HomeMy WebLinkAbout1989-11-07; City Council; 10324; Adoption of a Revised Investment Policy\B# 39q
MTG..llN/89
3EPT.A
RECOMMENDED ACTION:
TITLE:
ADOPTION OF A REVISED INVESTME
Adopt Resolution No. 87-395 approving the City's revised investment pol icy.
ITEM EXPLANATION:
On January 2, 1985, the City Council adopted the City's first investment policy. This policy has been revised by Council action on several occasions to conform to changes in the State of California code governing the conduct of the investment of public funds.
Additional changes have been approved by the Council to insure that the policy reflects the latest recommendations of the Investment Review .Committee.
The action before the City Council makes several minor typographical and grammatical changes, and three minor procedural changes as follows:
1. On page 5, under F - Selection of Financial Institution, the second sentence "All securities held for safe keeping shall be registered in the City's name" has been deleted. The experience of the City Treasurer has been that not all securities can be registered in the City's name and in many cases registration in the City's name does not enhance the security of the instrument held in safekeeping.
2. On page 6, under A - Reoorts, the first sentence has been changed to read, "The Treasurer shall annually review the Statement of Investment Policy and report to €he City Council." This change is recommended to clarify the City Treasurer's responsibility under the Investment Pol icy. The recommended wording simply clarifies the City Treasurer's responsibility to review the Policy prior to reporting to the City Council.
3. On page 6, under C - Investment Review Committee, the next to last sentence has been changed to read, "Additionally, an outside financial advisor may be included as an advisor without a vote." The current wording requires that the financial advisor that serves on the Investment Review Committee be a member of a recognized auditing firm. Limiting the membership to accountants or CPAs, or members of auditing firms, excludes a large number of qualified individuals who may serve in the role of financial advisor to institutions, banks or government who may not be affiliated with auditing firms. The recommended change will allow the City Treasurer to utilize an advisor who may best suit the City's needs.
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.
Page Two of Agenda Bill No. I",, 32v
EXHI BITS :
1. Resolution No.w*3qsdopting a revised City investment policy.
2. Revised City Investment Policy.
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RESOLUTION NO. 89-375
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, REVISING THE CITY'S
INVESTMENT POLICY.
WHEREAS, the City adopted an investment policy on January 2, 1985,
and revised on March 28, 1989, as required by Section 53646 of the
Government Code, and
WHEREAS, the City Council ma] 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 Council finds that the investment policy (Exhibit A) is
in conformance with Sections 53601 and 53635 of the Government Code.
PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council
of the City of Carlsbad, California, held on the 7th day of November ,
1989, by the following vote, to wit:
AYES: Council Members Lewis, Kulchin, Pettine, Mamaux and Larson
NOES: None
ABSENT: None
ATTEST:
L4dLZ64 / ALETHA L. RAUTENKkANZ, City Cler
(SEAL)
&LJL DE A. L IS, Mayor
EXHIBIT A
RevisedSeptember 26, 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 March 28, 1989. 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 1 imitations: -
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 obligations 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.
B.
C.
D.
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.
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 a i rs . I'
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 California.
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. - INV ava fol
1.
2.
3.
STMENT LIMITS - To insure that invested funds are always lable when needed, the City Treasurer will maintain the owing policy on investment maturities.
At least 67% of the portfolio will be invested in instruments with maturities of less than one year from the current date.
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.
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 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.
4. Any investment in securities with maturities greater than
The City Treasurer first consult with and receive the approval of the Finance Director for such investment.
five years will require that:
a)
b) The City Treasurer and Finance Director review the City’s long term cash flow needs prior to making such investments.
B. 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 which can be converted to cash if necessary to meet disbursement requ i remen t s .
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 those banks and savings and loan assoclations 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 ic 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.
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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 Corporat i on and the Federal Savings 8. Loan Insurance Corporation respectively.
D. COLLATERALIZATION - Investments in certificates of deposit in excess of $100,000 shall be properly collateralized. 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. 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.
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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.
V. REPORTING AND REVIEW
A. REPORTS - The Treasurer shall annually review the Statement of Investment Policy and report to the City Council. 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.
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, an outside financial advisor may be included as an advisor without a vote. The Committee will be convened periodically as necessary or desirable but not less often than quarterly.
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