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HomeMy WebLinkAbout1997-09-02; City Council; Resolution 97-5970 0 RESOLUTION NO. 97-597 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, REVISING THE CITY'S INVESTMENT POLICY DATED SEPTEMBER 2,1997 WHEREAS, the City adopted an investment policy on January 2, 1985 as required by Section 53646 of the California Government Code; and WHEREAS, Section 53646(a) of the California Government Code requires the City Treasurer to render annually to the City Council a statement of investment policy; 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, revised September 2, 1997, (Exhibit 2) is hereby adopted and shall become effective immediately. Ill Ill Ill Ill Ill 0 2. That the Council finds that the investment policy, revised September 2, 1997, (Exhibit 2) is in conformance with Sections 53601 and 53635 of the California Government Code. PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council on the 2nd day of Septembey 1997, by the following vote, to wit: AYES: Council Members Lewis, Finnila, Nygaard, Kulchin, an NOES: None ABSENT: None CLAUDE A. LEWIS, Mayor ATTEST: ALETHA L. RAUTENKRANZ, City Clelk (SEAL) W e Exhibit 2 STATEMENT OF INVESTMENT POLICY CITY OF CARLSBAD Submitted by: Jim Stanton, City Treasurer September 2, 1997 a e TABLE OF CONTENTS Introduction ......................................................................................................... 1 Policy .................................................................................................................. 1 Scope .................................................................................................................. 1 Pooled Investments ................................................................................... 1 Investments Held Separately .................................................................... 1 Objectives ........................................................................................................... 2 Safety ........................................................................................................ 2 Liquidity ..................................................................................................... 2 Return on Investment ................................................................................ 2 Duties & Responsibilities ..................................................................................... 2 Prudence ............................................................................................................. 3 Ethics and Conflicts of Interest ........................................................................... 3 Authorized Investments ...................................................................................... 3 Collaterlzatlon 4 Unauthorized Investment / Investment Activity ................................................... 5 Investment Strategy ............................................................................................ 5 Diversification ...................................................................................................... 5 Maximum Maturities ............................................................................................ 5 Selection of Financial Institutions and Brokers ................................................... 6 Purchase, Payment and Delivery ........................................................................ 7 Safekeeping and Custody ................................................................................... 7 Performance Standard for Pooled Investments .................................................. 7 Reporting ............................................................................................................. 7 Short Term Borrowing ......................................................................................... 8 Short Term Loan ....................................................................................... 8 Line of Credit ............................................................................................. 9 Exceptions .......................................................................................................... 8 Internal Control .................................................................................................... 9 Review ................................................................................................................ 9 Investment Policy Adoption ................................................................................. 9 Glossary ............................................................................................................ 11 .. ..................................................................................................... w m CITY OF CARLSBAD STATEMENT OF INVESTMENT POLICY Approved by City Council Sepkmbc: 'I 0, 'I 996 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 disbursements, 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 an acceptable return while conforming to all state statutes and the City's Investment Policy governing the investment of public funds. 3.0 Scope. It is intended that this policy cover the investment activities of all contingency reserves and inactive cash under the direct authority of the City. 3.1 Pooled Investments. Investments for the City and its component units will be made on a pooled basis, including the City of Carlsbad, the Housing authority of the City of Carlsbad, the Parking Authority of the City of Carlsbad, the City of Carlsbad Public Improvement Corporation, the Carlsbad Redevelopment Agency, and the Carlsbad Municipal Water District. The City's Comprehensive Annual Financial Report identifies the fund types involved as follows: General Fund Special Revenue Funds Debt Service Funds Capital Project Funds Enterprise Funds Internal Service Funds Redevelopment Funds Trust Funds 0 Miscellaneous Special Funds Any new funds created by the City Council, unless specifically exempted. 3.2 Investments held separately. Investments of bond proceeds will be held separately when required by the bond indentures or when necessary to meet arbitrage regulations. If allowed by the bond indentures, or if the arbitrage regulations do not apply, investments of bond proceeds will be held as part of the pooled investments. 1 W 0 w 0 6.0 Prudence. Section 53600.3 of the California Government Code identifies as trustees those persons authorized to make investment decisions on behalf of a local agency. As a trustee, the standard of prudence to be used shall be the "prudent investor'' standard and shall be applied in the context of managing the overall portfolio. Investments shall be made with judgment and care--under circumstances then prevailing--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. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk changes or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. 7.0 Ethics and conflicts of interest. All participants in the City's investment process shall seek to act responsibly as custodians of the public trust. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment recommendations and decisions. Investment officials and employees shall make all disclosures appropriate under the Fair Political Practices Act and may seek the advice of the City Attorney and the Fair Political Practices Commission whenever there is a question of personal financial or investment positions that could represent potential conflicts of interest. 8.0 Authorized investments. 8.1 Pooled 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. 8.1.1 Obligations of the U.S. Government, its agencies and instrumentalities. 8.1.2 Bankers Acceptances that are eligible for purchase by the Federal Reserve System. Purchases may not exceed 270 days maturity or 25% of the portfolio. 8.1.3 Time Certificates of Deposit. Deposits should not exceed one year maturity. Deposits will be collateralized as specified in paragraph 9.0 of this Investment Policy. 8.1.4 Negotiable Certificates of Deposit issued by nationally or state- chartered bank. Purchases may not exceed 30% of the portfolio. 3 w 0 8.1.5 Prime Commercial Paper of the highest numerical rating of Moody's Investment Services, Inc. or Standard & Poors Corporation. Further, eligible paper is limited to issuing corporations that are organized and operating within the United States and having total assets in excess of $500 million and having a "AA" or higher rating for other debt of the issuer. Purchases may not exceed 180 days maturity or 15% of the portfolio, and may not represent more than 5% of the outstanding paper of an issuing corporation. 8.1.6 Repurchase Agreements with a maximum maturity of one week. Repurchase Agreements will only be with primary dealers of the Federal Reserve Bank of New York, and who have long-term debt rated in the 'I,%"' or "AA" categories of Moody's Investment Services, Inc. or Standard and Poors Corporation. Investments will be collateralized as specified in paragraph 9.0 of this Investment Policy and may not exceed 5% of the portfolio. 8.1.7 Medium-term Corporate Notes of a maximum of five years until maturity issued by corporations organized and operating within the United States and rated in the "AAA" or "AA" categories of Moody's Investment Services, Inc. and Standard and Poors Corporation. Purchases may not exceed 30% of the portfolio. 8.1.8 Money market funds (whose portfolio consists of one or more of the foregoing legal investments). 8.1.9 Sweep account for the investment of overnight funds when the funds are swept into investments allowed by this policy. 8.1.10 Local Agency Investment Fund (LAIF) of the State of California. Investments will be made in accordance with the laws and regulations governing those Funds. 8.2 Investments held separately. Investments of bond funds will be made in conformance with the trust indenture for each issue. Such investments will be held separately when required. 9.0 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. 4 w a W 0 13.1.1 At least 50% of the portfolio will be invested in instruments maturing within one year from the current date. Of the remaining portion, no more than 25% of the entire portfolio may have a maturity date between 3 and 5 years from the current date. Investments having a maturity greater than 5 years will not be made except as provided in paragraph 13.3 of this Investment Policy. 13.1.2 The average portfolio investment maturity shall be 3 years or less. A dollar-weighted average will be used in computing the average maturity of the portfolio. 13.1.3 Before an investment is made in securities that mature more than 5 years from the current date, the City Treasurer and the Financial Management 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. To further provide for liquidity, investments will be made only in readily marketable securities actively traded in the secondary market. 13.2 Investments :Held Separately. Maturities for investments held separately will conform with the trust indenture for each issue. 14.0 Selection of financial institutions and brokersldealers. Investments shall be purchased only through well established, financially sound institutions. The City Treasurer shall maintain a list of financial institutions and brokeddealers approved for investment. All financial institutions and brokeddealers who desire to become qualified bidders for investment transactions will be given a copy of the City’s Investment Policy, and a return cover letter which must be signed indicating that the investment policy has been read and understood. Qualified financial institutions and brokerldealers must supply the City Treasurer with the following: 14.1 Financial Institutions. 0 Current audited financial statements. 0 Depository contracts, as appropriate. 0 A copy of the latest FDIC call report or the latest FHLBB report, as 0 Proof that commercial banks, savings banks, or savings and loan appropriate. associations are state or federally chartered. In - 6 W 14.2 BrokerlDealers. 0 Current audited financial statements. Proof that brokerage firms are members in good standing of a national 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. 15.0 Purchase, Payment, and Delivery. A competitive bid process, when practical, will be used to place all investment transactions. 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. 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. Delivery of securities will be made to the City in accordance with the third party custodial agreement. 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 monthly 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 Performance standard for pooled investments. Laddered maturities and a buy and hold strategy for pooled investments will cause the investment portfolio to attain a market-average rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. Since at least 50% of the portfolio must mature within I year, the rate of return will be more closely related to, but lag behind, changes in short-term market rates. The rate of return of the investment portfolio will be based on the maturity value of the investments. A dollar-weighted average of yields to maturity will be used in calculating the rate of return of the entire portfolio. 18.0 Reporting. Sections 53607 and 53646 of the California Government Code require reports of investments and transactions to the City Council, City Manager, and internal auditor (or the Finance Director in the absence of an internal auditor). 7 0 0 18.1 Pooled investments. The investment report shall be submitted monthly by the City Treasurer within 30 days following the end of the month covered by the report. The monthly report shall include the following elements: 0 e 0 0 0 0 0 0 e e a 0 0 itemized listing of portfolio investments by type, date of maturity, yield to maturity, and issuer. Par value, dollar amount invested, book value, and current market value as of the date of the report will be given for the total of all securities, investments, and moneys held by the City and its component units. The source of the market values will be cited. Credit ratings of corporate notes Accrued income Weighted average yield of the portfolio Weighted average days to maturity of the portfolio from the date of the report Percent of portfolio maturing within one year Percent of portfolio maturing between one and 3 years Percent of portfolio maturing between 3 years and 5 years Percent that each type of investment represents in the portfolio Investment transactions for the reporting period Fund source of investments when available Statement that the investment portfolio has the ability to meet the City's cash flow demands for the next six (6) months Statement of compliance of the portfolio with the City's Investment Policy. When applicable, any material exceptions will be noted. W 0 10 w 0 GLOSSARY Arbitrage Regulation: law to control the use of profit making by purchasing securities on one market for immediate resale on another in order to profit from a price difference. Bankers Acceptances: investment vehicle created to facilitate international commercial trade transactions. The bank accepts responsibility to repay a loan to the holder of the investment vehicle created in a commercial transaction. The credit worthiness of Bankers Acceptances are enhanced because they are secured by the issuing bank, the goods themselves, and the importer. Bankers Acceptances are sold on a discounted basis. Bond Indenture: written agreement specifying the terms and conditions for issuing bonds, stating the form of the bond being offered for sale, interest to be paid, the maturity date, call provisions and protective covenants, if any, collateral pledged, the repayment schedule, and other terms. It describes the legal obligations of a bond issuer and the powers of the bond trustee, who has the responsibility for ensuring that interest payments are made to registered bond holders. Buy and Hold Strategy: investments in which management has the positive intent and ability to hold each issue until maturity. Collateralization: to secure a debt in part or in full by pledge of collateral, asset pledged as security to ensure payment or performance of an obligation. Commercial Paper: short-term IOU, or unsecured money market obligation, issued by prime rated commercial firms and financial companies, with maturities from 2 days up to 270 days. A promissory note of the issuer used to finance current obligations, and is a negotiable instrument. Delivery Versus Payment: securities industry term indicating payment is due when the buyer has securities in hand or a book entry receipt. Interest-Only Strips: mortgage backed instrument where investor receives only the interest, no principal, from a pool of mortgages. Issues are highly interest rate sensitive. Cash flows vary between interest periods. As well, the maturity date may occur earlier than that stated if all loans within the pool are pre-paid. High prepayments on underlying mortgages can return less to the holder that the dollar amount invested. Inverse Floater: mortgage backed bond, usually part of a collateralized mortgage obligation (CMO) bearing an interest rate that moves in the opposite 11 W m direction of an index, for example, the LIBOR rate. An inverse floater may have a floor and a cap. Laddered Portfolio: bond investment portfolio with securities in each maturity range (e.g. monthly) over a specified period of time (e.9. five years). Leverage: investing with borrowed money with the expectation that the interest earned on the investment will exceed the interest paid on the borrowed money. Local Agency Investment Fund (LAIF): a voluntary investment program offering participating agencies the opportunity to participate in a major portfolio which daily invests hundreds of millions of dollars, using the investment expertise of the State Treasurer’s Office Investment staff at no additional cost to the taxpayer. Investment in LAIF, considered a short term investment, is readily available for cash withdrawal on a daily basis. Negotiable Certificates of Deposit: large denomination ($1 00,000 or more) interest bearing time deposits, paying the holder a fixed amount of interest at maturity. Issues can be sold to a new owner before maturity. Nominee Name: registered owner of a stock or bond if different from the beneficial owner, who acts as holder of record for securities and other assets. Typically, this arrangement is done to facilitate the transfer of securities when it is inconvenient to obtain the signature of the real owner, or the actual owner may not wish to be identified. Nominee ownership simplifies the registration and transfer of securities. Pooled Investment: grouping of resources for the common advantage of the participants. Range Notes: investment whose coupon payment varies (e.9. either 7% or 3%) and is dependent on whether the current benchmark (e.g. 30 year Treasury) falls within a pre-determined range (e.g. between 6.75% and 7.25%). Repurchase Agreement: contract to purchase and subsequently sell securities at a specified date and price Sweep Account: short-term income fund into which all uninvested cash balances from the non-interest bearing checking account are automatically transferred on a daily basis. Third-party Custodian: corporate agent, usually a commercial bank, who, acting as trustee, holds securities under a written agreement for a corporate client and buys and sells securities when instructed. Custody services include 12 W 0 securities safekeeping, and collection of dividends and interest. The bank acts only as a transfer agent and makes no buy-sell recommendations. Time Certificates of Deposit: deposit account paying interest for a fixed term, with the understanding that funds cannot be withdrawn before maturity without giving advance notice. Unrealized Profits (Losses): paper profits (losses) representing the difference between the book value of the securities owned and their current market value. Paper profits (losses) in an investment portfolio are realized when the securities are sold. Zero Accrual Periods: a period of time in which an investment accumulates no interest. 13