CC 05-14-2024 Item No. 3 Investment Policy_Supplemental ReportCC 05-14-2024
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Investment Policy
Supplemental Report
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CITY COUNCIL STAFF REPORT
SUPPLEMENTAL 1
Meeting: May 14, 2024
Agenda Item #3
Subject
Consider the City's Investment Policy
Recommended Action
Adopt Resolution No. 24-XXX accepting the City's Investment Policy
Background:
Staff’s responses to questions received from councilmembers are shown in italics.
Q1: Given the fact that other cities are able to operate with about $2M in cash/checking
account or about 2% of total portfolio and the fact that Cupertino was able to operate with
about 2% in Checking account before 2016. What has prevented us from maximizing
investment revenue by keeping a low, but sufficient amount in Checking account?
(Councilmember Chao)
Staff Response: Staff recognizes the practices of other municipalities but notes that each city faces
unique circumstances. Since 2016, Cupertino has experienced staffing changes, shifts in workload
considerations, and fluctuations in the financial landscape. Factors such as market instability
during COVID-19 and CDTFA audit have influenced our approach to cash management and
investments. Staff will continue to prioritize safety and liquidity while considering investment
opportunities to ensure prudent financial stewardship, as dictated by the investment policy.
Q2: What we need to improve our current asset management practices to maximize our
investment revenue, while providing flexibility for liquidity? (Councilmember Chao)
Staff Response: As stated above, staff will prioritize safety and liquidity above returns; however,
when staff is able to focus more of their time on day-to-day work versus other issues outside of that
scope, staff will develop a robust cash flow model to refine the City’s cash management.
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Q3: The cap for LAIF was $65M and it was recently increased to $75M. It seems the city has
kept about $20-30M in LAIF in recent years, which is far from the cap of $65M. What's
preventing the city from putting more in LAIF? (Councilmember Chao)
Staff Response: Apart from LAIF’s $75 million cap, there are no restrictions limiting the City from
investing more or less.
Q4: I have examined all the annual updates to the Investment Policy since 2012. I did not
find significant changes. The size of the total portfolio does increase from $50M in 2013 to
$239M in 2023. The City Manager's Feb. 27 responses (enclosed at the bottom of this email
thread) pointed out "City’s Investment Policy restricts funds invested in a money market
or a CD account to be less than 20% (money market) or 30% (CD) of City’s total investment."
Since the policy uses percentage of the portfolio as the limit for the amount allowed to be
invested in CD or money market, why would that be a barrier for more efficient asset
management? Maybe I am missing something. (Councilmember Chao)
Staff Response: Assets held by Chandler Asset Management are held to term. However, some
investments may be callable. That means they call the investment before it reaches its term. When
this happens, those dollars are automatically placed in a money market account by Chandler until
they can be reinvested. Since the City may not be immediately made aware when an investment is
called, and assuming the portfolio was close to its max, the City could be in violation of our
investment policy.
Q5: If the current policy is a barrier for more efficient asset management, could we identify
barriers, if any, and propose adjustments? (Councilmember Chao)
Staff Response: The investment policy is very restrictive as set forth in the California Government
Code, Sections 53600 et seq..
Q6: LAIF is commonly used by governments, but its interest rate is not high. Other cities
do consider other alternatives with higher yield and specified as such in their Investment
Policy. For example, last year Chandler Asset Management suggested to City of Brea to use
Treasury Bills as a LAIF Alternative. Have we considered this or other alternatives?
(Councilmember Chao)
Staff Response: Chandler has provided City staff with some options for our short-term cash needs.
City staff are evaluating those options against the investment policies guidelines of safety, liquidity,
and yield. Additionally, as stated above, the City is actively keeping funds liquid due to the CDTFA
audit.
Q7: I am not sure of the roles and responsibilities between the City Manager, City Treasurer
and advisors like Chandler in terms of asset management. How do they communicate or
how frequent in order to maximize our investment revenue, while providing flexibili ty for
liquidity? (Councilmember Chao)
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Staff Response: Staff meets with Chandler Asset Management at least quarterly, or more should
there be a change in City finances that would impact the City’s investments. The Treasurer
communicates with the City Manager any major changes in the City’s Investment strategy and/or
policy. All investments made by Chandler are provided to City Council monthly through the
Treasurer Investment Reports and a more detailed report is provided quarterly through the
Treasurer Quarterly Investment report.
Q8: Investment authority appears to need to be granted annually, the City Council has not
done this since 2014, why have we stopped? (Councilmember Chao & Moore)
Staff Response: Investment Authority is granted annually with the adoption of the investment
policy.
Q9: Why are Treasurer Reports, Treasurer Investment Reports, Treasurer Bond Reports not
signed off by the Treasurer who would presumably be assigned to review them?
(Councilmember Chao & Moore)
Staff Response: The Treasurer signs off on all reports prepared by City staff. Including the quarterly
investment and monthly treasurer reports.
Q10: City Council expressly retained the authority to appoint the Treasurer, the City
Resolution to appoint Zach Korach as Deputy references this authority by Resolution
which was also reiterated in the 1980s as shown in the Treasurer Files. What is the
significance of not delegating the authority? Are we as Councilmembers liable for the
review of our investors without the Council having fixed income security background and
certification from an organization like CMTA? (Councilmember Chao & Moore)
Staff Response: Government Code section 34856 authorizes the City Council to vest power to
appoint the Treasurer in the City Manager by ordinance. Under the Municipal Code, the Director
of Administrative Services serves ex officio as the Treasurer. (CMC 2.48.020(A)(3).) The procedure
for appointing the Treasurer is outside the scope of this agenda item.
Q11: The Investment Policy does not address a Cash Management section; can this be
added? (Councilmember Moore)
Staff Response: Staff will conduct a comprehensive review of cash management language utilized in
the investment policies of other agencies. This review will lead to incorporating a dedicated section
within the City's policy that aligns seamlessly with our strategic investment plan. While
considering various sources, including the State's policy, we will prioritize resource -efficient
approaches in developing the City’s cash management plan. Should a revised version of the
investment policy be necessary, it will be presented to the City Council during a September meeting
for consideration and approval.
Q12: How were the investment category limits established, and can the money market limit
increase? (Councilmember Moore)
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Staff Response: Staff will collaborate closely with Chandler Asset Management to gain insights into
the establishment of investment limits, assessing whether these are dictated by state code or industry
best practices. If feasible, staff aims to maximize the money market limit and maintain safety and
liquidity.
Attachments Provided with Original Staff Report:
A – Cupertino Investment Policy (clean)
B – Cupertino Investment Policy (redline)
C – Cupertino Investment Policy Statement Review Memo
D – Draft Resolution