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HomeMy WebLinkAbout2019 Board of Finance �>4SpUTH 8�;0 UC a PEACE ,x, 1865_ OFFICE OF THE CITY CLERK KAREEMAH FOWLER, CITY CLERK BOARD OF FINANCE JANUARY 28, 2019 3:36 P.M. Council Members Present: Tim Scott, Karen White, John Voorde, Gavin Ferlic, Regina Williams-Preston, Jo M. Broden(late) Council Members Absent: Sharon L. McBride, Oliver Davis, Jake Teshka Others Present: Kareemah Fowler, Graham Sparks, Bob Palmer Presenters: Dan Parker, Paul Gifford, Rahman Johnson Agenda: Annual Board of Finance Meeting where the South Bend Common Council convenes as a local Board of Finance to elect its officers Council President Tim Scott called to order the Annual Board of Finance meeting at 3:36 p.m. He introduced Council Members present and proceeded to open the floor to nominations for President. Councilmember Gavin Ferlic made a motion to nominate Councilmember John Voorde to be President. Councilmember Karen White seconded this motion which carried by a voice vote of five(5)ayes.Councilmember White then made a motion to nominate Councilmember Gavin Ferlic as Secretary. Councilmember Regina Williams-Preston seconded this motion which carried by a voice vote of five(5) ayes. Board President John Voorde, presiding. Board President Voorde then gave the floor to the presenters. Dan Parker, City Controller with offices located on the 12th floor of the County-City Building, stated, I'm going to pass around some packets for you all(available in the City Clerk's Office.The handouts were copies of the presentation which is also available in the City Clerk's Office). He continued, Given that this is my first (1St) Board of Finance meeting, I want to level set for everybody, myself included, on what this body is and what the purpose of it is. This body is statutorily required to meet annually to do one (1) of three (3) things. One (1) of those things is already done and that was to elect a President and Secretary. The other two (2) are to review the Investment Policy and then the Investment Report of the City of South Bend. That is what we will be going through today. He went on, I would like to direct you to the cover memo of the packet that I just passed out. That goes through what I just said. Also,presented in part three (3)is an additional item that we will go through and that is the outstanding check report. So, the first (Pt) thing we will do is go through INTEGRITY' SERVICE'ACCESSIBILITY JENNIFER M.COFFMAN BIANCA L.TIRADO JOSEPH R.MOLNAR --- - - -- CHIEF DEPUTY/DIRECTOR OF OPERATIONS DEPUTY/DIRECTOR OF POLICY ORDINANCE VIOLATION CLERK EXCELLENCE I ACCOUNTABILITY I INNOVATION I INCLUSION I EMPOWERMENT 455 County-City Building 1227 W.Jefferson Blvd.I South Bend,Indiana 46601 I p 574.235.9221 I f 574.235.9173 I www.southbendin.gov CITY OF SOUTH BEND OFFICE OF THE CLERK the Investment Report. If you open to the third (3rd)page of that packet, you will see all the listed Investment Officers and Advisors of the City of South Bend. The Investment Officers are me, Dan Parker the City Controller, and Rahman Johnson, the Director of Treasury. The Investment Advisors of the City of South Bend are 1St Source Bank and Paul Gifford, the Chief Investment Officer of 1st Source Corporation, is here with us today. Eric Clapsaddle and Amy White are also with 1"Source but they are not here with us today. The authorized investment amount is also listed which is a maximum of$185 million invested with 1St Source Bank. That was increased by $10 million as of January 31st,2017. That was largely driven by the fact that we were building up quite a large cash balance and we wanted to move some of that into investments and put a little bit more interest on that. He continued, If we keep turning to page five (5) of the packet, this is the City of South Bend's Investment Policy. This is fairly standard and fairly similar to what you all have seen in the past. There is one (1) substantive change that I want to point out. It is right at the beginning under the Scope of Responsibility that applies to this Investment Policy. This policy is actually the responsibility of the City Controller. That is actually a change from the past where this Policy was defined as being the responsibility of this Board of Finance. In doing some reviews, again,coming in and trying to figure out what this Board was all about, that is not statutorily within the scope of the Board of Finance. It does, statutorily, fall with the City Controller to control the investments of the City. I do want to say that this change is one (1) step in, hopefully, a larger discussion we can have with the Common Council as a whole. What we want to do is the statute allows the City to adopt an Investment Policy and for the City's fiscal body to adopt an Investment Policy. We want to pursue that avenue with the Common Council as opposed to the Board of Finance. Other than that, one (1) change, this is the same policy that it has been in the past and it is very largely governed by State Law. Paul Gifford, Chief Investment Officer for 1" Source Bank with offices located at 100 North Michigan Street, stated, All of you will be able to find, I believe it is on page eight (8) of your reports, a nice red dot showing the portfolio. You will see the current portfolio value is currently just under $185 million. That really has to do with how interest rates have changed since we last met with you. Every investment in here falls within the State's guidelines. Basically, it's pretty clear-cut. You can buy treasuries, agencies, CDs and Indiana Municipal Bonds. We do everything but the Indiana Municipal Bonds. The City also has the ability to invest the portfolio in certain depository institutions within the State of Indiana that allow you coverage over the $250,000 coverage from the FDIC at the Federal Level.You will see in the top five(5)holdings at the bottom of the first(1St)page there,such as Key Bank,Lake City and JP Morgan are all approved depository institutions in the State of Indiana. Councilmember Jo M. Broden arrived at the meeting at 3:42 p.m. Mr. Gifford continued, So, we are able to put larger dollar amounts in that portfolio. If you look in the upper right-hand corner, the portfolio talks about the estimated annual income. It is kind of fun to come in front of you. Some of you have been here for the last four(4)or five(5) years. That number used to be $1 million and with the maturity that is going to happen over the weekend on January 25th, that is a number that could be over $4 million for the first (1st) time in earnings projected for the next year. Given where interest rates are today, I would expect that portfolio to continue moving up closer to $4.5 million or more by the time we get to this time next year. The next several pages are the actual individual holdings and I would be glad to explain any of those, EXCELLENCE ACCOUNTABILITY INNOVATION I INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173,TTD574.235.5567 vw,iw.southbendin.gov 2 CITY OF SOUTH BEND OFFICE OF THE CLERK if you would like. Not hearing any request, we'll turn to page six (6) of seven (7). Basically, this shows how the portfolio is diversified. If you look in the upper right-hand corner, it talks about asset class allocation. Currently, the portfolio is made up of CDs or time deposits, treasuries and government agencies. As we monitor the markets, the mix of those three (3) assets will continue to change as we try to find the investment vehicle that will provide you the highest return for the given statutes the City has to be under. Many years I've been here we've had zero (0) in treasuries and actually they yield more now than in the shorter maturities than any other opportunity I have for you to invest with. That is a little different than what you may have seen previously. The way the portfolio is set up on the left-hand side, basically, $160 million has to be under two (2) years and then $25 million can be two (2) to five (5) years per the statute and also per your Investment Policy. We are well within those guidelines. Obviously,I always like to show that it is a high credit quality portfolio and there is not a whole lot of credit risk. You have double-A (AA) and triple-A (AAA) and the non-rated are all the CDs. So, if we are buying national CDs at $250,000 or less, otherwise they are going to appear in the public deposit insurance fund portfolio. He went on,The next page,page seven(7),simply just shows the maturities. So,when I'm working with Dan or Rahman, we just like to show what the cash flow looks like on the portfolio over the next couple of years in case you were to need money on a short notice. The nice thing with the way the portfolio is structured is that there is always money coming due relatively shortly,so,there would really be no principle risk if we had to raise money. I think it has only happened once in the six (6) or seven (7) years we've worked on this account. I think the year end balance got a little lower but then it came right back after the beginning of the year. That concludes the official report and I would be glad to answer any questions. Councilmember Karen White asked, In looking at the information you just shared, could you summarize where we are at financially? Looking at all this information from a City perspective, there has been a lot of discussion to prepare for 2020 and those upcoming events, also based on investments. Mr. Gifford replied, The one (1) thing that will, in theory, help is that income is rising right now in the portfolio. Several years ago, it was $1 million and now we are going to earn $4 million. So, you're going to have a few more dollars coming from the portfolio. The challenge that I think you face if looking out two (2) years is that it is likely the Federal Reserve will quit raising rates this year and will actually be lowering them. So, this number we have here might be near the top-end number and if the Federal Reserve were to start lowering rates, this portfolio would very quickly adjust down because they are very short maturities. So, right now it looks good, absent a financial crisis, we would be somewhere close to this. Councilmember John Voorde asked, Is that why we wouldn't consider municipal bonds in the State of Indiana? Because of their length, maybe? Mr. Gifford replied, The State of Indiana, we do have the ability to invest in them. Those are tax- free obligations and, typically, taxable accounts don't get any economic benefit from that. So, unless their yields are higher than the treasuries, that would be the only reason for me to buy them in your portfolio. Otherwise, you'd be giving up earning because you don't get the tax revenue. So, I've never come across too many circumstances where it would be to your advantage. Then, everything in here is much more liquid as far as my ability to sell it for you if you need any money. EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574 235 9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 3 CITY OF SOUTH BEND OFFICE OF THE CLERK Mr. Parker replied, I would like to tack something onto that answer for Councilmember White. That is from an income perspective. That is the two(2)to three(3)year outlook. From just an asset perspective, we've done a lot to try and build up our liquidity and that is evidenced by moving$10 million more into the investment side. We have a lot of cash on hand to account for unforeseen expenses or drops in revenue, from that perspective. He continued, The investments are one (1) part of the picture when it comes to the Board of Finance. We also have cash outside of our investments and they are kept in deposit accounts. Rahman Johnson, Director of Treasury with offices located on the 12th floor of the County-City Building, stated,Continuing flipping through the report, I'm sure you've all seen this on a monthly basis. This is the Controller's Cash Report. It is simply a summary of where we are at for the month. I'll direct you to the last page of the report, bottom right, just above Total Cash for Investments, we are at $390 million for our cash balances in all the funds. The next page deals with cash reserves summary by fund.We do a great job of maintaining our cash reserves and you'll notice at the top there are about five (5) listed with insufficient balances and that is due to encumbrances. Again, directing you to the previous page in the total report, our cash balances are healthy. If you go to the next page, you'll see City of South Bend Cash Balance in all funds. This starts from 2007 and goes all the way to present. If you got to 12/31, you'll see the ending balance of$309 million and then it's broken down by Enterprise Funds, Redevelopment Funds and Civil City Funds. The next page is another break down of the Enterprise Funds dating back to 2007. Likewise, with Civil City Funds dating back to 2007. The next page I'm at is the Interest Income Summary, page thirty-one (31). As Paul mentioned, we are looking to do just above $4 million this year. As of December 31, 2018, we were at $4.8 million. Now, that includes investments as well as our regular 1St Source Checking account that gets interest. So, we are well above where we were a while back. The next page is just a graph. Then, the interest earnings summary is more detailed by fund and shows you which funds receive that interest to make up that$4.8 million. The next page is the cash reserve policy and the percentage required for each fund. Then the final back pages have information about our investment people at 1' Source Bank. Board President Voorde stated, I don't remember seeing these cash reserve policy totals for all these funds, so I appreciate that. Mr. Parker followed up, I will point out that these reserve thresholds are set internally and are actually set in excess of recommendation. The Government Finance Officer's Association has a recommendation that the General Fund maintain two (2) months worth of expenditures, which is about seventeen and a half percent(17.5%) and we are actually at double that. Councilmember White stated, I was going to ask about that. We are at thirty-five percent(35%). Mr.Parker replied,And that is our minimum. If you look at where we are right now,we are actually at sixty-one percent (61%) of our General Fund expenditures, in cash. So, we do have quite a bit of cash on hand. Councilmember Jo M. Broden asked, What is the rationale for it being that high? As an Administration, why do you choose that? Why do we continue to let it grow? EXCELLENCE ACCOUNTABILITY INNOVATION j INCLUSION ; EMPOWERMENT 455 County-City Building 227W.Jefferson Bvld South Bend,Indiana 466011p 574.235.9221 f 574.235.9173 TTD574.235.5567 www.southbendin.gov .southbendin.gov 4 CITY OF SOUTH BEND OFFICE OF THE CLERK Mr. Parker replied,That is a great question. It definitely provides a degree of safety for a rainy day and looks very good when it comes to bond ratings. Higher bond ratings help us borrow money at a cheaper rate,which is great from that perspective.At the end of the day,it is true that maintenance of the strong liquidity is great, but at some point, we want to make the investment and instead of raising money for new bonds,we should spend down some cash reserves. I think that is where we are at. As we look to take on new projects, whereas in the past we would look to issue new bonds, we might look to see if we could spend down some cash at this point. Mr. Parker continued,There is one(1)additional sheet in the packet(which is available in the City Clerk's Office). It is the last sheet, and this is provided to you as a courtesy list. There is no action needed on this. Every year, the Controller is required to file with the Common Council a list of those checks that have been outstanding for two (2) years as of December 31st. This is the list of those checks. These checks have been declared void and have been redeposited into those funds. We do make a great deal of effort to find these people. Councilmember Broden asked, In terms of peer cities in the State of Indiana, who do we look at for a benchmark? Mr. Parker replied, Generally when we do benchmarks, we look at other Indiana Second (2nd) Class cities, so, Noblesville, Carmel, Fishers, Evansville and Fort Wayne. I don't know exactly where they are from a liquidity perspective, but we do look at them with respect to their debt and bond ratings and we compare very favorably in those respects. With no further business, Board President Voorde adjourned the Board of Finance meeting at 3:58 p.m. Respectfully Submi ed, a • s V s arde, Board President EXCELLENCE ! ACCOUNTABILITY INNOVATION INCLUSION I EMPOWERMENT 455 County-City Building',227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 I 10574.235.5567 www.southbendin.gov 5