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CITY OF DALLASCITY OF DALLAS REVIEW OF CITY INVESTMENTSREVIEW OF CITY INVESTMENTS

Budget, Finance & Audit CommitteeBudget, Finance & Audit Committee

August 25, 2009August 25, 2009

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Public Funds ManagementPublic Funds Management

Federal RegulationsFederal Regulations

State StatutesState Statutes

Public Funds Investment ActPublic Funds Investment Act

Public Funds Collateral ActPublic Funds Collateral Act

Depositories for Municipal FundsDepositories for Municipal Funds

City Charter and CodeCity Charter and Code

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Public Funds Investment ActPublic Funds Investment Act

Requires a written investment policy annually Requires a written investment policy annually reviewed by the City Councilreviewed by the City Council

Requires the policy to address:Requires the policy to address:

Safety, liquidity, yield, and diversificationSafety, liquidity, yield, and diversification

Investment strategyInvestment strategy

Authorized investmentsAuthorized investments

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City of Dallas Investment PoolCity of Dallas Investment Pool ($ in Millions)($ in Millions)

$175.8$52.4

$23.0$24.3

$1,656.5

U.S. Treasury

Bank of America

U.S. Government AgencySecuritiesTotal Money Market Funds

TexPool

The CityThe City’’s investment pool includes the following:s investment pool includes the following:

U.S. Treasury SecuritiesU.S. Treasury Securities

U.S. Government Agency SecuritiesU.S. Government Agency Securities

Local Government Investment PoolLocal Government Investment Pool

Money Market FundsMoney Market Funds

The total market value of the CityThe total market value of the City’’s investment pool as of June 30, 2009 is $1,932,135,344. This s investment pool as of June 30, 2009 is $1,932,135,344. This includes a cash balance of $52,445,605 held with Bank of Americaincludes a cash balance of $52,445,605 held with Bank of America..

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U.S. Treasury SecuritiesU.S. Treasury Securities

U.S. Government Treasury Securities,

9.10%

Direct obligations of the U.S. TreasuryDirect obligations of the U.S. Treasury

CityCity’’s investment policy permits 100% of the total portfolio to be ins investment policy permits 100% of the total portfolio to be invested in vested in U.S. Treasury securitiesU.S. Treasury securities

Currently, represents 9.10% of the investment pool.Currently, represents 9.10% of the investment pool.

Market value as of June 30, 2009 is $175,771,874.Market value as of June 30, 2009 is $175,771,874.

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U.S. Government Agency SecuritiesU.S. Government Agency Securities

FFCB, 19.8%

FHLMC, 16.9% FHLB, 27.1%

FNMA, 21.9%

CityCity’’s investment policy permits 30% of the book value of the s investment policy permits 30% of the book value of the total portfolio to be invested in the obligations of a single agtotal portfolio to be invested in the obligations of a single agencyency

Investment Pool market value as of June 30, 2009 by agency:Investment Pool market value as of June 30, 2009 by agency:

Federal Farm Credit Bank (FFCB) = $382,913,813Federal Farm Credit Bank (FFCB) = $382,913,813

Federal Home Loan Bank (FHLB) = $524,161,038Federal Home Loan Bank (FHLB) = $524,161,038

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) = Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) = $325,593,058$325,593,058

Federal National Mortgage Association (FNMA or Fannie Mae) = Federal National Mortgage Association (FNMA or Fannie Mae) = $423,865,548$423,865,548

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Money Market Mutual FundsMoney Market Mutual Funds

The CityThe City’’s investment policy permits the City to invest in any single funs investment policy permits the City to invest in any single fund either the d either the lesser of $100 million or 5% of the total assets of the fund.lesser of $100 million or 5% of the total assets of the fund.

All money market mutual funds must be AAA ratedAll money market mutual funds must be AAA rated

Market value as of June 30, 2009 by fund:Market value as of June 30, 2009 by fund:

AIM Government & Agency Portfolio = $9,195,118AIM Government & Agency Portfolio = $9,195,118

Federated Government Obligations = $12,819,119Federated Government Obligations = $12,819,119

Columbia Government Fund = $817,885Columbia Government Fund = $817,885

Columbia Govt, 0.0%

AIM Govt, 0.5%Reserve, 0.0%

Federated Govt., 0.7%

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Money Market Mutual Funds (cont.)Money Market Mutual Funds (cont.)

The Reserve Primary FundThe Reserve Primary Fund

On September 16th, 2008, the Reserve Primary FundOn September 16th, 2008, the Reserve Primary Fund’’s net s net asset value fell below $1 a share to $0.97 and as a result asset value fell below $1 a share to $0.97 and as a result ceased to allow withdrawals due to investment losses in its ceased to allow withdrawals due to investment losses in its portfolio. portfolio.

The value of the cityThe value of the city’’s investment was $2,075,221.s investment was $2,075,221.

Since then, the Reserve Primary Fund has made four Since then, the Reserve Primary Fund has made four distributions totaling $1,867,014 (90% of the balance as of distributions totaling $1,867,014 (90% of the balance as of September 16, 2008).September 16, 2008).

As of June 30, 2009 the remaining balance is $208,207.As of June 30, 2009 the remaining balance is $208,207.

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Local Government Investment PoolLocal Government Investment PoolTexPool, 1.3%

The City is currently invested in The City is currently invested in TexPoolTexPool..

TexPoolTexPool

is the largest and oldest local government investment pool in tis the largest and oldest local government investment pool in the he State of Texas.State of Texas.

Overseen by the State Comptroller of Public Accounts.Overseen by the State Comptroller of Public Accounts.

Federated Investors is the full service provider to the pool manFederated Investors is the full service provider to the pool managing the aging the assets.assets.

As of June 30, 2009, the market value was $24,344,081As of June 30, 2009, the market value was $24,344,081

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Bank of AmericaBank of AmericaBank of America,

2.7%

Bank of America is the CityBank of America is the City’’s Depository.s Depository.

As of June 30, 2009, the closing available balance was $52,445,6As of June 30, 2009, the closing available balance was $52,445,60505

Bank of AmericaBank of America’’s participation in the Temporary Liquidity Guarantee Program (Ts participation in the Temporary Liquidity Guarantee Program (TLGP) LGP) means that all nonmeans that all non--interest bearing deposits are FDIC insured through December 31, interest bearing deposits are FDIC insured through December 31, 2009. 2009.

Bank of America increased its Earnings Credit Rate for customersBank of America increased its Earnings Credit Rate for customers

to coincide with its participation to coincide with its participation in the TLGPin the TLGP

The City increased its cash balance in Bank of America in April The City increased its cash balance in Bank of America in April to benefit from the higher Earnings to benefit from the higher Earnings Credit RateCredit Rate

Banking service charges for the quarter ended June 30Banking service charges for the quarter ended June 30thth

were reduced by $90,765were reduced by $90,765

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Separately Managed FundsSeparately Managed Funds

The CityThe City’’s investment policy also governs some funds that s investment policy also governs some funds that are invested separately from the investment pool.are invested separately from the investment pool.

OncorOncor

and NTTA Escrow Funds are invested in money and NTTA Escrow Funds are invested in money market mutual funds:market mutual funds:

Columbia Government Reserve (North Texas Columbia Government Reserve (North Texas TollwayTollway Authority) = $4,705,653Authority) = $4,705,653

Columbia Treasury Reserve (Columbia Treasury Reserve (OncorOncor

Electric) = $4,550,366Electric) = $4,550,366

DWU Commercial Paper proceeds are invested in taxDWU Commercial Paper proceeds are invested in tax-- exempt money market mutual funds:exempt money market mutual funds:

BlackRockBlackRock

Muni Funds = $5,756,095Muni Funds = $5,756,095

Federated TaxFederated Tax--Free Obligation Fund = $1,345,050Free Obligation Fund = $1,345,050

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ConclusionConclusion

City staff will continue to provide quarterly investment City staff will continue to provide quarterly investment reports.reports.

No action requested.No action requested.

Questions?Questions?

FY2009-10 Proposed Budget Reserve LevelsBudget, Finance & Audit CommitteeAugust 25, 2009

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PurposeTo provide information on the General Fund Reserves, including:

Background

Financial Management Performance Criteria

Emergency Reserve

Contingency Reserve

Combined Reserve Levels

Risk Reserve

Fund Balance Considerations

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BackgroundFinancial Management Performance Criteria (FMPC)

Initially adopted by the City Council in 1978 to set standards and to guide decision making

Includes 52 criteria in 5 categories

Operating Programs

Capital and Debt Management

Accounting, Auditing and Financial Planning

Cash Management

Grants and Trusts

Dallas Water Utilities has its own set of 13 criteria

FMPC are updated/evaluated for compliance during budget preparation and approval process, at year end, and for each debt issuance

Council periodically reviews and updates the criteria

Last update was approved by Council on September 24, 2008

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Background (cont’d)

Fund Balance reported annually in the City’s Comprehensive Annual Financial Report (CAFR)

Fund Balance

The difference between a fund’s assets and liabilities; the fund balance is adjusted annually by the difference between revenues and expenditures

Is further divided into 3 categories:

1. Reservations – those amounts of the fund balance that are not available for appropriation because they are set aside for a specific future use

Includes encumbrances and inventory purchases

2. Designations – allocation of the fund balance which indicates management’s tentative plans for the future utilization of financial resources

Includes Contingency, Risk, Emergency reserves

3. Undesignated, Unreserved Fund Balance – remaining fund balance after Reservations and Designations are deducted from the total Fund Balance

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FMPC Reserve RequirementsEmergency Reserve (FMPC #7)

Funds may be used to provide for temporary financing of unanticipated or unforeseen extraordinary needs of an emergency nature

Use of Emergency Reserve would require authorization by Council resolution

Any uses must be replenished in the next fiscal year

FY09-10 Proposed Emergency Reserve of $17,563,082 is funded from the FY08-09 Emergency Reserve projected ending balance

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FMPC Reserve RequirementsContingency Reserve (FMPC #8)

Provides for unanticipated needs that arise during the fiscal year

Use of Contingency Reserve would require authorization by Council resolution

FMPC requires reserve to be established annually at 0.5% to 1.0% of General Fund expenditures

Requirements reviewed annually and may be funded with the carry forward of ending balance from the prior fiscal year

FY09-10 Proposed Contingency Reserve of $5,123,005 or 0.0504% of General Fund expenditures

Funded from FY08-09 projected ending balance of $4,923,005 and FY2009-10 appropriated transfer from General Fund of $200,000

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FMPC Reserve RequirementsCombined Reserve Levels (FMPC #9)

Requires the sum of the undesignated, unreserved fund balance; the Contingency Reserve and the Emergency Reserve to be no less than 5% of budgeted expenditures

FY09-10 Proposed

Undesignated, unreserved fund balance $36.6m

Contingency Reserve $5.1m

Emergency Reserve $17.6m

Combined Total $59.3m

FY09-10 Proposed General Fund Expense $1,016.2m

5% of General Fund expense – Minimum Requirement $50.8m

Over/(Under) Reserve Requirement $8.5m

% General Fund Expense 5.8%

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FMPC Reserve RequirementsActual Actual Estimated Proposed

FY2007 FY2008 FY2009 FY2010

Undesignated, Unreserved Fund Balance $44.9m $49.1m $47.0m $36.6m

Contingency Reserve $3.8m $3.2m $4.9m $5.1m

Emergency Reserve $18.3m $17.6m $17.6m $17.6m

Total $67.0m $69.9m $69.5m $59.3m

General Fund Operating Expenditures $1,007.0m $1,032.4m $1,049.1m $1,016.2m

% of GF Expenses 6.7% 6.8% 6.6% 5.8%

FMPC #9 - History

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FMPC Reserve RequirementsRisk Reserve (FMPC #10)

Required to be maintained at a level, which, together with purchased insurance policies, adequately protects the City’s assets against loss

FY2009-10 Proposed Reserve funded at $1,250,00 using the FY2008-09 projected ending balance of $1,250,000

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Fund Balance Considerations

Bond rating agencies consider fund balance as a percent of expenditures as part of their analysis in determining a rating

On a percentage basis, Dallas' fund balance is lower than other cities that are also highly rated at Aa1

Moody’s November 2008 General Obligation rating report regarding the City’s General Fund reserves states: “Although these reserves exceed the FMPC targets, Moody’s believes the city’s operating liquidity remains narrow relative to similar sized cities at this high rating level.”