of santa barbara finance committee meeting where we're going to have one item on the agenda the quarterly investment report is since there's no one here in the audience to comment on anything that's not on the agenda we'll go straight to that and misny miss are you gonna make the going over today first i'll be covering the current interest rate environment and some economic factors that might be impacting interest rates after that i'll be going over the city's investment strategy and approach some long term trends on in earnings and interest rates and comparing our results against some common benchmarks and finally our quarter investment performance and activity results so first of all some information on the interest rate environment as we've talked about over the last several quarterly investment reports back in december two thousand and fifteen the federal reserve after seven years finally increased interest rates by zero twenty five percent and after that they did it again three more times in december two thousand and sixteen march two thousand and seventeen and again in june two thousand and seventeen so where it stands now the current federal funds rate is a range of one percent to one point two five percent the federal reserve is again hinting an additional interest rate increased by calendar year n there are two meetings remaining one right now that's going on october st and tomorrow november st and then the last one is in mid december they could act either time or not at all we do think it's more likely that if they do act it'll be in december we believe that based on some information that we've heard in polls and and among economists that the december meeting it's a high likelihood that they will raise interest rates in december these rate hikes do have impacts on treasury yields both at the time and actually leading up to the presumed hike what this does is it also enables the federal reserve to cut rates when there is a recession so that helps stimulate the economy and also prese prevents the federal reserve from having to go into negative interest rate territory like we've seen in europe some additional information on the interest rate environment i wanted to give you some economic factors that might impact rates and whether or not rate hikes will happen the first couple ones are information that might result in additional rate hikes and then the last few are having have the opposite effect so what we've been seeing recently is that the us economy is expanding at a steady pace the last few quarters the gdp has been up over three percent but i wanted to note that this could be a temporary impact what we've been seeing especially in the last quarter is that the hurricanes have had an impact and we are not sure what the what percentage of that three percent is due to that but seventy percent of gdp is due to consumer spending so hurricanes that went and destroyed things like cars and a lot of household goods consumers have had to go out and replace all of those items so part of that gdp increase is due to the replacement of destroyed items from the hurricanes so that could be a temporary inflation in the gdp also there's a the unemployment rate is continues to be very low it's just over four percent so we're nearing maximum employment and that also could be push interest rates higher we're seeing an improvement in us exports over the last about six months in the past exports had really been impacted and we're starting to see an increase in the last couple months it's up about half a percent we're also seeing what we get often are surveys from manufacturing what they call manufacturing outlook surveys from many cities and we're seeing an increase in manufacturing and also a corresponding increase in exports to foreign countries part of that might be due to the us dollar has weakened a little bit so that helps with our exports we're also seeing some stabilization in some foreign countries that also can sometimes help our export another impact could be presidential policies we are expecting the president to announce a new fed chair this week he could actually put yellen give a point yellen for another term or he could go with somebody else and  it could be somebody that actually favors more rate hikes than what yellen does also the president's proposed tax plan that also could have impacts on the economy and rate hikes the last three are items that could have an opposite  effect we've been recently seen a decrease in government spending and residential construction also inflation continues to perform under two percent it's at about one seven percent right now and that was a target set by the federal reserve to increase  however they really have backed off that target over the last year they've continued to raise rates even though inflation continues to perform under that target and the last item i wanted to note was that september did show job losses and that generally i is something that impacts the decision to increase rates however it appears a lot of that was due to the hurricane so we think that could be a temporary impact on jobs so just some additional information on on the interest rate environment treasury yields continue to increase over the last three months it was just slightly but they have are up pretty considerably over the last year but they're still relatively low when you look at them compared to about ten years ago  they are slightly higher as i mentioned as of september th compared to june th the two year treasuries shows the largest increase at about nine basis points the biggest increases are in the one to three year range i did want to point out we mentioned this every time that it takes time for us to see any considerable increase in the portfolio yield because we have to wait for maturities before we can reinvest so even though we're seeing these increases it's time before we see any considerable impact on our interest  earnings for the city so this chart is it shows our treasury yields over the last three months from six thirty to nine thirty it's all the way from three month to the thirty year also includes life as i mentioned all of the yields are up for the last three months but they're pretty small increases the two year does show the biggest increase at nine basis points the one we generally invest in the two to five year range sometimes the one year so you'll see from a two year it's one point four seven percent at nine thirty all the way to five years the whomp is one point nine two percent the one thing i wanted to point out is that life continues to increase pretty investing is treasuries half of their portfolio is treasuries and they're shorter term the average days to maturity for life is one hundred and ninety days moving on to the city's investment strategy and approach this is gonna sound very familiar but our primary objective is safety first we really want to preserve principle we next our next objective is in liquidity meeting the cash needs of the city and finally than yield earning a fair rate of return we don't chase yields we buy into the market we also attempt to maintain a study maturity over a five year period it's really important in order to ensure we have adequate liquidity for the city that we have cash for any projects or any needs for the city at all times also it prevents us from investing too heavily in a bad interest rate environment that we do not have too much cash at any point to have to invest at all at one time it also ensures that we have cash at all times to be able to invest at a time when interest rates are better this next chart is a comparison of our portfolio rate for the past seventeen plus years comparing it to the two year treasury the five year treasury and the lafe rate and what's important here is this is a good benchmark because it compares it's important that the city's portfolio rate is really trending in line with these benchmarks if it was significantly different it would be something we'd want to look at further and you'll notice that it does trend in line sometimes there's a slight timing difference because we do as i mention have to wait for things to mature before we can invest back in and you'll notice over the last year rates have picked up a little bit and so has the portfolio rate so right now the city's portfolio rate is a few basis points lower than the two year it's lower than a five year but it's higher than leif's but it is trending in i started providing this about a year ago to finance committee because i thought it was important to know since it's about a month behind that we provide data for the quarterly investment report what does the market look like now what would we be getting if we were to invest right now so this treasury yield curve is as of last friday and it shows that all of the rates are actually higher today than they were at lafe you'll see is as up several basis points to one point one four and the five year has now broken that two percent line it's been really hovering around two percent it's been falling between one eight and about two point zero eight for like the last three weeks but all of them every single rate has increased since nine thirty and we do believe part of that is in anticipation of a rate hike in december so how did the city perform over the last quarter the portfolio yield has gone up and that is really reflective of interest rates going up over the last year and as we invest back in we invest at a higher rate it's gone up from one point three seventy two percent at six thirty to one point four three nine percent at nine thirty total interest earned during the quarter is five hundred and seventy three thousand that is down about sixteen thousand dollars from last quarter and that's due to a decrease in our portfolio balance you might recall at six thirty we had a very significant increase in our portfolio balance it was up at one hundred and eighty seven million dollars which is very significant much higher than we normally have in our our portfolio so that resulted in higher interest for the quarter our general fund portion is about  hundred and thirty two thousand dollars so our total cash of investments at nine thirty equates to about a hundred and sixty two million dollars about twenty five million dollars less than we had at six thirty and i'm not sure if you were called that at six thirty we had set aside about eighteen million dollars we knew we needed to spend in july for prepayment of calpers and helped us it gave us about a six hundred fifty thousand dollar discount to prepay a portion of calpers rather than paying monthly and so that makes a big a summary of our activity for the quarter we had one purchase of a federal agency callable security of two million dollars we had no calls for the quarter and we had nine point seven five million dollars in maturities for a net difference of seven negative seven point seven five which basically means that's the amount that went back into our bank account of the maturities five million dollars our federal agency securities and four point seven five are certificates of deposit four million being the union bank one we've talked about at several meetings and seven hundred and fifty zero are three separate certificates of deposit with three banks a summary of our portfolio balance at nine thirty  you'll see that our liquid what we call our liquid balance it's make made up of our checking account and our life balance is about sixty one million dollars we have a little over two million in certificates of deposit about two million in treasury securities eighty two million and agencies and ten million in corporates and then we have the airport note for a total of one hundred and sixty two million dollars the difference for at six thirty is we have about seventeen million less in what we call our liquid balance and as i mentioned that's  a lot to do with our calpers and we also have four point seven five lesson cds for those maturities and three million less in our securities and i did also want to mention that this is a time of the year when we have lesson revenues we don't have any property taxes coming in during the summer so we generally have a little bit less cash during this time as well this last chart is just a different way of looking at our portfolio at it's just a pie chart and it shows what our portfolio is comprised of and we have about half of our portfolio in agencies right now one percent in treasuries we have one percent in cds because we had so many just mature in the last quarter six percent in corporates three percent in the airport note and thirty eight percent in our liquid balance eight in the checking and thirty percent in late we are looking at we generally have more on our certificates of deposit there usually is a little bit more of  yield in cds than we see in agencies but that's when rates of return are are higher we generally see a bigger spread right now there is very little difference between cds and agencies but we're still looking at cds since so many just came back in to see if we might gain a little bit of yield that are still safe just as safe as our agencies so we're looking at that as well as to be to adhere to our new investment policy so we'll be looking over that in our next quarter and that brings can you please remind me the the lay funds how accessible are those or how look what are they dominguez we can pull on them same day same day same day yeah by ten zero a m we have to send a request and pull on the same day we can make several withdrawals in a month and the the you be checking account that's eight percent is that pretty typical balance we we generally try to keep about ten to twelve million dollars in our checking account so it'll just vary depending on the amount that's in our portfolio but we generally dollar wise try to keep about ten to twelve million and is that because  of potential emergencies or that's how much you spend on a monthly basis or it's just we'd like to keep that much in there due to being cutting checks we can have warrants we can run warrants as much as four to five million dollars in a day depending on what's happening big projects and we run warrants twice a week and so we also have outstanding warrants so we have to look at what we have outstanding and so it just gives us enough that we make sure that we never we never cut more than what second for them any discussion all those in favor say aye aye opposed and abstained matter carries and