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Home My WebLink AboutFIN 2019-02-11 Item 2B - Report - 2018 Cash and Investment ReportCity of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance Committee FROM: Peggy McCarthy, Finance Director CC: Mayor Ekberg DATE: February 6, 2019 SUBJECT: 2018 Cash & Investment Report ISSUE The cash and investment report provides portfolio information as of December 31, 2018 and for the year then ended. BACKGROUND City funds are invested to earn a reasonable return while preserving principal and allowing sufficient liquidity to meet the City's operating needs. To achieve these objectives investments are diversified by type, by financial institution, and by maturities in compliance with the City Investment Policy. DISCUSSION Portfolio Components, Activity, and Year -Over -Year Comparison As of December 31, 2018, the portfolio totaled $83 million comprised of $58 million in cash and cash equivalents and $25 million in longer term investments. The U.S. Bank depository account held $20 million in anticipation of a $13 million payment due early in January 2019 for the acquisition of Public Works shops property under the Public Safety Plan. The intent is to keep the balance of this account to a minimum and transfer any excess funds to the Local Government Investment Pool (LGIP) account. The bank account doesn't earn interest but does earn a 1% credit (the rate prior to October 2018 was .45%) as an offset to banking costs. Since the LGIP daily yield has exceeded 2% since August 2018 and has progressively moved higher (it was 2.49% on February 4, 2019), the bank account is managed to maintain only the minimum amount needed. The following chart illustrates the portfolio components at 12/31/18. Percent of Cash & Investment Portfolio Agencies Municipal 19% Bonds CDs 4% Money Market 18% LGIP 28% 7% Cash 24% 3 INFORMATIONAL MEMO Page 2 During 2018, two $1 million agencies matured and a portion of the Douglass County ESD bond, $355 thousand, was redeemed; no investments were purchased. Most of the longer -term investments in the portfolio - all but $2.6 million - were purchased in 2017 following the December 2016 issuance of $37 million of voted debt bonds. Of the $25 million longer -term investments at year-end, $16.6 million mature in 2019, $6 million mature in 2020, and $2.5 million mature in 2021 or 2022 producing a weighted average maturity of one year. At December 31, 2017, the cash and investment balance was $101 million, $18 million more than at December 31, 2018. This $18 million reduction is attributable mainly to investment in the Public Safety Plan. The Public Safety Plan Voted Debt fund 305 declined $21 million; the Public Safety Plan Public Works Shops fund 306 increased by $11 million reflecting expenditures and a $20 million limited tax general obligation bond issuance in July 2018; and the Residential Street fund declined $7 million from investment in the 42nd Ave S and 53rd Ave S improvements. Portfolio Performance Short term investment yields have increased markedly since mid-2017 and this increase has been reflected in the LGIP rates, as illustrated in the two charts below. LGIP Yields Based on the State's Fiscal Year of July 1 to June 30. 0.20% 7 % 0.13% "4.**1", 7"V"'4*********"4"*"•"*".***** wtiod****4ftwotiarttaftamOlNaiwAtiaii*No iii"iiro4S11.****"4,404.1"114.4" +4.460, 4 INFORMATIONAL MEMO Page 3 LGIP Yield by Quarter and Year 2.70% 2.40% 2.1 0`)/0 1.80% 1.50% 1.20% 0.90% 0.60% 0.30% 0.00% IONISE U I I I I I Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec 2013 2014 2015 2016 2017 2018 For 2018, the average yield was 1.90% for long term investments, 1.91% for the LGIP and 1.95% for the money market account. The 2018 investment earnings of $1.58 million represents a 60% increase over the 2017 total of $990 thousand and a $1.3 million positive variance over the $271 thousand budgeted. Earnings for the past four years are charted below. $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- $356,952 2015 Investment Earnings $388,767 2016 $990,468 2017 $1,580,900 . . ., . .. ,.. „,,..,„.. ...., ,.. ,. ,. .. .„., , .. .. . .. „ . .,,••'••'•, ,„.,••••,„;,, . . . . ,... .. , . , .,.,.,....„, , .. . , ........................ . , . ,.. .. , .. .. • •• . . .. .. , . . .. , ... , . . . ., . . .. , ,.. ., . „ . . .. , ..... ..... . .. . .. . . ' ' •• ... • ..,.., .. . .. , . . ' . , . , .. . „ ........"............, . , . . . . . . . . , .... . , . , .., .. ..., , ,.I. 2018 5 INFORMATIONAL MEMO Page 4 Policy Compliance and Liquidity Analysis The portfolio profile is well within the range of all the investment policy parameters. There is currently a good mix of investments with a range of maturity dates. Current investments allow for adequate cash flow requirements. The yield benchmark of the 2-year treasury however was not met due to the rise in the two-year rate over the past year and a half, and timing of the longer -term investment purchases. With a slowing of interest rate hikes (see the Investment Environment discussion below) and the maturing of $16 million of longer -term investments in 2019, opportunities to increase the portfolio yield may be presented in 2019. Investment Environment The Federal Reserve raised interest rates in December 2018 for the fourth time in 2018 putting it at its highest level since the spring of 2008. This contributed to an inverted yield curve in December whereby the 5-year treasury rate was higher than the 2-year treasury rate. The chart below illustrates this convergence of rates in November and December and the steep rise in rates beginning in September 2017. Historical Treasury Rates 5-Year vs 2-Year 0 Jail Fob Mar April M Juno July Auo Scet. 001 Nov Doc Jan Fob Mar April May June July Aug Sept Clci Nov Dec 2017 2a18 time Period 2 YEAR NOWNAL YEAR NOMR4AL DIFFERENCE' The Federal Reserve recently indicated that it may raise interest rates twice in 2019 rather than three times slowing the interest rate climb. The Fed reported that economic growth remained solid and is expected to continue. However, the case for raising rates has weakened somewhat because of sluggish inflation, slowing growth in Europe and China and the possibility of another federal government shutdown. It has been reported that the Fed would be "patient" in evaluating the health of the economy and that the Fed stood ready either to raise or to cut rates, depending on economic conditions. The portfolio will continue to be managed to take advantage of investment opportunities as they arise. 6 INFORMATIONAL MEMO Page 5 RECOMMENDATION Presentation is for information only. ATTACHMENTS 2018 Cash and Investment Report Policy Compliance & Liquidity Analysis Treasury Rates and Yield Curves at 12/31/17 and 12/31/18 7 8 Agency / Issuer CASH & CASH EQUIVALENTS US Bank depository account Washington State Treasurer Local Government Investment Pool, LGIP Columbia Bank money market account CITY OF TUKWILA CASH & INVESTMENT REPORT December 31, 2018 —Term -- 27-• ''- .c• (7., A <- Investment Purchase Maturity d c3) Book/Par Investment as a % of Date Date Mos Mos Balance Yield Income Category na na na No fixed maturity or term; funds are available within one day. $ 19,861,884 1.00% (b) $ 58,300 35°/0 23,030,920 1.91% 762,000 40% 14,642,045 1.95% 280,300 25°/0 Cash & Cash Equivalents -Totals. Average 57,534,849 1 91% 1,100,600 100% INVESTMENTS Certificates of Deposit Bank of Washington Sound Community Bank with reinvested earnings 6/2/2017 6/2/2019 24 5 3/4/2017 3/4/2019 24 2 250,000 1.40°A, 3,288,311 1.40% 3,500 1% 46,000 13% CERTIFICATES OF DEPOSIT - Totals, Average 24 4 3,538,311 1.40% 49,500 14% Agencies Federal Farm Credit Bank 1/19/2016 12/21/2018 35 matured 1,000,000 1,20% 12,000 0% Federal Home Loan Mtg Corp 5/25/2016 5/25/2018 24 matured 1,000,000 0.91% 3,800 0°/0 Federal Farm Credit Bank, FFCB 12/27/2016 12/27/2019 36 12 1,000,000 1.70% 17,000 4% Federal Agricultural Mortgage Corp, Farmer Mac 1/23/2017 7/23/2019 30 7 1,000,000 1.40% 14,000 4% Federal Home Loan Bank 1/30/2017 1/30/2019 24 1 1,000,000 1.29% 13,000 4% Federal Farm Credit Bank, FFCB 3/20/2017 3/20/2019 24 3 2,000,000 1.45% 29,000 8% Federal Agricultural Mortgage Corp, Farmer Mac 8/2/2017 8/2/2019 24 7 2,500,000 1.45% 37,000 10% Federal Home Loan Bank, FHLB 8/28/2017 8/20/2020 35 20 2,300,000 1.65% 38,000 9% Federal National Mortgage Association, FNMA 8/28/2017 10/9/2019 25 9 2,400,000 1.60% 38,000 10% zero coupon Federal Home Loan Bank, FHLB 9/11/2017 6/29/2020 33 18 1,700,000 1.62% 26,000 7% Federal Farm Credit Bank, FFCB 9/12/2017 5/9/2022 55 40 2,000,000 2.03°/0 39,000 8% AGENCIES - Totals, Average 31 13 15,900,000 1,68% 266,800 63% Taxable Municipal Bonds UW Biomedical Center 12/14/2010 7/1/2019 103 6 500,000 4.05% 24,000 2% Douglas County, ESD 12/23/2010 12/1/2020 119 23 (a) 780,000 4.55% 48,000 3% $355,000 redeemed on 12/3 Port of Anacortes 12/17/2010 9/1/2020 116 20 340,000 5.00% 17,000 1% 6/14/2017 12/1/2019 30 11 300,000 1.65% 6,000 1% 6/14/2017 11/1/2019 29 10 380,000 1.45% 6,000 2% 9/6/2017 12/1/2020 39 23 510,000 1.63% 9,000 2% 8/29/2017 5/1/2019 20 4 2,000,000 1.50% 32,000 8% 8/30/2017 6/1/2021 45 29 500,000 2.05% 10,000 2% 12/21/2017 6/1/2020 29 17 (a) 500,000 2.25% 12,000 2% /18 City of Auburn BABs Seattle UTGO Port of Tacoma Port of Seattle, pre -funded Multnomah County zero coupon City of Burien, callable 6/1/20 MUNICIPAL BONDS - Totals, Average Total Investments 59 16 5,810,000 2 82% 164,000 23% 38 II 25,248,311 1 90% 480 300 1004 TOTAL CASH, CASH EQUIVALENTS & INVESTMENTS $ 82,783,160 Data as of February 4, 2019. (a) On calleable bonds, term is calculated to final maturity even though call date may occur first; on sinking fund bonds, average maturity is used to calculate term. (b) Represents earning credit from US Bank towards payment of bank fees; rate was ,45% prior to October 2018. 1.91% I $ 1,580,900 Current Portfolio Yield 9 CITY OF TUKWILA Policy Compliance & Liquidity Analysis CASH & INVESTMENT REPORT December 31, 2018 Portfolio Liquidity Analysis & Maturity Diversification Amount Funds immediately available - US Bank, State LGIP, Money market Fixed Maturity Investments, maturing in: 0-90 days after Report Date 91-180 days after Report Date 181-270 days after Report Date 271-360 days after Report Date Investments maturing in 1 year or less Investments maturing in 1-2 years Investments maturing in 2-3 years Investments maturing in 3-4 years Investments maturing in 7-10 years Investments maturing in more than 1 year and less than 10 years. TOTALS Available Within 1 Year $ 57,534,849 $ 57,534,849 6,288,311 2,250,000 4,000,000 4,080,000 2019 16,618,311 16,618,311 2020 2021 2022 2023 6,130,000 500,000 2,000,000 8,630,000 As of Report Date Available Within 5 Years $ 57,534,849 16,618,311 6,130,000 500,000 $ 82,783,160 $ 74,153,160 $ 80,783,160 90% 98% Available in 5- 10 Years 2,000,000 $ 2,000,000 3% 11111111114115111111111151111311E MOM MUlailMiSAMESSEAnSIPIZSAIMIESIINEREMIZSISZVE MUM. "ULM. Portfolio Financial Institution Diversification Amount US Bank Columbia Bank Bank of Washington Sound Community Bank $ 19,861,884 14,642,045 250,000 3,288,311 Investments in Financial Institutions 38,042,240 Investments in US Government and other non -financial institutions 44,740,920 Total $ 82,783,160 Investment Mix Depository State Investment Pool Money market Certificate of Deposit US Agency Municipal Bonds Total Portfolio Amount 19,861,884 23,030,920 14,642,045 3,538,311 15,900,000 5,810,000 % of Total 2 4 .0°/0 17.7% 0.3% 4.0% 46.0% 54 . 0% 10 0 % % of Total 24.0% 27.8°k 17.7% 4.3% 19.2°/0 7.0% 82,783,160 100,0% POLICY Policy MAXIMUM Met? 50.0% Yes 50.0% 50.0% 50.0% POLICY MAXIMUM insured by PDPC 75.0% insured by PDPC insured by PDPC 75.0% no limit specified in policy Yes Yes Yes Policy Met? Yes Yes Yes Yes Yes Yes klfttaial,NMffttkaaSltKI%NSV MEWVIAINSIM: WEISISECIECEIMInt 211112M Weighted Average Maturites: Certificates of deposit Agencies Municipal bonds Total Investments POLICY MAXIMUM Policy Met? Years Performance Analysis 0,2 Current portfolio yield 1.2 1.1 1 .0 3.5 Yes Note: Cash and cash equivalents are available within one day and are not factored into the Total Investments weighted average maturity. Benchmarks: 6 month treasury 2 year treasury 1.91% 2.47°k 2.49% Local Govt Invst Pool 2.38% 10 Closing Yield 3mo 6mo 1 Yr 2Yr 3Yr 5Yr 10Yr 30Yr 1.39% 1.53% 1.76% 1.89% 1.98% 2.20% 2.40% 2.74% CITY OF TUKWILA Treasury Rates and Yield Curves CASH & INVESTMENT REPORT December 31, 2018 Rate % Change Change 1.06% 43% 1.03% 40% 0.87% 33% 0.59% 24% 0.48% 20% 0.31% 12% 0.29% 11% 0.28% 9% Source: US Department of the Treasury 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 3mo 6mo 1Yr 2Yr 3Yr 5Yr 10Yr 30Yr 2.45% 2.56% 2.63% 2.48% 2.46% 2.51% 2.69% 3.02% Comparison of Treasury Rates 3 mo 6mo 1 yr 2 yr 3 yr 5 yr 10 yr 30 yr t 12/31/2018 42/31/2017 11