Good morning Mayor and Commissioners,

On behalf of Ms. Curry, we are sharing the attached information regarding House Bill 3 which places limitations on state and local investment decisions. Attached you’ll find:

1.     A copy of House Bill 3 (2023) regarding limitations on state and local investment decisions, along with two of the amended statutes, sections 218.415 and 112.662.

2.     A copy of the City’s Operating/Surplus Funds Investment Policy Statement

3.     Bloomberg Yield Curves Report

4.     2024 City Operating Funds Corporate-Agency Bond Interest Spread Analysis

The City’s Investment Manager, William Johnston, also provides a review of the impact of restricting corporate security investments for the City’s Operating/Surplus Funds:

The total Market Value of the City’s Operating/Surplus Funds on 6/30/24 was $302,354,555, and averages around $300,000,000 during the Fiscal year.

The City Operating Funds Investment Policy Statement governs allowable City Operating/Surplus Fund investments, and is being updated from 2022 to adjust allowable investments, and to add “pecuniary factors” language. (2022 version attached)

Current City Operating/Surplus Fund assets are invested as follows:

• $194,348,947 was invested in the FL State Board of Administration Prime Fund Pool. The majority of the SBA Prime Fund’s investments are in corporate securities (Commercial Paper, Corporate Notes, Bank Securities). The Prime Fund’s Investment Policies don’t allow investment in Israeli or Palestinian securities.

• $102,535,445 was invested in a bond portfolio consisting of US Agency Bonds (FHLB, FNMA, FHLMC).

• $7,001,630 was held in cash in City bank accounts.

The City’s Operating/Surplus Funds Investment Policy Statement doesn’t allow investment in foreign securities, and the Funds have never been invested in foreign securities.

The City’s Operating/Surplus Funds Investment Policy Statement does allow investment in corporate securities, and in the past, as much as 80% of the total Operating/Surplus Funds were invested in bonds, depending on liquidity needs. I think that the maximum we would hold in bonds going forward with a normalized yield curve would be $240,000,000 spread across a 5 – 10 year maturity range. Although we don’t currently hold any corporate bonds, the yield spreads on corporate bonds vs. agency bonds has been widening, and I believe that investing in corporate bonds in FY25 will make sense. The attached Bloomberg Yield curve shows the yield spreads between “A” rated Corporate Bonds and US Government Agency Bonds is almost .60% at 5 Year maturities, and almost 1.00% at 10 Year maturities. I’ve attached Yield Curve chart and an analysis that estimates that a Corporate Bond portfolio could be expected to provide $1,560,000 more per year in interest income than an Agency Bond portfolio. I’d recommend against restricting City Operating/Surplus Funds investments in all corporate securities because of the negative fiscal impact it could have.

It should also be noted that restricting investment in corporate securities because of concern about the Israeli – Palestinian conflict might still be considered a violation of attached FL Statue 218.415(24)(b) which requires that when deciding whether to invest and when investing public funds, local governments must make decisions based solely on pecuniary factors and may not subordinate the interests of the people of this to other objectives, including sacrificing investment return or undertaking additional investment risk to promote any nonpecuniary factor.

Any discussion of restricting investments in the General Employees Pension Plan could also be considered a violation of attached FL Statue 112.662(2).

Thanks,

Cintya G. Ramos | Executive Chief of Staff

City Manager’s Office | City of Gainesville

Desk: 352-393-8782 | Cell: 352-278-6098

Email: ramoscg@gainesvillefl.gov

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