HomeMy WebLinkAbout1989-03-14; City Council; 9915; Adoption of a Revised Investment PolicyCLT OF CARLSBAD - AGEN -1 BILL 35
RECOMMENDED ACTION:
Adopt Resolution No. fq-77 approving the City’s revised investment pol icy.
ITEM EXPLANATION:
On January 2, 1985, the City Council adopted the City’s first investment policy. The purpose of this policy was to provide the City with a plan for investment of funds that would minimize the City’s risk and allow an adequate yield while allowing the City Treasurer some flexibility in the choice of instruments and maturities. This policy is to be returned to the City Council annually for review and revision as may be necessary to continue to safeguard the City‘s cash assets.
Recent changes in state law require that the City Council evaluate the existing policy and determine the extent to which the power to invest in long term AB 4089, adopted by the legislature during 1988, reserves the specific authority to approve long term investments (with maturities of five years or greater) for the City Council.
)instruments shall be delegated to the City Treasurer.
Sections 53601 and 53635 of the Government Code (recently amended by AB 4089) state that the City Treasurer may not invest in securities with a maturity of greater than five Years without the express approval of the legislative body. The existing investment pol icy places controls on the Treasurer’s ability to invest in long term securities by limiting the percentage of the portfolio which may be invested in long term securities. The Treasurer must maintain an average life for all investments of three Years or less. These limitations were included in the original policy to limit the City’s exposure to long term investments and market deviations.
The new Government code requirements do not mandate that the Council change its policy. However, they do demand that the Council take a specific action to delegate the authority to make long term investments if it is not retained by the Council.
The action before the Council adopts the existing policy allowing the Treasurer to make investments in securities with a term longer than five years and makes specific findings that the policy is in conformance with Sections 53601 and 53635 of the Government Code. No change in investment procedures or in the requirement to maintain a portfolio with an average life of three years or less will result from this action.
The recommended change in the investment policy is shown on Page 4 of the policy in italics.
FISCAL IMPACT:
There is no direct fiscal impact. However, this policy plays an important part in the safeguarding of the City’s investment portfolio. The goal in limiting the use of long term maturities is to guard against market conditions which can materially affect the value of long term securities.
EXHIBITS :
Resolution No. f!*77 adopting a revised City investment policy.
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RESOLUTION NO. 89-77
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, REVISING THE CITY’S INVESTMENT POLICY.
anuary 2, 1985,
the Government
Treasurer, and
Carlsbad, California, as follows:
shall become effective immediately,
1989, by the following vote, to wit:
AYES:
NOES:
ABSENT:
ATTEST :
ALETHA L. RAUTENKRANZ, City Clerk
(SEAL)
Revised February 7, 1989
CITY OF CARLSBAD
STATEMENT OF INVESTMENT POLICY
I. INTRODUCTION
Section 53646(a) of the California Government Code requires the Treasurer or Chief Fiscal Officer to render annually 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, and as revised on May 5, 1987. It provides policy guidance for the investment of all City funds not required for the immediate day-to-day operation of the City.
11. BACKGROUND
A. OBJECTIVE - The primary investment objective is the prudent utilization of surplus cash and idle or inactive City funds 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 funds 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.
B. 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. The Treasurer will also be guided in this responsibility by the Government 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 responsibilities.
D. LEGAL INVESTMENTS PERMITTED UNDER STATE LAW - The City Treasurer may invest City funds in the following instruments as specified in the Government Code, Section 53601 and as further limited in this policy.
- Obligations of the U.S. Government, its agencies and instrumentalities.
- Registered state warrants or treasury notes or bonds of the State of Cal i forni a.
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- Bonds, notes or warrants of any local agency within the State of California.
- Time Certificates of Deposits and Negotiable Certificates of Deposit offered by commercial banks, savings and loan institutions and state and federal credit unions. Negotiable Certificates of Deposit are limited to 30% of the portfolio.
- Prime bankers acceptance 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 portfolio.
c. No more than 10% of the City’s portfolio may be invested in the bankers acceptances of any one commercial bank.
- Prime Commercial Paper of the highest numerical rating of Moody’s Investment Services, Inc., or Standard & Poors Corporation. Commercial paper may not exceed 30% of the total portfolio or 180 days maturity.
- Repurchase Agreements.
- Reverse Repurchase Agreements.
- Money market funds whose portfolio consists of one or more
of the foregoing legal investments.
- Mortgage Securities purchased under Repurchase Agreements. May not exceed 95% of fair market value and 25% of eligible funds.
- Medium-Term Corporate Notes of U.S. companies with a maximum maturity of five years and rated in the top three rating categories by two of the three largest rating services. Purchases limited to 15% of eligible funds.
- No Load Mutual Funds investing in the securities and ob1 igations of the foregoing legal investments. Purchases limited to 15% of the eligible funds.
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.
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111. 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 obligations of the City when needed. The investment policy of the City is one that seeks aggressive management of inactive cash balances, yet emphasizes the safety, liquidity and security of the investment instruments.
B. ACCEPTABLE 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 judgement and care under the circumstances then prevailing, which men of prudence, discretion and intelligence, exercise in the management of their own af f ai rs . 'I
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 their financial institutions in the State of California.
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 funds are always available when needed, the City Treasurer will maintain the following policy on investment maturities.
1. At least 67% of the portfolio will be invested in instruments with maturities of less than one year from the current date.
2. No more than 33% of the portfolio may be invested in instruments maturing one year or more from the current date, with no more than 10% of the portfolio invested in maturities beyond ten years from the current date.
3. 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 take steps to reduce the average maturity to three years within 90 days from such time.
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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 institutions. 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.
The City Council has expressly granted the authority to make investments within the above policy to the City Treasurer, and has found this policy to be consistent with the government code (Sect ions 56360 and 56335).
B. INVESTMENT CRITERIA - The criteria for selecting investments, by order of priority, shall be:
1. Safetv. 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 which 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 to obtain the highest available yielding investment provided that the criteria for safety and liquidity are first met.
Section 53637 of the Government Code requires money to be deposited in any depository selected from these banks and savings and loan associations 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 pub1 i c funds.
U.S. Government and Agency ob1 igations are the highest quality investments available to the City in terms of investment safety and 1 iquidity.
C. INSURED INVESTMENTS - Investments in commercial bank and savings and loan institution 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.
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D. COLLARTERALIZATION - Investments in certificates of deposit in excess of $100,000 shall be properly collateral ized. Government Code Section 53649 specifies that the City Treasurer is responsible for entering into deposit contracts with each depository. Section 53652 of the 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 government securities and fifty percent in excess of the deposit as coll ateral in mortgage pool s.
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.
F. 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. 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 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 report. Brokerage firms must be members in good standing of a national securities exchange.
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 cash disbursements exceed projected cash receipts through the use of tax exempt instruments such as revenue anticipation notes and tax anticipation notes. The amount which can be borrowed equals the total 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.
H. LINE OF CREDIT - The effort to maintain idle funds 100% invested at all times can result in the City’s cash accounts being temporarily overdrawn from 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 amount to cover sums temporarily overdrawn.
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V. REPORTING AND REVIEW
A. REPORTS - The Treasurer shall annually render to the City Council a Statement 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 pol icy.
B. 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 conduct of their annual audit of the City.
C. INVESTMENT REVIEW COMMITTEE - An Investment Review Committee is hereby established to conduct periodic reviews of the City‘s investment portfolio, the strategy being uti1 ized for the investment 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 as voting members. Additionally, a financial advisor, provided by a recognized auditing firm may be included as an advisor without a vote. The Committee wi 11 be convened periodically as necessary or desirable but not less often than quarterly.
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