HomeMy WebLinkAbout15 REVIEW/ADOPT INV POL 01-06-09Agenda Item 15
- -~ . Reviewed:
/ \ 1`~`j~l ~l ~1-1 ~~0~~ City Manager
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Finance Director
MEETING DATE: JANUARY 6, 2009
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: G. W. JEFFRIES, CITY TREASURER
SUBJECT: ANNUAL REVIEW AND ADOPTION OF THE INVESTMENT POLICY
SUMMARY:
The California Government Code, as amended, requires that Cities annually adopt their
Investment Policy. This legislative action was in response to the Orange County bankruptcy.
It requires the elected body and the Treasurer to review the existing Investment Policy at least
annually and confirm its content at a public meeting and annually delegate authority to invest.
RECOMMENDATION:
1. Adopt the City of Tustin Investment Policy for calendar year 2009 with changes as
recommended by the City Treasurer.
2. Continue delegation of the Investment Policy to G. W. Jeffries and Associates.
DISCUSSION:
Minor changes were proposed in various letter subparagraphs to avoid having to change them from
year to year, instead making one inclusive statement in accordance with the California Government
Code 53601, et seq.
A new paragraph was added to the "Selling Securities Prior to Maturity" section that will allow the
Treasurer to sell securities during volatile markets when they will produce a profit from the sale and
permit the repurchase at a level no worse than the original purchase.
This recommendation has been discussed with the City's Audit Commission and it has been given
its approval.
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Attachment
InvestmentPolicy2009StaffReport. doc
Finance Department
DRAFT
CITY OF TUSTIN
STATEMENT OF INVESTMENT POLICY
I. GENERAL
PURPOSE
TUSTIN
This statement is intended to provide guidelines for the investment of the City's
temporary idle cash, and to outline the policies for maximizing the efficiency of the City's
Cash Management System. The ultimate goal is to enhance the economic status of the
City while protecting its pooled cash. It is the intent of the City Council that all deposit
and investment activities authorized by this policy shall be at the sole discretion of the
City Treasurer as to selection and appropriateness.
SCOPE
It is intended that this policy cover all funds and investment activities under the direct
authority of the City.
OBJECTIVE
The City's Cash Management System is designed to monitor and forecast expenditures
and revenues, thus enabling the City to invest funds to the fullest extent possible. The
City investments meet the criteria established for safety and availability. The investment
portfolio will be diversified to avoid incurring unreasonable risks regarding specific
security types or individual financial institutions.
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300 Centennial Way, Tustin, CA 02780 • P: (714) 573-3060 • F: (714) 832-0825 • www.luslinca.~>r;;
BUILDING OUR FUTURE
HONORING OUR PAST
POLICY
The City of Tustin operates its temporary pooled idle cash investments under the
prudent man rule (Civil Code Sec. 2261; et seq. and Government Code Section
53600.3). The prudent man rule 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...." This affords the City a broad
spectrum of investment opportunities so long as the investment is deemed prudent and
allowable under current legislation of the State of California (Government Code Section
53600 et seq.) and the guidelines established by the following prioritized criteria for
selecting investments:
1. Safety. It is the primary duty and responsibility of the City, City Council, City
Treasurer and Director of Finance at all times to protect, preserve and maintain intact
the principal placed in trust with the City on behalf of the citizens of the community.
2. Availability. An adequate percentage of the portfolio shall be maintained in
liquid, short-term securities which can be converted to cash as necessary to meet
disbursement requirements.
3. Yield. Yield is to be a consideration only after the basic requirements of
adequate safety and availability have been met.
Legal Investment Authority. Temporarily idle monies shall be invested in accordance
with State and local laws and regulations and this Statement of Investment Policy.
Statement of Investment Policy. Each year after review and report by the Audit
Sent~e Commission, the Treasurer shall submit to the City Council a proposed
Statement of Investment Policy for Council consideration and adoption as submitted, or
as revised by the City Council.
Cash Purchase Only. All securities shall be purchased on a delivery vs payment (DVP)
basis only. Securities shall not be purchased on margin, credit or for other than full cash
payment and shall not be pledged as collateral.
Reverse Repurchase Agreements. Funds shall not be invested directly in reverse
repurchase agreements.
Selling Securities Prior to Maturity. Generally, losses will be acceptable on a sale
before maturity if the reinvested proceeds will earn income with a present value greater
than the present value of the income that would have been generated by the old
investment, considering any capital loss or foregone interest on the original investment.
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Profits from market volatility of Treasury securities only are acceptable so long as each
holding when repurchased exceeds the original purchase yield. For example, a
Treasury two near note is bought at auction at a 2.04 yield and sold five days later at
1.99. That note could be repurchased at a minimum yield of 2.04.
Performance Standards. The investment portfolio will be designed to obtain amarket-
average rate of return during budgetary and economic cycles, taking into account the
City's investment risk constraints and cash flow needs. The market-average rate of
return is defined as the U.S. Treasury security yield which most closely matches the
portfolio's weighted average maturity (WAM) as stated on the monthly investment
report, using a 12-month moving average.
Quarterly Reports. The Treasurer shall render a quarterly report to the City Council,
City Manager and internal and external auditors, which states its relationship to the
Statement of Investment Policy. Sample attached, Exhibit I.
Required elements of the quarterly report are as follows:
a. Type of investment.
b. Institution.
c. Date of maturity.
d. Par value.
e. Amount of deposit or cost of the security.
f. Rate of interest /discount and yield.
g. Statement relating the report to the Statement of Investment Policy.
h. Statement that there are sufficient funds to meet the next 6 months'
obligations.
i. The current book value.
j. The current market value.
k. Average portfolio life.
I. Average portfolio yield.
m. Current treasury yield that most closely matches average portfolio life.
Reports of the State Treasurer's Local Agency Investment Fund (LAIF) or other qualified
funds shall be accepted in lieu of subparagraphs a. through I. to support City deposits in
the funds. The Treasurer also shall render a monthly report of investment transactions.
Sample attached, Exhibit II.
II. GUIDELINES. The following directions and limitations are established hereby to
direct and control investment activities in such a manner that above-stated goals are
achieved.
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Delegation of Authority. California Government Code; Section 53607 provides the
authority for the legislative body of the local agency to invest funds of the local agency
or to delegate that full responsibility to the Treasurer of the local agency. Under City of
Tustin Ordinance No. 832, the City Council has authorized the City Treasurer to invest
City funds in accordance with California Government Code Section 53600; et- seq.
Ethics and Conflicts of Interest. The City Treasurer shall refrain from personal
business activity that could conflict with proper execution of the investment program or
which could impair the ability to make impartial investment decisions. The City
Treasurer is governed by Government Code Section 1090 et- seq.; the Political Reform
Act of 1974 regarding disclosure of material financial interests; disqualification
requirements and the City's gift regulation.
Investment Transactions. Every investment transaction shall be reviewed, authorized
and documented by the Treasurer.
Pooled Cash. Wherever practical, the City's cash shall be consolidated into one bank
account and invested on a pooled basis. Interest earnings shall be allocated according
to each fund's cash balance as required.
Competitive Bids and Offers. Purchase and sale of securities shall be made on the
basis of documented competitive offers and bids whenever practical. Documented
opinions of reasonableness are acceptable substitutes if necessary.
Cash Forecast. The cash flow for the City shall be analyzed with the receipt of
revenues and maturity of investments scheduled so that adequate cash will be available
to meet disbursement requirements.
Investment Limitations. Security purchases, deposits and holdings shall be
maintained within statutory limits imposed by the California Government Code
53601 et seq. and shall include only the following:
a. Negotiable certificates of deposit (NCDs)~~ ~,,~,T~°~"~~ ('`°lifnrnio
of
global banks only with highest short-term ratings.
b. Prime quality Commercial Paper, highest letter and numerical short term debt
ratings by Moody's or Standard and Poors; and Al or P1 or equivalent ratin if
any of other debt; but not to exceed twenty-five (25) percent of invested funds at
the time of purchase and limited to a maximum maturity of ninety (90) days.
Average weighted maturity shall not exceed 31 days if Commercial Paper
exceeds fifteen (15) percent of total portfolio assets.
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c. Government-sponsored pools, such as California State Treasurer's Local
Agency Investment Fund (LAIF), and Mutual Funds, if in the judgment of the Treasurer, they
meet MTA of US&C suggested due diligence standards, or are rated in the
highest category by a nationally recognized rating service.
d. Commercial Bank Time Drafts (Bankers Acceptances), highest letter and
numerical short term debt ratings by Moody's or Standard and Poors; and Al or
P1 or equivalent rating if any of other debt; but not in excess of twenty-five (25)
percent of invested funds at the time of purchase with a maximum maturity of
one hundred and eighty (180) days.
e. Corporate notes of a maximum maturity of five (5) years remaining to stated final
maturity, issued by corporations organized and operating within the U.S. or by
depository institutions licensed by the U.S. or any State, and operating within the
U.S. Notes eligible for investment under this subdivision shall have a long term
debt rating of AA or its equivalent by Moody's or Standard and Poors.
Purchases may not exceed ten (10) percent of invested funds at the time of
purchase.
f. Municipal Securities. If appropriate, City Treasurer may invest in City
obligations, as well as other suitable local and State of California securities.
Such investments of other than City securities shall be rated not less than A by
Moody's or Standard & Poor's and shall not exceed ten percent (10%) of total
portfolio and five percent (5%) of any one issuer's securities. Maximum City
exposure to a single issuer shall not exceed 10% for State of California
securities and 5% for all other local agency securities.
g. Federal Agency bonds or notes, but not in excess of fifty (50) percent of invested
funds at time of purchase with a maximum maturity of five (5) years remaining to
stated final maturity.
h. U.S. Treasury securities not exceeding five (5) years to final maturity.
i. Investment Contracts. Bond proceeds may be placed in investment contracts if
authorized by borrowing documents. Guarantors of such contracts shall have at
least an AA rating by two major investment services. Contracts shall contain
market value protection in case of downgrading by including delivery of cash or
Treasury securities, at the election of the City.
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Mutual Funds. ""^^°~~ FRarrl`c~t-ma+~ ~d~ arr~e ;mrct°c.~v,~~ r'~'f^rni~
~~~~~~~n, ~~~ ~r° ".+h^r,~°,~ if deemed appropriate by the
Treasurer after due diligence similar to Investment Limitations (subparagraph c.)-
k. Repurchase Agreements eea-~ea~s~;^~"~'~^^ +h^~° "^~I°r h~n~
s
if deemed appropriate by Treasurer after due diligence
similar to Investment Limitations subparagraphs a. and c.
Liquidity. The marketability (salability) of a security shall be considered at the time of
purchase since the security may have to be sold at a later date to meet an unanticipated
cash demand.
Maturity Limitations. As a general rule, intermediate-term maturities shall not
represent a significant percentage of the total portfolio. Unless previously authorized by
City Council, no investment may have a term final stated maturity longer than five (5)
years. At the time of purchase, holdings with maturities greater than one (1) year shall
not exceed thirty-five (35) percent of the total portfolio.
Collateral. Collateral requirements are addressed in California Government Code
Section 53652. All active and inactive deposits must be secured at all times with eligible
securities in securities pools pursuant to Sections 53656 and 53657. Eligible securities
held as collateral shall have a market value in excess of the total amount of all deposits
of a depository as follows:
--government securities at least 110 percent.
--mortgage backed securities, at least 150 percent.
Authorized Broker/Dealers. Investments shall be transacted only through Authorized
Broker/Dealers which have been reviewed and approved by the Treasurer for reliability,
credit worthiness and trustworthiness.
Diversification. The portfolio shall consist of various types of securities approved by
statute and this Statement of Investment Policy, as well as varied issuers and maturities.
Safekeeping. Securities purchased from broker/dealers shall be held in third party
safekeeping by the trust department of the local agency's bank, or by other third party
trustee designated by the Treasurer. Said securities shall be held in the name of the
City with the trustee executing agreements and confirmations of investment transactions
as directed by the City Treasurer.
III. STRATEGY. Strategy refers to the plan to manage financial resources in the most
advantageous manner.
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Economic Forecasts. The Treasurer periodically may obtain economic forecasts from
economists and financial experts through bankers and broker/dealers in order to assist
in the formulation of investment plans.
Implementing Investment Strategy. The Treasurer shall execute investment
transactions which conform to current and anticipated cash requirements, interest rate
trends, and stated investment strategy.
Relationships. The Treasurer shall maintain a close working relationship with the
departments of the City to anticipate and accommodate disbursements of City funds.
For liquidity planning purposes, Department Heads shall apprise the Treasurer when
large expenditures (over $500,000) are anticipated.
Preserve Portfolio Value. The Treasurer shall develop an investment strategy that
maintains earnings consistent with defined "Performance Standards" (page 2) and
preserves the value of the City's portfolio.
Internal Controls. The Finance Department shall establish a system of internal
controls which shall be reviewed annually, with the independent Auditor. The controls
shall be designed to prevent losses of public funds arising from fraud, employee error,
misrepresentation by third parties, unanticipated changes in financial markets, or
imprudent action by employees and officers of the City of Tustin. The Finance
Department will maintain the City's Investment Records in compliance with Government
Accounting Standards Board Rule 31 (GASB 31).
The City attempts to invest 100% of all available funds through daily and projected cash
flow determinations and after consideration of bank requirements for clearings and
services. Management of idle cash and investment transactions is the responsibility of
the City Treasurer. The City's investment philosophy is to insure that money is always
safe and available when needed.
The City Treasurer shall annually review the City's Investment Policy with the City of
Tustin Audit i#~ee Commission. Proposed amendments will be brought to the City
Council for final action upon the recommendation of the City Treasurer.
Adopted by the City Council:
InvestmentPolicy2009Draft. doc
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