Memorandum

City of Lawrence

Finance Department

TO:	David L. Corliss, City Manager
FROM:	Becky Jones, Assistant Finance Director
CC:	Debbie Van Saun, Assistant City Manager
Date:	July 11, 2007
RE:	RFP for Investment Advisory Services

Background

On June 4, 2007, during the City Commission budget meeting, the Finance Director discussed the need to hire an investment advisory firm to assist with investing the large amount of bond proceeds the City will be receiving. The Department has prepared the attached Request for Proposal (RFP) from investment advisory firms for portfolio management, strategy development, and investment services for its operating funds, capital project bond proceeds, bond reserves, and debt service fund.  The RFP was developed based upon guidelines provided by the Government Finance Officers Association. The City has recently issued $19 million in revenue bonds and plans to issue an additional $160 million over the next five years. The City currently has $4 million in our debt service reserve account.

Analysis

Governments have a fiduciary responsibility for the funds they manage. Many governments engage investment advisers to assist in managing their investment portfolios in order to enhance returns, manage investment risk, assure continuity of the investment function regardless of staffing changes, and/or assure appropriate internal control over invested funds.

Some state and local governments have augmented their investment programs by retaining investment advisers to perform various portfolio services, ranging from advice-only consultation to fully discretionary management. In many cases, the results of these engagements have been favorable but there have also been cases of reported investment losses resulting from governmental units transacting business with certain investment advisers.

The GFOA has recommended state and local governments considering or retaining independent investment advisers to carefully review the credentials, procedures, and controls of firms offering investment advisory services. Recommended precautionary measures include:

· Delivery versus payment,

· Third-party custody arrangements,

· Prohibitions against self-dealing,

· Independent audits,

· Timely reconciliations and

· Other appropriate internal control measures.

Recommendation

The City’s objectives are to maximize incremental income while preserving the safety of principal from the City’s portfolio. Depending upon how bond proceeds are spent, it may also be necessary to avoid arbitrage penalties. The advisor will be asked to provide operational efficiency and information flow on the portfolio, as well as improve the City’s investment capabilities and ability to match maturities with cash flow requirements. It is recommended that the Finance Department be authorized to advertise the RFP (RO7007) in order to continue the process of hiring an Investment Adviser. 

Reference:

An Introduction to Investment Advisers for State and Local Governments, second edition, Sofia Anastopoulos, GFOA, 2007