Council outsources investment management services, directs staff to study city treasurer role, hours, salary
By SARA HALL
City Council this week agreed to outsource the management of surplus investments and debated the role and responsibilities of the city treasurer.
After more than two hours discussing the item, councilmembers voted 5-0 on Tuesday (July 9) to approve the transition plan of investment management services to Meeder Public Trust, as revised by the council by assigning what was suggested as the finance director’s role to the city manager instead. The action also updated the city’s investment policy to reflect the change in responsibilities and explicitly state that the city treasurer is to be provided access to all information necessary to perform the duties required in state code.
In a separate motion, a split council voted 3-2 (with Mayor Sue Kempf and Mayor Pro Tem Alex Rounaghi dissenting) to award 5% performance pay for the city treasurer.
Council also directed staff to conduct an audit of the internal processes under the new policy.
They also agreed to continue the discussion and decision on the city treasurer hours and compensation until staff can return with more information and best practices from other cities with elected treasurer roles.
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Photo by Mary Hurlbut
Council agreed to outsource the management of the city’s surplus investment portfolio
Council approved a request for proposals to evaluate outsourcing the management of the city’s investment surplus funds at the July 11, 2023 meeting. Earlier this year, on April 9, based on the RFP, council approved Meeder to manage the city’s investment portfolio and requested staff to prepare a transition plan, including adjustments to the roles and responsibilities of the city treasurer and other staff positions and the investment policy.
The transition is anticipated to take one to four weeks and Meeder is expected to start on August 1.
The city treasurer will continue overseeing the management of bond proceeds and the city’s more liquid investments, utilizing investment pools and bank deposits to meet the city’s day-to-day financial needs.
Laguna Beach’s investment portfolio is currently valued at $170 million, explained Assistant City Manager Gavin Curran. Of this amount, Meeder will manage approximately $150 to $160 million, or 80% to 90% of the portfolio, which are considered “surplus” and longer-term and less liquid investments.
The more liquid investments will continue to be managed by the city treasurer and account for approximately $10 to $20 million, or 10% to 20% of the portfolio, Curran noted.
To ensure appropriate safeguards for the management of the surplus investment portfolio, as part of the management of the city’s investment, Meeder will also meet monthly with the city treasurer, finance director and other city staff, as needed for strategy calls/meetings to discuss economic and market conditions, portfolio structure and composition, investment strategies, changes to California Code and other related items.
“Internal controls are important,” Curran said.
Meeder is required to invest in compliance with the city’s investment policy, which provides the parameters for investing government funds, addresses risks, constraints and responsibility for monthly reporting and demonstrates fiduciary care. Meeder also has to provide daily, monthly and quarterly reports showing compliance with the policy.
U.S. Bank acts as the custodian for the safekeeping of investments, Curran explained.
Much of Tuesday’s discussion revolved around management of Meeder, oversight measures, and the roles and responsibilities of the treasurer versus the finance director.
Plans call for a monthly meeting that includes both the finance director and the city treasurer. That meeting would go over investment performance and strategy. Both staffers would also attend a quarterly meeting along with the investment audit committee. At those meetings, the treasurer will be able to review the numbers and investments.
Meeder also has software that would allow the finance director and treasurer to log in and see that the investments are in compliance with the city’s policy, Curran explained. They could access it daily, he added.
Answering a council question about what managing the outsourcing of investments would entail, City Manager Dave Kiff explained that, among other things it includes communicating with the firm regularly to make sure that they’re complying with the investment policy and meeting the city’s goals.
If the firm doesn’t comply with the city’s investment policy, the consequences would depend on the egregiousness of what happened, Kiff commented, whether it’s a minor mistake or taking a completely different approach than what’s been approved in the policy.
The policy, as approved by council, is what will guide Meeder.
“At the end of the day, you’re either compliant or you’re not,” Kempf said.
Weiss raised concern about the finance director handling the management of this plan. They have not been able to thoroughly resolve financial issues flagged for significant and material weaknesses in the past, Weiss said.
“I don’t have a high level of confidence in the finance department handling this,” he said.
He suggested the council reject the transition plan, but proceed with outsourcing and place the treasurer as the point person for managing it.
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Answering another council question, Kiff confirmed the treasurer and finance director could provide monthly reports to the council since it’s all public information. It doesn’t raise any issue doing it that way as it’s additional eyes on the report, he said.
The idea for oversight and reporting to the council is fine, noted City Attorney Megan Garibaldi, but City Council is retaining its investment authority so, at the end of the day, there needs to be someone that solicits feedback from the council. Meeder also provides investment strategy, which will be conveyed to the council to either confirm or discuss alternatives.
“I have concerns about having two people taking direction from the City Council,” Garibaldi said.
Reporting on performance is fine, she noted, but in terms of receiving direction from council, she recommended a single point person.
The concern is about oversight, which is what the treasurer would do by reviewing the information from Meeder and providing monthly reports to council, Rounaghi said. If there was a deviation from the investment policy, she could flag it, he said.
“I don’t want to have a situation where you have multiple people managing something because that’s how you get into trouble,” Rounaghi said. “Ultimately, there’s accountability and a clear line of authority.”
It needs to be set up so that no matter who is in the role of treasurer, the mechanisms work, Kempf added.
Rounaghi suggested changing the responsibility over to the city manager. That role is the only person, other than the city attorney, that reports directly to the council, he noted.
“I think that’s the appropriate way and it addresses all of these concerns,” Rounaghi said. “The conclusion we’ve come to here is…managing day-to-day really essentially just means cash flow. Beyond that, the question is giving the council information about whether Meeder is complying with our investment policy. I have no problem with the city treasurer also providing that analysis to the council. I think that creates a structure where we have the proper oversight of this, but we’re still able to not create an issue with conflicting authorities.”
Councilmember Bob Whalen also suggested making it clear that the treasurer gets the information needed to ensure their duties are fulfilled according to state code. That includes access to information on the investment receipts, he clarified.
There was also a lot of discussion regarding the role of current City Treasurer Laura Parisi.
Answering a council question, Curran confirmed that the basis for the reduction in hours was because the Transient Occupancy Tax audits weren’t being done.
Council decided to increase the city treasurer hours to do the TOT audits, which were added in 2018, and assumed 10 hotel audits each year. Staff noted that work was not performed in 2020, 2021, 2023 and 2024. Hotel audits were completed in 2022. However, no final report was issued, Curran said.
In the materials Parisi provided to the council, Rounaghi said there are three “nightmare scenarios” described and the implication that the action before the council could lead to one of them.
There are internal measures in place to prevent a similar situation in Laguna Beach, Curran answered for each example (a city employee used wire transfers to withdraw money from the bank, a staffer in another city opened a secret bank account and embezzled millions and at another jurisdiction department heads hid the unfunded pension liability in treasury reports).
“There’s a segregation of duties to make sure those things don’t happen,” Curran said.
Weiss noted that Parisi’s written comments about the transition plan included what she found problematic, which she claimed would potentially “prohibit the city treasurer from statutory duty to comply with all laws governing deposit and securing of public funds.”
Parisi also spoke during public comment and reiterated a number of the issues she has with the transition plan.
“I’m not asking for an increase in hours; I’m asking to oversee the investment program to stave off potential problems and interactions that might interfere with the city operations,” Parisi said.
She’s been the city treasurer for 25 years and performed the investment function for the city. This year, the investment income is going to exceed budget, she pointed out.
“I don’t know why you would take that responsibility away from me,” Parisi said. “I’ve exceeded expectations.”
A dozen other speakers commented, most were vocal about their support of Parisi. She’s a longtime employee who goes above and beyond, several people agreed, asking the council not to reduce her role.
A few councilmembers emphasized that the discussion is aimed at the job itself, not Parisi specifically.
“This is not about one person, but it’s about the position of the city treasurer,” Rounaghi said.
Regarding compensation and hours, most councilmembers agreed that they didn’t have all the information they needed.
In this instance, they need to do things based on safeguarding internal controls or creating them where necessary, but ensuring that city council is following the government code, Rounaghi said.
“I really think that this position of city treasurer needs to be based on both of those two things,” he said.
Considering all the evidence from other cities and the reasoning for the reduction, Rounaghi supported the option of scaling it down to 20 hours and basing the updated salary on the responsibilities.
He suggested forming an ad hoc committee to work with city staff and figure out the role and responsibilities of the position. If there’s justification for more than 20 hours a week then they can adjust it, Rounaghi said.
That can’t be decided without more information, Weiss countered. The suggestion of 20 hours a week isn’t backed up with data, he said.
Weiss recommended not making any changes to the salary now and leaving it until December (when the elected treasurer takes the oath of office).
“That’s the fair way to go until you look into this,” he said.
They can’t do that because it’s an elected position, Kempf explained. If they opt to change it, then whoever is running for treasurer needs to know what the compensation is, she noted, they can’t change it after the election.
“We just want to be very straightforward in terms of what we’re doing here,” Kempf said.
Whalen recommended directing the city manager to return with information from other cities with an elected treasurer to give the council a sense of what the job entails, including how many hours per week the treasurer’s functions take.
“Then let’s take another whack at it,” he said.
It should be based on job function, responsibilities and the time demand to perform the job, he added.
It should be based on the best practices, Rounaghi added.
Staff could tentatively return at the first meeting in August with some information, Kiff said.
Kempf suggested they keep Parisi’s salary the same for the remainder of the year, and require her to complete the TOT audits for 2023 and 2024.
However, the city will inform potential candidates for the position that the future of the salary is under discussion.
In the final recommendation for the item, Whalen recommended they continue to award the 5% performance pay for the city treasurer, the same that Parisi has received for many years.
Since the TOT audits aren’t complete, Kempf said she can’t give a performance pay on a job that’s not done.
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Sara Hall covers City Hall and is a regular contributor to Stu News Laguna.