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HomeMy WebLinkAboutCC Res 5495 2006-09-11 RESOLUTION NUMBER 5495 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEAL BEACH, CALIFORNIA, ADOPTING AND FILING THE ANNUAL STATEMENT OF INVESTMENT POLICY AND GUIDELINES FOR THE FISCAL YEAR 2006/07 I WHEREAS, the California State Legislature passed legislation during the 1984 session requiring the filing of an annual Statement of Investment Policy by local public agencies; and WHEREAS, the Orange County bankruptcy resulted in further legislation in Senate Bills 563 and 866 reinforcing the "prudent man" investment of public funds; and WHEREAS, the City Treasurer, in conjunction with the City Manager ofthe City of Seal Beach, declares the annual Statement ofInvestment Policy and Investment Guidelines to be as stated in attached Exhibit "A". NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SEAL BEACH DOES HEREBY RESOLVE: Section 1: That an annual Statement ofInvestment Policy and Guidelines has been filed by the City Treasurer for Fiscal Year 2006/2007 in compliance with Section 53646(a) of the Government Code of the State ofCalifomia. I PASSED, APPROVED AND ADOPTED BY THE City Council of Seal Beach, at a meeting hereof held on the 11 th day of Seotember, 2006 by the following vote: AYES: COUNCILMEMBERS.rtniJu; J'0Ad)n~C.J...Jwl,k 7A.)udL I I , I (j'vV"Vvn NOES: COUNCILMEMBERS ~ ABSENT: COUNCILMEMBERS ~/ ABSTAIN: COUNCILMEMBERS ~ -.b~~ ~ MAYOR ATTEST: $tYl~ vU~;'~1 Lin a Devine, City Clerk I STATE OF CALIFORNIA } COUNTY OF ORANGE } SS CITY OF SEAL BEACH } I, Linda Devine, City Clerk for the City of Seal Beach, California, do hereby certify that the foregoing resolutions is the original copy of Resolution Number 5495 on file in that office of the City Clerk, passed, approved an adopted by the City Council of the City of Seal Beach at a regular meeting hereof held on the 11th day of Seotember ,2006. ~~I Lin a Devme, CIty clerk Resolution Number 5495 EXHIBIT "A" CITY OF SEAL BEACH STATEMENT OF INVESTMENT POLICY 2006/2007 INTRODUCTION: This statement is intended to outline the policies for prudent investment of idle City funds by providing guidelines for suitable investments while maximizing the efficiency of the City's Cash Management Program. I The responsibilIty for the day to day investment of the City's funds is the responsibility of the Director of Administrative Servicesffreasurer. The investment policy applies to all financial assets of the city and is pooled in a managed portfolio. The investment pool or portfolio will be referred to as the "Fund" throughout this document. The City'S Cash Management Program is deSigned to accurately monitor and forecast expenditures and revenues, thus enabling the investment of funds to the fullest extent pOSSible. Maturities are matched as close as possible to coincide With cash requirements. Length of matuntles IS based on consideration of the yield curve and estimate of future mterest rate movement. The investment policies and practices of the City of Seal Beach are based upon Federal, State and Local law and prudent money management. The primary goals of these poliCies are: 1. To assure compliance with all Federal, State and Local law governing the investment of moneys; 2. To protect the principal moneys of the City; 3. To generate the maximum amount of investment mcome within the parameters of this Statement of Investment Policy and the Investment Portfolio Guidelines. I OBJECTIVES: 1. SAFETY OF PRINCIPAL - Safety of principal is the foremost obJective of the City Seal Beach. Each investment transaction shall seek to ensure capital losses are avoided. 2. LIQUIDITY - Liquidity IS the second most important objective of the City of Seal Beach. It is important that the portfolio contam investments, which provide the abilIty of being easily sold at any time with minimal risk of loss of principal or interest. ~~..,........ 3. YIELD -.J1ie City's FUhd"shall be designed to attain a market-average rate of return through.ecomimic cycles. The market-average rate of return is defmed as the average , , return on,!hree-month U.S:l'n;asury Bills. I . ~ The City stnves to maintain 100% inVestment of idle funds after consideration for a compensating balance to coveT the cost of iervices provided by the bank. The funds available for investments are determined by cash flow.trojections updated dally. Investments are monitored so those legal limits on lyP.es of investments are not exceeded. .... . "'--~1'~ Seal Beach invests idle funds under the "Prudent Man Rule" which states that: I AUTHORIZED INVESTMENTS: "Investment shall be made with judgment and care, under circumstances then prevallmg, 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 denved." The City IS governed by the California Government Code, Sections 53600 et seq. Within the context of these lImitations, the following investments are authorized, reflected by the advantages of each: Resolution Number 5495 U.S. Treasury securities are highly liquid in addition to bemg considered the safest of all investments. Federal Agency securities are highly liquid and considered riskless. Bankers Acceptances are frequently the highest m YIeld, are safe investments, and are highly liquid. I Commercial Paper issued by prime rated industrial and financial institutions allows the investment of money for one to 180 days at rates higher than we can earn from the previously listed securities. Certificates of Deposits allow the CIty to select the exact amount and day of maturity as well as the exact depository, There are penaltIes for Withdrawal of funds prior to the orlgmal maturity date. Negotiable Certificates of Deposit are lugh-grade mstruments, paying a higher interest rate that regular certificates of deposit. They are liquid because they can be traded in the secondary market. COMMERCIAL PAPER ranked "Pl''by Moody's Investor ServIces or "AI" by Standard and Poor's, and issued by a domestic corporation having assets in excess of $500,000,000 and having an "A" or better rating on indebtedness other than commercial paper and be organized and operatmg within the United States Commercial Paper may not exceed 180 days to maturity No more than 25% of the city's idle funds may be invested in commercial paper. NEGOTIABLE CERTIFICATES OF DEPOSITS issued by a Nationally or State-Chartered Bank or a State or Federal savings and Loan Association. Only certificates issued by the 20 largest banks or savmgs and loan association will be considered. No more than 30% of the city's Idle funds may be invested in Negotiable Certificates of Deposits. I REPURCHASE AGREEMENTS with banks and dealers with which the city has entered into a master repurchase contract, which specifies terms and conditions of repurchase agreements. The maturity of repurchase agreements shall not exceed 90 days. The market value of securities used as collateral for repurchase agreements shall be momtored daily by the Director of AdministratIve Services and will not be allowed to fall below 102% of the value of the repurchase agreement. In order to conform with proVIsions of the Federal Bankruptcy Code which provides for the liquidation of securities held as collateral for repurchase agreements, the only securities acceptable as collateral shall be eligible negotiable certIficates of deposit, eligible banker's acceptances, or securities that are direct obligations of, or that are fully guaranteed as to principal and interest by the United States or any agency of the United States. The use of Repurchase Agreements IS limited to the extent they are investment vehicles periodically used by the Local Agency luvestment Fund (LAIF) and not a duect purchase by the City of Seal Beach. LOCAL AGENCY INVESTMENT FUND established by the State Treasurer for the benefit of local agencies up to the maximum permitted by State Law. MEDIUM-TERM NOTES of maximum of five (5) years matunty issued by corporations orgamzed and operating within the Umted States or by depository institutions licensed by the United States or any state and operating with in the Umted Sates. Per Government Code SectIon 53601 (j) medium-term notes are to be rated "A" or better by a nationally recognized rating service. No more than 30% of the City's idle fund may be invested m MedIUm-Term notes. I MUTUAL FUNDS or shares of benefiCial interest issued by diversified management companies as defined in Section 23701 (m) of the Revenue and Taxation Code, investing in the securities and obligations as authorized by subdivisions (A) to (L), inclusive, of that section and which comply With the investment restrictions (California Government Code, commencing with Section 53630), companies shall either: 1) Attain the highest ranking or the highest letter and numerical rating proVIded by not less than two of the three largest nationally recognized rating services, and 2) Have an investment adviser registered with the SecuritIes and Exchange Commission With not less than five years experience investing in securities and obligations as authorized by subdivisions (a) to (m), inclusive and with assets under management in excess of $500,000,000. The purchase price of shares of beneficial interest, (mutual funds) purchase Resolution Number 5495 pursuant to this subdivision shall not include any commission that these companies may charge. No more than 15% of the Funds may be invested in mutual funds Investments not described herein, including but not hmited to common stocks are prohibited from use in this Fund. These guidelines are established to direct and control investment activities in such a manner to assure that the goals established in the Investment Policy are attained. CASH FORECAST. The cash flow of the City shall be analyzed with the receipt of revenues and maturity of Investments scheduled so that adequate cash will be available to meet the disbursement requirements. I POOLED CASH. Whenever practical, the CIty'S cash should be consolidated Into one bank account and invested on a pooled concept basis. Interest earnmgs may be allocated according to fund cash and investment balances. LONG TERM MATURITIES, As a general rule, long term maturities should not represent a signIficant percentage of the total Fund, as the principal risk involved can outweigh the potenl1al for hIgher eamings. No more than 15% of the total Fund may be invested In securities With maturIties greater than three years. DIVERSIFICATION, The Fund should consist ofa mix of various types of securities, issuers, and maturities. COMPETITIVE BIDS. Purchase and sale of securities shall be made on the basis of competitive bids and offers with a minimum of two quotes being obtained, when practical. SAFEKEEPING. Securities purchased from broker/dealers shall be held in third party safekeeping by the Trust Department of the Bank designated by the Director of AdmInIstrative Services. Said Securities shall be held in the name of the City of Seal Beach with the trustee executing transactions as directed by the Director of Administrative Services. STRATEGY, Strategy refers to the plan of action for managing financial resources 10 the most advantageous manner. The Director of AdminIstrative Services uses the following elements in developing strategy. I Economic Forecasts. Economic forecast information developed by economists and financial experts and obtained through bankers and brokers is used to assist With the formulation of an investment strategy for the City. Investment ImDlementiDl!. Execute only mvestment transactions whIch conform with anticipated cash flow requirements, economic condition and interest rate trends and are consistent with the estabhshed Investment Policy Statement. RaDDort. A close workmg relationship with City Departments having a significant impact on cash flow is maintained in order to maximize the efficiency of the City's cash management system and establish cash flow requirements. Yield Enhancement. Utihze investment techniques to increase yield and to Maintain a fulIy invested position. Preserve Portfolio Value. Develop yield standards in order to maintain earnings consistent with the market average rate of return to preserve the value of the portfoho. INVESTMENT VEmCLES, The following parameters are outlined for authorized investments as provided in the Statement ofInvestment Policy. U,S. TREASURY'S are direct obhgations for which the full faith and credit of the United States Government and pledged for payment of prmcipal and interest. There is no limitation as to the percentage of the portfolio that can be invested in this category, as they are both safe and liqUId. The U.S, TREASURY BILLS, U.S. TREASURY NOTES and U.S. TREASURY BONDS. I FEDERAL AGENCY ISSUES or obligations qualify as legal investments and are acceptable as security for public deposits. They usually provide higher yields than treasury issues with all of the same advantages. Federal Agency Issues include, but are not limited to GNMA (Government National Mortgage Association), FFCB (Federal .. . Resolution Number 5495 Farm Credit Bank), FHLB (Federal Home Loan Bank Board), FHLMC (Federal Home Loan Mortgage Corporation), FNMA. (Federal National Mortgage Association), SLMA (Student Loan Mortgage Administration), REFCORP (Resolution Funding Corporation), FHA (Federal Housing Administration) and TVA (Tennessee Valley Authority). Although there IS no percentage limitation on these issues, the "prudent mvestor" rule shall apply for a single agency name as U.S. Government backing IS Implied rather than guaranteed. I BANKERS' ACCEPTANCES or bills of exchange or time drafts drawn on and accepted by a commercial bank. Banker's Acceptances purchased may not exceed 180 days to maturity or 40% of the city's surplus funds. No more than 30% of the city's surplus funds may be invested in banker's acceptances issued by anyone bank. CERTIFICATE OF DEPOSIT shall be evaluated in terms of Federal Deposit Insurance Corporation (FDIC) coverage. For deposits in excess of the insured maximum of $100,000, approved collateral at the percentage above market value as specified by law shall be required. The Director of Administrative Services may at their discretion waive security for that portion of a depOSit that IS Insured pursuant to federal law. Repurchase Agreements allow us to invest large amounts of money for less than Thirty days at rates higher than we can earn from other short-term investments The City will not invest in Repurchase Agreements. The authorization shalllimit Repurchase Agreements to those investment vehicles purchased only through the Local Agency Investment Fund (LAIF). The Local Agency Investment Fund of the State of California offers high liquidity because our deposits can be wired to our checking account within twenty-four hours. Interest is computed on a daily baSIS. I Medium Term Corporate Notes offer a competitive alternative to Negotiable Certificates of Deposits and standard Certificates of DepOSits. These securities enjoy an actIve secondary Market to provide liquidity. Mutual Funds are another authorized investment allowing the City to maintain LiqUidity and receive money market rates. Guaranteed Investment Contracts (GIC's) DEPOSITORY SERVICES: Money must be deposited in state or national banks, state or federal savings associations or state or federal credit unions in the state. It may be in inactive depOSitS, active deposits or interest- bearing active deposits. The depOSits cannot exceed the amount of the bank's or savings and loan's paid up capital and surplus. The bank or savings and loan must secure the actIve and inactive deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as a n eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is letters of credit drawn on the Federal Home Loan Bank (FHLB). The treasurer may at their discretion waive security for that portion of a deposit, which is insured pursuant to federal law. Currently, the first $100,000 because we receive a higher interest rate. OUALlFIED DEALERS AND INSTITUTIONS: I The City shall transact business only with banks, savings and loans and registered investment securities dealers. The purchase by the City of any investment other than those purchased directly from the issuer, shall be purchased either from an institutIOn licensed by the State as a broker-dealer, as defined m Section 25004 of the Corporations Code, who IS a member of the National Association of Securities Dealers, or a member of a Federally regulated securities exchange, a National or Sate-Chartered Bank, a Federal or State Association (as defined by Section 5102 of the Financial Code), or a brokerage firm designated as a Primary Government Dealer by the Federal Reserve Bank. The City Treasurer shall investigate all institutions that wish to do business with the City, in order to determine if they are adequately capltallzed, make markets in securities appropriate to the City's needs, and agree to abide by the conditions set fort in the City of Seal Beach's Investment Pollcy and Investment Portfolio Guidelines. This will be Resolution Number 5495 done annually by having the Fmancial Institutions complete and return the Appropriate questionnaire, and an audited Financial Statement must be provided within 120 days if the Institution's fiscal year end. SAFEKEEPING OF SECURITIES: To protect against potentIal losses caused by collapse of individual secuntIes dealers, all securil1es owned by the City except securities used as collateral for repurchase agreements, shall be kept in safekeeping by a third party bank trust department, acting as an agent for the City under the terms of a custody agreement executed by the bank and by the City under the terms of a custody agreement executed by the bank and by the City. All securities will be received and dehvered using standard delivery versus payment procedures. I REPORTING: The Treasurer shall render a monthly report to the City Council showing the type of Investment, institution, date of maturity, amount of deposit, current market value for all Securities WIth a maturity of more than twelve months, rate of interest, and such data as may be required by the CIty Council. POLICY REVIEW: This mvestment policy shall be reviewed at least annually to ensure its consistency with overall objectIves of preservation of PRINCIPAL, LIQUIDITY, AND YIELD and its relevance to current law, financial and economic trends, and to meet the needs of the City of Seal Beach. cf~~p,cRRA Director of Administrative ServiceslTreasurer I I