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HomeMy WebLinkAboutCC AG PKT 2002-08-12 #P Af f® / AGENDA REPORT fd� a0 DATE: August 12, 2002 TO: Honorable Mayor and City Council THRU: John B. Bahorski, City Manager FROM: Pamela Arends -King, Director of Administrative Services /Treasurer SUBJECT: 2002/2003 Investment Policy and Investment Guidelines SUMMARY OF REQUEST: Approve the 2002/2003 City of Seal Beach Investment Policy and Investment Guidelines for investing public funds. BACKGROUND: The City of Seal Beach adopted a Budget and Fiscal Policy June 25, 2001 which compliments the annual Investment Policy that is adopted annually due to AB 1073, which the State Assembly adopted in 1987. AB 1073 mandates that cities adopt an Investment Policy Resolution outlining the type of investments into which a city may place its idle funds. Additionally, as a result of the Orange County bankruptcy, legislation in the form of Senate Bills 564 and 866 reinforces that a local agency treasurer must file an annual investment policy with the governing body, and requires the treasurer to file a quarterly report on investments. The City of Seal Beach has elected to prepare Investment Reports on a monthly basis and will continue to do so. Senate Bill 566 says that the treasurer investing public funds is a trustee and has a fiduciary responsibility to the Prudent Man Rule which states "Investment shall be made with judgement and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." The Resolution for Council approval has been prepared in accordance with Government Code Sections 53646(a) and 53600, 53600.5, 53601, and 53635 and guidelines published by the California Municipal Treasurer's Association. The Resolution provides for safety and liquidity in maximizing the City's investment portfolio. Agenda Item P • August 12, 2002 2002/2003 Investment Policy and Investment Guidelines The City contracted with Lance Soll & Lunghard, an independent audit firm to review the March 2002 monthly treasurers report and compare the investments to the California Government Code and the City's Investment Policy. We also requested them to review the City's Investment Policy and compare it to the California Government Code. Attached is a copy of Lance Soll & Lunghard's independent accountant's report on applying agreed -upon procedures. The report lists the scope of the procedures performed and the resultant findings. The review found the investments held by the City at March 31, 2002 appear to comply with the City's investment policy. The monthly treasurer's report did not comply with California Government Code because the source of the market valuations were not included (which we have corrected) nor were the treasurer's reports submitted within 30 days following the end of a month. The reason the treasurers' reports have not been submitted within the 30 days is because we do not always complete the reconciliation of the general checking account within 30 days of the close of a month. According to Lance Soll & Lunghard, there is nothing in the California Government Code that states the bank accounts must be reconciled, however, the account balances must be listed. Their suggestion was to include the bank balances with a disclosure stating the account had not been reconciled at the time the treasurer's report was completed and that would satisfy the California Government Code requirements. Lance Soll & Lunghard noted the City did not appear to hold any prohibited securities. The comparison of the City's Investment Policy with the California Government Code resulted in several findings. The City's investment policy stated that no more than 30% of total idle funds could be invested in Commercial Paper but Government Code Section 53601 (I) states the percentage limitation should be 25 %. The policy stated the market value of securities used in repurchase agreements should not fall below 100 %, but Government Code Section 53601(i) states the percentage should be 102 %. Medium - Term Notes section of the investment policy did not state the notes must be rated "A" or better by a nationally recognized rating service according to Government Code Section 53601 (j). The investment policy stated that bankers acceptances may not exceed a maturity of 270 days however, the Government Code Section 53601 (f), state the maturity period cannot exceed 180 days. The 2002/03 investment policy was revised to correct the findings listed. Lance Soll & Lunghard could not determine that Guaranteed Investment Contracts are considered an authorized investment per the California Government Code, because the City only invests with Guaranteed Investment Contracts with bond issues that was removed from the investment policy and can be addressed as an investment instrument when the need arises. Also the types of Federal Agency Issues are not specifically identified in the Government Code such as individually naming each issue. The Government Code states a local agency may invest idle funds in obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association, or in guaranteed portions of Small Business Administration notes; or in obligations, 1 August 12, 2002 2002/2003 Investment Policy and Investment Guidelines participation, or other instruments of, or issued, by a federal agency or a United States government- sponsored enterprise. The Federal Agency issues the City holds fall under the criteria sited from the Government Code. RECOMMENDATION: Approve a Resolution adopting the 2002 /2003 Investment Policy and Investment Guidelines pursuant to Senate Bills 564 and 866. k i.40 � , P • amela Arends -King Director of Administrative Services /Treasurer NOTE ■ i \I• : ' OVED: 6 John4ahorski • C anager