Memorandum
City of Lawrence
Finance Department
TO: |
Dave Corliss, City Manager
|
FROM: |
Ed Mullins, Finance Director
|
Date: |
June 12, 2012
|
RE: |
Investment Policy |
Background
The City of Lawrence was authorized expanded investment powers under K.S.A. 12-1677b in 1999. The statute allows the city to invest in government agencies and extends the maximum maturity of an investment from 2 years to 4 years. The Finance Department was notified in March 2012 that the policies of the Pooled Money Investment Board (PMIB) pertaining to the approval of expanded investment powers had been revised. The PMIB provided a summary of the changes and a list of recommended revisions to the city’s investment policy in order for it to remain in compliance.
Description
A draft of the revised investment policy was forwarded to PMIB in May. The Finance Department was subsequently contacted and one additional revision was recommended to the draft policy. That change was made and the attached revised investment policy will require approval by the City Commission to meet the PMIB’s requirements.
The revisions to the city’s investment policy are summarized below:
1. Section 1.0 includes a requirement that the investment policy will be reviewed and approved at least annually by the City Commission.
2. Section 4.3 was modified to address a “liquidity event” that would require the selling of investments prior to maturity.
3. Section 5.2 addresses the training and experience needs of the individuals responsible for the city’s investments.
4. Section 12 was expanded to include some guidelines on the diversification of the city’s portfolio.
Investments
With the abnormally low interest rates, the city has an unusually high amount of cash in our deposit account. The amounts in our checking account currently earn interest at a rate of 20 basis points (0.20%). Even at this low rate, the city’s investment must mature in approximately one year or more to achieve a higher yield. As a result, when the city does invest, it has been with a longer maturity than usual. The following tables display information on the city’s investments as of June 2012 and October 2008. The average yield in 2011 was 0.25% with interest earnings of less than $25,000 while the average yield in 2008 was 3.88% with earnings of $3.5 million.
Type of Investment |
October 2008 |
June 2012 |
Cash |
7% |
63% |
Municipal Investment Pool |
20% |
0% |
Government Agencies |
44% |
25% |
Certificates of Deposit |
29% |
12% |
Length of Investment |
October 2008 |
June 2012 |
Less than 6 months |
35% |
0% |
6 to 12 months |
30% |
60% |
More than 12 months |
35% |
40% |
Recommendation
It is recommended that the City Commission approve the revised Investment Policy.