City finance officials report $35 million in interest earnings; mayor asks staff for property-tax stress test

West Palm Beach finance officials on Monday presented the city—s third annual investment report, saying higher interest rates produced a sharp increase in earnings but that most of those dollars are restricted to specific uses.

Bridget Souffrant, the city—s chief financial officer, introduced the presentation and said the portion of city assets managed by the city—s adviser are funds not needed for immediate cash flow or otherwise earmarked.

John Grady, managing director and partner at Public Trust Advisors, summarized the economic backdrop for the report and told commissioners the city—s program is deliberately conservative. He said the portfolio emphasizes liquidity for short-term needs and U.S. Treasuries in the 1-to-5-year range to lock in yields while limiting duration risk.

The presentation said the city—s liquidity portfolio represented about 44% of assets as of Sept. 30 and that the core portfolio financed principally with U.S. Treasuries comprised the remainder. Liquidity instruments earned a weighted average yield of about 5.26% through September, and the aggregate portfolio yields were above 4% as staff reinvested maturing securities into the 2-to-3-year portion of the curve. The advisers reported an overall portfolio duration below one year.

Public Trust said the portfolio had produced roughly $35 million in interest earnings for the most recent fiscal year but emphasized the bulk of those dollars are restricted to capital, utilities and bond proceeds; staff said about $5 million of those interest earnings flowed into the general fund.

Officials stressed the portfolio—s legal and policy guardrails. The presentation cited state statutes governing public funds investment and depository requirements and said the portfolio is managed to the city—s investment policy and state law.

Commissioners asked detailed questions about pending transactions, unrealized gains and the mix of counterparties. Grady and Treasury Manager John Raubach explained that "net pending transactions" often represent interest accrued but paid after period close, and that unrealized gains or losses reflect book value versus market value on any given day; they noted such marks reverse over time and are distinct from the cash interest earnings that drive budget revenue.

Mayor James used the briefing to direct staff to prepare a separate, explicit analysis of the fiscal impact if ad valorem property taxes were eliminated. The mayor said the city needs a worst-case stress test to quantify how such a policy change would affect services and to equip the city—s lobbyists and partners with data. City Administrator Faye Johnson and finance staff agreed to prepare the requested analysis.

Commissioners also discussed statewide proposals that might affect municipal revenue. Staff indicated they would include the recently implemented homestead CPI exemption change in initial estimates and that the first-year impact on city revenue is roughly $240,000, with an expected incremental annual growth figure the staff estimated at about $120,000 per year going forward.

Commissioners praised the finance team for increased transparency and the large uptick in interest earnings, while noting that only a portion of those earnings are discretionary.

Outlook and next steps: staff said they would provide the mayor and commission with the requested property-tax stress test and update the commission as Tallahassee and Washington proposals evolve.