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96-1508 Council File # y � - � s �� Green Sheet # a 5�3 : RESOLUTION ITY SAINT PAUL, MINNESOTA � �, 9 Presented By Referred To Committee: Date i WHEREAS, the financial reporting for securities lending transactions, and the related impact 2 on financing and appropriations budgets for funds that are allocated earnings from these 3 transactions, are affected by the requirements of GASB 28, beginning in 1996; 4 5 WHEREAS, the year-end budgetary adjustments required to reflect this impact can be 6 streamlined by granting authority to the Accounting Division to record those adjustments � without separate council resolution; s 9 WHEREAS, the net effect on the financing and appropriations budgets is not expected to be i o significant, viewing all funds as a whole; ii i 2 BE IT RESOLVED that the Council hereby does grant authority to the Accounting Division to 13 record financing and appropriations budget adjustments to record the effect of actual securities i 4 lending revenues and e�enditures/expenses at year end, without separate council resolution. 1 2 3 4 5 Approval Recommended by Budget Director: , By: ✓y� Y�e`as , Navs Absent Requested by Department of: a e ostrom uersn Finan e Harris e ar e tman une BY �1 Form Approved by City Attorn y Adopted by Council: Date ��__ �� .\0.q(„ c Adoption Certified by Council Secretary gy: � ' /l-Z? - 9 � BY= �' Approved by Mayor for Submissio 0 �� Council Approved by Mayor: Date B �,L�L .��'�O� sy' � ,� 1,�1� y, a- �' _�/ 1'��0'lSCS� v Finance/Accounting 11/22/9b �REEN.SHFET _�° _3�5 8 3 �oE�Hr on�o,op rr'""°"� p cm couHCi� n�m�u�o�e George Splichal 266-8819 �aaN c arroRN�r �CITYCLERK �► ► �� ET DIRECTOR - o F�.8��. 12/18/9 6 0^�" wu►roa con nssisriw [�]��,e.� e,.� #F NATURE P�iE� ` (CLIP ALL LOCATIONS FOR SKiNATUR� �►�raH nECt�srEO: Approval of attached resolution regarding securi�ies lending budget authority. Rl�CCEIYED RECOMMENdAT10Nd:Appicw(A)«R�ot(R) pER80NAL SERVICE CONTRACTS MU:T ANSWER T6lE . _PLAMNMIO OOMAM88ION ,_„�CMt.BERVICE QOt�AA�188WN 1. Haa this psrooMirtn swr worked undsr a c�fbad for tlNa ds�ubnsnt? - _c,s�E _ YES �"o MAYQft'S O�FIC� 2. Hes thit parson/�rm svsr besn e dty smployee,� —�� — YES NO . _DisTR1Cr COUR7 _ 3. Doss this peroonlfirm pa�a aklll rat rrormslh+Dossessed bY anY curteM dh►am�oyM4 BUPPORT8 wMKY1 oall�oeJECnvE? YE3 NO Explaln all yts�n�wn on t�nt��M�t and�tt�ch to qn�n sM�t MIITIATNiO PROlLEIA.188UE�OPP�TUNITY Mnw.Whu�WMn.WMis.MIhY). The Governmen.tal Accounting Standards Board has issued guidance in the recording and reporting of security lending transactions. This is an accounting issue - the pur�gse is Co bring the City into compliance with this pronouncement. �v�a��o: City will be in compliance. DIBADVANTAOE8IF APPROVED: � \j��Ci`� I�.�,..�:�.�t.:o u,,.:�i� None DEC 0 31996 _ _ ._....� Y _ ��: City will not be in compliance. TOTAL AMOUNT OF TRANdACT10N i 50,000 in Ae t revenue CpST/REYENUB BUDGETED(CIRCIE ONE) YES ( NO� FUNDINO iOURCE Interest earnings ACTIVtTY NUMSER FINANCIAL INFORMATION:(EXPLAIN) This has not been budgeted. We now w�ll recognize the total costs and revenue rather than the net revenue. � �1 (�- \ s � �� DEPARTMENT OF FINANCE AND MANAGEMENT SERVICES Manha Larson,Direcwr CITY OF SAINT PAUL 290 Ciry Hall Telephone: 612-266-8�97 Norni Cokman,Mayor 15 W.KeUogg Boutevard Facsimile:612-266-8919 Saint Paul,Minnesota 55102 � To: Council President David Thune Council member 7erry Blakey Council member Dan Bostrom Council member Dino Guerin Council member Mike Harris Council member Bobbi Megard Council member Janice Rettman From: Martha Larson, Director of Finance and Management Services Date: November 22, 1996 j�� ✓ Re: Securities Lending-Financial Reporting and Accounting Treatment What Is Securities Lending? As the Council is aware, the Treasury Division began a program of securities lending in mid- 1995. This is an investment mechanism that allows the City to generate additional investment earnings through a controlled, secure investment program with Norwest Bank. Under this program, the City lends securities held in our investment portfolio to a third parry, through the bank. Our securities are loaned for a stated period (a few days to a few weeks) at a defined interest rate (determined by existing market conditions). Through the bank, the third party collateralizes our securities at 102% of the loaned amount. The City generates revenue from these securities lending transactions, and pays a small fee to the bank for each transaction. In short, this is a very low-risk way for us to enhance our return on the securities we hold in our portfolio. We expect to net about $50,000 to $60,000 annually in additional investment earnings through the securities lending program. How Is Securities Lending Reported in our Financial Statements? In order to report the City's financial statements in confornuty with generally accepted accounting principles (GAAP), the City must follow the provisions set forth in Governmental Accounting Standards Board (GASB) Statement No. 28 "Accounting and Financial Reporting for Securities Lending Transactions." (If anyone would like a copy of this statement, we would be happy to provide you with one.) This statement is effective for 1996, and requires us to change our accounting and financial reporting for these transactions from the method we used for 1995, the first year of the securities lending program. C� � _ �S�� In 1995, only net revenues relating to securities lending transactions were recorded in the City's books. GASB Statement No. 28 requires us to record these revenues and related expenditures/expenses separately(or, gross)in our financial statements. In other words, we can no longer net the securities lending expenditures/expenses against securities lending revenues. Only City funds which participate in the investment portfolio and which are allocated interest revenue from the portfolio during the year will be allocated revenues and expenses from securities lending transactions. However, funds which are subject to arbitrage will be excluded. Financing and Appropriation Budgets are Affected by Securities Lending Each year, financing and appropriation budgets for these funds are established to cover their revenues and expenditures/expenses. However, actual revenue and expenditures/expenses relating to securities lending transactions cannot be reasonably estimated. This is because interest rates-which determine the revenues- can fluctuate substantially during the year. Also, the proportionate share of securities lending earnings allocated to a specific fund can also fluctuate substantially, because the allocation is determined by the fund's cash balance during the year. The appropriate amount of financing and spending budgets for the security lending transactions are therefore not known until after year end. Streamlining Budget Adjustments for Securities Lending To simplify the administration and financial reporting for these lending transactions, the attached resolution grants to the Accounting Division the authority to annually increase the funds' financing and appropriation budgets after year end to reflect the results of the securities lending transactions, as allocated to the funds. This is similar to the authority granted the Accounting Division to a11ow establishment of year-end encumbrances, which are automatically reappropriated in the subsequent year without separate council resolution. The net effect across all funds will be to adjust the financing and appropriation budgets to reflect the estimated securities lending earnings of appro�mately $50,000 - $60,000 (based on our 1996 actual results). If you have any questions about securities lending or the financial reporting and budgetary treatment of these transactions, feel free to contact me, or 7im Snyder or George Splichal in our Accounting Division. CC: Joe Reid Jim Snyder Shirley Davis George Splichal