Information 3 07-15-2019 Information
Memorandum
To: Mayor and City Council
From: Lori Ziemer, Finance Director
Date: July 15, 2019
Subject: Quarterly Investment Report (April – June, 2019)
Introduction
The purpose of this report is to update the City Council on the status of the various investments the
city maintains as of June 30, 2019.
Background
The investment policy complies with state statutes and generally follows the Government Finance
Officers Association (GFOA) model.
The investment goals for the City of Elk River are passive in nature due to the allowable
investments permitted under state statutes. The city has four objectives for investing, in order of
importance, they are;
1) safety of principal
2) liquidity
3) return on investment, and
4) maintain the public trust.
This means we are focused on not losing on the original investment, having sufficient funds on hand
to meet ongoing operating cash needs, getting a market rate of return, and not purchasing
speculative investments.
State statutes limit the city’s ability to invest in many risky types of investments. The city is generally
limited to federal and state government obligations or agencies backed by them, rated debt of local
governments, short-term highly rated commercial paper, certificates of deposit, and money market
accounts (with collateralization if in excess of FDIC insurance amounts).
The city intends to hold investments until maturity, which means we will get the rate of return for
which we invest our funds. The finance staff makes sure the city is sufficiently liquid by continually
updating our forecast on the anticipated cash flow needs over the next five-year time horizon. We
anticipate two large tax settlements each year along with the regularly-scheduled debt service
payments. We also build in a reserve balance maintained in money market accounts in case of
unexpected expenditures.
The Treasury Yield curve has dipped lower across the curve from March 29, 2019 and steepened
across the 1-10 year terms. Credit quality certificates of deposits (CD’s) continue to offer the best
investment option. Three-month notes are yielding 2.12% and the 10-year notes are 2.00%.
Cities generally use a short-horizon benchmark such as the two-year Treasury Bill or some similar
measure, currently at 1.75% which is a decrease from 2.27% the previous quarter. Our current
portfolio yield is roughly 2.51%, which is greater than the treasury yield benchmark.
Our primary reserve account is our 4M Fund which is a money market account where many cities
pool their funds. It currently yields 2.12% with daily withdrawal privileges. The city strives to
maintain a strong diversification portfolio so liquidity and exposure risk are reduced.
Attachments
Investment summary