Shutterstock graphic
Palm Desert’s savings and investment accounts are still performing better than average, even as interest rates begin to cool, city finance staff told the Finance Committee on Tuesday.
For the three months ending in December, the city earned about 4% on its investments — higher than what a standard five-year U.S. Treasury investment paid over the same period. That continues a trend from earlier in the year, when returns were even stronger.
What’s changing is the direction of interest rates. After months of high returns, yields began to slowly dip in the fall as market conditions shifted and the Federal Reserve started cutting rates. City staff said that’s expected — and something they’ve been preparing for.
To keep earnings as strong as possible, staff recently moved about $65.5 million between two large government investment pools, shifting money to whichever option was paying better at the time. The city can invest up to $75 million in the state-run Local Agency Investment Fund, and staff said they are keeping a close eye on cash needs to make sure enough money is available to pay bills and fund projects throughout the year.
Most of Palm Desert’s investments are kept in low-risk, easy-to-access accounts designed for cities and public agencies. About two-thirds of the portfolio is in government investment pools, with a smaller share in money market accounts. That approach allows the city to stay flexible while taking advantage of higher interest rates when they’re available.
The committee also reviewed the city’s broader financial picture. Year-to-date revenue is running ahead of last year, though interest earnings are expected to gradually decline as rates continue to soften.
“There’s no crystal ball,” staff said, noting that while the drop in returns isn’t dramatic yet, it’s something they’re watching closely in case budget adjustments are needed later.
Overall, staff described the city’s position as solid — not as strong as it was a few months ago, but still outperforming many comparable investments.