Agenda

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Finance Committee

Meeting Date:	05/30/2023
FROM:	Bill Gallardo

Subject:

Use of Treasury Bills as LAIF Alternative for Short-term Investments

RECOMMENDATION

Approve the use of Treasury Bills as a LAIF alternative for short-term investments.

BACKGROUND/DISCUSSION

The City has traditionally used the Local Agency Investment Fund (LAIF) as its source for short-term investments and the City has kept sufficient monies in its checking and LAIF accounts to cover its expenditures for the next six to nine months. LAIF has served as an ideal short-term investment tool due to the accessibility of funds within 24 hours and their return on investment was traditionally competitive. However, in recent years LAIF's annual yields have declined to a point where other short-term investment options, such as Treasury Bills (T-bills), are regularly outperforming LAIF’s returns.

At the April 24, 2023 Investment Advisory Committee (IAC) Meeting, Chandler Asset Management (Chandler), the City's investment portfolio manager, recommended to the IAC that the City should take advantage of the higher than normal yields for T-bills. Chandler believes the City will likely generate additional interest income by depositing more of its available funds in T-bills, rather than LAIF. T-bills are currently offering 4.45%, while the most recent LAIF yields are 2.87%. Additionally, a 3 month T-bill yielding 5.10%, while a 6 month T-bill is yielding 4.95%. T-bills are highly liquid and cash can be available to meet the City’s next business day needs. With early notification, Chandler believes the securities may be sold and monies potentially available the same day.

Staff recommends to continue using LAIF with a smaller balance to maintain operational flexibility. For instance, over the past nine (9) months, the average LAIF balance has been approximately $6 million, under this scenario staff might recommend investing $4 million in T-bills and leave the remaining balance with LAIF. In this situation, a 3 month T-bill could produce an additional $22,300 in interest income (less account fees) as compared to LAIF. The reduced balance in LAIF will provide staff the flexibility to handle unexpected payment needs. Balances in each account will be monitored monthly and the use of T-bills will require departments to identify in-flows and out-flows to avoid continual cash withdrawals and deposits.

Mayor Pro Tem Marick, the Chair of IAC, requested that staff look into the viability of investing in T-bills and if permissible, to bring this item to Finance Committee and the City Council as soon as possible. After a careful review of the City's current Investment Policy, there are no significant concerns with utilizing T-bills. Currently, T-bills are categorized under US Treasury Obligations, where there is no limitation on investment percentages.

SUMMARY/FISCAL IMPACT

Based upon the most recent yields and a scenario of $4 million invested in a 3 Month Treasury Bill, the City would expect to accrue an additional $22,300 in annual interest income (less account fees) as compared to LAIF. The City cash balances and yields are subject to change.

RESPECTFULLY SUBMITTED

William Gallardo, City Manager
Prepared by: Faith Madrazo, Financial Services Manager, Revenue and
Monica Lo, Deputy Director of Administrative Services
Concurrence: Kristin Griffith, Director of Administrative Services