Consideration and Approval of Cooperative Contract: PFM Asset Management, LLC Services Contract No.2016-48

The City currently has approximately $86 million in City funds invested by PFM Asset Management Services, LLC (PFM).  The City's existing contract with PFM is expiring July 2016. In 2014 the Arizona Board of Regents/University of Arizona entered into a contract with PFM to provide Asset Management Services, which allows other cities to receive the same terms and conditions via a "cooperative purchase contract." The City's proposed cooperative purchase agreement with PFM will commence July 1, 2016 and continue through June 30, 2019.

The City will pay contractor the following fee:

10 basis points (0.10%) per year on the first $25 million of assets under management
 8 basis points (0.08%) per year on assets between $25 million and $50 million under management
 7 basis points (0.07%) per year on assets between $50 million and $100 million under management
 6 basis points (0.06%) per year on assets over $100 million under management

This will equate to approximately $70,200 during FY 2017 based on an estimated $86 million investment portfolio for the City of Flagstaff.

COUNCIL GOALS
1) Improve the economic quality of life for Flagstaff through economic diversification, and by fostering jobs and programs that grow wages and revenues

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If this cooperative purchase contract with the PFM is not approved, the City will explore other investment options, such as the following:  (a) issue a request for proposals for investment firms; (b) directly manage City funds using City staff (additional staffing would be required); (c) invest funds through the Local Government Investment Pool; or (d) any combination of such options.

The City of Flagstaff has had a successful relationship with PFM. We began a contract with PFM for investment management in 2011 and the relationship has grown over the past 5 years. We continue to invest additional funds with PFM. In the last year alone, the City of Flagstaff has invested an additional 5 million dollars because of the returns received from PFM. The returns are greater than the average, measured against the ML Government Index (Merrill Lynch Indices provided by Bloomberg Financial Markets). We wish to continue using PFM's services for the next 3 years beginning July 1, 2016 and continuing through June 30, 2019.

A key consideration of hiring an investment manager is investment expertise and higher rate of return on investments versus managing investments internally.  The City currently invests funds through the Local Government Investment Pool (LGIP), Certificate of Deposits (CDs) through Alliance Bank for community investments, and PFM.  An investment manager will allow the City to invest in financial instruments allowed by the City’s Investment Policy.  Additionally the City has a great relationship with the PFM that extends over the past 5 years and have return on our investments.

Since the inception of our contract in 2011 with PFM Group, the City of Flagstaff has realized a total return of .84% in comparison to the ML 1-5 Year Government Index of .81%, a Merrill Lynch index provided by Bloomberg Financial Markets. City Council receives a Quarterly Investment Report via a CCR.  The Quarterly Investment Report includes further financial detail as to City investments.

The rates listed under Financial Impact are slightly higher than the City of Flagstaff negotiated with PFM five years ago when the original contract was negotiated, but the rates are in line with the current rates being offered for a municipality of the same size as the City of Flagstaff. 

The main benefit is that we are obtaining a .84% return on investments which means more money in the Flagstaff economy.

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