HomeMy WebLinkAboutCC AG PKT 2002-08-12 #P D 1 7fe
AGENDA REPORT
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 /
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 So11 & 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,
' 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.
, e2.4"71-1.1 1: /4/ r
•
Pamela Arends -King
Director of Administrative Services /Treasurer
NOTE P 1 ) ' : ' OVED:
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Johnah' orski
C' anager
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