HomeMy WebLinkAbout1991-04-02; City Council; 11092; ADOPTION OF A REVISED INVESTMENT POLICYCImOF CARLSBAD - AGENWBILL 2
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MTG. 4/2/91
DEPT. TRS
CITY A ADOPTION OF A REVISED INVESTMENT POLICY
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RECOMMENDED ACTION:
Adopt Resolution No. 4 I -@/ approving the City's revised investment policy.
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 incorporate
changes in the State of California code governing the conduct of the investment
of public funds, and recommendations of the Investment Review Committee.
The action before the City Council makes several changes to the present policy I as shown below:
1. Revise the requirement for investment of funds in instruments with a
maturitv of one year or less. The present policy requires that 2/3 of the
investment portfolio be placed in short term instruments (with a maturity
of 1 year or less)- The recommended renslon would require the Cky
Treasure to maintain at least 1/2 of the portfolio in these short term
instruments. The effect of this change is to allow greater flexibility when
selecting investment options while still providing a reasonable level of
liquidity.
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Revise the limitation on lonzer term, investments. The current policy
allows the Treasurer to invest up to 33% of the portfolio in investments
with a term greater than one year, with no more than 10% of the portfolio
invested longer than ten years,. The proposed revision would allow the
Treasurer to invest up to 25% of the portfolio in instruments with
maturities of up to three years. It would further limit the purchase of
investments with maturities of up to five years to 25% of the total portfolio.
Investments of five to ten years could be made on an exception basis (up
to 10% of the portfolio) with consultation with the Finance Director. Any
investment in the five to ten year period will be counted as part of the 25%
limit on investments with maturities of up to five years.
3. Revise the limitation on investment in Corporate Notes. The present policy
allows the Treasurer to invest up to 15% of the portfolio in Corporate Notes
rated in the top three rating categories (AAA, AA, A). The proposed policy
would allow the investment of up to 30% of the portfolio in Corporate
Notes (as allowed by state law) but would limit the quality of these
investments to the top two rating categories (AAA, AA). Improved market
conditions may, however, warrant a return to the top three rating categories
in the future.
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Page Two of Agenda Bill No. i I, 072
The effect of these revisions will be to provide a wider field of investment options
while maintaining prudent liquidity and safety margins. The Treasurer will be
able to take advantage of slightly higher yields on a portion of the portfolio
previously limited to the lower rate, short term instruments.
The action before the Council will adopt the recommended policy which will
become effective immediately.
FISCAL IMPACT:
This policy plays an important part in safeguarding the City's investment
portfolio. The actions recommended revise some of the parameters within which
City investments may be made. Depending upon specific investment decisions,
these revisions could either have no fiscal impact or increase by approximately
$160,000 the annual income of the City's investment portfolio. Limiting the use
of long term maturities would guard against market conditions that could
materially affect the value of long term securities. Allowing an additional 15%
of the portfolio to be in corporate notes, but limiting all such investments only
to the top two rating categories, would allow higher yields within prudent safety
margins. The policy would continue to require that the goals of safety and
liquidity receive the primary focus. The policy is consistent with sound treasury
management principles and the California Government Code.
EXHIBITS:
1. Resolution No. 4 I -to 1 adopting a revised City investment policy.
2. Revised City Investment Policy.
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RESOLUTION NO. 9 1 - 1 n 1
A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF CARLSBAD, CALIFORNIA,
REVISING THE CITYS INVESTMENT POLICY
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 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.
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2) That the Council finds that the investment policy (Exhibit A) is in
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6 7 1991, by the following vote, to wit:
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 2nd day of April
7 AYES: Council Members Lewis, Kulchin, Larson, Nygaard and
Stanton
8 I/ NOES: None
9 11 ABSENT: None
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ChUDE A. LEkS, Mayor
(SF&)
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CITY OF CARLSBAD
STATEMENT OF INVESTMENT POLICY
Revised March 12, 1991
1.0 Introduction. The purpose of this document is to identify various policies and
procedures that enhance opportunities for a prudent and systematic investment policy and
to organize and formalize investment-related activities. Related activities which comprise
good cash management include accurate cash projections, the expeditious collection of
revenue, the control of disbursments, cost-effective banking relations, and arranging for a
short-term borrowing program which coordinates working capital requirements and
investment opportunities.
2.0 Policy. It is the policy of the City of Carlsbad to invest public funds not required for
immediate day-to-day operations in safe and liquid investments having the highest possible
return while conforming to all state statutes governing the investment of public funds.
3.0 Scope. It is intended that this policy cover the investment activities of all surplus
cash and idle or inactive funds under the direct authority of the City. These funds are
accounted for in the City's Comprehensive Annual Financial Report and include:
3.1 General Fund
3.2 Special Revenue Funds
3.3 Debt Service Funds
3.4 Capital Project Funds
3.6 Internal Service Funds
3.7 Any new funds created by the City Council, unless specifically exempted.
3S Enterprise Funds
4.0 Objectives. The City Treasurer shall strive to maintain the level of investment of all
idle funds as close to 100% as possible. The primary objectives, in order of priority, of the
City's investment activities shall be:
4.1 Safety. Safety of principal is the foremost objective of the investment program.
Investments of the City shall be undertaken in a manner that seek to ensure
preservation of capital in the overall portfolio.
4.2 Liquidity. The City's investment portfolio will remain sufficiently liquid to
enable the ,City to meet all operating requirements which might be reasonably
anticipated.
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4.3 Return on investment. Investment return becomes a consideration only after the
basic requirements of safety and liquidity have been met. The City shall attempt to
obtain the highest available return provided that the requirements of safety and
liquidity are first met.
5.0 prudence. The standard of prudence to be used shall be the "prudent person"
standard and shall be applied in the context of managing the overall portfolio. Investments
shall be made with judgement and care -- under circumstances then prevaiIing -- which
persons of prudence, discretion, and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the probable safety of their
capital as well as the probable income to be derived.
6.0 Duties and Responsibilites. The management of idle cash and the investment of
City funds are the responsibility of the City Treasurer as directed by the City Council. In
the endeavor to have all idle cash invested all the time, the City Finance Director will assist
the City Treasurer in the gathering of information to create cash flow estimates. The City
Treasurer may designate a Deputy City Treasurer, who in the absence of the City Treasurer,
will assume the City Treasurer's duties and responsibilities.
No person may engage in an investment transaction covered by the terms of this policy
unless directed by the City Treasurer. The City Treasurer shall be responsible for all
transactions undertaken under the terms of this policy.
7.0 Ethics and conflicts of interest. All participants in the City's investment process shall
appropriate the Deputy City Treasurer, shall avoid any transaction that might impair public
confidence in the City's ability to govern effectively.
8.0 Authorized investments. The City Treasurer may invest City funds in the following
instruments as specified in the California Government Code, Section 53601, and as further
limited in this policy.
seek to act responsibly as custodians of the public trust, The City Treasurer, or when
8.1 Obligations of the U.S. Government, its agencies and instrumentalities.
8.2 Bankers Acceptances that are eligible for purchase by the Federal Reserve
System. Purchases may not exceed 270 days maturity or 25% of the
portfolio.
8.3 Time Certificates of Deposit. Deposits should not exceed one year maturity. Deposits will be collateralized as specified in paragraph 12.0 of this
Investment Policy.
8.4 Negotiable Certificates of Deposit issued by nationally or state-chartered
bank. Purchases may not exceed 30% of the portfolio.
8.5 Prime Commercial Paper of the highest numerical rating of Moody's
Investment Services, Inc. or Standard & Poors Corporation. Purchases may
not exceed 180 days maturity or 15% of the portfolio.
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8.6 Repurchase Agreements with a maximum maturity of one week. Repurchase
agreements will only be with banks and primary dealers who have long-term
debt rated in one of the top 2 categories of Moody's Investment Services, Inc. or Standard and Poors Corporation. Investments will be collateralized as
specified in paragraph 12.0 of this Investment Policy and may not exceed
10% of the portfolio.
8.7 Money market funds whose portfolio consists of one or more of the foregoing
legal investments.
8.8 Medium-term Corporate Notes issued by corporations operating within the
United States and rated in the top two rating categories by two of the three
largest rating services. Purchases may not exceed 30% of the portfolio.
8.9 No Load Mutual Funds investing in the securities and obligations of the
foregoing legal investments. Purchases may not exceed 15% of the portfolio.
8.10 Local Agency Investment Fund (LAIF) of the State of California. Investments
will be made in accordance with the laws and regulations governing those Funds.
9.0 Diversification. The portfolio will be diversified to avoid incurring unreasonable and
avoidable risks regarding specific security types or individual financial institutions. In
addition to the limitations on specific security types indicated in paragraph 8.0 of this
Investment Policy, no more than 10% of the City's portfolio will be placed with any single
financial institution.
10.0 Selection of financial institutions and brokers. Investments shall be purchased only
through well established, financially sound institutions. The City Treasurer shall maintain
a list of financial institutions and brokers approved for investment. All financial
institutions and brokers who desire to become qualified bidders for investment transactions
will be given a copy of the City's Investment Policy, and in turn must supply the City
Treasurer with the following:
10.1 Current audited financial statements.
10.2 Depository contracts, as appropriate.
10.3 A copy of the latest FDIC call report or the latest FHLBB report, as
10.4 Proof that commercial banks, savings banks, or savings and loan associations
10.5 Proof that brokerage firms are members in good standing of a national
appropriate.
are state or federally chartered.
securities exchange.
Commercial banks, savings banks, and savings and loan associations must maintain a
minimum net worth to asset ratio of 3% (total regulatory net worth divided by total
assets), and must have had a positive net earnings for the last reporting period.
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When two or more investment opportunities offer essentially the same maturity, liquidity,
yield, and quality, 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.
11.0. purchase and Payment. A competitive bid process, when practical, will be used to
place all investment purchases. Purchases on margin will not be made. Payment for
securities will be done on a Delivery Versus Payment (DVP) basis via the City's custodian.
12.0 Collateralization. Investments in time certificates of deposit shall be fully insured
up to $100,000 by the Federal Deposit Insurance Corporation or the Federal Savings & Loan Insurance Corporation, as appropriate. Investments in time certificates of deposit in
excess of $100,000 shall be properly collateralized. Section 53652 of the California
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 50%
in excess of the deposit as collateral in mortgage pools. Section 53649 of the California
Government Code specifies that the City Treasurer is responsible for entering into deposit
contracts with each depository.
Investments in repurchase agreements must also be collateralized. In order to anticipate
market changes and provide a level of security for all funds, the collateralization level will
be 102% of market value of principal and accrued interest.
13.0 Maximu~n maturities. To the extent possible, the City Treasurer will attempt to
match investments with anticipated cash requirements. Unless matched to a specific cash
flow, the City Treasurer will maintain the following policy on investment maturities.
13.1 At least 50% of the portfolio will be invested in instruments maturing within
one year from the current date. An additional 25% of the portfolio may have
maturities extending to 3 years from the current date, and the remaining
25% may have matdties extending to 5 years from the current. Investments
having a maturity greater than 5 years will not be made except as provided
in paragraph 11.3 of this Investment Policy.
13.2 The average portfolio investment maturity shall be 3 years or less. If the
average maturity exceeds 3 years at any time, the City Treasurer shall take
steps to reduce the average maturity to 3 years within 90 days from such
time. A dollar-weighted average will be used in computing the average
maturity of the portfolio.
13.3 Before an investment is made in securities that mature more than 5 years
from the current date, the City Treasurer and the Finance Director will
review the City's long term cash needs. Both must concur before such an
investment is made. Investments beyond 5 years will not be greater than
10% of the portfolio, and will be counted in the percentage of the portfolio that may mature beyond 3 years. No investments will be made that mature beyond 10 years from the current date.
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To further provide for liquidity, investments will be made only in readily marketable
securities actively traded in the secondary market.
14.0 Performance standard. The investment portfolio shall be designed to attain a
market-average rate of return throughout budgetary and economic cycles, taking into
account the City's risk constraints, the cash flow characteristics of the portfolio, and state
and local laws, ordinances or resolutions that restrict investments. Given these
requirements, the basis used by the City Treasurer to determine whether market yields are
it existed 3 months prior. A dollar-weighted average will be used in calculating the rate
of return of the City's portfolio.
15.0 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.
16.0 Safekeeping and custody. All security transactions, including collateral for
repurchase agreements, entered into by the City shall be conducted on a delivery-vs.-
payment basis. All securities owned by the City will be held by a third-party custodian
designated by the City Treasurer and evidenced by a statement from the custodian. All
securities will be held in the nominee name of the custodian.
Collateral for time deposits in savings and loans will be held by the Federal Home Loan
Bank or an approved Agent of Depository. Collateral for time deposits in banks will be
held in the City's name in the bank's Trust Department or in the Federal Reserve Bank.
17.0 Reporting. California Government Code 53646 requires that a monthly investment
report be made to the City Council. The following elements will be included in the
monthly report.
being achieved shall be the rate of return of the Local Agency Investment Fund (MF) as
17.1 Type of investment
17.2 Institution
17.3 Date of maturity
17.4 Amount of deposit or cost of the security
17.5 Current market value of securities with a maturity in excess of 12 months
17.6 Yield to maturity
17.8 Weighted average days to maturity of the portfolio from the current date
17.9 Percent of portfolio maturing within one year
17.10 Percent of portfolio maturing between one and 3 years
17.11 Percent of portfolio maturing between 3 years and 5 years
17.12 Percent that each type of investment represents in the portfolio
17.7 Weighted average yield of the portfolio
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18.0 Short-term borrowing. The City is permitted by law to borrow money to meet
current short-term cash flow needs. These needs may arise either because projected cash
disbursements exceed projected cash receipts, or because the City's cash accounts may be
temporarily overdrawn due to the efforts to invest 100% of idle funds at all times. To
actions: provide for these contingencies the City Treasurer is authorized to take the following
18.1 Short-term loan. When there is a shortfall between projected cash revenues
and projected cash disbursements, the City Treasurer will secure a loan in the
amount that would equal the cash deficit plus projected cash disbursements for one
month. Any such loan will be repaid within one year.
18.2 Line of credit. The City Treasurer will maintain a line of credit with the City's
bank in an amount to cover sums temporarily overdrawn because of efforts to invest
all idle funds at all times.
19.0 Internal control. 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.
20.0 Review. An Investment Review Committee is hereby established to conduct reviews
of the City's investment portfolio, the strategy being utilized 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 Financial Management 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 no less
frequently than once each quarter.
21.0 Investment policy adoption. Section 53646(a) of the California Government Code
requires the City Treasurer or Chief Fiscal Officer to render annually to the legislative body
of the local agency a statement of investment policy. The City's investment policy shall be
adopted by resolution of the City Council. The policy shall be reviewed on an annual basis
by the Investment Review Committee and any modifications made thereto must be
approved by the City Council.
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