HomeMy WebLinkAbout06 INVESTMENT POLICY 01-05-04AGENDA REPORT
Agenda Item 6
Reviewed:
City Manager ~__~......__.~
Finance Director _
MEETING DATE: JANUARY 5, 2004
TO:
FROM:
SUBJECT:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
G. W. JEFFRIES, 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 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. Continue delegation of Investment Policy to G. W. Jeffries and Associates.
2. Adopt the City of Tustin Investment Policy for calendar year 2004 with no changes, as
recommended by the City Treasurer.
DISCUSSION:
The recommendation is submitted without change and has been reviewed by the Audit Committee.
cG~ rJe;{'fsriu~r s r~/' '',' '¢
Attachment
GWJ:lnvestmentPolicy2004StaffReporLdoc
Finance Department
CITY OF TUSTIN
STATEMENT OF INVESTMENT POLICY
City of Tustin
300 Centennial Way
Tustin, CA 92780
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 dsks 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....pmperty for the benefit of another, a trustee shall
exemise 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 criteda
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.
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. 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 Aqreements. 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.
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 secudty yield which most closely matches the porffolio'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:
Type of investment.
Institution.
Date of maturity.
Par value
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.
Deleqation 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. Pumhase 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 pumhases, deposits and holdings shall be maintained with
statutory limits imposed by the California Government Code and shall include only the following:
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.
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.
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.
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.
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.
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).
Repurchase Agreements. Repurchase agreements, including those under bank sweep
account arrangements, as permitted by California Government Code 53601(i) are
authorized 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.
Safekeepin.q. 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.
Implementin.q Investment Strateq¥. 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:lnvestmentPolicy2004.doc