HomeMy WebLinkAbout1986-08-05; City Council; 8009-2; Adoption of a Revised Investment Policy4B# 8oo?;bBQ3_ TITLE
MTG. 8/5/86 ADOPTION OF A REVISED INVESTMENT
POLICY IEPT. TRS
RECOMMENDED ACTION:
CITY MGR.-~
Adopt Resolution No. r7.2 7 approving the City's revised Investment Policy.
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. Investment Policy is a revision of the City's Investment Policy as
approved by Council on January 2, 1985, and revised on
September 10 1985. This revision includes in Paragraph IV( A),
authorization to delete the maximum investment maturity of five
years and sets maturity guidelines for specific proportions of the
portfolio. This increased flexibility will allow the Treasurer to
take advantage of higher investment returns while maintaining
prudent levels of risk.
The attached Statement of
This revision also includes in Paragraph V(C) "financial advisor" to the Investment Review Committee.
the addition of a
Fiscal Impact:
There is no direct fiscal impact.
important part in the safeguarding of the City's investment
portfolio.
However, this policy plays an
Exhibits :
Resolution No. g747adopting a revised City Investment Policy.
I
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
RESOLUTION NO. 8777
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
INVESTMENT POLICY.
OF' CARLSBAD, CALIFORNIA REVISING THE CITY'S
WHEREAS, the City adopted an investment policy on January 2,
1985, and revised on September 10, 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:
The attached investment policy (Exhibit A) is hereby adopted
and shall become effective immediately.
PASSED, APPROVED AND ADOPTED at a regular meeting of the
City Council of the City of Carlsbad, California, held on the 5th day
of August , 1986, by the following vote, to wit:
AYES: Council Members Casler, Lewis, Chick and Pettine
NOES: None
ABSENT: Council Member Kulchin
-LI
MARY H. CASLER JMayor
ATTEST:
(SEAL)
.-
I.
I I.
CITY OF CARLSBAD
STATEMENT OF INVESTMENT POLICY
INTRODUCTION
Section 53646(a) of the California Goverment Code requires the Treasurer or Chief Fiscal Officer to reder annually to the legislative body of the
local aqency a statement of investment policy. The statement of
imestment policy set forth herein is a revision of the City of Carlsbad's
Investment Policy as approved by the Carlsbad City Council on 3aruary 2,
1985, and as revised on September 10, 1985. It provides policy guidance
for the investment of all City flnds not required for the immediate day-
to-day operation of the City.
BACKGROUND
A. 083ECTIVE - The primary investment objective is the prudent .
utllizatfon of surplus cash and idle or inactive City fmds to
generate a reasondle 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
hmdred percent as possible through daily and projected cash flow
determinations and forecasts as made available by the City's Director
of Finance.
' B. RESPONSIBILITY - The management of idle cash and the investment of
City flnds are the responsibility of the City Treasurer as directed by the City Council. The Treasurer will also be guided in this
responsibility by the Governnent Code of the State of California
specifying legal investments, by the prudent man rule and by the
provisions of this policy.
C. DELEGATION OF RESPONSIBILITY - In the absence of the City Treasurer,
the Deputy City Treasurer will assume the Treasurer's duties and r espo nsibili ties .
D. LEGAL INVESTMENTS PERMITTED UNDER STATE LAW - The City Treasurer may
invest City flnds in the following instruments as specified in the
Goverrment Code, Section 53601 and as further limited in this policy.
8 Obligations Qf the U.S. Goverrment, its agencies and
i ns trume nt al i ties.
8 Registered state warrants or treasury notes or bonds of the State
of California.
8 Bonds, notes or warrants of any local agency within the State of
Cali fo r ni a.
8 Time Certificates of Deposit and negotiable Certificates of Deposit
offered by canmercial banks and savings and loan institutions.
Negotiable'Certificates of Deposit are limited to 3U% of the
portfolio.
Q Prime bankers acceptances with the following limitations:
a. Must be eligible for purchase by the Federal Reserve System,
b. May not exceed 270 days maturity or 25% of the City's
PO rt fo lio .
c. No more'than 10% of the City's portfolio may be invested in the
bankers acceptances of any one canmercial bank.
8 Prime Commercial Paper of the highest numerical rating of #oody's
Investment Services, Inc., or Standard & Poors Corporation.
Commercial paper may not exceed 30% of the total portfolio or 180
days maturity.
8 Repurchase Agreements.
8 Reverse Repurchase Agreements.
0 Money market funds 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.
I 11. INVESTMENT PHILOSOPHY
A. BASIC PREMISE - The basic premise underlying the City's investment
philosophy is to insure that sufficient funds are available to meet
the obliqations 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
investment instruments.
The investment policy of the
8. ACCEPTABLE RISK - Acceptable risk, as it relates to this investment
policy, is defined as that risk which a person is permitted to tdte in
the investment of the City's funds under the terns 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 .'I
-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
Cali fo r ni a.
D. ETHICS - All participants in the City's investment process shall seek
to act responsibly 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 Treasurer will maintain the following policy on
i nves tme nt ma tur it ies :
-
1. At least 67% of the portfolio will be irrvested in instruments with
maturities of less than one year fran the current date.
2. No more than 23% of the portfolio may be invested in instruments maturing between one and ten years fran the current date.
3. No more than 10% of the portfolio may be invested in instruments
maturing more than ten years fran the current date.
The City Treasurer shall maintain an average portfolio investment
maturity of 3 years or less. If the average maturity exceeds 3
years at any time, the Treasurer shall tdte steps to reduce the
average maturity to three years within 90 days frm' such time.
4.
Investments will be made only in readily marketable securities,
actively traded in the secondary market. No more than 10% of the
investment portfolio will be placed with any one financial
institution. If a decline in the portfolio results in more than 10%
of the total being invested with one instituthn, the fmds necessary to reduce the investment to 10% will be removed upon maturity or when
no loss would occur.
8. INVESTMENT CRITERIA - The criteria for selecting investments, by order
of priority, shall be:
1. Safety. It 1s the Treasurer's primary duty and responsibility to protect, preserve and maintain intcct cash and investments placed in trust with the Treasurer on behalf of the citizens of the canmunity.
2. Liquidity. An adequate percentage of the portfolio should be
maintained in liquid short-term securities which can be converted to cash if necessary to meet disbursement requirements.
-3-
3. Yield. Yield becanes a consideration only after the basic
rrements of safety and liquidity have been met. The City
shall attempt to obtain the highest available yielding investment
prwided that the criteria for safety and liquidity are first
met.
Section 53637 of the Goverrment Code reqires money to be deposited in
any depository selected fran these banks and savings and loan
associathns agreeing to pay the highest 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.
U.S. Goverrment and Agency obligations are the highest quality
investments available to the City in terms of investment safety and
liquidity.
C. INSURED INVESTMENTS - Investments in canmercial bank and savings and
loan insitution time certificates of deposit shall be fully insured UD
to $100,000 by the Federal Deposit Insurance Corporation ak the
Federal Savings & Loan Insurance Corporation respectively.
D. COLLATERALIZATION - 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. Section 53652 of the
Goverrment 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 goverrment securities and fifty percent in excess of the
deposit as collateral in mortgage pools.
Goverrment Code Section
E. ACTIVE AND PASSIVE TRADING - Active and passive trading of securities
is mthorized. Active trading is the buying and selling of securities
in the market in an effort to tdte advantage of sbrt ten 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 eqaged in only
when there appears to be a clear advantage at the outset.
F. !ELECTION 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
nane. The City shall maintain a list of financial institutions
apprwed 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. Total regulatory
net worth divided by total assets equals the net worth to asset ratio.
They must also have a positive net earnings for the last reporting
- 4-
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 MLBB report.
firms must be members in good standing of a national securities
exch arge
Brokerage
G. SHORT-TERM BORROWING - The City is permitted by law to borrow money to
meet current short-term cash flow needs during periods when projected
casti disbursements exceed projected cash receipts through the use of
tax exempt instruments such as reverue anticipation notes and ts<
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 ad
repaid at the end of the year.
The amount which can be borrowed equals the total
H. LINE OF CREDIT - The effort to maintain idle funds 100% invested at
all times can result in the City's cash accounts being tanporarily
overdrawn frm time to time. To guard against this, the City is
authorized to maintain a line of credit with the City's bank in a
sufficient mount to cover sums temporarily overdrawn.
V. REPORTING AND REVIEW
A. REPORTS - The Treasurer shall annually rerder to the City Council a
The Treasurer shaL1 also submit to Snt of Investment Policy.
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, ad rate of
interest.
investment policy.
This report will show its relationship to the statement of
B. REVIEW - This policy and the strategy for and conduct of the
ient of City ftnds will be reviewed by an investment review
canmittee as set forth below and by the City's auditors in the conduct
of their annual audit of the City.
C. INVESTMENT REVIEW COMMITTEE - An Investment Review Canmittee is hereby
established to conduct periodic reviews of the City's investment
portfolio, the strategy being utilized for the investment of City
funds, ad the City's investment policy. This Canmittee will be
canposed of the City Treasurer, the Deputy City Treasurer and the City
Finance Director-as voting members. Additionally, a financial
advisor, prwided by a recognized auditing firm may be included as an
advisor without a vote. The Committee will be corwened periodically
as necessary or desireable but not less often than quarterly.
- 5-
7