HomeMy WebLinkAbout10/15/2003 - STAFF REPORTS (12) DATE: October 1L;, 2003
MEMO TO: City Council
FROM: Director of Finance & Treasurer
RE: Payment for banking services
RECOMMENDATION:
It is recommended that the City Council amend the Fiscal Year 2003-04 Budget to appropriate
$30,000 to a new account in the Finance Department activity, Banking Services; the cost will be
offset by additional interest income.
SUMMARY:
The City currently pays for its banking services by keeping a compensating balance — funds held by
the bank in the non-interest bearing checking account. The proposed action would, to the extent
practical, fully invest those funds and use the interest income earned from the investment to pay the
bank directly for banking services.
BACKGROUND:
The City has used the compensating balance method to pay for its banking services for at least the
last 20 years. For most of that period, it was a cost effective and efficient method of payment
Current banking services— account maintenance, wire transfers, stop payments, check printing,
credit card fees, armored transport, etc. — cost about $40,000 per year.
Because of the historic low interest rates on short-term deposits, the amount we are required to keep
in the checking account has risen dramatically over the last year from about $1.6 million in July,
2002, to about $3.4 million in June, 2003. Keeping that much cash uninvested is no longer the
optimal solution.
The Treasurer intends to keep as low a cash balance in the checking account as possible This
should free up a minimum of$2 million for investment. The current rates for U S. Agency paper
such as Federal Home Loan Bank and Fannie Mae for 3 to 5 year maturities are in the 3% to 3 80%
range. The interest income even at the lower rate would be $60,000 per year. The net gain to the
City (which will be prorated to all City funds based on their average month end cash balances)
should exceed $20,000 per year.
The attached resolution amending the budget would set up both the new appropriation and an
offsetting increase in revenue for the balance of this fiscal year at $30,000.
Submitted by: Approved
Thomas M. Kanarr �— David H. Ready
Director of Finance & Treasurer City Manager
Attachments: Resolution
RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS,
CALIFORNIA, AMENDING THE BUDGET FOR THE 2003-04
FISCAL YEAR.
WHEREAS Resolution 20615 approving the budget for the fiscal year 2003-04 was adopted
on June 4, 2003; and
WHEREAS the City Manager has recommended, and the City Council desires to approve,
certain amendments to said budget;
NOW THEREFORE BE IT RESOLVED that the Director of Finance is authorized to record
inter-fund cash transfers as required in accordance with this Resolution, and that Resolution
20615, adopting the budget for the 2003-04 fiscal year is hereby amended as follows:
SECTION 1. ADDITIONS
Fund Activity Account Amount
001 1300 49601 $30,000
General Finance Banking Services
Purpose To provide an appropriation to pay for banking services directly rather
than via a compensating balance.
SECTION 2. SOURCE Additional interest income.
Fund Activity Account Amount
001 36101 $30,000
General Interest Income
Adopted this day of 2003.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED AND APPROVED
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