The Solana Beach City Council approved a resolution Sept. 24 for a revised management directive that slightly changes the city investment strategy.
The city’s Budget and Finance Commission in August said it wanted to switch from a one- to three-year strategy to a one- to five-year strategy.
“Longer maturity bonds would provide higher coupon rates (assuming a normal yield curve) and, if the Federal Reserve lowers rates, opportunities for capital gains,” according to a September memo from the five commission members. “That said, bond prices have likely largely factored in the September rate cut so the City of Solana Beach would not have significant near term opportunities to enhance capital gains in the near term. The City would still be able to capture income from higher average yields and capital gains from additional rate cuts.”
A council agenda report adds that the one- to five-year strategy “offers the option for longer duration and maturity holds.”
“The performance objective for the portfolio is to earn a total rate of return through a market cycle that is equal to or above the return on the benchmark yield,” according to the council agenda report. “In order to achieve this objective, the portfolio invests in high-quality fixed income securities that comply with the Investment Policy and all applicable regulations governing the funds.”
The city’s investment income is expected to increase as a result of the change, according to the report, and will be reflected in usual updates to the budget.
A report from a city consultant notes slower economic growth and more uncertainty in the market “as the effects of fiscal policy unfold.”