Increased Investments in 3-5 year tiered fixed investments through Multi-Bank Securities (MBS).
 

Approve staff's request to increase investments through MBS and authorize certain designated City of Hawthorne Officers (pursuant to Resolution 8421) to execute transfers of up to $20 million of the City's General Fund to invest in fixed investments through Multi-Bank Securities. 

The Finance Director and City Manager have determined that the City has sufficient reserves for operations and believe that the City should diversify its fixed investment portfolio at Multi-Bank Securities to achieve better returns. With LAIF rates already decreasing from a high of 4.6% to a daily rate of 3.86%, the City risks missing out on higher investment returns if it continues to hold the current $75 million in LAIF. The goal is to lock in rates before they fall further, which is expected in the next month. Staff recommends increasing the bond portfolio and laddering out the best rates in accordance with the City’s investment policy.

The Finance Director plays a vital role in managing a city or municipality's financial affairs. The duties and responsibilities of the Finance Director align with the City's mission statement. I am recommending a strategic investment opportunity that will enhance our city's financial portfolio and ensure prudent resource management. After thorough analysis and consultation with the City Manager and economic experts, I recommend that the city consider investing some of its surplus funds in United States Treasury securities. These include Treasury bills, bonds, and notes, for which the full faith and credit of the United States is pledged for the payment of principal and interest. There is no percentage limit on the portion of the portfolio that can be invested in this category, although a five-year maturity limit applies. I have outlined the rationale behind this proposal and its potential benefits for our community. The primary objectives, in order of priority, of the City’s investment activities are:

•    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 ($20,000,000) to the existing MBS account. This decision reflects our commitment to safeguarding our community's financial interests and ensuring the long-term prosperity of our city.

Benefits and Risks: 
All investments will align with the City's investment policies. The City will invest in fixed income securities, mainly Certificates of Deposit (CDs) and U.S. Treasuries, which pose no principal loss risk if held to maturity. These investments are expected to generate higher interest income during the years 2027, 2028, 2029, 2030, and 2031 by using a strategic tiered approach during periods when fewer current investments are maturing.

It is strategically beneficial for the City to secure these guaranteed rates of return. Projected returns are estimated from 4.25% up to 5.375%, compared to the current Local Agency Investment Fund (LAIF) rate of 3.86%, which is dropping daily.

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.


 

.

Increase the City’s interest income.

72 hours posted notice pursuant to the Ralph M. Brown Act.