Title
Acceptance of Quarterly Investment Report for the quarter ended December 31, 2019.
Body
Summary: Chapter 2, Administration, Article VII (Finance), All of Division 2 (Investment Policy), Section 2-274 Reporting, of the Code of Ordinances of the City of Deer Park, requires the Investment Officers to prepare and submit to City Council an investment report no less than on a quarterly basis. This requirement is in compliance with the Texas Public Funds Investment Act, V.T.C.A., Government Code Ch. 2256 as amended (the "Act"). The City's Investment Officers have worked with the Investment Advisor to prepare this report for the quarter ended December 31, 2019 and each has signed the report.
At December 31, 2019, all City funds were held in various depository accounts or in accounts at TexPool, TexSTAR, or Texas CLASS, which are local government investment pools authorized by the Investment Policy. All three pools continue to maintain their AAAm rating by Standard & Poor's, which is the highest rating a local government investment pool can achieve.
Cash and investment activity included on the attached report is summarized below:
Cash in Wells Fargo (Depository Bank) $ 24,587,081
Money Market Accounts 2,114,217
Certificates of Deposit 42,630,135
TexPool 19,268,812
TexSTAR 13,691,991
Texas CLASS 9,663,884
Total Book Value $111,956,120
Working with the City's investment advisor, the City has diversified the portfolio during the last few years with current investments of $44,744,352 in various depository banks through money market accounts and certificates of deposit. At the end of the quarter, these investments represent about 40.0 percent of the portfolio.
These depository investments are earning between 1.75% and 3.05%. Comparatively, rates in the investment pools averaged 1.7372%, 1.6777%, and 1.7556% for the quarter in TexPool, TexSTAR, and Texas CLASS, respectively. While the new depository investments have increased investment earnings, as these rates indicate, market rates are again declining. The City will continue to review and evaluate investment opportunities for safety, liquidity, and yield.
At the end of the first quarter of Fiscal Year 2019-2020, investments in TexPool totaled $19,171,437, which is a net increase of $97,375 from the previous quarter. This net increase primarily represents interest earnings for the quarter but also includes a $13,268 deposit to the Debt Service Fund related to the issuance of the Series 2019, Certificates of Obligation and the Series 2019, Limited Tax Refunding Bonds. The TexPool funds earned an average 2.2409% for the quarter (July - September 2019) or 50 basis points lower than the average for the previous quarter (note: a basis point is equal to 1/100 of a percentage point so 0.01 equals 1 basis point). On December 31, 2019, TexPool was earning 1.6104%.
Investments in TexSTAR at the end of the first quarter of the fiscal year totaled $13,691,991, which is a net increase of $57,757 from the previous quarter. This net increase represents the interest earnings for the quarter. The TexSTAR funds earned an average 1.6777% for the quarter or 53 basis points lower than the average for the previous quarter. On December 31, 2019, TexSTAR was earning 1.5661%.
Investments in Texas CLASS at the end of the first quarter of the fiscal year totaled $9,663,884, which is an increase of $4,628,409 from the previous quarter. This net increase is primarily the result of the $4,603,200 deposit of proceeds from the Series 2019, Certificates of Obligation but also includes $25,209 of interest earnings for the quarter. The Texas CLASS funds earned an average 1.7556% for the quarter or 48 basis points lower than the average for the previous quarter. On December 31, 2019, Texas CLASS was earning 1.6251%.
The federal funds rate, still shown as a range, was reduced 25 basis points by the Federal Open Market Committee (FOMC) on October 30, 2019 to a new range of 1.50% - 1.75%. At the December 11, 2019, the FOMC did not change the rate, and the rate is expected to be unchanged at the January 30, 2020 meeting. The rate has dropped 75 basis points in the last year from the range of 2.25% - 2.50% on December 31, 2018. As a result of these rate reductions, market rates have been declining as seen in the investment pool rates and the certificate of deposit reinvestment rates. While the 1.70% weighted average yield for the first quarter ended December 31, 2019 is higher than the 1.60% rolling average yield of the three-month U.S. Treasury Bill for the quarter, it is lower than the 2.18% for the last quarter reflecting the interest rate declines in the current market. Currently about 22.0 percent of the portfolio is in the City’s depository bank.
Fiscal/Budgetary Impact:
N/A.
Recommended action
Accept the Investment Report for the Quarter Ended December 31, 2019.