Benicia’s investment portfolio “is safe and diversified, and has enough liquidity,” Carlos Oblites told the Finance Committee Friday morning.
Oblites, director of PFM Asset Management, the city’s investments consultant, told the panel that his company expects rising rates on the horizon, particularly as the Board of Governors of the Federal Reserve System, often nicknamed “the Fed,” winds down its purchases of bonds, a tactic used to bolster the national economy during the recession.
“We will monitor that,” he promised the Finance Committee, because rising interest rates have both positive and negative impacts on the city’s portfolio.
Because of anticipated market changes, Oblites said, his company is purchasing long-term maturities “more selectively” than in the past.
Finance Chairperson Michael Clarke asked about two-year treasury floating rate notes, which Oblites said is a new investment opportunity. “Yes, it’s something we would look at to add value (to the portfolio)” Linked to the Treasury, he said, these are safe investments that can act as a hedge against chancier investments.
“Our investment team is looking at what level to jump into the market. It’s already in the pipeline,” he told Clarke.
In response to other committee questions, Oblites told the panel his company is audited, both internally as well as through federal regulatory agencies.
Another safety measure, he told the panel, is “we don’t ever touch your money. Your money sits in a custodial bank — U.S. Bank — and the bank is audited. That’s the real audit.”
His company is the city’s investment adviser, and its statements and that from U.S. Bank then are reconciled. “You always want third-party safekeeping,” Oblites advised.
Interim Finance Director Brenda Olwin told the panel it would review the city’s investment policy next month, primarily to address “some housekeeping changes,” as well as to examine internal controls as recommended by Maze and Associates, the city’s auditors.
Maze representatives have said some of their clients take additional procedures in dealing with investments. “They’d like to do those procedures,” Olwin said.
Oblites agreed that such procedures are considered “best practices.”
The Finance Committee also examined its monthly All Funds Summary Report, during which Olwin said most funds “are tracking well.”
One exception is the Residential Light and Landscape fund, which won’t need a transfer this year, but will need additional money to cover its costs next year, she said, adding that the city learned recently that staff and the Council have been wise to plan conservatively for gasoline tax revenues.
“Gas tax revenues are very volatile,” she said, and the state has been unable so far to get them stabilized.
Some observers have noted that people are driving fewer miles as well as using vehicles that get more miles per gallon. Other vehicle owners and operators are purchasing natural gas, hybrid and electric vehicles.
Despite the state’s caution about gasoline tax revenues, Olwin said, “the General Fund looks good.”
Benicia has had “a good experience for 12 to 15 months” regarding workers’ compensation cases, but recently some employees have had new or recurring injuries, she said.
Though the several approaches the city expects to take to address its share of the statewide drought have not been approved by the City Council, Olwin and Vice Mayor Tom Campbell explored some of the ways the drought will cost the city.
The Council has authorized spending up to $900,000 for 6,000 acre-feet of water to get through the year.
Benicia residents, along with other Californians, have been asked to cut water consumption by 20 percent, which is good in light of the drought, but means anticipated water and wastewater revenues will drop.
In May, the Council may open discussions on water surcharges to make up some of that loss, but as Councilmember Christina Strawbridge told the panel, “We haven’t discussed how we’ll set up a surcharge.”
Should the Council pursue that route, residents would weigh in on the surcharge the way they did when the Council considered utility rate increases — by filing protests, rather than by referendum. If enough residents file protests, the measure would fail, Olwin explained.
She said the city has seen “a nice pickup” in franchise fees compared to last year, especially from Pacific Gas and Electric.
Property tax revenues are improving, too, she said.
But sales tax revenues are down, and Olwin said she hasn’t seen indications that will improve soon.
Overall, the city is in a respectable financial situation this month, Olwin said, adding that chances are “very good” that the 2013-14 fiscal year will end with 22 percent of anticipated revenues in the city’s reserves.
Benicia operates on a two-year budget, and Olwin said some preliminary numbers for the California Public Employees Retirement Service indicate costs associated with that program could be “pretty significant — a lot to absorb.”
And part of the reason the city may be ending its current fiscal year in good shape is because it not only has cut back on employees, but has chosen to eliminate some vacant and formerly frozen positions.
That can’t be sustained, Assistant City Manager Anne Cardwell said. “What we’re finding is, we have critical unmet needs,” she said. The city will need to look at the level of services it provides residents, and compare that to the amount of revenue needed to keep providing those services.
In other matters, Olwin said in looking at ways to improve the city’s financial software, employees are determining whether any “off the shelf” modules might handle some of the city’s needs, or whether outsourcing the work to other agencies is appropriate.
Complicating that are the city’s multiple memorandums of understanding (MOUs) it has with various employee groups, she said. “We need to handle MOUs on pay codes,” Olwin said. “We want to be very careful about outsourced payroll.”
Another matter, a 10-year plan for the city’s General Plan, will be the subject of a joint Finance Committee and City Council meeting May 27, Olwin said.
Clarke also asked Olwin to slate two Finance Committee training sessions on the Comprehensive Annual Finance Report (CAFR), an ongoing committee project.
City Treasurer H.R. Autz, an elected official, expressed frustration with his job’s description.
“I can’t figure what the treasurer is to do,” he said, adding that he does not get all the information communicated to the panel. He suggested the treasurer become a voting member of the committee.
“That’s a reasonable request,” Committee member Lee Wines said, noting that some cities with a finance manager don’t have a treasurer.
“According to history, the people wanted a treasurer,” Autz answered. “To have an election to eliminate an election is expensive.”
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