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Minutes - Investment - 2007-06-14• COSTA MESA SANITARY DISTRICT MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING June 14, 2007 CALL TO ORDER The meeting was called to order at 5:30 p.m. by Treasurer /Finance Director Marc Davis ROLL CALL Committee Members Present: Director Arlene Schafer (rotating committee member) Director Robert Ooten (rotating committee member) Director Jim Ferryman Mr. Rob Hamers, Manager /District Engineer Staff Members Present: Mr. Marc Davis, Treasurer /Finance Director Mr. Thomas Fauth, Assistant Manager Ms. Joan Revak, Board Secretary /Program Manager /Clerk of the District Ms. Sherry Kallab, Accountant NEW BUSINESS Review of Treasurer's Report Mr. Davis reported that the yield on the District's portfolio has gone up as a result of a $1,000,000 government agency security that matured in May. The proceeds of the matured security were placed into LAIF. In the event the District needs the funds to purchase or place a deposit on a yard, LAIF provides that liquidity. LAIF was paying 5.25% interest at the end of the May while the District portfolio was earning 4.39% at the end of May. The next investment will be maturing in September 2007 and those proceeds will also be deposited into LAIF. The September investment of $500,000 is currently earning interest at the rate of 2.6 %, and it will go into the 5% range once the funds are deposited into LAIF. The District should see an increase in investment earnings next fiscal year due to the higher interest rates. Director Ooten inquired about LAIF's liquidity and District cash flow. Mr. Davis provided an overview of LAIF and the daily liquidity it provides. Mr. Davis confirmed that the District does experience a cash flow deficiency from July through November due to the timing of collection and processing of District charges through the Orange County Property Tax Assessors Office. In the event the District did have to sell an investment to cover cash flow, the result would be a loss due to the fact all District investments are currently below market value. MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING June 14, 2007 Page 2 is Director Ooten asked the amount of the District's monthly expenses and why the current month's financial statements provided in the Board packet were missing the monthly information. Mr. Davis estimated the District monthly expenses between $400,000 and $600,000 per month. Mr. Davis directed staff to follow up on the reason for the lack of monthly expenses on the financial statements. Mr. Hamers questioned what effect a recession would have on the District investments. Mr. Davis stated that a recession would drive our investments' market value down, but that the District would only be impacted if we are forced to sell a security during that time. Mr. Fauth inquired if the District found a yard in the $3,000,000 price range where the funds would come from. Mr. Davis stated the actual dollars would come from District funds held in LAIF. A purchase of a District yard for $3,000,000 would leave approximately $3,000,000 in LAIF to cover the cash flow dry spell that ends in November. Director Ferryman arrived at 5:40pm. Review of Investment Policy Mr. Davis reported that there are no real changes to the District's Investment Policy. The 07/08 District Investment Policy will be presented the Board at • the July 2007 Board meeting. In updating the District Investment Policy, the California Government Code that covers investments of special districts was reviewed and there were no changes this year. Director Schafer asked Mr. Davis if he was comfortable with the grandfather provision in the policy. Mr. Davis explained that the grandfather provision states that if the California legislature changes allowable securities and the district is currently invested in one of those securities, we do not have to sell the security until it matures, which protects the District. Mr. Davis reviewed the primary components of our investment policy: legality, safety, liquidity, diversification and yield. Mr. Davis emphasized that District philosophy is safety first before yield. Mr. Hamers requested staff to share information from the GFOA convention. Ms. Kallab stated that there were recommendations for government agencies to establish an audit committee. Mr. Davis recommended that the investment oversight committee could also function as the District's audit committee. Mr. Hamers asked if audit periods were discussed and Ms. Kallab responded that the recommended time to go out to bid was every 5 years to ensure rate competitiveness. Ms. Kallab also reported that audit costs are expected to increase 10 to 15% due to new regulations that would increase the amount of time required for the audit. 40 MINUTES OF INVESTMENT OVERSIGHT COMMITTEE MEETING June 14, 2007 Page 3 is Director Ooten questioned the District's $3,000,000 limit per broker /dealer. Mr. Davis noted this serves as a means to limit the number of people we do business with. The District currently has three approved broker dealers. Mr. Davis informed the Committee that the components of the District Investment Policy include the policy covered in the first six pages of the report and several attachments that cover guidelines, internal controls, segregation of duties and a glossary of investment terms. Mr. Davis does not foresee buying any securities in the upcoming fiscal year. Director Ooten asked about areas the district auditors review and Mr. Davis provided a brief overview. PUBLIC COMMENTS There were no items discussed under public comments. ADJOURNMENT The meeting adjourned at 5:55 p.m. Approved by: Secretary, Costa: ,Mesa Sanitary District -Board of Direcibrs- t." C]