HomeMy WebLinkAbout07 INVESTMENT POLICY 06-01-98NO. 7
6-1-98
DATE:
May 27, 1998
lnter-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 Policy. This legislative action was in response to the Orange County bankruptcy. It
requires the elected body and the Treasurer at least annually to review the existing Investment Policy
and confirm its content at a public meeting.
RECOMMENDATION:
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 only minor "clarification" changes.
Performance Standards, page three: the proposed new language simply clarifies the weighted
'average maturity (WAM) as the measurement basis.
Reserve Portfolio Value, page seven: direct reference back to "Performance Standards".
Internal Controls, page seven: adds language requiring the Finance Department to comply with
new Investment Accounting guidelines.
Concluding Paragraph, page seven: perhaps the most significant change, this will more clearly
establish the direct reporting relationship between the City Council and the City Treasurer.
These changes have been discussed with the City's Audit Committee at their May 21 meeting and they
support the recomm~ations.
George VV~,~l~ff'ries, ~ccMT
City Treasur(~r
GWJ:ts
Attachment
GWJ:lnvestment PolicyAgenda98.doc
Finance Department
DRAFT
City of Tustin
300 Centennial Way
Tustin, CA 92780
CITY OF TUSTIN
STATEMENT OF INVESTMENT POLICY
Director
(714) 573-3061
Secretary
(714) 573-3060
Water Billing
(714) 573-3075
FAX (714) 832-0825
I. GENERAL.
PURPOSE
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.
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
Committee, the Treasurer shall submit to the City C'ouncil 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.
repurchase agreements.
Funds shall not be invested directly in reverse
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.
Performance Standards. The investment portfolio will be designed to obtain a market-
_
average rate of return during budgetary and economic cycles, taking into account the
City's investment risk constraints and cash fiow needs. The market-average rate of
return is defined as the U.S. Treasury ,qctc security yield which most cloSely matches
the porffolio's weighted average maturity (WAM) ~vcrc.~c~,.,,'-'-~'-~'-.,.~,,..._,~FE 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.
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 sufficient 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. Califomia 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 with statutory limits imposed by the California Government Code and shall
include only the following:
a.
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 non-
insured deposits shall'not exceed ten (10) percent of invested funds and limited
to a maximum maturity of one year.
b.
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.
Co
Government-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.
d.
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.
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.
Federal Agency bonds or notes, but not in excess of fifty (50) percent of invested
fUnds at time of purchase with a maximum matudty of five (5) years remaining to
stated final maturity.
g.
U.S. Treasury securities not exceeding five (5) years to final maturity.
ho
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).
Licluidity. 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.
Maturi~ 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 Califomia 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 brokeddealers 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 broker/dealers in order to assist
in the formulation of investment plans.
Implementin9 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 appdse 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" (pacje 3) P, eeF
thc mcrkct 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 Accountin~l 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 of Tuctin Audit Ccmmiffcc shall annually review the City's
Investment Policy with the City of Tustin Audit Committee -r ...... rcr "* '"""* ...... ""
I i %.~.,iu~,i~,41. iv~,~lui. ~.41 ii IT.,i~4II~.
~- .... ,;...,. ,,. ,~,,..,,.i; .... ~,.ll .... ; ..... ; .......... , ..~,~... ^,,,,;, r-........;**,... Proposed
amendments will b~ brought to th~ Oity Oounoil for final aotion upon th~
reoomm~ndation o~ th~ Oomm~oo Bi~ Tr~asure~.
Adopted by the City Council:
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GWJ:lnvestmentPolicy98.May.doc