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CC - 10-03-95 - Adjourned Meeting.9 APPROVED CITY OT)) ``ROSEMEAD DATE Zy q MINUTES OF THE ADJOURNED REGULAR MEETINGv & u a~ ROSEMEAD CITY COUNCIL OCTOBER 3, 1995 The adjourned regular meeting of the Rosemead City Council was called to order by Mayor Vasquez at 7:50 p.m. in the Conference Room of the City Hall, 8838 E. Valley Boulevard, Rosemead, California. The Pledge to the Flag was led by Councilmember Taylor The Invocation was delivered by Councilmember Bruesch ROLL CALL OF OFFICERS: Present: Councilmembers Bruesch, Imperial (arrived at 7:55 p.m.), Taylor, Mayor Pro Tern Clark (arrived at 7:55 p.m.), and Mayor Vasquez Absent: None A STUDY SESSION TO DISCUSS THE CITY FINANCE COMMITTEE Councilmember Taylor defined the makeup of the current Investment Committee as consisting of the Treasurer, the City Manager, and the Finance Director and asked what has changed since the problem we had after the last bond sale to prevent it from recurring. Frank Tripepi, City Manager, responded that the Council has set a very specific policy that says we will not deal with brokerage houses, get into the stock market, securities, or the long bond market as investment vehicles. Mr. Tripepi stated he believed the purpose of this meeting was to define the proper investments. Councilmember Taylor asked what caused the problem with the bond proceeds and who will be responsible for understanding the restrictions and regulations to prevent this from happening again. Mr. Tripepi explained that the oversight was caused by a lack of understanding by Merrill Lynch of what were viable and/or legal investment vehicles that the City or Agency could invest in, and that the City Treasurer, working with the Finance Committee members will follow policy set by Council to invest funds at the highest yield rate possible within legal boundaries. Councilmember Taylor inquired if the three members of the Investment Committee were aware or not of the regulations. Mr. Tripepi responded that some were and some weren't. Councilmember Taylor responded that if there was an oversight and it was missed, at that point what protection would we have that that doesn't happen again. Mr. Tripepi responded that there needs to be a better understanding between the Treasurer and the other members as to what those investments will be prior to the time they are made. Councilmember Taylor then asked who would be sure the oversight wouldn't happen again and determined that the Treasurer apparently has that responsibility. Hugh Foutz, City Treasurer, said that he was fully aware that long term bonds were not to be invested in without specific approval, but that since he had been doing it for twenty years, he felt that that was a kind of approval. After some discussion about fluctuating interest rates, he felt that the loss could have been prevented if we had held on to the securities. CC 10-3-95 Page 1 i 0 Mr. Tripepi pointed out that the policy which states that purchases more then five years cannot be done without Council approval. Peter Wallin, City Attorney, stated that the problem was that Mr. Foutz had invested in long term securities. Mr. Foutz stated that he did not hold anything long term and always had cash reserve to cover any of the forecast cash flow. Councilmember Imperial stated that there was no use pointing fingers at who was wrong and stated that an investment policy and finance committee needs to be formed in order to prevent future problems from occurring. Mr. Imperial continued that this should never have happened, but that he thought we had a safety system in place and apparently it wasn't good enough and that we need to move forward. Mayor Pro Tern Clark stated that if there is no admission of what went wrong, then we may fall into the same situation again and added that investments longer than five years should require Council approval. She also stated that in addition to the long term investment, another problem was the type of investments which weren't legal anymore. Mr. Wallin affirmed that the legal restrictions applicable to City money were not the same as for Agency money. The Redevelopment Agency did not have a limitation on five year investments as the City did, and Bond Counsel opined that several of the Agency investments, although they may be legal under redevelopment law, they not legal under the bond covenants. Mayor Pro Tem Clark stated that the third problem was the fact of arbitrage - that even if you make more money on your investments than the rate you borrowed the money at, the Federal government says you cannot keep the profit. Mr. Foutz stated that since you are not through with the investment for thirty years, he would want to make a good profit on the investment and that it is after thirty years that you measure whether you made a profit. Mayor Pro Tern Clark repeated her concern that since the government makes you pay back any profit you make, why are we taking the risk of investing in securities that can fluctuate? Mr. Wallin and Mr. Tripepi confirmed that it is not at the end of thirty years, it is every year that bond counsel computes the arbitrage. You cannot invest at a higher yield than you borrowed at. Mr. Tripepi confirmed that this information comes from the Bond Counsel and independent city auditors. Mr. Foutz stated that he has conflicting advice about arbitrage from many sources, but that he must abide by our Bond Counsel. Councilmember Imperial stated that this was "water under the bridge" and we need to move on. Councilmember Bruesch explained that the public is more aware of City's finances, that laws are being changed and tightened and Council needs to move forward and become more knowledgeable and start overseeing Rosemead's finances and investments. Discussion ensued as to who would be on the Finance Committee and receiving quarterly reports from the City Treasurer. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY MAYOR PROTEM CLARK that the Council receive quarterly reports and Minutes from the Finance Committee meetings. Before vote could occur, more discussion ensued. CC 10-3-95 Page 2 0 • Councilmember Taylor emphasized that this motion does not change anything and what guarantee is there that somebody is keeping current and aware of all state and federal regulations. Mr. Taylor continued that while Mr. Foutz has done a good job, someone else needs to be accountable also, such as the City Manager and Finance Director if they can keep abreast of all the changes and reflect those changes in the minutes. Councilmember Imperial suggested that a Councilmember be involved in the committee. Councilmember Taylor responded that a professional familiar with the rule and changes would be more suitable. Mr. Tripepi stated that the California Society of Municipal Finance Officers (CSMFO) publication and the California Municipal Treasurer's Association (CMTA) have meetings and publications discussing guidelines regarding legal investments and thatthe Finance Committee meetings should consist mainly of making decisions as to what to do with investments rolling over and where should it go to maximize the investments. Councilmember Bruesch stated his motion again that the Council receive quarterly reports and minutes from the City Finance Committee, and that the minutes be placed on the City's Consent Calendar. Before vote could result, more discussion ensued. Mr. Tripepi explained that there may be times when there will not be a meeting, for example, when the money is already invested and does not require any decisions. After discussion, it was agreed that the Finance Committee should meet quarterly regardless. Councilmember Taylor said that his only problem with Mr. Foutz' investments ever--t yeemtradebeen the legal regulationst regarding long-term investments over 5-years. Mr. Tripepi stated that other members of the Council did not feel taxpayers dollars should be played in a volatile market such as the bond market. He heard this expressed by Mayor Pro Tern Clark and Councilmember Bruesch. Mayor Pro Tern Clark asked what would happen if there was not a unanimous consent among the Finance Committee members. Peter Wallin, City Attorney, responded that if the committee serves as advisor to the Treasurer, then the Treasurer has the power to do investments. Mayor Pro Tern Clark named the three areas that she considered were wrong; (1) the investments in question had emphasized yield over safety and liquidity and there was no rational basis for such an investment policy, when in any event, yield was limited by arbitrage restrictions; (2) the Agency investments in bonds issued by utility companies did not appear to be authorized by the bond covenants or state law; and (3) the investment of City funds in bonds that matured in more than five years had, as pointed out in the letter from the City auditor, violated legal restraints on City investments. Mayor Pro Tern Clark than asked Mr. Foutz whether the City Manager had pointed out to him what was wrong with these investments. Mr. Foutz stated that no one pointed them out until Frank had the proposal with Structured Finance. Councilmember Bruesch again asked Mr. Foutz that since he had not been attending the Treasurers' meetings whether he was privy to the information concerning these regulations? Mr. Foutz stated that arbitrage is a grey area and that Bond Counsel was unclear about it even at the meeting. CC 10-3-95 Page 3 Mayor Pro Tern Clark disagreed and stated that it had been made very clear. She reiterated her concern that if local governments cannot keep the money they make on higher interest rates, then why are we investing in risky investments. Mr Foutz countered as to why we seek lower borrowing rates in the first place? Mr. Tripepi explained that you borrow at the lowest rate possible, similar to a home buyer, and that the purpose of borrowing the money is to do projects, not to reinvest the money. Councilmember Imperial repeated that he felt we should not be going over this again. Mayor Pro Tern Clark stated again that if there is not an admission of mistakes made, the same problem will occur again, and that is why she is asking for a unanimous agreement among the committee, and if an admission is not made, then we have a serious problem. Mrs. Clark continued that it was her understanding that Mr. Tripepi had warned Mr. Foutz concerning the investments and asked if that was true. Mr. Foutz said that it was "over his shoulder, walking into his office", saying he wanted to do...the 3.68% when it first came out Councilmember Taylor commented that it would be the responsibility of the Finance Committee to be aware of the three items that Mrs. Clark mentioned. Mr. Taylor stated that basically it was not a question of poor investment but of not following regulations, such as the TVA. While it was a good investment, it was a violation of utility and long-term investment regulations. Mayor Pro Tern Clark stated that if one member of the committee informs the Treasurer of a violation, then that item would have to go to Council to resolve. Councilmembers Taylor and Imperial concurred. Councilmember Bruesch requested that a clause be added to the Investment Committee of the RMC, Section 2207, (c) to read that any decision of the Finance Committee be of unanimous consent. Mr. Tripepi stated that he had no problem with taking on an additional duty. He stated that Structured Finance was not new to this City and that when we sold all those long term bonds, Structured Finance had given Mr. Foutz a schedule of investments of all the money. Mr. Foutz had objected to Mr. Tripepi getting involved and stated he would do the investments. Mr. Tripepi stayed out of it with the exception of the escrow fund overage, which stayed with Structured, which has been perfectly legal, not triggered by the audit, and has been a fine investment. Mr. Foutz took the bond proceeds and put them with Merrill Lynch. That was not Mr. Tripepi's choice. He reiterated that Mr. Foutz had meet Structured Finance early on in the bond deal. Mr. Foutz stated that he felt that was an oversimplification of what had taken place. Councilmember Bruesch called for the question. Discussion ensued that that would be a policy change. Mr. Wallin added that a policy change, such as taking away the power of the City Treasurer and investing it in a committee of the three, would require an ordinance. COUNCILMEMBER BRUESCH requested that his MOTION include the unanimous consent clause as part of the Investment Committee section of the Rosemead Municipal Code. COUNCILMEMBER TAYLOR bifurcated that MOTION to vote first on the submittal of quarterly reports and the updating of regulations. Councilmember Bruesch called for the question. CC 10-3-95 Page 4 • 0 Mayor Pro Tern Clark requested clarification on the motion and the unanimous consent clause and stated that she does not want to vote on the Investment Committee without that clause as it is germane to the effectiveness of the committee. Mr. Wallin clarified that there is a Motion and a Second on the floor that the Finance Committee provide Council with quarterly reports of their meetings, and there is nothing before the Council at this time on how the committee makes their decisions. Mayor Pro Tem Clark asked what procedure is necessary to include that policy decision. Mr. Wallin responded that such a decision could be included in the investment policy, or by adopting a resolution, or by minute action. Mr. Tripepi stated that the committee is already in place and this motion assures that the committee will meet on a regular basis and provide reports. Councilmember Bruesch confirmed that anything that changes the duties of the committee would have to be done by ordinance. Mr. Wallin added that the Council can adopt a motion to instruct staff to return with an ordinance to that effect. Councilmember Bruesch stated that would be the next step. MOTION BY COUNCILMEMBER BRUESCH, to amend the previous motion calling for unanimous consent and directed staff to develop a policy that 2207 (c) of the Rosemead Municipal Code state that the committee will provide Council with quarterly reports and minutes of the meetings. Mayor Pro Tern Clark stated that she will not second the amended motion without the inclusion of the unanimous consent statement. MOTION BY COUNCILMEMBER TAYLOR, SECOND BY COUNCILMEMBER BRUESCH to table the previous motion and that the new motion include under 2207 (c) Rosemead Municipal Code that the Finance Committee meet quarterly and provide Council with reports of those meetings. Vote resulted: Yes: Bruesch, Vasquez, Imperial, Taylor No: Clark Absent: None Abstain: None The Mayor declared such motion duly carried and so ordered. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY MAYOR PRO TEM CLARK that 2207 (d) state that all investment policies be by unanimous consent of the members of the Investment Committee and any non-unanimous decisions be brought before the Council. Before vote could result, more discussion ensued. Mr. Tripepi pointed out that if investments come due after a Finance Committee meeting, would a special meeting of the Council have to be called as to where to invest that money. Mr. Wallin asked if every investment would have to come before the Finance Committee, for example, if on a Friday afternoon and Mr. Foutz is not available, can Mr. Tripepi invest $500,000 available in to a short term fund investment to earn $2,000 over the weekend. CC 10-3-95 Page 5 Councilmember Bruesch suggested a proviso can be added whereby only major decisions regarding the amount and length of investments come before the Council. Mr. Tripepi explained that that would be taking power away from the Treasurer and that the Treasurer has to be given the responsibility to do those short term repurchase investments, with his alternate as backup when he is out of town. Councilmember Taylor stated that there have not been any problems with the investments made by the Treasurer in the past, and with the Finance Committee in place providing quarterly reports, the Council will have a financial overview without having to become involved in the day-by-day operations. Mr. Foutz stated there have not been any disagreements over the years with his investments except this one occasion and this situation came about largely due to the Orange County fiasco. Mayor Pro Tern Clark agreed that the Council should not micro-manage either, but there were investments made in the past that were not proper and wants assurance that this does not occur again. Mrs. Clark stated that she did not feel we had solved the problem. Also discussed and agreed upon was the willingness and ability of the City Treasurer and City Manager to work together on the Finance Committee to follow Council's policy. Councilmember Taylor called for the question. Vote resulted: Yes: Bruesch, Clark No: Vasquez, Imperial, Taylor Absent: None Abstain: None The Motion failed to pass. Councilmember Taylor clarified for Mr. Foutz that the Motion was that the committee had to be unanimous in everything it did for the investments and the vote was No; therefore, they are to continue as they have been. The next topic discussed for contextual purposes was the City's Investment Policy. Councilmember Bruesch asked if banks have a local investment policy. Mr. Tripepi responded that that is not necessary because federal banking laws under the Community Reinvestment Act requires local banks to put a percentage of money back into the community that they get by way of investments. Councilmember Taylor inquired about another law or regulation that requires investing our money in banks that earn the highest return for the taxpayers. Mr. Tripepi responded that the City or Agency has to buy the Certificate of Deposits from the bank that has the highest return. Councilmember Bruesch requested that the Investment Policy include investing in local banks as much as possible. Mayor Pro Tern Clark inquired about the Negotiable Certificates of Deposit (NCD's) section relating to unsecured obligations. Mr. Foutz responded that the City does not use NCD's and the C.D's invested in has a 110% guarantee, and he will not invest money in a bank without collateral. MOTION BY MAYOR PRO TEM CLARK, SECOND BY COUNCILMEMBER TAYLOR that the entire paragraph relating to Negotiable Certificates of Deposit of the Investment Policy be deleted. Vote resulted: CC 10-3-95 Page 6 r 0 Aye: Bruesch, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so ordered. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY COUNCILMEMBER TAYLOR that the entire paragraph relating to Mutual Funds of the Investment Policy be deleted. Vote resulted: Aye: Bruesch, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so ordered. Mayor Pro Tem Clark requested confirmation from the City Treasurer, City Manager, and Finance Director that the items remaining in the Investment Policy are safe investments. The response was affirmative. MOTION BY COUNCILMEMBER TAYLOR, SECOND BY COUNCILMEMBER IMPERIAL that the Council approve the amended Investment Policy. Vote resulted: Aye: Bruesch, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so ordered. Il. ADJOURNMENT There being no further action at this time, the meeting was adjourned at 9:20 p.m. The next regular meeting will be held on October 10, 1995, at 8:00 p.m. Respectfully submitted: City Clerk APPROVED: CC 10-3-95 Page 7