HomeMy WebLinkAbout16 INVESTMENT POLICY 04-07-97 NO. 16
4-7-97
I n t e r- C o rn
DATE:
&pril 2,. 1997
TO:
FROM:
SUBJECT:
Honorable Mayor and Members of the City Council
G. W. Jeffries, City Treasurer
STATEMENT OF INVESTMENT POLICY
to?iii':au~orize.~.~:· the~::?citYi:!.::'COuncil t°':"i d~l'e'gatei::', it's ':':'investment
auth~0rity: i~i t0~i~::~i..;'the'i~ Treasurer ~.:: subj ectl;:~.' to?ii:;.an annUal'.'" review.
secti0n~..53646.'of the-Government code' reqUires':'theTreasurer"to
submit~:~/annU~lly~.~aStatement of investment.i:Policy..to::ithe City
council~'i?ifor~'~'their'~C°nsideration '::.~i ..... ..
RECOMMENDATION:
i ·
Continue the delegation of investment authority to G. W.
Jeffries, City Treasurer
·
Adopt the Investment Policy with changes as recommended by the
City Treasurer
FISCAL IMPACT:
None.
DISCUSSION:
Section 53600.3 of the Government Code states that all local agency
governing bodies investing service funds are "trustees and
therefore fiduciaries subject to the prudent investor standard".
Section 53607 of the Code authorizes the legislative body to
delegate the authority to invest funds for a one-year period to the
Treasurer "who shall therefore assume full responsibility for those
transactions..." Subject to review at a public meeting, the
delegation of authority may be renewed each year.
During their annual review, the City's outside auditors made two
recommendations regarding changes to the City's Investment Policy,
concerning documentation of competitive bids and the use of mutual
funds and guaranteed Investment Contracts as relates to the bond
covenants. The recommendations were intended to confirm current
practice and intent.
I have reviewed the auditors' recommendations and have proposed new
language regarding Competitive Bids on Page 4 of the policy, and
Investment Contracts and Mutual Funds on Page 5.
I am also recommending language changes to the Investment
Limitations, section c, regarding deposits in comingled pools that
will strengthen the due diligence required prior to making deposits
in any pool, including the Local Agency Investment Fund. There is
also a minor housekeeping change on Page 7 changing the title from
Finance Director to Treasurer.
I will be avail~le at the meeting
concerns of th~/C~t~f_Council.
G. W. Jeffr/~s,~" '~~e~s~urer
GWJ: t s ~
to discuss these and other
Attachment
GI,/J :Agenda1 .Har
Revise Date: February 28, 1997
March 12, 1997
March 24, 1997
CITY OF TUSTIN
STATEMENT OF INVESTMENT POLICY
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 liquidity. 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 a~ 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 liquidity have been met.
Leqal 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
Council a proposed Statement of Investment Policy for Council
consideration and adoption as submitted, or as revised by the City
Council.
Cash Purchase Only. Ail 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.
Repurchase Aqreements. Funds shall not be directly invested in
repurchase or reverse repurchase agreements.
Sellinq 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 flow needs. The market-average rate of return
is defined as the U.S. Treasury note. yield which most closely
matches the average portfolio LIFE 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. Amount of deposit or cost of the security.
e. Rate of interest.
f. Statement relating the report to the Statement of
Investment Policy.
g. Statement that there are sufficient funds to meet the
next 6 months' obligations.
h. The current book value.
i. The current market value.
j. Average portfolio life.
k. Average portfolio yield.
1. Current treasury yield that most closely matches
average portfolio life.
Reports of the State Treasurer's Local Agency Investment Fund
(LAIF) or other qualified f~nds shall be accepted in lieu of
subparagraphs a. through 1. to support City deposits in the funds.
II. GUIDELINES. The following directions and limitations are
hereby established 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 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
ee~ basis. Interest earnings shall be allocated according to
each fund's cash an~ !~;:c=~nt balance~ as required.
Competitive Bids. Purchase and sale of securities shall be made on
the basis of docu~ente~ competitive offers and bids whenever
practical. Documented opinions of reasonableness are acceptabl-
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:
ae
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 California 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.
be
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
d®
ed
fo
go
h.
Government-sponsored pools, such as California State
Treasurer's Local Agency Investment Fund,~'~+~.-.~ .~a)--- (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 organized
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 percent (25%) 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 percent (10%) of invested funds at the time of
purchase.
Federal Agency bonds or notes, but not in excess of twenty-
five (25%) percent of invested funds at time of purchase with
a maximum maturity of five (5) years remaining to stated final
maturity.
Treasury bills, bonds or notes not exceeding five (5) years to
final maturity.
Inves%ment Contracts. Bond proceeds may be pIaced 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
i.
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 diliqence similar to
Investment Limit&tions (subparagraph o).
.Liquidity. The marketability (salability) of a security shall be
considered at the time of purchase, as the security may have to be
sold at a later date to meet an unanticipated cash demand.
Intermediate-Term Maturities. As a general rule, intermediate-
term maturities shall not represent a significant percentage of the
total portfolio, as the principal price risk involved can outweigh
the potential for higher earnings. In no event shall any
investment have a term final stated maturity longer than five (5)
years; and, 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 Fi ...... c ~ ~ ~
.... D~c~to~ Treasurer for reliability, credit
worthiness and trustworthiness. ·
Diversification. The portfolio shall consist of a mix of the
various types of securities approved by statute and this Statement
of Investment Policy as well as a mix of issuers and maturities.
Safekeepinq. 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
broker/dealers in order to assist ~-~ ~-~ ~'~-~. in the
formulation of investment plans.
Implementinq Investment Strate~. The Treasurer shall execute
investment transactions which conform ~ to anticipated cash
requirements, interest rate trends, and the current 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 near the market 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 City -~ .... ~ ~~ ~' · .... · ~ ~ ..... ~--~ ~ attempts to
invest 100% of all available funds
through daily and projected cash flow determinations and after
consideration of bank requirements for clearinqs and services.
Management of idle cash and investment transactions a~e is the
responsibility of the City Treasurer. The b==!:
~e City's investment philosophy is-..-~ -.~··..._ --~__..~...__ .... ~_ ~~~ to
insure that money is always safe and available when needed.
The City of Tustin Audit Committee shall review the City's
Investment Policy with the City Treasurer at least annually.
Exceptions to the policy shall receive prior approval of the Audit
Committee. Proposed amendments will be brought to the City
Council for final action upon the recommendation of the Committee.
Adopted by the City Council:
G~J: I nvPo[ .97