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HomeMy WebLinkAbout06.12.2019 SP Minutes @9:00MINUTES SPECIAL MEETING BUDGET STANDING COMMITTEE `9ZIF0OF THE CITY OF SOUTH SAN FRANCISCO P.O. Box 711 (City Hall, 400 Grand Avenue) South San Francisco, California 94083 Meeting to be held at: MUNICIPAL SERVICES BUILDING BETTY WEBBER ROOM 33 ARROYO DRIVE SOUTH SAN FRANCISCO, CA WEDNESDAY, JUNE 12, 2019 9:00 a.m. The meeting moved to the Police Training Room due to power outage. Call to Order. Time: 9:10 a.m. Roll Call. PRESENT: Councilmembers Addiego and Nicolas. PUBLIC COMMENTS — None. MATTERS FOR CONSIDERATION 1. Motion to approve the Minutes for the meeting of May 1, 2019. MOTION Councilmember Nicolas and Councilmember Addiego seconded a motion to approve the minutes from the meeting of May 1, 2019. The motion carried unanimously. 2. Report regarding review of modification to the City of South San Francisco Investment Policy FY2019-20. (Frank Risso, City Treasurer and Justin Lovell, Financial Services Manager) Financial Services Manager Lovell announced that City Treasurer Risso was teleconferencing from Washington D.C. He also introduced Jeff Probst, Chandler Asset Management, Inc. to go into detail on the minor modifications staff was recommending for the Investment Policy. Mr. Probst stated each fiscal year, the City's Investment Policy was presented to the City Council for consideration. For FY 2019-20 staff was recommending minor modifications to the Investment Policy to make changes from the recently passed legislation from AB 1770, Stienforth, Local Government and Investments. The modification would remove language related to the purchase of asset backed securities. The modification related the purchase of asset backed securities. The legislature passed the legislation in order to provide clarification as the issuers of these securities tend to be an unrated trust, thus the A rating was not there. The City's investment portfolio managers took a conservative approach, due to this ambiguity and looked to the ultimate sponsor/originator for the A rating. With this removal, Chandler's process would continue to be the same where credit analysis of the sponsor/originator was a key aspect to the investment. Councilmember Nicolas inquired why the analysis were conducted annually. Mr. Probst advised that California code mandated that cities review their investment policy once a year. Financial Services Manager Lovell announced staff would bring the full Investment Policy to the June 26, 2019 City Council meeting. City Treasurer Risso advised the minor modifications were brought up two (2) months ago within their monthly meeting and prepared to present the changes to the Budget Standing Committee before presenting to the City Council for review and approval. 3. Review of the City of South San Francisco Investment Portfolio. (Frank Risso, City Treasurer and Jeff Probst, Chandler Asset Management) Mr. Probst presented the City of South San Francisco Investment Portfolio to the Budget Standing Committee members. He stated payrolls rose by 263,000 in April, exceeding the consensus forecast of 190,000. On a trailing 3 -month and 6 -month basis payrolls increased an average of 169,000 and 207,000 per month, respectively. Mr. Probst continued that the unemployment rate declined to 3.6% in April from 3.8% in March, as the participation rate edged down to 62.8% from 63%. On a year -over -year basis, wages were up 3.2% in April, unchanged from March. Mr. Probst next spoke about inflation. He stated the Consumer Price Index (CPI) was up 2% in March. Core CPI was up 2.1 % in April, versus up 2% in March. The Personal Consumption Expenditures (PCE) index was up 1.5% in April, versus up 1.4% in March. Core PCE, which was the Fed's primary inflation gauge, was up 1.6% in April versus 1.5% in March, remaining below the Fed's 2% inflation target. Mr. Probst stated retail sales were up 3.1 % in April, versus up 3.8% in March. On a month-to-month basis, retail sales declined 0.2% in April, below expectations for 0.2% growth. Retail sales excluding autos and gas were also down 0.2% in April. However, sales growth in March was revised up to 1.7%. Sales for March and April combined suggest a modest underlying growth trend. The Consumer Confidence Index jumped to 134.1 in May from 129.2 in April, exceeding expectations, which suggests that consumer spending trends may pick up modestly. Councilmember Nicolas inquired whether retail sales numbers in the portfolio also included online sales. Mr. Probst confirmed that online sales were also included in that number. Mr. Probst identified the Leading Economic Index (LEI) rose 0.2% in April following a 0.3% increase in March. The Conference Board believed that the economy would continue to grow but the pace of growth was likely to moderate to 2% by year-end. The Chicago Fed National Activity Index (CFNAI) declined further in April to -0.45 from an upwardly -revised 0.05 in March. On a 3 -month moving average basis, the index declined -0.32 from -0.24. The CFNAI suggests that the economy was slowing but was not indicative of a recession. Negative values are generally consistent with below-average growth. Periods of economic contraction have historically been associated with values below -0.70 on a 3 -month moving average basis. BUDGET STANDING COMMITTEE MEETING JUNE 12, 2019 MINUTES PAGE 2 Mr. Probst advised housing starts were stronger than expected in April, up 5.7% to a 1.234 million annualized rate. Multi -family starts rose 4.7% to an annualized rate of 381,000, and single-family starts rose 6.2% to an annualized rate of 854,000. Nevertheless, total housing starts were down 2.5% in April. According to the Case -Sheller 20 -City home price index, home prices were up just 2.7% in March, versus up 3% in February. Mr. Probst stated the Institute for Supply Management (ISM) manufacturing index decreased to 52.1 in May from 52.8 in April. Nevertheless, a reading above 50 suggests the manufacturing sector was expanding. The Industrial Production index was up just 0.9% in April versus up 2.3% in March. On a month -over -month basis, the manufacturing component of the index declined 0.5% in April, after being flat in March. Capacity Utilization declined to 77.9% in April from 78.5% in March, and remained below the long -run average of 79.8% indicating there was still excess capacity for growth. Mr. Probst indicated that according to the second estimate, first quarter Gross Domestic Product (GDP) grew at an annualized pace of 3.1 %, down slightly from the advance estimate of 3.2% but above the consensus estimate of 3%. Despite the government shutdown and ongoing global trade disputes, GDP growth accelerated in the first quarter from 2.2% in the fourth quarter. Net exports and state and local government spending advanced in the first quarter, while consumer spending and business investment moderated. Residential investment contracted in the quarter. The consensus estimate for current quarter GDP growth is 2.0%. Overall, the consensus view calls for GDP growth of 2.6% this year versus 2.9% last year, which was consistent with moderate economic growth. Mr. Probst continued to present the Federal Reserve rates. The Fed signaled that it planned to keep the federal funds target rate unchanged at a range of 2.25%-2.5% for the near-term. The Fed's long -run median federal funds rate target was 2.8%. The Fed had been normalizing the size of its balance sheet since October 2017, by allowing a specified amount of Treasury, mortgage-backed, and agency securities to roll off each month. In March 2019, the Fed announced plans to begin slowing down the reduction of their balance sheet and conclude their balance sheet reduction program at the end of September 2019. This would leave the Fed with a larger balance sheet (slightly higher than $3.5 trillion) than they originally expected. Mr. Probst stated the shape of the Treasury yield curve had changed significantly on a year -over -year basis. As of month-end in May, the 3 -month T-bill yield was up 27 basis points, the 2 -Year Treasury yield was down 68 basis points, and the 10 -Year Treasury yield was down 73 basis points. The current shape of the yield curve implies that market participants are pricing -in one to two rate cuts over the next few years. He believed the decline in long-term Treasury yields reflects a high level of market participants' nervousness about the outlook for global economic growth and a decline in global inflation expectations. Councilmember Nicolas inquired whether the City had a policy regarding the runway the City had in the General Fund. Financial Services Manager Lovell advised that within the General Fund, the policy was to maintain equal to 20% of the operating revenues. It was a nationwide best practice to have a 15-20% reserve. Councilmember Addiego asked whether the size of the city influenced the reserve amount. Financial Services Manager Lovell replied it depended on how conservative the City was. BUDGET STANDING COMMITTEE MEETING JUNE 12, 2019 MINUTES PAGE 3 ADJOURNMENT Being no further business, Councilmember Addiego adjourned the meeting at 10:20 a.m. Submitted by: Approved by: i pa.J� 9 Gabriel Ro riguez, Deputy City Clerk Mar Addiego, Vice yor City of South San Francisco City of South San Francisco Approved by the Budget Standing Committee: ©1 / 0 & / dam BUDGET STANDING COMMITTEE MEETING JUNE 12, 2019 MINUTES PAGE 4