REPORT TO THE CITY COUNCIL
November 20, 2014
FROM: MICHAEL A. LIMA, Controller/Finance Director/(ex-officio)Treasurer
Finance Department
BY: KAREN M. BRADLEY, Assistant Controller
Finance Department
GREGORY S. WILES, Treasury Officer
Finance Department
SUBJECT
Title
Authorize advances of money to the Joint Powers Financing Authority (the "JPFA") for investment with the Local Agency Investment Fund (the "LAIF") and accept a Demand Promissory Note from the JPFA evidencing those advances (Council action)
1. RESOLUTION - Authorizing advances to the Joint Powers Financing Authority for investment with the Local Agency Investment Fund, and approving a promissory note from the Fresno Joint Powers Financing authority (Council action)
Body
RECOMMENDATION
Staff recommends that Council adopt the attached Resolution authorizing advances of up to fifty million dollars ($50,000,000) to the JPFA for investment in the LAIF, and approve and accept a Demand Promissory Note from the JPFA.
EXECUTIVE SUMMARY
The State Treasurer's Office provides a safe and liquid investment alternative in LAIF. This is one of the approved investments contained within the City's Investment Policy. LAIF allows a California agency to invest a maximum of $50,000,000 in its account with LAIF. Both the City and the JPFA qualify as independent agencies, each authorized to have a separate account at LAIF. By lending $50,000,000 to the JPFA, and requiring the JPFA to pay its LAIF interest earnings to the City as interest on the loan, the City effectively doubles the amount it can invest in LAIF. Additionally, by utilizing an open-ended demand promissory note with no maturity date, the City places itself in a position to call the note and demand the return of its funds any time it wishes.
BACKGROUND
LAIF offers an investment option available to local public agencies that provides access to professional money management by the State Treasurer's Office, as well as immediate liquidity. Local agencies benefit by obtaining a reasonable rate of return, with a high degree of safety. Additionally, the funds are available for use daily, if requested before 10:00 a.m. LAIF is one of the approved investment alternatives contained within the City's Investment Policy.
LAIF is currently paying a reasonable rate of interest for funds with immediate liquidity and a high degree of safety. In order to obtain an equivalent rate of interest with an equivalent amount of safety, an investor would have to tie up funds in a U.S. Treasury Note maturing in February of 2016. Funds would therefore not be liquid for nearly one and one-half years. Liquidity would be sacrificed for safety and rate of return. Thus, because LAIF offers safety, a reasonable rate of return, and the funds are highly liquid, it is a very attractive investment alternative for the City's surplus funds. For many years now, the City has met its need for liquid operating funds by investing in LAIF.
Currently LAIF has a maximum investment limit of fifty million dollars ($50,000,000) for each local public agency. This means that the City of Fresno and the JPFA each have the capacity to invest $50,000,000 in an LAIF account. However, the City has operating cash in excess of $50,000,000, while the JPFA has no funds of its own. This Promissory Note between the City and the JPFA will allow the City's excess surplus funds to be loaned to the JPFA for investment in LAIF, thus taking advantage of the JPFA's account limit with LAIF.
The Promissory Note to be used for this transaction is a Demand Promissory Note. This type of note evidences a perpetual loan with no fixed term or set duration of repayment. It is an open-ended loan that can be recalled upon the lender's demand. The funds are lent to the JPFA with very specific terms as to the disposition of the money. It is to be invested in the JPFA's account with the LAIF. However, should the City ever wish to do so, it can demand repayment from the JPFA at any time. Accepting this Promissory Note from the JPFA will effectively allow the City to double the amount of funds that can be invested with LAIF, while allowing for on-demand liquidity as needed.
ENVIRONMENTAL FINDINGS
By the definition provided in the California Environmental Quality Act Guidelines Section 15378 this item does not qualify as a "project" and is therefore exempt from the California Environmental Quality Act requirements.
LOCAL PREFERENCE
Local preference was not considered because this Resolution does not include a bid or award of a construction or service contract.
FISCAL IMPACT
Approving the acceptance of the Promissory Note and authorizing the loan of funds to the JPFA to be invested in LAIF will allow the investment of surplus funds in a pool managed by the California State Treasurer's Office, thereby securing a reasonable rate of return with little risk and a high degree of liquidity. There is no cost to the General Fund or any other City fund associated with the recommended action, and there is no financial impact on any particular Council District as a result of the recommended action.
Attachment: Resolution