1999 AGN DEC 21 I10 - Laserfiche WebLink

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CITY OF COLTON AGENDA REPORT FOR UUUNUILL MLIJANU UIDecember 21, 1999 TO: HONORABLE MAYOR & CITY CO NCIL APPROVAL: HENRY GARCIA -CITY MANAGE FROM: MICHAEL WILLIAMS, CITY TREASURER p J� SUBJECT: RESOLUTION TO ESTABLISH AN ACCOUNT WITH THE US TREASURY DEPT. TO PURCHASE AND HOLD SECURITIES DATE: DECEMBER 1, 1999 BACKGROUND: Several months ago I advised the Council that I was reviewing the possibility of purchasing United States Treasury Bills and Notes directly from the US Treasury. DISCUS SION/ANALYSIS: In the past, the City's investment portfolio was composed of a variety of different investments. When the City was going through its financial problems, liquidity was a major concern and the cost of maintaining a custodian for securities was not cost effective. Currently the investment portfolio is comprised of a money market fund and the rest is invested in the Local Agency Investment Fund. Recently the US Treasury Dept. has made it very convenient and inexpensive to purchase Treasury Bills, Notes and Bonds directly rather than going through a broker-dealer. The process can be done either over the phone or over the internet. The Treasury holds periodic auctions and it is possible to either submit a bid on a competitive basis or to place an order for a particular security at the average interest rate resulting at the auction. The funds are withdrawn from a pre- established account to pay for the purchase. Periodic interest payments are automatically deposited into the same account. In addition, upon maturity, an investor has the option of receiving the maturity proceeds or reinvesting. The Treasury Bureau of Public Debt acts as custodian of the securities and charges only $25.00 per year as opposed to a minimum fee of about $5,000 through a commercial bank. In the event a security needs to be sold, the Treasury has a procedure to solicit three bids and charge a nominal fee to sell the security. ALTERNATIVES: The City could reactivate our custodial relationship with a commercial bank at a significantly higher cost. This would be necessary if securities other than Treasury Bills and Notes are purchased, as the Federal Reserve Bank does not issue other types of securities. Currently, this is not my intention however it may change as the market conditions change or if the portfolio size continues to increase. Item #10