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Glendale staff report $311 million portfolio; warn returns likely to slow as Fed cuts approach
Summary
City finance staff told the Glendale City Council at a Oct. 14 workshop the city’s investment portfolio totaled about $311 million on June 30 and produced roughly $10 million in net income last fiscal year, but future returns are likely to fall as the Federal Reserve begins cutting rates.
Glendale finance staff gave the City Council an economic and market update and reviewed the city’s investment portfolio during a Oct. 14 workshop, saying the portfolio totaled about $311 million as of June 30 and produced roughly $10 million in net income in the prior fiscal year.
The presentation said the city’s investment policy is governed by “Arizona revised statute 30 five-three 23,” which limits allowable investments and caps maximum maturities at five years. Eligible instruments named in the presentation included U.S. Treasury obligations, federal agency securities, government-sponsored entities such as Fannie Mae and Freddie Mac, investment-grade corporate bonds, prime commercial paper and interest-bearing accounts or certificates of deposit.
“Safety, liquidity, diversification and yield” were listed as the policy’s objectives. Staff said the city holds two portfolios: a liquidity portfolio with maturities under a year to meet near-term cash needs, and a longer-term core portfolio with maturities out to five years that follows a benchmark managed by an outside firm.
Megan Elgin, the city controller, said the liquidity portfolio was nearly 100% U.S. Treasuries and generated about $5 million in revenue for the year; the longer-duration core portfolio also returned about $5 million, she said. Ash Mehta of PTMA, the city’s investment advisor, said the portfolios benefited from higher interest rates in recent years but that the market is now pricing multiple Federal Reserve cuts, which will reduce reinvestment yields.
“Since June year to date, we’ve seen a significant shift in the rate curve downwards, indicating that more rate cuts are to come,” Mehta said. Mehta told the council the Fed had cut its target rate from 4.5% to 4.25% at the end of September and that market expectations include two more cuts this year and additional moves next year, which would lower short-term yields and reduce future portfolio income.
Council members asked about likely future yields and investment flexibility. Mehta said aggregate portfolio returns had averaged just under 3% recently, but projected future real returns (net of inflation) would be lower. Elgin noted Arizona law constrains the city’s permitted investments and maximum five-year maturity, though investment-grade corporate bonds with terms under five years are permitted.
Council members also asked about fees and trading costs; staff said there are no separate transaction fees like retail brokerage commissions for the portfolio trades described, and that the city earns additional income from an overnight repo account tied to the city’s bill‑payment float.
The presentation included economic context — GDP trends, labor market indicators and the yield curve — used to explain expected interest-rate paths and reinvestment risks. Staff concluded by saying future short-term returns will be materially lower than the recent high-yield years and that the investment program will continue to prioritize safety and liquidity within statutory limits.
City staff did not propose any formal policy changes during the workshop; council discussion focused on clarifying projections, yield expectations and statutory constraints on allowable investments.
