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HomeMy WebLinkAbout1985-09-10; City Council; 8009-1; Revised Investment Policy & Credit Liner ADOPTION OF A REVISED INVESTMENT POLICY AND APPROVAL OF A CREDIT RECOMMENDED ACTION: Adopt Resolution No. 8/ 7p approving the City's revised Investment Policy and approve the concept, implementation and maintenance of a line of credit with the City's bank. ITEM EXPLANATION: Section 53646 of the Government Code requires that the Treasurer "annually render to the legislative body of the Local Agency a statement of investment policy." The attached Statement of Investment Policy is a revision of the City's investment policy as approved by the Council on January 2, 1985. This revision reflects the recommendations of the Deloitte, Haskins and Sells Cash Management Study Report of April 17, 1985. This revision also includes in Paragraph IV H an authorization to maintain a credit line with the City's bank. The credit line would be used only on rare occasions when the City's accounts are temporarily overdrawn for very short periods of time. FISCAL IMPACT: Except for minor interest charges when a credit line is used, there is no direct fiscal impact. However, this policy plays an important part in the safeguarding of the City's investment portfolio. EXHIBITS: Resolution No.P/78. adopting a revised City Investment Policy. I 1 2 3 4 5 6 7 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 8178 I -- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA REVISING THE CITY'S INVESTMENT POLICY AND AUTHORIZING THE CITY TREASURER TO IMPLEMENT A LINE OF CREDIT WITH ----A LOCAL AGENCY BANKING INSTITUTION-FOR THE PURPOSE OF COVERING TEMPORARY CASH FLOW SHORTAGES. WHEREAS, the City adopted an investment policy on January 2, 1985, as required by Section 53646 of the Government Code, and WHEREAS, the City Council may from time to time revise this policy as may be necessary to provide proper guidance to city staff and the City Treasurer, and WHEREAS, the City Treasurer has reviewed the existing investment policy and has recommended minor modifications which improve the City's ability to manage inactive funds, and NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. The attached investment policy (Exhibit' A) is hereby adopted and shall become effective immediately. 2. That the City Treasurer is hereby authorized to pursue an agreement with the City's bank to provide a line of credit not to exceed $1,000,000 which may be used to cover temporary cash flow irregularities. used for advances of longer than ten calendar days at any one This line of credit shall not be time and shall be limited to the amount necessary to cover cash flow shortages. //I /I/ /I/ I// 2. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1E 19 2c 21 22 22 24 25 2€ 23 28 - - -- PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the 10th day of September , 1985, by the following vote, to --_-- wit: AYES : Council Wmbers Casler, LRwis, Kulchin, Chick and Petthe NOES: Nore ABSENT: s/. GiL-cLL/ MARY H.L/CASLER, Mayor ATTEST : -- CITY OF CARLSBAD STATEMENT OF INVESTMENT POLICY I. 11. Section 53646(a) of the California Goverment Code requires the Treasurer or Chief Fiscal Officer to render anmally to the legislative body of the local agency a statement of investment policy. The statement of investment policy set forth herein is a revision of the City of Carlsbad's Investment Policy as approved by the Carlsbad City Council on January 2, 1985. It provides policy guidance for the investment of all City fmds not required for the immediate day-to-day operation of the City. BACKGROUND A. B. C. 0. OBJECTIVE - The primary investment objective is the prudent utilization of surplus cash and idle or inactive City fmds to generate a reasonable rate of return with an understanding and recognition of the associated risks involved. The City shall strive to maintain the level of investment of all idle fmds as close to one hundred percent as possible through daily and projected cash flow determinations and forecasts as made available by the City's Director of Finance. RESPONSIBILITY - The management of idle cash and the investment of City funds are the responsibility of the City Treasurer as directed by the City Council. responsibility by the Goverrment Code of the State of California specifying legal investments, by the prudent man rule and by the provisions of this policy. The Treasurer will also be guided in this OELEGATION OF RESPONSIBILITY - In the absence of the City Treasurer, the Deputy City Treasurer will assume the Treasurer's duties ad r es pons ib il i ties. LEGAL INVESTEZNTS PERMITTED UNDER STATE LAW - The City Treasurer may invest Citv funds in the followinq instruments as specified in the Goverrment-Code, Section 53601 a2 as further limited in this policy. 6 Obligations of the U.S. Goverment, its agencies and i ns tr ument al it ies . 8 Registered state warrants or treasury notes or bods of the State of California. 8 Bonds, notes or warrants of any local agency within the State of California. -- 0 Time Certificates of Deposit and negotiable Certificates of Deposit offered by commercial banks and savings and loan institutions. Negotiable Certificates of Deposit are limited to 30% of the portfolio. -- .---- 6 Prime bankers acceptances with the following limitations: a. FIust be eligible for purchase by the Federal Reserve System. b. May not exceed 270 days maturity or 25% of the City's portfolio. c. No more than 10% of the City's portfolio may be invested in the bankers acceptances of any one canmercial bank. 6 Prime Commercial Paper of the highest numerical rating of Moody's Investment Services, Inc., or Standard & Poors Corporation. Canmercial paper may not exceed 30% of the total portfolio or 180 days maturity, 6 Repurchase Agreements. Q Reverse Repurchase Agreements. 6 Money market fmds whose portfolio consists of one or more of the foregoing legal investments. The City may also invest idle funds in the State of California Local Agency Investment Fund in accordance with the laws and regulations governing such investments. 111. INVESTENT PHILOSOPHY A. MSIC PREMISE - The basic premise underlying the City's investment philosophy is to insure that sufficient funds are available to meet the obligations of the City when needed. City is one that seeks aggressive management of inactive cash balances, yet emphasizes the safety, liquidity, and security of the i nves tme nt ins tr ume nt s . The investment policy of the 6. KCEPTABLE RISK - Acceptable risk, as it relates to this investment policy, is defined as that risk which a person is permitted to take in the investment of the City's funds under the terms and intent of the Prudent Man Rule which states, in essence, that "in investing . .. property for the benefit of another, a trustee shall exercise the judgment and care under the circumstances then prevailing, which men of prudence, discretion and intelligence, exercise in the management of their own affairs.'' -2 - -- C. PREFERENCES - When two or more investment opportunities offer essentially the same maturity, yield, quality and liquidity, priority will be given first to the financial institutions based in the City of Carlsbad, and second to other financial institutions in the State of cmrrfa.- -7 0. ETHICS - All participants in the City's investment process shall seek to act responsibily as custodians of the public trust. The City Treasurer shall avoid any transaction that might impair public confidence in the City's ability to govern effectively. IV. POLICY STATEMENT A. INVESTMENT LIMITS - To insure that invested fmds are always available when needed, the City will maintain a position of investing TW) greater than 33% of the investment portfolio in instruments maturing more than one year from the date of investment. in readily marketable securities, actively traded in the secondary market. The maximum maturity for any investment will not exceed five years. with any one financial institution. If a decline in the portfolio results in more than 10% of the total being invested with one institution, the funds necessary to reduce the investment to 10% will be removed upon maturity or when no loss would occur. Investments will be made only No more than 10% of the investment portfolio will be placed 8. INVESTMENT CRITERIA - The criteria for selecting investments, by order of priority, shall be: 1. Safety. It is the Treasurer's primary duty and responsibility to protect, preserve and maintain intact cash and investments placed in trust with the Treasurer on behalf of the citizens of the community. 2. Liquidity. An adequate percentage of the portfolio should be maintained in liquid short-term securities Hhich can be converted to cash if necessary to meet disbursement requirements. 3. Yield. Yield becomes a consideration onLy after the basic - requirements of safety and liquidity have been met. The City shall attempt t~ obtain the highest available yielding investment provided that the criteria for safety and liquidity are first met. Section 53637 of the Governnent Code reqires money to be deposited in any depositary selected from these banks and savings and loan associations agreeing to pay the hiqhest rate of interest. The City seeks to attain market rates of return on its investments consistent with constraints imposed by safety, cash flow considerations, and state laws that restrict the placement of public funds. -3 - -- U.S. Goverment and Aqency obligations are the highest quality investments available to the City in terms of investment safety and liquidity. --- C. INSURED INVESTMENTS - Investments in commercial bank and savings and loan insitution time certificates of deposit shall be fully insured up to $100,000 by the Federal Deposit Insurance Corporation and the Federal Savings & Loan Insurance Corporation respectively. 0. OLLATERALIZATION - Investments in certificates of deposit in excess of $100 ,000 shall be properly collateralized. 53649 specifies that the City Treasurer is responsible for entering into deposit contracts with each depository. Government Code requires that the depository pledge securities with a market value of at least 10% in excess of the City's deposit as collateral in goverment securities and fifty percent in excess of the deposit as collateral in mortgage pools. Governnent Code Section Section 53652 of the E. ACTIVE AND PASSIVE TRADING - Active and passive trading of securities is authorized. Active trading is the buying and selling of securities in the market in an effort to take advantage of short term profits and advantageous arbitrage situations. Passive trading is the purchase of securities and their retention until they mature. Active trading can result in occasional loss of principal and should be engaged in only when there appears to be a clear advantage at the outset. SELECTION OF FINANCIAL INSTITUTIONS - Investments shall be purchased only through well established, financially sound institutions. All securities held for safe keeping shall be registered in the City's name. The City shall maintain a list of financial institutions approved for investment. Commercial banks and savings and loan associations must be State or Federally chartered and must maintain a minimum net worth to asset ratio of three percent. They must also have a positive net earnings for the last reporting period. Commercial banks must have on file in the Treasurer's Office a current FDIC call report and savings and loans must have on file in the Treasurer's Office the latest monthly FHLBB ceport. Brokerage firms must be members in good standing of a national securities exchange. F. G. SHORT.-TERM BORROWING - The City is permitted by law to borrow money to meet current short-term cash flow needs during periods hen projected cash disbursements exceed projected cash receipts through the use of tax exempt instruments such as revenue anticipation notes and tax anticipation notes. of the cash deficit plus projected cash disbursements for one month. These funds may be borrowed at the beginning of the fiscal year and repaid at the end of the year. The mount nfiich can be borrowed equals the total -4 - . ! ..I H. LINE OF CREDIT - The effort to maintain idle fmds 100% invested at all times can result in the City's cash accounts being temporarily overdrawn fran time to time. To quard aqainst this, the City is au#cd&Ao maintain a line of credit with the City'% bank in a sufficient mount to cover sums temporarily overdrawn. V. REPORTING AND REVIEW A. BEPORTS - The Treasurer shall annually render to the City Council a mnt of Investment Policy. The Treasurer shall also submit to the City Council a monthly report showing type of investment, institution, maturity date, amount of deposit, current market value of all securities with a maturity of more than twelve months, and rate of interest. This report will show its relationship to the statement of investment policy. €3. REVIEW - This policy and the strategy for and conduct of the investment of City funds will be reviewed by an investment review committee as set forth below and by the City's auditors in the corduct of their annual audit of the City. C. INVESTMENT REVIEW COMMITTEE - An Investment Review Committee is hereby established to conduct Deriodic reviews of the Citv's investment 2- portfolio, the strategy'being utilized for the invkstment of City funds, and the City's investment policy. This Committee will be composed of the City Treasurer, the Deputy City Treasurer and the City Finance Director. The Committee will be convened periodically as necessary or desireable but not less often than quarterly. -5- P