some situations where cash is needed but a formal financing is cost prohibitive due to a relatively short term need. Funds having excess cash balances in reserve (such as the Equipment Replacement and Reserve Fund or a Utility fund that has reserves for future plant improvements) can earn a higher rate of interest than with an investment made under the City's investment policy, yet the borrowing fund has a lower interest and debt cost than would be required by an external financing. The biggest obstacle to Interfund loans is the impact on a fund balance. External financing allows the borrowing fund to record revenue for the amount of the loan to offset the cost of whatever project is being financed. This practice keeps the borrowing fund's Fund Balance whole. Internal borrowing does not allow this recording of revenue and therefore the fund balance is depleted by the project cost even though the fund has sufficient working capital due to the borrowed cash. This rule does not properly reflect the financial solvency of the borrowing fund in financial reports. Unfortunately, this idiosyncrasy in the accounting rules prevents the City from taking better advantage of interfund cash capacity. At the end of 2015 the Interfund Loan established in 2012 to pay for improvements at Kiwanis Park was paid off. This loan had been established between the REET and ER &R funds. REET paid approximately $21,000 in interest costs. It is estimated that using external financing would have cost $32,000 in interest through the City's former Line of Credit with a local bank. A private placement bond or bank loan would have required attorney fees of approximately $7,000 to 9,000 in addition to the higher interest costs. Public Safety Communications, Fund 151 was in a negative cash position at quarter end as a result of their move to the new Communications Center. An interfund loan of up to $720,000 was budgeted in 2015. That loan was drawn upon in the amount of $300,000 in March and an additional $150,000 in June. Several other funds are in negative cash positions and are expected to need to use interfund financing to complete projects and /or bridge the gap in working capital until outside financing can be obtained. 2 City of Yakima Cash and Investment Summary June 30, 2016 Percent of Average Average Description Qty Par Book Portfolio Yield Q1 '16 Yield Q2 '16 Cash Balances on Hand and in Banks NA $ 10,326,033 NA NA NA Local Government Investment Pool (LGIP) 1 $ 8,107,812 $ 8,107,812 15% 0.42% 0.45% Federal Agency Coupon and Discount 19 43,291,000 41,864,480 79% 1.31% 1.34% Other Investments 2 2,745,577 3,032,704 5% 1.02% 1.01% Total Invested 22 $ 54,144,389 $ 53,004,997 100% 1.16% 1.18% Book Balance Purchases Interest Maturities, Calls Book Balance Summary of Investment Activity 3/1/2016 & Deposits Reinvested & Withdrawals 6/30/2016 Local Government Investment Pool (LGIP) $ 8,098,751 $ - $ 9,061 $ - $ 8,107,812 Federal Agency Coupon and Discount 41,498,772 9,989,161 - 9,623,452 41,864,481 Other Investments 3,030,428 - 2,277 - 3,032,704 Totals $ 52,627,951 $ 9,989,161 $ 11,338 $ 9,623,452 $ 53,004,997 Page 1 of 5 Yakima.7331.1.TSO_Q2_2016.xlsx City of Yakima Investment Portfolio - Inventory by Agency June 30, 2016 Expected Call Most Agency Inv# Face Value Price Coupon Step Yield Maturity Settle Next Call Type Likely Call Federal Farm Credit Bank FFCB 1481 1,000,000 998,844 0.690 0.730 5/1/17 5/30/14 4/1/16 Amer 5/1/17 FFCB 1487 2,500,000 2,489,153 0.840 1.050 1/22/18 12/18/15 1/22/18 Amer 1/22/18 FFCB 1489 3,000,000 2,996,247 1.250 1.800 8/19/19 6/3/16 8/19/16 Amer 9/19/16 FFCB Totals and Avera 6,500,000 6,484,244 1.347 Federal National Management Association FNMA 1460 5,000,000 4,737,030 1.100 1.100 6/1/17 6/28/12 6/1/17 NC 6/1/17 FNMA 1469 3,000,000 2,991,678 1.000 1.063 12/20/18 5/20/13 8/20/16 Qrty 11/20/16 FNMA 1488 3,000,000 2,999,970 1.500 1.500 5/22/20 6/3/16 11/22/16 Qrty 11/22/16 FNMA 1490 2,000,000 1,995,048 1.500 2.000 6/30/21 6/30/16 12/30/16 Qrty 12/30/16 FNMA 1491 2,000,000 1,997,896 1.500 1.712 12/30/21 6/30/16 12/30/16 Qrty 12/30/16 FNMA Totals and Ave 15,000,000 14,721,622 1.379 Financing Corporation FICO 1454 722,000 678,045 1.200 1.200 5/2/17 2/2/12 5/2/17 NC 5/2/17 FICO 1455 2,356,000 2,199,953 1.348 1.348 4/6/17 2/29/12 4/6/17 NC 4/6/17 FICO 1457 2,146,000 1,995,422 1.340 1.340 10/6/17 4/25/12 10/6/17 NC 10/6/17 FICO 1464 3,630,000 3,435,105 1.049 1.049 2/8/18 10/31/12 2/8/18 NC 2/8/18 FICO 1478 1,366,000 1,297,155 1.320 1.320 5/2/18 5/27/14 5/2/18 NC 5/2/18 FICO 1482 2,100,000 1,998,482 1.373 1.373 8/3/18 12/19/14 8/3/18 NC 8/3/18 FICO 1483 4,160,000 3,995,580 1.290 1.290 2/8/18 12/19/14 2/8/18 NC 2/8/18 FICO 1485 2,119,000 1,999,702 1.460 1.460 9/26/19 10/2/15 9/26/19 NC 9/26/19 FICO 1486 3,192,000 3,059,171 1.410 1.410 12/27/18 12/17/15 12/27/18 NC 12/27/18 FICO Totals and Avera 21,791,000 20,658,615 1.302 Other Investments LGIP LGIP 8,107,812 8,107,812 0.449 0.449 NA NA NA NC NA YFED 1473 176,096 176,096 0.400 0.400 NA 7/1/13 NA NC NA CNTY 1471 2,295,000 2,582,127 5.000 1.000 9/1/16 6/24/13 9/1/16 NC 9/1/16 YF -CD 1447 274,480 274,480 1.520 1.550 8/28/18 2/28/15 8/28/18 NC 8/28/18 Other Totals and Aver; 10,853,389 11,140,517 0.603 IIGrand Totals $ 54,144,389 $ 53,004,997 1.182 Average Expected Yield Page 2 of 5 Yakima.7331.1.TSO_Q2_2016.xlsx City of Yakima Investment Portfolio - Detail of Activity Quarter Ending June 30, 2016 Beginning Additions and Calls and Ending Date of Agency Inv# Face Value Purchases Maturities Face Value Activity Federal Farm Credit Bureau FFCB 1462 2,000,000 (2,000,000) - 5/25/16 FFCB 1481 1,000,000 1,000,000 FFCB 1487 2,500,000 2,500,000 FFCB 1489 - 3,000,000 3,000,000 6/3/16 FFCB Totals 3,000,000 - (2,000,000) 6,500,000 Federal Home Loan Mortgage Corporation FHLMC 1480 1,660,000 (1,660,000) - 6/13/16 FHLMC Totals 1,660,000 - (1,660,000) - Federal National Management Association FNMA 1460 5,000,000 5,000,000 FNMA 1469 3,000,000 3,000,000 FNMA 1476 2,000,000 (2,000,000) - 6/26/16 FNMA 1479 2,000,000 (2,000,000) - 5/28/16 FNMA 1484 2,000,000 (2,000,000) - 5/28/16 FNMA 1488 - 3,000,000 3,000,000 6/3/16 FNMA 1490 - 2,000,000 2,000,000 6/30/16 FNMA 1491 - 2,000,000 2,000,000 6/30/16 FNMA Totals 14,000,000 7,000,000 (6,000,000) 15,000,000 Financing Corporation FICO 1454 722,000 722,000 FICO 1455 2,356,000 2,356,000 FICO 1457 2,146,000 2,146,000 FICO 1464 3,630,000 3,630,000 FICO 1478 1,366,000 1,366,000 FICO 1482 2,100,000 2,100,000 FICO 1483 4,160,000 4,160,000 FICO 1485 2,119,000 2,119,000 FICO 1486 3,192,000 3,192,000 FICO Totals 21,791,000 - - 21,791,000 Other Investments LGIP (State Pool) LGIP 8,098,751 9,061 - 8,107,812 Yakima Federal Savings 1473 175,921 176 176,096 Cowlitz County Bonds 1471 2,295,000 2,295,000 Yakima Federal CD 1447 272,379 2,101 274,480 Other Investment Totals 10,842,051 11,338 - 10,853,389 'Grand Totals $ 51,293,051 $ 7,011,338 $ (9,660,000) $ 54,144,389 Page 3 of 5 Yakima.7331.1.TSO_Q2_2016.xlsx City of Yakima Bonded Debt Schedule - by Project Group Quarter Ending June 30, 2016 II Date Issued Maturity Description Note Amount of Issue Current Balance Payments General Obligation Bonds 9/7/2004 11/1/2019 PFD Convention Center II Refunded 1996 issue $ 4,175,000 $ 1,475,000 $ - 5/8/2007 5/1/2026 PFD Convention Center III Partial refunding of 2002 issue 4,910,000 3,750,000 295,000 8/28/2009 12/1/2018 PFD Capitol Theatre Tax exempt portion 2,055,000 710,000 - 8/28/2009 12/1/2032 PFD Capitol Theatre Build America Bonds (Taxable) 4,980,000 4,980,000 - 6/17/2003 12/1/2023 Sundome Expansion Deferred Interest - Maturity $2.5M 1,430,528 555,288 - 8/28/2008 12/1/2021 Fire Apparatus Ladder Truck 760,000 390,000 - 5/8/2007 5/1/2022 Fire Station Remodel Facility 815,000 390,000 55,000 8/28/2008 12/1/2019 Infrastructure Projects Ped crossing, street, infrastructure 2,190,000 875,000 - 5/8/2007 5/1/2022 Downtown Futures Renovate downtown improvements 1,490,000 710,000 100,000 5/8/2007 5/1/2017 River Road River Road improvements 1,765,000 215,000 205,000 6/20/2013 6/20/2028 Street Project Demonstration Various City street improvements 5,000,000 4,099,442 76,978 6/9/2014 6/1/2024 Street Resurfacing Project Streets improvements 13,140,000 11,090,000 1,165,000 6/17/2014 12/1/2034 Comm Center Move City portion of County GO Bonds 1,716,500 1,600,000 65,000 12/22/2015 12/1/2035 Soccer Complex City portion of SOZO Sports Complex 5,000,000 4,873,979 126,021 Subtotal General Obligation Bonds $ 49,427,028 $ 35,713,710 $ 2,087,999 Certificate of Participation - State of Washington 8/22/2013 6/1/2019 Police Vehicles 74 Take -home vehicles $ 4,173,190 $ 2,201,970 $ 675,801 8/22/2013 6/1/2019 Fire Air Packs 70 Air Packs 459,602 242,508 74,427 6/1/2011 12/1/2020 Fire Apparatus Two trucks purchased 576,847 311,443 - 3/19/2013 7/1/2023 Fire Apparatus One truck 310,414 231,657 27,091 Subtotal Certificates of Participation $ 5,520,054 $ 2,987,578 $ 777,319 Revenue Bonds 5/31/2012 11/1/2023 Wastewater Refunded 2003 $10,155,000 issue $ 9,400,000 $ 7,900,000 $ - 6/5/2008 11/1/2027 Wastewater 5,440,000 3,855,000 - 6/5/2008 11/1/2018 Water Refunded 1998 issue 1,883,951 635,000 - 9/4/2004 9/1/2034 Irrigation 5,215,000 3,960,000 - Subtotal Revenue Bonds $ 21,938,951 $ 16,350,000 $ - IIGrand Total $ 76,886,033 $ 55,051,287 $ 2,865,318 I Page 4 of 5 Yakima.7331.1.TSO_Q2_2016.xlsx City of Yakima Interfund Borrowing Quarter Ending June 30, 2016 Original Beginning Ending Description Balance Balance Issued Retired Balance Investment Held by: Local Improvement District Bonds /Notes $ 1,432,509 $ 268,209 $ 56,382 $ 211,827 Equipment Rental Public Safety Communications 300,000 300,000 150,000 - $ 450,000 Equipment Rental Ending Cash Funds in Negative Cash Position at Quarter End Balance Cash Extended by: Fund 151 - Public Safety Communications (after interfund loan extended) 8,606 The Public Safety Communications Fund continued in a negative cash position in the second quarter of 2016, again as a result of their move to the new Communications Center. It was budgeted in 2015 to use an interfund loan up to $720,000 to cover excess costs for new equipment and furniture and to have sufficient cash on hand for operations. The Fund borrowed $300,000 last quarter and another $150,000 under the Interfund Loan policy to achieve that end. Fund 321 - Central Business District (119,393) The CBD fund has been paying costs associated with the Plaza without reimbursement by REET or donations as of quarter end. It is expected that interfund financing will be used as a bridge until such time as longer term financing can be obtained in efficient form and terms. Fund 332 - Fire Capital (40,087) The Fire Capital fund is overexpended as of the end of the second quarter. Interfund financing may be necessary until the City can participate in LOCAL financing through the State of Washington. Several fire apparatus and other equipment have been acquired with this low cost form of financing in prior years. Fund 422 - Airport Capital (588,893) Major renovation work at the airport has depleted cash balances from the Airport Capital Fund. Grants are forthcoming and interfund borrowing may be necessary to bridge the timing of grant funding and match funds. This situation was anticipated in 2014 and Passenger Facility Charges (PFC) have been set aside to use as partial match. Page 5 of 5 Yakima.7331.1.TSO_Q2_2016.xlsx