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Home My WebLink About05/17/2016 05D 1st Quarter 2016 Treasury ReportBUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDASTATEMENT Item No. 5.D. For Meeting of: May 17, 2016 ITEM TITLE: 1 st Quarter 2016 Treasury Report SUBMITTED BY: Cindy Epperson, Director of Finance and Budget Tara Lewis, Financial Services Manager SUMMARY EXPLANATION: The Treasury Report for the first quarter of 2016 is attached and consists of the following: 1. Memo: Summary and Narrative 2. Reports Cash and Investment Summary Investment Portfolio — Inventory byAgency Investment Portfolio — Detail of Activity Bonded Debt Schedule I nterfund Borrowings and Investments STAFF RECOMMENDATION: Accept report. BOARD /COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Type Memorandum To: The Honorable Mayor and Members of City Council From: Cindy Epperson, Director of Finance and Budget Tara Lewis, Financial Services Manager Date: May 17, 2016 Re: 2016 — 1St 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 saw very little activity during the first quarter of 2016. 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 one investment was called by the Federal National Mortgage Association (FNMA or Fannie Mae). The security, issued originally in 2013 at 1.20% and purchased by the City for a discount in March of 2014, was called in February. The remaining life of the bond was approximately two years and corresponding Treasury rates for a two year bond were only about 0.8% so it made sense for them to refinance at a lower rate. As yet, those funds have not been reinvested. 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. 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. Thus, the only activity was the monthly payment on the private placement street debt issued in 2013. Interfund Borrowinas 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. Ordinance 2013- 011 allows for an interest rate of the 30 day LIBOR plus 1.0% at the date of the loan advance. This translates to 1.43% for the Public Safety loan. ER &R, Fund 552 holds the receivable from Public Safety. Since the average portfolio rate on Investments is just 1.16 %, this will allow ER &R to earn more on its Reserves while giving Public Safety a reduced payment amount as compared to other types of financing. City of Yakima Cash and Investment Summary March 31, 2016 Page 1 of 5 Yakima.6986.1.TSO_Q1_2016.xlsx Book Balance Purchases Interest Maturities, Calls Percent of Average Average Description Qty Par Book Portfolio Yield Q4'15 Yield Q1'16 Cash Balances on Hand and in Banks Federal Agency Coupon and Discount NA $ 11,643,331 NA NA NA Local Government Investment Pool (LGIP) 1 $ 8,098,751 $ 8,098,751 15% 0.20% 0.42% Federal Agency Coupon and Discount 19 42,951,000 41,498,772 79% 1.31% 1.31% Other Investments 2 2,743,300 3,030,428 5% 1.04% 1.02% Total Invested 22 $ 53,793,051 $ 52,627,950 100% 1.12% 1.16% Page 1 of 5 Yakima.6986.1.TSO_Q1_2016.xlsx Book Balance Purchases Interest Maturities, Calls Book Balance Summary of Investment Activity 1/1/2016 & Deposits Reinvested & Withdrawals 3/31/2016 Local Government Investment Pool (LGIP) $ 8,376,102 $ - $ 8,548 $ 285,899 $ 8,098,751 Federal Agency Coupon and Discount 43,893,240 - - 2,394,468 41,498,772 Other Investments 3,030,252 - 175 - 3,030,428 Totals $ 55,299,594 $ - $ 8,723 $ 2,680,367 $ =52,627,950 Page 1 of 5 Yakima.6986.1.TSO_Q1_2016.xlsx City of Yakima Investment Portfolio - Inventory by Agency March 31, 2016 Expected Call Most Agency Inv# Face Value Price Coupon Step Yield Maturity Settle Next Call Type Likely Call Federal Farm Credit Bank FFCB 1462 2,000,000 2,000,000 1.290 1.290 9/25/18 9/25/12 4/1/16 Amer 9/25/16 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 Totals and Avera 5,500,000 5,487,997 1.079 Federal Home Loan Mortgage Corporation FHLMC 1480 1,660,000 1,654,394 1.200 1.368 6/12/18 05/27/14 3/12/16 Qrty 6/12/16 FHLMC Totals and Avg 1,660,000 1,654,394 1.368 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 2/20/16 Qrty 12/20/17 FNMA 1476 2,000,000 1,978,940 1.640 2.045 9/26/19 3/19/14 3/26/16 Qrty 3/26/16 FNMA 1479 2,000,000 1,992,388 1.625 1.798 8/28/19 5/27/14 2/28/16 Qrty 2/28/16 FNMA 1484 2,000,000 1,997,730 1.625 1.693 8/28/19 12/19/14 2/28/16 Qrty 2/28/16 FNMA Totals and Avei 14,000,000 13,697,766 1.416 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 8,098,751 8,098,751 0.419 0.419 NA NA NA NC NA YFED 1473 175,921 175,921 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 272,379 272,379 1.640 1.640 8/31/18 2/28/15 8/31/18 NC 8/31/18 Other Totals and Averz 10,842,051 11,129,179 0.583 IlGrand Totals $ 53,793,051 $ 52,627,950 1.159 Average Expected Yield I Page 2 of 5 Yakima.6986.1.TS0_Q1_2016.x1sx City of Yakima Investment Portfolio - Detail of Activity Quarter Ending March 31, 2016 FFCB Totals Beginning Additions and Calls and Ending Date of Agency Inv# Face Value Purchases Maturities Face Value Activity Federal Farm Credit Bureau 1480 1,660,000 FFCB 1462 2,000,000 2,000,000 FFCB 1481 1,000,000 1,000,000 FFCB 1487 2,500,000 2,500,000 FFCB Totals 3,000,000 - - 5,500,000 Federal Home Loan Mortgage Corporation FHLMC 1480 1,660,000 1,660,000 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 FNMA 1477 2,400,000 (2,400,000) - 2/22/16 FNMA 1479 2,000,000 2,000,000 FNMA 1484 2,000,000 2,000,000 FNMA Totals 16,400,000 - (2,400,000) 14,000,000 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 8,376,102 8,548 (285,899) 8,098,751 Yakima Federal Savings 1473 175,746 175 175,921 Cowlitz County Bonds 1471 2,295,000 2,295,000 Yakima Federal CD 1447 272,379 272,379 Other Investment Totals 11,119,227 8,723 (285,899) 10,842,051 Grand Totals $ 53,970,227 $ 8,723 $ (2,685,899) $ 53,793,051 Page 3 of 5 Yakima.6986.1.TSO_Q1_2016.xlsx City of Yakima Bonded Debt Schedule - by Project Group Quarter Ending March 31, 2016 I� Date Issued Maturity Description Note Amount of Issue Current Balance Payments A 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 4,045,000 - 8/28/2009 12/1/2018 PFD Capitol Theatre Tax exempt portion 2,055,000 710,000 - 8/28/2009 12/1/2024 PFD Capitol Theatre Build America Bonds (Taxable) 1,755,000 1,755,000 - 8/28/2009 12/1/2032 PFD Capitol Theatre Build America Bonds (Taxable) 3,225,000 3,225,000 - 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 815,000 445,000 - 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 1,490,000 810,000 - 5/8/2007 5/1/2017 River Road River Road improvements 1,765,000 420,000 - 6/20/2013 6/20/2028 Street Project Demonstration Various City street improvements 5,000,000 4,176,420 76,657 6/9/2014 6/1/2024 Street Resurfacing Project Streets improvements 13,140,000 12,255,000 - 6/17/2014 12/1/2034 Comm Center Move City portion of County GO Bond., 1,716,500 1,665,000 - 12/22/2015 12/1/2035 Soccer Complex City portion of SOZO Sports Complex 5,000,000 5,000,000 - Subtotal General Obligation Bonds $ 49,427,028 $ 37,801,708 $ 76,657 Certificate of Participation - State of Washington 8/22/2013 6/1/2019 Police Vehicles 74 Take -home vehicles $ 4,173,190 $ 2,877,771 $ - 8/22/2013 6/1/2019 Fire Air Packs 70 Air Packs 459,602 316,935 - 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 310,414 258,748 - Subtotal Certificates of Participation $ 5,520,054 $ 3,764,897 $ - 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 $ - Grand Total $ 76,886,033 $ 57,916,605 $ 76,657 Page 4 of 5 Yakima.6986.1.TSO_Q1_2016.xlsx City of Yakima Interfund Borrowing Quarter Ending March 31, 2016 Original Beginning Ending Description Balance Balance Issued Retired Balance Investment Held by: Local Improvement District Bonds /Notes Public Safety Communications $ 1,432,509 $ 268,209 300,000 - 300,000 $ - $ 268,209 Equipment Rental $ 300,000 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) 141,007 The Public Safety Communications Fund was in a negative cash position of ($158,993) at the end of the first quarter due to 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 this quarter under the Interfund Loan policy to achieve that end. Page 5 of 5 Yakima.6986.1.TS0_Q1_2016.x1sx