 |
AGENDA ITEM NO. 7.
CITY OF HAWTHORNE City Council AGENDA BILL For the meeting of 02/25/2025 Originating Department: Finance |
City Manager:
Department Head:
SUBJECT:
Increased Investments in 1-5 year tiered fixed investments through Multi-Bank Securities (MBS).
RECOMMENDED MOTION:
Approve the City Treasurer’s request to increase investments through MBS and authorize certain designated City of Hawthorne Officers (pursuant to Resolution 8010) to execute transfers of up to $10 million of City's General Fund to invest in fixed investments through Multi-Bank Securities.
DISCUSSION:
The City Treasurer has determined that the City has ample reserves for operation and believes the City should add diversity to its fixed investment portfolio at Multi-Bank Securities to earn better returns. The Treasurer plans to add to the City’s fixed income ratio portfolio on a rolling basis as she sees good options for the City.
The City Treasurer plays a crucial role in managing the financial affairs of a city or municipality. City Treasurers' duties and responsibilities will align with the city's mission statement. I'm recommending a strategic investment opportunity that will benefit our city's financial portfolio and ensure the prudent management of our resources. After thorough analysis and consultation with economic experts, I recommend the city consider investing some of our surplus funds in a money market account. I have outlined the rationale behind this proposal and its potential benefits for our community. I have provided best practices I will continue to work on during my time as the Elected City Treasurer.
I respectfully request that the Council authorize the allocation of a portion of our surplus funds ($10,000,000) to the existing MBS account. This decision reflects our commitment to safeguarding the financial interests of our community and ensuring the long-term prosperity of our city.
Benefits and Risks:
All investments will be made in accordance with the City's investment policies. The City will invest in fixed income securities, primarily Certificates of Deposit (CDs) and U.S. Treasuries, which carry no principal loss risk if held to maturity. These investments will generate increased interest income during the years 2027, 2028, 2029, and 2030 by implementing a strategic tiered approach during periods when fewer current investments are set to mature.
With interest rates at 20-year highs, it is strategically advantageous for the City to secure these guaranteed rates of return. Projected returns up to 5.10%, compared to the current Local Agency Investment Fund (LAIF) rate of 4.62%.
The primary risk associated with this strategy arises if the City needs to liquidate fixed securities before maturity. If interest rates rise further, these securities could be sold at a discount, resulting in a loss. To mitigate this risk, the City is investing only excess reserves that it intends to hold to maturity.
The City Treasurer plays a crucial role in managing the financial affairs of a city or municipality. City Treasurers' duties and responsibilities will align with the city's mission statement. I'm recommending a strategic investment opportunity that will benefit our city's financial portfolio and ensure the prudent management of our resources. After thorough analysis and consultation with economic experts, I recommend the city consider investing some of our surplus funds in a money market account. I have outlined the rationale behind this proposal and its potential benefits for our community. I have provided best practices I will continue to work on during my time as the Elected City Treasurer.
- Safety and Liquidity
- Competitive Returns
- Flexibility and Accessibility
- Stability and Security
- Prudent Financial Management
I respectfully request that the Council authorize the allocation of a portion of our surplus funds ($10,000,000) to the existing MBS account. This decision reflects our commitment to safeguarding the financial interests of our community and ensuring the long-term prosperity of our city.
Benefits and Risks:
All investments will be made in accordance with the City's investment policies. The City will invest in fixed income securities, primarily Certificates of Deposit (CDs) and U.S. Treasuries, which carry no principal loss risk if held to maturity. These investments will generate increased interest income during the years 2027, 2028, 2029, and 2030 by implementing a strategic tiered approach during periods when fewer current investments are set to mature.
With interest rates at 20-year highs, it is strategically advantageous for the City to secure these guaranteed rates of return. Projected returns up to 5.10%, compared to the current Local Agency Investment Fund (LAIF) rate of 4.62%.
The primary risk associated with this strategy arises if the City needs to liquidate fixed securities before maturity. If interest rates rise further, these securities could be sold at a discount, resulting in a loss. To mitigate this risk, the City is investing only excess reserves that it intends to hold to maturity.
ECONOMIC DEVELOPMENT STRATEGIC PLAN:
.
FISCAL IMPACT:
Increase City’s interest income.
NOTICING PROCEDURE:
72 hours posted notice pursuant to the Ralph M. Brown Act