HomeMy WebLinkAboutMINUTES - 07211987 - 2.3 To. ` BOARD OF SUPERVISORS
FROM: Phil Batchelor, County Administrator Contra
Alfred P. Lomeli, Treasurer-Tax Collector
Don Bouchet, Auditor-Controller Costa
DATE; Co �/
July 20, 1987 VVu, "'
SUBJECT:
Short-Term Borrowing Program
SPECIFIC REQUEST(S) OR RECOMMENDAYION(S) & BACKGROUND AND JUSTIFICATION
RECOMMENDATION•
Accept report of County Administrator, Treasurer-Tax Collector,
and Auditor-Controller on the County' s short-term borrowing
program.
BACKGROUND:
The Board of Supervisors has requested clarification of the
process the County follows in selecting its, financial advisor and
underwriter for its annual short-term borrowing program.
The County has had a long-standing relationship with the Bank of
America which serves as financial advisor to the County and
underwriter of the annual short-term borrowing program. The role
of financial .advisor and underwriter is one which has developed
over time and is based on mutual respect and trust among the
individuals 'involved. At the same time, it is important to
review the performance of the County' s short-term borrowing
program based on the advice provided by the County' s financial
advisor and the relative cost of that advice.
1 . Performance During the 1986-87 Fiscal Year
During the most recent fiscal year, the County' s short-term
borrowing program outperformed those of the other major counties
we are aware of who also engaged in short-term borrowing.
Monterey, Santa . Clara, Los Angeles, San Diego, Riverside and
Santa Cruz counties all chose to invest in longer term fixed rate
notes. Each of these counties had to pay from 4. 60% to nearly
5 . 00% for these fixed term investments. (See Attachment #1) .
Based on advice from our financial advisor, Bank of America, the
County chose to split the $75 million and sell $25 million in
fixed term notes and $50 million in 7-day variable rate notes.
This was based on .the assumption that most jurisdictions would
opt for fixed-term notes, and that there would be a large demand
for the 7-day variable rate notes, thus holding down their
CONTINUED ON ATTACHMENT: X YES SIGNATURE;
_ RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
APPROVE OTHER
SIGNATUREIS): p
ACTION OF BOARD ON duly 21 ,E 1987 APPROVED AS RECCIMMENDED � OTHER
The Board ACCEPTED the above report and REQUESTED the County Administrator to
REPORT on the process of selecting financial advisors for other County Departments.
VOTE OF SUPERVISORS
i HEREBY CERTIFY THAT THIS IS A TRUE
X, UNANIMOUS (ABSENT ) AND CORRECT COPY OF AN ACTION TAKEN
AYES. NOES. AND ENTERED ON THE MINUTES OF THE BOARD
ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN.
cc: County Administrator ATTESTED _ July 21, 1987
Treasurer-Tax Collector PHIL BATCHELOR, CLERK OF THE BOARD OF
Auditor-Controller SUPERVISORS AND COUNTY ADMINISTRATOR
BY
M382/7-83 _,DEPUTY
Page 2
interest rate. This is exactly what happened. The Treasurer was
able to sell the $50 million portion at an average interest rate
of 4 . 07%, substantially below the minimum of 4. 60% at which the
other counties were able to sell their notes. This one decision
saved the County $287,083 compared with selling the same issue
as fixed term notes at 4 .60%:.
$50,000,000. 00 13 months @ 4 .60% = $2,491,666. 58
$50,000, 000.00 13 months @ 4. 07%* = $2, 204, 583 .29
Added Interest Income to Contra Costa = $ 287,083 . 29**
*Average Rate to Date
**Estimate to Date
Attachment #2 graphically describes how outstanding the County' s
borrowing program was in 1986-87 . This chart shows the 4 .07%
average interest rate paid by the County. It also shows the
actual 7-day variable interest rate which when averaged out
equals the 4. 07% rate. This compares most favorably with the
5 .00% rate paid by the State of California and the rate in excess
of 4 . 60% which was the average of the five largest fixed rate
issuers.
2 . Cost of 1987-88 Short-Term Borrowing Program
Another measure of the value of a financial advisor is the cost
of issuing the short-term borrowing. Among the counties which
have completed their borrowing program for 1987-88 (Los Angeles,
San Diego, Fresno, Sacramento, Ventura, Riverside, and Contra
Costa) , the cost of the borrowing program for Contra Costa is
substantially below that of the other counties.
The following chart shows the respective cost of issuance for
Contra Costa County and the major other County borrowing programs
in 1987-88. These figures do not include bond counsel charges
nor the fee charged by the paying agency, the rating agency fee
and printing costs which were not available for all agencies.
Value of Cost of
County Issuance Issuance
Contra Costa ( $70 million) $ 90, 500
( taxable* )
( $30 million)
( tax-free )
Los Angeles $685 million 931,600
San Diego $151 million 351,830
Fresno $45 million 108,000
Sacramento $80 million 172,000
Ventura $55 million 105,600
Riverside $55 million 105,050
*All preliminary work has been done on
the taxable issue, subject to final
Board approval later in the year.
It is clear from these comparative figures that Contra Costa
County' s cost of issuance is well below that of the other major
counties.
Page 3
3 . Return versus Cost of Borrowing Program
A third method of evaluating a short-term borrowing program is to
compare the cost of the borrowing with the interest which is
earned on the borrowed funds.
The Treasurer anticipates that a reasonable interest rate to
receive on investing these funds is 7%. If the entire $30
million is invested at 7% for the full 13-month term, the earned
interest will equal $2, 275,000.
Over the past five fiscal years, the gross interest earned in
this manner has totaled $19, 487,510 . Clearly, this is a
significant funding source for the County.
4 . Evaluation of Other Firms
Finally, the County Treasurer has interviewed and evaluated a
number of other firms over the years in an effort to insure that
the service we receive from the Bank of America and Bond Counsel
remains competitive. In evaluating over a dozen such firms, the
Treasurer has yet to find a single firm which can provide better
service to the County. Bank of America has been our underwriter
for nine years. They know the County well and understand the
fiscal position of the County thoroughly. Even during the fiscal
problem periods the County has faced, the Bank of America has
stood by the County when other firms based in New York called our
notes because they did not have confidence in the County' s
willingness to face its problems and deal with them directly.
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