Information #2 10-19-2020 Information
Memorandum
To: Mayor and City Council
From: Lori Ziemer, Finance Director
Date: October 19, 2020
Subject: Quarterly Investment Report (July – September 2020)
Introduction
The purpose of this report is to update the City Council on the status of the various investments the
city maintains as of September 30, 2020.
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) maintaining
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.
It is reasonable to expect that higher than normal volatility within the financial markets, both up and
down, will continue as we approach the election and uncertainty remains around the coronavirus.
The Treasury Yield curve has decreased in the 1 month-7 year terms and increases slightly in the
longer 10-30-year terms. Three-month notes are yielding 0.10%, down from 0.16% the previous
quarter, and the 10-year notes are 0.69%, up from 0.66% from the previous quarter. A balanced
portfolio allowing for flexibility, safety, and liquidity will be important in these uncertain times.
Cities generally use a short-horizon benchmark such as the two-year Treasury Bill or some similar
measure, as of the end of September the two-year T-bill was at 0.13%, down from 0.16% the
previous quarter. Our current portfolio yield is roughly 0.96%.
Our primary reserve account is our 4M Fund which is a money market account where many cities
pool their funds. It currently yields 0.02% with daily withdrawal privileges. The city continues to
prioritize safety and liquidity to maintain a strong diversification portfolio in this market volatility
environment.
Attachments
Investment summary
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