HomeMy WebLinkAbout21 ADOPT INV POLICY 01-19-99DATE:
January 19, 1999
NO. 21
1-19-99
Inter-Com
TO:
FROM:
SUBJECT:
Honorable Mayor and Members of the City Council
George W. Jeffries, CCMT, City Treasurer
ANNUAL REVIEW AND ADOPTION OF THE INVESTMENT POLICY
SUMMARY: The California Government COde, as amended, requires that Cities annually adopt their
Investment Polic) islative action:Was in~ response:to the orange County bankruptcy, It
reqUireS the j¢~ to rev , at least annually
and ,~. :
RECOMMENDATION:
1. Continue delegation of Investment Policy to G. W. Jeffries and Associates.
2. Adopt the City of Tustin Investment Policy with changes as recommended by the City Treasurer.
DISCUSSION:
I have reviewed the City's Investment Policy and recommend addition of the following:'
Investment Limitations, page five, item 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.
This revision has been discussed with the City's Audit Committee, at their November 19 meeting, and
they support the recommendations.
.-" George W. Je..ff)~E,r~C~T
City Treas~/Y'
GWJ:ts
Attachment
GWJ:lnvestmentPolicy1999.Agenda.doc
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.
h.
Type of investment.
Institution.
Date of maturity.
Amount of deposit or cost of the security.
Rate of interest.
Statement relating the report to the Statement of Investment Policy.
Statement that there are suffident funds to meet the next 6 months'
obligations.
The current book value.
The current market value.
Average portfolio life.
Average portfolio yield.
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.
,-
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
Govemment 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 with
statutory limits imposed by the California Government Code and shall include only the
following:
a.
b,
Co
d.
e°
Certificates of Deposit (or time deposits) of less than $100,000 may be placed with
commercial banks, savings and loan institutions and federally insured industrial loan
companies (with a percentage of equity to assets of not less than three (3) percent to
the extent they are fully insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation as required by the Government
Code). Deposits in excess of $100,000 may be made based on a full evaluation of
financial soundness of the depository and approved collateral at the required
percentage of market value in accordance with Califomia Government Code Section
53651 and 53652. Evaluation of financial soundness shall be based on a minimum
equity to asset ratio of three (3) percent; $100 million of assets minimum; continued
profitability with a minimum rating service rating of A or better. The maximum deposit
per institution shall not exceed the lesser of $1 million, or ten (10) percent of the bank's
capital (or equity account as measured by Findley's Bank-A-Lert Report). Total nora
insured deposits shall not exceed ten (10) percent of invested funds and limited to a
maximum maturity of one year.
Prime quality Commercial Paper, highest letter and numerical short term debt ratings
by Moody's or Standard and Poors, A1 or P1 or equivalent; 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.
Govemment-sponsored pools, such as California State Treasurer's Local Agency
Investment Fund (LAIF), and Mutual Funds, as authorized by California Government
Code section 53601 et seq. 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.
Commercial Bank Time Drafts (Bankers Acceptances), highest letter and numerical
short term debt ratings by Moody's or Standard and Poors, A1 or P1 or equivalent; 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.
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.
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% f~)r State of California securities
and 5% for all other local agency securities.
go
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.
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.
Mutual Funds. Money market mutual funds as permitted by California Government
Code 53601(k) are authorized if deemed appropriate by the Treasurer after due
diligence similar to Investment Limitations (subparagraph c).
Liquidity. The marketability (salability) of a secudty shall be considered at the time of
purchase since the secudty 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 vadous 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.
Economic Forecasts. The Treasurer periodically may obtain economic forecasts from
economists and financial experts through bankers and brokefldealers 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 Committee. Proposed amendments will be brought to the City Council for final action
upon the recommendation of the City Treasurer.
Adopted by the City Council:
GWJ:lnvestmentPolicy99.doc