A vote was taken and Ms. Lauderdale was elected chair by a vote of 3 to 2.  However, Ms. Lauderdale indicated that she would prefer Mr. Lewczyk to serve a chair, considering she had served as chair for two consecutive terms.  It was therefore decided to proceed with the vote on the nomination of Stan Lewczyk as Chair.  Mr. Lewczyk was elected Chair by a vote of 4 to 1. 

Ms. Garrova opened the nominations for Vice Chair.  Mr. Lewczyk nominated Ms. Lauderdale as Vice Chair.  With no further nominations, the nominations were closed.  Ms. Lauderdale was declared Vice Chair by unanimous vote.

The meeting was then turned over to newly elected Chair Lewczyk.

Item 2.       Approval of Minutes of February 17, 2005

Ms. Garrova motioned to approve the minutes.  Vice Chair Lauderdale seconded the motion.  Motion unanimously approved.

Item 3.       Status of Investment Portfolio

The 03/31/05 quarterly report distributed by City Treasurer Phyllis Garrova provided the following:

1.                  Portfolio balances as of 01/31/05, 02/28/05, and 03/31/05.

2.                  Types of investments, with percentages of portfolio invested in each type, and change from last report.

3.                  List of maturities between 01/01/05 and 03/31/05.

4.                  List of purchases between 01/01/05 and 03/31/05.

Ms. Garrova reviewed the summary by issuer, noting that the First Bank & Trust CD had matured in March and was reinvested at a 2.65% interest rate. She brought this to the attention of the committee because at the time the CD was originally purchased it was a 1.40%.  She also pointed out that the 548 average days to maturity was well within the Investment Policy's limit of 720.

Chair Lewczyk questioned LAIF's drop to 29% of the portfolio.  Ms. Garrova indicated that the investment policy limit is 40%, and that the portfolio usually hovers around the limit, but that several drawdowns had been made during February to meet expenditures.

Chair Lewczyk mentioned that during his interview for the appointment to the Investment Advisory Committee, one of the interview panelists had questioned him about the City's portfolio earnings rate.   He indicated that when he responded with the 3% yield, the interview panel was very shocked, and wondered why the earnings were so low considering the stock market had earned 10% the previous year.  Ms. Garrova and Mr. Steinbrink explained that cities are not permitted by law to invest in the same types of investments, and that the earnings rate for Fullerton was comparable to other city portfolios.   Ms. Garrova indicated that some increase in returns could probably be realized with longer-term investments, but that anything over five years would require an amendment to the investment policy and approval by City Council.

Vice Chair Lauderdale noted that medium-term corporate notes had been added to the investment policy the previous year as another investment option, but the current portfolio reflected no such investments.   Ms. Garrova indicated that as first-time investors in corporates, she wanted to begin with a AA rating and a recognizable name.  To date there had not been a lot to choose from with the AA rating, noting for example that GM and Ford had downgraded to junk.

For the Quarterly Investment Summary, Ms. Garrova pointed out that the portfolio had dropped almost $4 million, from $87 million at January 31 to $83 million at February 28.  She indicated there had been several debt service payments during February, such as Amerige Heights, the Fullerton Sports Park, the Community Center, and a Refunding COP, which had decreased the portfolio.   In addition, there had been a significant increase in the February payroll as a result of the annual payoff of unused sick leave, vacation and comp time.   She added that the portfolio increased about $1 million in March as a result of a property tax payment. 

Ms. Garrova also noted that the property tax received in December had been invested -- six agencies had been purchased, along with a Treasury Bill with a six-month rate of 3.01, during the reporting period. 

Chair Lewczyk asked if the state would be coming after any more monies from the cities.  Mr. Steinbrink indicated that in the Governor's May revise, the state would not be going after any additional.  Mr. Steinbrink pointed out though that the state would still be taking the $1.5 million in property taxes from the City and $1.5 million from the Redevelopment Agency in 05-06, which would not be paid back by the state.

Chair Lewczyk asked how Prop. 1A affected the state's take-aways.  Mr. Steinbrink explained that Prop 1A prevented the state from ever taking money away from cities again, unless the state declared a fiscal emergency.  If a fiscal emergency was declared, the state could borrow money from the cities, which would have to be paid back.  He further explained that Prop. 1A prevented the state from borrowing from any city in a fiscal emergency if the state already owed that city any money – the existing debt would have to be repaid by the state before they could borrow any more. 

Mr. Steinbrink stated that he believed the City would be in excellent financial shape were it not for the state's take-aways.  He noted that the $1.5 million the state was taking from Fullerton in 05-06 accounted for more than the actual growth in property taxes, which resulted in a reduction of other revenues as well. 

Item 4.       Annual Review of Investment Policy

City Treasurer Garrova reviewed with the Committee members the proposed changes to the Investment Policy which had been suggested at the February 17, 2005, meeting.   

The addition of a new section titled "Prohibited Investments" prompted a discussion of Credit Watch-Negative.  Vice Chair Lauderdale asked if a AAA rated medium-term note could be included in a Credit Watch-Negative.  Ms. Garrova indicated that a credit watch-negative usually occurs when the security is in the B area.   Mr. Steinbrink pointed out that it could be placed on credit watch, without being on credit watch-negative.   Ms. Lauderdale indicated that was not her understanding, so she and Ms. Garrova agreed to investigate the matter further.

Mr. Allen suggested that Credit Watch-Negative be added to the glossary.  Ms. Garrova indicated she would email the committee members a draft of the proposed addition to the glossary for their approval.

With no further discussion, Chair Lewczyk asked for a motion to approve the proposed revisions to the 2005 Investment Policy for submission to the City Council.  

Mr. Allen so moved, with the stipulation that Credit Watch-Negative would be added to the glossary.

Vice Chair Lauderdale seconded the motion, and it was approved unanimously.

Adjournment

There being no further business, Chair Lewczyk asked for a motion to adjourn.  Mr. Allen so moved, Ms. Garrova seconded, and the meeting was adjourned at 4:52 p.m. by unanimous vote.

Next meeting scheduled for February 16, 2006, at 4:00 p.m. in the Administrative Services Department Conference Room.