The City of Morro Bay is looking for some financial advise with regards to its substantial investments and a new consultant could be selected sometime in January or February.
In a request for proposals, the City said it was looking for “proposals from qualified firms for Investment Advisory Services,” according to the notice dated Dec. 4.
Normally, the assistant city manager/administrative services director handles the investing. “The City’s Assistant City Manager/Administrative Services Director serves as the City Treasurer,” the RFP reads, “and currently handles the day-to-day administration of investments.”
There’s a substantial amount of money the City is sitting on. “The City’s current investment portfolio is approximately $69 million: $37M in Local Agency Investment Fund [LAIF]; $19M in money market accounts; $8M in U.S. obligations, treasury bills, notes and bonds; and $5M in certificates of deposit,” the RFP explains.
The LAIF monies are pooled with other special districts, cities and counties and invested together. The City’s investment policy follows, “safety and liquidity. The City’s current investment style can be described as passive,” the RFP reads. Still, the City is making more money now on its investments than it had before.
According to the Quarterly Investment Report from Sept. 20, covering the first quarter of the new fiscal year, “The City,” reads the quarterly report compiled by new interim ACM Steve Conway and Finance Manager Emily Conrad, “recorded $231,160 in interest earnings for the first quarter. For comparison, in the first quarter of FY 2022-23 the City recorded $19,240 in interest earnings. The significant increase in interest earnings is a result of higher interest rates in the market, higher cash balances for the City due to the ability to rebuild reserves, and staff efforts to pursue improved investment options consistent with Council’s Investment Policy and State law.”
Though its policy could be summed up as buy and hold with regards to investments, the staff recently made some moves.
“This quarter,” reads the report, “staff invested in four certificates of deposit with interest rates in the 5-percent range to take advantage of available high-yield instruments. LAIF interest rates also continued to climb over the last two years, increasing 3.35% since Sept. 30, 2021.”
The boost in returns has been good for the City. “The interest increase has substantially boosted the City’s earnings in this large portfolio that provides safety and liquidity through the State Treasurer’s Office. These efforts, on top of actions earlier in the calendar year to procure other high-yield certificates of deposit, as well as larger U.S. Treasury Notes and a Federal Home Loan Bank (FHLB) investment, have yielded significant returns for the City.”
The higher yields are expected to help offset drops in tax revenues, especially those related to tourism. “These higher interest revenues in FY 2022-23 and FY 2023-24 will help mitigate other areas of revenue cooling such as sales tax and transient occupancy tax.”
Local residents also pay sales taxes, but the TOT, which is generated through the lodging industry, is directly tied to tourism. Those two sources are among the top tax revenues the City takes in — along with property taxes, fees for services, and inter-governmental transfers (through the cost allocation program).
Much of this investment money is tied to the water and sewer funds, and the Harbor Fund. So the use of those monies is supposed to be tied to the source whence it came, though the city council has the authority to spend any of these monies how it wants, with a four-fifths majority vote.
That’s where the liquidity comes in, as the City needs to be able to access its invested monies for things like emergencies from natural disasters. Last winter’s flooding along Main Street is an example of such an emergency.
So if the investments are doing so well, why hire an advisor?
“Many small cities,” reads the City’s report, “utilize investment advisors with extensive expertise in municipal investments to ensure ongoing maximization of interest revenues within the confines of State Law and local investment policies.”
The City set a 5 p.m., Friday, Jan. 5 deadline to receive proposals from money managers. Once the proposals are opened and evaluated, the matter would return to the City Council to possibly award a contract.
Farming out such a service as financial management is not unusual, as the City has a contracted law firm, Aleshire & Wynder.
