REPORT TO COUNCIL
SUBJECT
Title
Receive and File the City of Sunnyvale Investment Report for First Quarter 2025
Report
BACKGROUND
In accordance with California Government Code Section 53646, staff is submitting the attached investment report for Council’s review. The report includes all investments held by the City of Sunnyvale. Chandler Asset Management (Chandler), the City’s investment adviser, manages the long-term portion of the City’s portfolio, while staff manages the liquid/short-term portion.
Funds for the City’s Deferred Compensation Plan, the City’s Retirement Plan, the City’s Pension Trust, Other Post-Employment Benefits Trust, and any unspent proceeds from debt issuance are not included in this report. Third-party administrators and trustee custodial banks manage and hold these funds.
EXISTING POLICY
California Government Code Section 53600 et seq. strictly governs which investments public agencies can hold. In some cases, state law also governs what percentage of the portfolio can be invested in certain security types, maximum maturities, and minimum credit ratings by major rating agencies (Standard & Poor’s and Moody’s Investors Service). Public agencies can only invest in fixed-income securities, and the purchase of stock is prohibited. Therefore, the City primarily invests in highly rated securities such as U.S. Treasuries, federal agencies, government-sponsored enterprise debt, and high credit quality, non-governmental debt securities.
The California Government Code also requires investment objectives of safety, liquidity, and return, in that order. As such, the safety of principal is the foremost objective of the City’s investment program. The portfolio must remain sufficiently liquid to enable the City to meet all cash requirements.
The City Council first adopted a policy (Council Policy 7.1.2, Investment and Cash Management) governing the investment of City funds on July 30, 1985. The City Council reviews and adopts this policy annually, so the Council last adopted an updated policy (for FY 2024/25) at its October 15, 2024, meeting. The City’s investment policy follows the Government Code and includes additional restrictions beyond state law on some investments, such as a lower allowable percentage per investment type or issuer.
ENVIRONMENTAL REVIEW
This action does not require environmental review because it is not a project that has the potential for causing a significant impact on the environment. (CEQA Guideline 15061(b)(3).) Furthermore, the action being considered does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15378(b)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
DISCUSSION
This report provides information on the values (par, book, and market), the type of investment, issuer, maturity date, and yield of each investment. The par value of a bond is the amount that the issuer agrees to repay the City by the maturity date. The book value is what the City initially paid for the bond, which changes over time if a premium or discount is amortized. The market value is what the bond is worth as of the date of the report.
Investment Portfolio
Most of the City’s funds are actively managed by Chandler, with maturities between zero and seven years. The City’s main investment portfolio of securities has a target duration of 2.62 years as measured by its risk and performance measuring benchmark. As of the quarter end, the portfolio had a duration position of 2.53 years, which was rebalanced to be neutral to slightly longer than its target in anticipation of lower interest rates available in the markets. The portfolio’s duration measures how the portfolio’s market value will be impacted by a 1.0% shift in interest rates, and the longer the duration, the more the impact. This approach protects the City’s income and will cause the City’s investments to appreciate if rates fall.
New purchases focused on two high-credit-quality medium-term corporate notes and highly rated pass-through securities (asset-backed and federal agency mortgage-backed securities). The average yield to maturity of the main portfolio of securities alone was 3.56%, up from 3.38% three months prior. The market yield, which can infer a reinvestment rate, was 4.19%, slightly lower than last quarter’s 4.48%. The market value of the main portfolio of securities totaled $833,647,485 as of March 31, 2025, with interest earned of $7,106,176, less realized losses of $169,682. Chandler occasionally sells securities at a loss to free up funds for purchases that will produce higher yields that offset the losses.
Local Agency Investment Fund
The City holds funds in the Local Agency Investment Fund (LAIF) that it can easily access to meet short-term cash needs. LAIF totaled $25,677,602 as of March 31, 2025, and earned interest of $506,032 for the quarter, which is included in the market value of the total portfolio. The interest earned was significantly higher than in previous quarters due to a higher average balance. LAIF is a program created by statute as an investment alternative for California’s local governments and special districts.
Summary of Total City Investments
Attachment 1 provides a summary and detailed information on each security. Also included is an activity report of sales, purchases, and maturities for the three-month accounting period as required by Government Code Section 53607. The City’s total investments (Investment Portfolio and LAIF) were $859,325,087 as of March 31, 2025. This amount does not include $4,502,296 of accrued interest, which has been earned but not yet received.
The investment program’s average yield to maturity (the income expected to be earned over the next twelve months if portfolio holdings do not change) was 3.56% as of March 31, 2025. This yield includes the yield earned on assets invested in LAIF. The market yield of the investment program was 4.19%, down from 4.48% at the end of the prior quarter.
Market forces such as the movement of interest rates, credit quality, fiscal policy, and economic growth impact the portfolio's value. It is also affected by the volume and timing of City revenues available to invest after maintaining sufficient liquidity to meet operational needs. Some revenue sources include property tax revenues; development-related activity, such as park impact fees, housing impact fees, traffic mitigation fees, developer contributions, and building and planning fees; utility enterprise funds revenues; and other City revenues or financial activities. The portfolio manager primarily focuses on following the long-term duration investment strategy. Staff continue monitoring available cash balances, assessing cashflow needs regularly, and communicating with the portfolio manager regarding operational and capital projects funding needs.
Sweep Account Balance Held with US Bank
The City’s sweep account with US Bank is an interest-bearing account to which any excess funds are automatically swept daily from the US Bank operating bank account. The sweep account balance was $15,463,248 as of March 31, 2025, with an average rate of return of 3.94% and earnings of $196,253 for the quarter.
Economic Conditions
Recent economic data suggest slower growth in 2025 and greater market uncertainty as the effects of fiscal policy unfold. Inflationary trends have subsided, but core levels remain above the Fed’s target. The labor market reflects an improved balance between supply and demand for workers. While job creation has been robust, continuing jobless claims remain elevated. Given the economic outlook, Chandler expects gradual monetary policy normalization and a steepening yield curve.
As broadly anticipated, the Federal Open Market Committee (FOMC) left the Federal Funds Rate unchanged at the 4.25 - 4.50% range at its March meeting. Fed Chair Powell emphasized increased uncertainty around the economic outlook and the need for “greater clarity” before changing interest rate policy. He also acknowledged possible transitory inflationary impacts from tariffs. The summary of economic projections indicated lower GDP growth, higher inflation, and higher unemployment estimates than December projections, along with roughly two 25-basis point rate cuts this year. The FOMC also announced a slowdown in the pace of its balance sheet reduction.
FISCAL IMPACT
Overall, the City’s investment income remained strong for the first quarter, totaling $7,638,778. In comparison, the investment income for the same period last year was $5,336,971.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Receive and file the City of Sunnyvale Investment Report for First Quarter 2025.
Staff
Prepared by: Inderdeep Dhillon, Accounting Manager
Reviewed by: Matt Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
_X_ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
ATTACHMENTS
1. City of Sunnyvale First Quarter Investment Report 2025