Staff Report
PREPARED BY: STEPHEN CONWAY
Finance Director
Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 11/19/2018
ITEM NO: 3
DATE: NOVEMBER 15, 2018
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: RECEIVE THE FIRST QUARTER INVESTMENT REPORT (JULY THROUGH
SEPTEMBER) FOR FISCAL YEAR 2018/19.
RECOMMENDATION:
Receive the First Quarter Investment Report (July through September 2018) for Fiscal Year
2018/19.
DISCUSSION:
As of September 30, 2018, the Town’s weighted portfolio yield of 1.84% is trending slightly
below the Local Agency Investment Fund (LAIF) yield of 2.06%. This difference is because the
LAIF portfolio’s weighted average maturity (WAM) of 193 days is significantly below the Town’s
WAM of 353 days. During periods of rising interest rates it is not unusual in the short run for
the LAIF’s shorter WAM to outperform portfolios that have a longer average maturity. With the
Federal Reserve continuing to communicate a high likelihood of future interest rate increases,
staff continues to replace matured or called investments with similar investments with respect
to maturity and credit quality. For the quarter, the Town’s weighted average rate of return
increased 11 basis points (0.11%) from 1.73% to 01.84%.
Cash balances in the portfolio decreased by approximately $12.7 million during the first
quarter, reflecting the over $4 million plus of expenditures on improvements to the Town’s
infrastructure including approximately $2.5 million on the Almond Grove Street Rehabilitation
project and approximately $1.7 million on the Town’s annual street repair and resurfacing
program. Other significant payments included the approximate $3.1 million advance payment
of the Town’s unfunded pension liability, saving the Town approximately $112K in interest
during the fiscal year. Other large cash outlays of note included approximately $1.5 million in
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SUBJECT: FIRST QUARTER INVESTMENT REPORT (JULY THROUGH SEPTEMBER 2018)
FOR FISCAL YEAR 2018/19
DATE: NOVEMBER 15, 2018
S:\COUNCIL REPORTS\2018\11-20-18\Investment Report\Staff Report.docx 11/15/2018 1:49 PM SLL
DISCUSSION (Continued):
August debt service payments due on the 2002 and 2010 Certificates of Participation , $900K in
payments to the Town’s Section 115 Pension Trust, and an approximate $360K payment to
ABAG for the Town’s annual general liability and property damage coverage. It should be
noted that it is typical for the investment balances to decrease during the first quarter as
property tax receipts (the Town’s largest source of revenue) do not begin to be received from
the County of Santa Clara until November of each year.
During the quarter, yields have generally been increasing in anticipation of stronger economic
growth. The market still anticipates the potential for inflation and higher future interest rates.
Because of the rising interest rate forecast, the Town’s investment strategy continues to focus
on the purchase of new short-term (two years or less in maturity) investments as the rewards
for longer term investments in the three to five year maturity do not have adequate spreads to
justify the risk of holding longer term maturities.
CONCLUSION:
Staff recommends that the Town Council receive the First Quarter Investment Report (July
through September 2018) for Fiscal Year 2018/19.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachment:
1. First Quarter Investment Report for FY 2018/19 (July through September 2018)