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Rio Rancho advisory board keeps reserves, declines transfer to permanent fund after portfolio review
Summary
At a May meeting, the City of Rio Rancho Investment Advisory Board reviewed its permanent fund portfolio and voted to recommend against transferring any excess general-fund revenue into the permanent fund this year, citing conservative projections for the next five years and reserve targets.
The City of Rio Rancho Investment Advisory Board met virtually in May to review the permanent fund portfolio and unanimously recommended against transferring any excess general-fund revenue into the permanent fund this year.
The recommendation followed a market and portfolio review presented by Mallory of PFM Asset Management and a detailed portfolio briefing by Diane (portfolio manager, GPA). Director Carol Jaramillo explained staff’s five-year general fund forecast and asked the board for a recommendation to the governing body. After discussion, Member McCray moved that the board not transfer any money into the permanent fund; the motion was seconded and passed on a roll-call vote (Chair Wainwright — yes; Member McCray — yes; Member Jablonski — yes; Member Billups — yes).
Board members heard that the permanent fund’s total market value was approximately $13.8 million as of March and that the fund is managed to a 60/40 asset allocation. Mallory said domestic equity weakened in the quarter because of heavy declines among the largest growth stocks — referred to in the presentation as the “magnificent seven” — while international equities were a bright spot. Diane summarized the portfolio posture, saying, “I am sleeping very well with our portfolios because it's all about having strategy and discipline, and then you can ride through volatility.”
Why it matters: the board’s recommendation affects the general fund beginning balance and the city’s ability to maintain its reserve target. Director Carol Jaramillo told the board staff’s five-year plan projects reserve levels close to the city’s 25% target and that removing excess revenue to place into the permanent fund would lower beginning balances and the projected reserve percentages in later years. Jaramillo stated the city’s approach is “optimistic, but cautiously so,” and that staff expects reserves to remain near the policy target under the current plan.
Details from presentations and discussion
- Market and portfolio: Presenters said the fund returned 6.13% over the prior 12 months and about 11.69% since the portfolio’s January 1, 2023 inception date (figures presented on the board’s performance report). Year-to-date performance was slightly negative, driven mainly by domestic-equity losses in March. International equities were noted as outperforming in the quarter, aided by a weaker U.S. dollar. The presenters also discussed Federal Reserve rate expectations and how those influence short- and long-term yields and portfolio positioning.
- Portfolio posture and compliance: The portfolio is managed to a 60/40 target allocation. As of the March report the manager reported modest portfolio drift and an overweight to U.S. Treasuries within policy limits; the manager said the portfolio’s weighted average effective duration remains well within the board’s maximum. The presenters noted recent activity in bond proceeds investing (a bond-proceeds investing round completed on May 8–9 was described) and reported a book yield in the low-4% range on the total portfolio.
- Reserves and five-year plan: Director Carol Jaramillo presented the general fund five-year plan that projects reserve percentages near the board’s 25% target over the planning horizon. Jaramillo said the FY 2025 beginning reserve balance is about $28.3 million; staff asked the board to consider whether to recommend any additional transfers to the permanent fund, noting that transfers would reduce the general fund beginning balance and thus lower projected reserves in out years.
- Prior additions and policy: Board members recalled a prior one-time addition from a cell-tower lease (about $1 million) that was added midyear in an earlier fiscal year. The board also confirmed its ongoing practice of recommending distributions from permanent fund earnings (50% distribution policy was referenced) at the appropriate time per the city’s governing ordinance(s).
Decision and next steps
Member McCray moved that the board recommend transferring no funds into the permanent fund this year. The motion passed by roll call (4–0). Director Jaramillo will take the board’s recommendation to the governing body as staff requested. Presenters and staff said they will continue monitoring markets and report back; the next permanent fund review will include incorporation of recently approved investment-policy updates and account-level changes that staff expects to show in the next periodic report.
Quotes attributed in meeting
- Mallory, PFM Asset Management (presentation): “I will provide a brief market update, then we'll go over performance of the portfolio.”
- Diane (portfolio manager): “I am sleeping very well with our portfolios because it's all about having strategy and discipline, and then you can ride through volatility.”
- Director Carol Jaramillo (city staff): staff asked the board to recommend against adding excess revenue this year, explaining that removing excess revenue would reduce beginning fund balances and lower projected reserves in subsequent years.
Taper: With the recommendation made, the board completed its agenda and adjourned; Director Jaramillo will forward the board’s recommendation to the governing body for consideration during final budget actions.
