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TO: Mayor Thomas J. Weisner
FROM: Brian W. Caputo, Chief Financial Officer/City Treasurer
DATE: September 23, 2016
SUBJECT:
A Resolution Designating the Invesco Premier Tax-Exempt Portfolio as an Authorized Depository of the City.
PURPOSE:
To obtain the approval of the City Council of the attached, proposed resolution that would designate the Invesco Premier Tax-Exempt Portfolio as an authorized depository of the city.
BACKGROUND:
From time to time, the city has money on hand that is not immediately needed to satisfy financial obligations. In some instances, such resources may be invested for a long period of time. In other instances, resources are awaiting investment or must remain liquid to satisfy operational needs. When resources are awaiting investment or must remain liquid to satisfy operational needs, the city typically places the resources in a money market fund. The placement of resources in a money market fund ensures that those resources do not remain idle from an interest earning standpoint.
DISCUSSION:
Under federal tax law, when a state or local government holds bond proceeds for more than three years, the government must act to restrict the investment yield on those bond proceeds. If a state or local government does not act to restrict the yield, the government may be required to remit (rebate) certain excess interest earnings (arbitrage) to the federal government. To avoid the need to rebate arbitrage to the federal government, the state or local government may restrict the yield on the bond proceeds concerned by investing in certain allowable instruments. These investment instruments include tax-exempt municipal bonds and money market funds investing in tax-exempt securities.
The city has been holding some proceeds of the Series 2008B Tax Increment Revenue (TIF #3) Bonds for more than three years. The city has been restricting the yield on the bond proceeds by investing the proceeds in tax-exempt municipal bonds and in the AIM Tax-Free Cash Reserve Portfolio, a money market fund investing in tax-exempt securities.
The Finance Department staff recently received notice that the AIM fund is changing its structure so as to permit investments in taxable securities. Consequently, the AIM fund will no longer be useful to the city in its efforts to restrict the yield on the proceeds of the Series 2008B Tax Increment Revenue Bonds that are on hand.
We have identified a money market fund that is suitable to replace the AIM fund: the Invesco Premier Tax-Exempt Portfolio (CUSIP PEIXX). The Invesco fund invests in “high-quality, short-term municipal obligations to provide income exempt from federal taxation.” Specifically, the fund invests in variable rate demand bonds, tax-exempt commercial paper, revenue bonds, anticipation notes, and general obligation notes. Since its inception on February 25, 2005 through July 31, 2016, the average annual rate of return on fund assets was 1.03%. The portfolio’s return for the 12 months ended July 31, 2016 was 0.08%.
Standard and Poor’s Ratings Services has assigned the credit ratings of AAAm to the Invesco fund. This is the highest rating assigned to money market funds by the agency. Thus, the fund is highly secure.
Investing in the Invesco fund will permit the city to restrict the yield on the proceeds of the Series 2008B Tax Increment Revenue Bonds and on the proceeds of any other bonds issued in the future when those proceeds are held for more than three years.
Presently, about $300,000 is invested in the AIM fund and would be transferred to the Invesco fund.
The city’s Corporate Funds Investment Policy requires that the City Council approve all city depositories.
IMPACT STATEMENT:
N/A
RECOMMENDATIONS:
That the City Council adopt the attached, proposed resolution that would designate the Invesco Premier Tax-Exempt Portfolio as an authorized depository of the city.
cc: Alderman O’Connor, Chairman
Alderman Mervine
Alderman Bohman
Alderman Mesiacos, Alternate
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution Designating the Invesco Premier Tax-Exempt Portfolio as an Authorized Depository of the City.
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WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, from time to time, it is necessary for the City to invest on-hand funds on a short-term basis; and
WHEREAS, from time to time, it is necessary for the City to invest certain bond proceeds in a short-term investment vehicle to restrict the yield on the proceeds and avoid the need to rebate arbitrage to the federal government; and
WHEREAS, the Invesco Premier Tax-Exempt Portfolio is a money market fund whose assets are invested exclusively in federally tax-exempt securities; and
WHEREAS, the Invesco Premier Tax-Exempt Portfolio has been assigned a credit rating of AAAm by Standard & Poor’s Ratings Services indicating that the portfolio is highly secure; and
WHEREAS, the Treasurer of the City of Aurora has requested that the City Council designate the Invesco Premier Tax-Exempt Portfolio as an authorized depository of the City pursuant to the City’s Corporate Funds Investment Policy.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, that the Treasurer of the City of Aurora is hereby authorized to deposit public money and funds now in or coming into his hands as Treasurer, in his name as Treasurer, into the Invesco Premier Tax-Exempt Portfolio.
PASSED AND APPROVED on October 25, 2016.
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Aldermen Aldermen
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Mayor
ATTEST:
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City Clerk