10.20.26 Meeting Summary and Claycord's Misleading Reporting on Clayton's Investments

Much of our discussion at our Tuesday meeting was regarding the investment reports, and providing context to a misleading article that appeared on Claycord.  Claycord's October 20 article about the City of Clayton's investments is a textbook example of how technically accurate facts can be assembled into a deeply misleading story. The article emphasizes investment policy violations, a $142,000 realized loss, and missing quarterly reports. What it fails to explain is why those events occurred, and what the City's investment decisions actually accomplished.

This information was not hidden from the public. The Council's investment strategy was discussed in open meetings, with supporting materials published in advance. A review of that public record would have produced a substantially different story. Instead, Claycord chose an alarming headline and a narrative of apparent financial mismanagement, without providing readers the information necessary to evaluate either.

Claycord Missed the Most Important Story: The Council Deliberately Improved Investment Returns

In May 2023, the City Council recognized that its investment portfolio was not taking advantage of the prevailing interest rate environment.  At the time, the portfolio was yielding approximately 1.88%, with a substantial concentration in certificates of deposit (CDs), many purchased when interest rates were considerably lower. Meanwhile, market interest rates had increased significantly, creating opportunities to earn substantially more on safe, highly liquid investments.

The Council understood this disparity and deliberately revised its investment policy on May 2, 2023. The new policy reduced allowable CD concentration to 30% and supported greater investment in U.S. Treasury securities. Our objective was to take advantage of higher available yields while maintaining safety and liquidity.  By September 30, 2026, the portfolio's estimated weighted-average stated interest rate had increased to approximately 3.8%, based on the investment schedule reviewed at the October 20 Council meeting.

That is approximately double the original rate.

For a city managing approximately $12 million in investments, that improvement is financially significant. Yet Claycord's article provides no meaningful discussion of the original portfolio's low yield, the Council's rationale for changing the investment policy, or the subsequent improvement.  In fact, adopting the stricter policy itself created the principal compliance exception highlighted in the article.

The Policy Exceptions Were Not a Newly Discovered Problem

Claycord reports that the City exceeded its 30% CD concentration limit for five consecutive quarters. That is accurate, but the article omits the circumstances that created the condition.  When we adopted the stricter policy in May 2023, we knew the existing portfolio exceeded the new CD limit.  The concentration exceptions were therefore an anticipated consequence of changing the policy, not evidence that the Council was unaware of its investments.

The City subsequently brought the portfolio into compliance with its measurable investment limits beginning March 31, 2025. The report also identifies other exceptions, including two CDs purchased after the policy change with terms exceeding the permitted limit. Those are separate issues that warrant follow-up.  A responsible article would have distinguished the expected transition from those additional exceptions. Claycord did not.

The $142,000 Loss Was Not an Unexplained Investment Failure

Claycord prominently features a $142,222 realized investment loss in early 2025 but provides virtually no explanation of the underlying investment decision. On February 4, 2025, the Council publicly considered and approved transitioning to professional investment management through UBS.

The agenda packet explained that the City's existing portfolio was not capturing available investment opportunities. Some CDs were earning less than 1%, while substantially higher yields were available on U.S. Treasury securities. Selling those investments before maturity involved a cost. The financial rationale was that reinvesting the proceeds at higher rates was expected to generate enough additional income over time to justify that cost.

The realized loss was associated with that deliberate portfolio repositioning. It was not an unexpected speculative trading loss. Whether the decision ultimately produced a positive financial return should be evaluated by comparing the cost of exiting the CDs with the additional income generated by replacement investments.

Claycord did none of that analysis. It presented the loss as an alarming standalone figure, despite the public record explaining the City's investment strategy. That is not meaningful financial analysis. It is selective reporting.

Claycord Left Out the Context and Publicly Available Investment Statements

The article also highlights nearly three years of missing quarterly investment reports. That reporting requirement was not met, and it should have been. There is no reason to minimize that deficiency. But Claycord again leaves out important context.

The Council was aware of the backlog. Preparing these reports was a labor-intensive process requiring staff to manually compile detailed investment information. With limited staff and competing priorities, the Council directed that underlying investment statements be made available on the City's website.

Staff continued reviewing investment information, and the underlying statements remained publicly available. The absence of the formal reports did not mean the investments were unmonitored.

The City has also substantially improved its reporting process. Staff now use AI-assisted tools to complete work that previously took days or weeks in hours or less, while retaining responsibility for reviewing and validating the results. Posting statements did not fulfill the formal reporting requirement. But that is a very different situation from the impression of secrecy or financial neglect created by the article.

The Actual Financial Results Were Substantial

The same October 20 report cited by Claycord shows that, over ten complete quarters, the City generated:

• $1.13 million in gross investment income.
• $947,000 in net investment earnings after management fees and realized losses.
• Sufficient projected resources to cover six months of anticipated expenditures throughout the period.

Claycord briefly mentions these results but gives them almost no meaningful analysis.

It is difficult to understand the City's financial management without examining its investment performance, the purpose of the policy changes, or the economic rationale for repositioning the portfolio. A $142,000 realized loss makes for an alarming headline. Explaining the investment decisions behind it takes a little more effort, or journalism.

The Council deliberately revised its investment policy in May 2023 to take advantage of higher market interest rates. The portfolio's estimated stated interest rate subsequently increased from approximately 1.88% to 3.8%. We publicly discussed our investment strategy, approved professional management in February 2025, and brought the portfolio into compliance. We also improved the reporting process to address the administrative burden on our small staff.

The missing context was readily available through public Council meetings and published agenda materials.  Claycord did not need special access or an extensive investigation to find it. It simply needed to examine the decisions behind the numbers rather than select the numbers that made for the most alarming headline.

Upcoming Meeting 10.26.26 and Townhall Q&A 10.24.26

At our next meeting, we will be having a few items in our Recognitions and Presentations section, including the presentation of funds to the Parent Faculty Clubs for MDE and DVMS, as well as our Do the Right Thing recognition as well as a presentation by County Supervisor Carlson.

I'd also like to announce that I will be hosting a Townhall Q&A at 3pm on Saturday, October 24 at 3pm in Hoyer Hall adjacent to the library.

Measure M and The Math of Economic Development

It is no secret that Clayton has financial challenges ahead.  I have written about it here and here.  Our City Manager has written about it in his newsletter on multiple occasions.  I also wrote about it in the September issue of the Diablo Gazette (page 4).  And the entire City Council voted to place two tax measures on the ballot this November, Measure M which is a 1% sales tax, and Measure N which is the renewal of the Landscape Maintenance District.  Both are critical to the financial stability of the City.

Some have said that Measure M, the 1% sales tax that is on the ballot in Clayton this November is only a band-aid and that the better approach is economic development. That sounds interesting at a surface level, but it belies an ignorance of the actual math involved.  Clayton does not receive the entire sales tax collected by a business. In California, a local jurisdiction generally receives approximately 1% of taxable sales, not the 8, 9, or 10% collected at the register.  The rest goes to other sources, primarily the state regional bodies.  

Measure M would add a 1% local transactions and use tax and is projected to yield $1M in additional revenue to the City of Clayton. This is because the added 1% would be dedicated to Clayton and come back 100% to the City unlike the rest of sales tax collected.

That means that to just match approximately $1 million of annual Measure M revenue through ordinary retail economic development, Clayton would need roughly $100 million in additional taxable sales every single year. Not $100 million in property value. Not $100 million in construction. Not $100 million in “economic activity.” Roughly $100 million in taxable sales, every year.

What does $100 million actually look like?  A few examples to illustrate.

Walmart U.S. generated $483 billion in sales last year across 4,611 stores. That works out to roughly $105 million per store. So, as a simple scale comparison, replacing $1 million of City revenue through new taxable retail sales is roughly equivalent to adding the annual sales volume of an entire Walmart. Home Depot generated $164.7 billion in sales across 2,359 stores, or roughly $70 million per store. One average Home Depot would not even get you to $100 million.

How about restaurants?

Chipotle currently reports average restaurant sales of about $3.1 million per location. At that level, it would take roughly 32 Chipotles worth of annual sales to reach $100 million. That's a lot of burritos.

How about auto sales?

A CarMax-sized operation gives a good sense of the scale. CarMax generates roughly $100 million in annual revenue per location on average. That is approximately the level of annual taxable sales Clayton would need to generate about $1 million in local sales tax. But think about what an operation of that scale actually requires: a very large commercial site, extensive parking and vehicle storage, significant traffic, and regional draw. That is not something that fits into a storefront downtown. It would require a major commercial parcel and a level of development Clayton simply does not have sitting vacant and ready to absorb.  And that assumes that Clayton is a desireable location for this type of business.

How about a hotel?

A hotel is another useful example. Assume an average room rate of $250 per night and a 10% hotel tax. The City would receive $25 per occupied night. To generate $1 million per year, the hotel would need 40,000 paid nights annually, or about 110 rooms occupied every single night of the year. That is not a small inn or boutique hotel. It is a substantial lodging operation with a large building footprint, parking, staffing, and an assumed steady year-round demand.

How about a data center?

Santa Clara reports that recently developed data centers typically generate about $200,000 to $400,000 per year in property tax for its General Fund. At that level, Clayton would need roughly three to five data centers to generate $1 million annually. These are massive industrial facilities, often hundreds of thousands of square feet, requiring large parcels and major utility infrastructure. Where exactly would Clayton put three to five of them?  I'm not aware of big tech wanting to locate data centers in Clayton.

Economic development can absolutely help Clayton. More restaurants, shops, and services would be good for the community and would add revenue incrementally. But simply saying economic development is the answer is not a financial plan. The scale required to match $1 million of recurring revenue is enormous, which raises a basic question: has anyone making that argument actually done the math?

And for those seeking leadership positions in this City, seeking to make decisions about an $8 million budget, understanding the difference between “economic development sounds good” and “here is how much revenue it actually produces” should be a pretty basic expectation.

Measure M is not a substitute for economic development. It addresses a different problem: Clayton has a recurring structural deficit that incremental business growth is not realistically going to close at the scale or speed required. Measure M is projected to generate approximately $1 million annually in locally controlled revenue, enough to materially address that recurring gap and put the City on a more sustainable financial footing for decades.

Upcoming Meeting 10.6.26

At our next meeting, the agenda is light, however we will be receiving a presentation from Save Mt. Diablo as an update to their ongoing work in the area.

If you have thoughts or questions on the above, please let me know.

My Endorsement of Kim Trupiano for Clayton City Council

As I prepare to conclude my service on the Clayton City Council, I am proud to endorse the reelection of Kim Trupiano for City Council.  Kim demonstrates qualities that matter in local government: experience, sound judgment, and a genuine commitment to the people of Clayton.

I have had the opportunity to serve alongside Kim and see firsthand how she approaches the job. She is one of the hardest-working Councilmembers I have ever seen.  Kim does her homework, asks questions, follows issues through, and does not give up when a problem is difficult. She is tenacious in addressing resident concerns and consistently keeps the people of Clayton at the forefront of her decision-making.

We have worked together on some of the City's most difficult issues, including the Housing Element, the Geological Hazard Abatement District, the library refresh, and the City's response to the Civil Grand Jury report.  What stands out most is her persistence. Kim does not simply identify a problem and move on. She stays with it, pushes for answers, and works to get it resolved. That work ethic, combined with her experience and commitment to residents, has earned my trust and my vote.

Clayton needs Councilmembers who have the necessary experience to guide policy making decisions, will do the work, ask hard questions, and listen to residents.  I have seen Kim do that firsthand and that is why I am proud to endorse Kim Trupiano for Clayton City Council.

My 9.15.26 Meeting Summary

Last night, the Council discussed one signficant item - restructuring of a loan to Diamond Terrace.

The Council approved an amendment to the City’s loan with Diamond Terrace to support the continued financial stability of an 86-unit senior housing development, including 81 income-restricted units, while improving the City’s ability to recover the full outstanding loan balance. The amendment replaces a large near term balloon payment with annual payments through 2040.  In addition, the loan amendment eliminates a provision in the original agreement that would have forgiven $500,000 of principal and the end of the loan term.

Quantitatively, the City will receive the full principal ($2.2266 million) currently owed, rather than forgiving $500,000 under the original agreement. The new schedule provides $150,000 annually through 2039 and a final $126,600 payment in 2040. Qualitatively, the restructuring reduces the risk that a large repayment requirement could create financial distress for the property, while helping preserve affordable senior housing in Clayton. The original loan was itself part of the City’s affordable housing program, and City records confirm that Diamond Terrace has historically been financed through non-interest-bearing redevelopment housing loans.

Upcoming Meeting 9.15.26

At our next meeting, we will be discussing one signficant item:

- We will consider a proposed amendment to the City’s loan with Diamond Terrace, an affordable senior housing development. The amendment would restructure the remaining $2.23 million balance by eliminating the 2030 balloon payment and extending repayment through 2040, while preserving the City’s security interest and requiring full repayment of principal.

If you have any thoughts on the above, please let me know.