ADMINISTRATIVE REPORT Date: June 3, 1997 CC File No.: 1306-5 TO: Vancouver City Council FROM: Director of Finance SUBJECT: New Position - Treasury Analyst RECOMMENDATION THAT a position of Treasury Analyst be created, subject to classification review by the Director of Human Resources, at an estimated cost of $70,000, with funding from the Operating Budget. GENERAL MANAGER'S COMMENTS The General Manager of Corporate Services RECOMMENDS approval of the foregoing. COUNCIL POLICY The Vancouver City Charter sets out the City s authorities to borrow by means of promissory notes, overdraft, and debentures. The Charter also sets out the permitted investments for cash of the Sinking Fund, proceeds of debenture issues, and other cash not immediately required. The authority to invest surplus cash and borrow for a short term is delegated to the Director of Finance, with periodic reports to Council on the exercise of that authority. It is Council policy that increases in expenditures related to the addition of new programs or staffing should be offset by matching expenditure reductions or revenue increases. PURPOSE This report proposes the creation of a Treasury Analyst position in Financial Services Department to provide improved management of City financial resources, with the expectation of improved earnings, lower borrowing costs, and less exposure to interest rate risk. BACKGROUND The management of the City s financial resources and financial liabilities is a major activity of the Director of Finance Office, with significant financial consequences. At any one time, the City has funds invested in temporary investments in the money market with totals ranging from a low of $150 million (typically in January) to a high of $750 million (after the Main tax billing). Annual earnings from short term investments of the City s cash pool, for 1996, was $20 million. Further, the City borrows, through long term debentures, to finance that portion of the City s capital program not funded by other sources. Those borrowings total about $75 million per year. DISCUSSION The management of a Treasury Operation involves a number of key activities, including: 1. Cash forecasting - identifying the cash needs for the City, on a daily basis, and identifying cash surpluses which are available for investment 2. Short term investments - investing surplus cash in financial instruments, in accordance with the City Charter. 3. Interest rate management - develop strategies and implement actions which maximize interest earnings while mitigating against interest rate fluctuations. 4. Credit risk - develop and implement policies and strategies to prevent financial loss due to default of creditors. 5. Liquidity risk - develop strategies to prevent financial loss due to the need to liquidate investments to meet cash flow, while maximizing earnings and ensuring flexibility to trade investments. 6. Borrowing Decisions -develop forecasts and evaluate strategies with regards to borrowing decisions, including timing, and structure and term of debt. The foregoing activities require a significant amount of analysis, monitoring of financial markets, and maintaining personal contacts with financial institutions. To date, this has been done by the Director or Deputy Director, but due to the demands of other priorities, has precluded the investment of sufficient time to attend adequately to these Treasury functions. While it would be desirable to delegate some of these activities to other staff, recruitment efforts over the past two years has demonstrated that these skills and abilities are not often linked to other skills utilized in Finance, except when high rates of compensation are offered. After considerable consideration, we have concluded that the best staffing model would involve hiring a treasury analyst who would assist the Director in the management of the Treasury function (investing/borrowing), and who would undertake the detailed research and analysis and computer modelling in that regard to support the financial management decisions of the Director. Funding The cost for hiring a treasury analyst will be about $70,000. Recognizing that the City earns in the order of $20 million per year in short term investments, and expends significantly larger amounts for borrowing through debentures, the revenue impacts of marginally improved financial decisions would easily cover the additional salary costs for this position. * * * * *