HomeMy WebLinkAboutCC Res 5366 2005-07-25
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RESOLUTION NUMBER 5366
A RESULOTUlON 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 2005/06
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 of the City of Seal
Beach, declares the annual Statement of Investment 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 I: That an annual Statement of Investment Policy and Guidelines has been filed by the
City Treasurer for Fiscal Year 2005/2006 in compliance with Section 53646(a) of the
Government Code ofthe State of California,
PASSED, APPROVED AND ADOPTED BY THE City Council of Seal Beach, at a meeting
hereof held on the 25th day of Julv. 2005 by the following vote:
AYES:
COUNCILMEMBERSOffl7M ~,~ 7jbkn., ~
COUNCILMEMBERS ~
COUNCIL MEMBERS
NOES:
ABSENT:
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MAYOR
ATTEST:
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Lmd Devme, City Clerk
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 5366 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 25th day of Julv , 2005,
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Li Devine, ity Clerk I
Resolution Number 5366
CITY OF SEAL BEACH
STATEMENT OF INVESTMENT POLICY
2005/2006
INTRODUCTION:
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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,
The responsibility for the day to day investment of the City's funds is the responsibility of the
Director of Administrative ServiceslTreasurer, The investment policy applies to all financial
assets ofthe 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
maturities is based on consideration of the yield curve and estimate of future interest 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;
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2, To protect the principal moneys of the City;
3, To generate the maximum amount of investment income within the parameters of this
Statement of Investment Policy and the Investment Portfolio Guidelines,
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.
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LIQUIDiqy\..: ti4'4idity\is the second most important objective of the City of Seal
Beach<. ~ it,}8 imp~itfii~tl!at the portfolio contain investments, which provide the
ability of being ~aj;ily.'~~l~ at any time with minimal risk of loss of principal or
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mterest. ' . . '.,
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YIEC.Q;"~,e~P~ ~ifY:~~~ shall be designed to attain a market-average rate of return
through":~P~C,y1!fes, The market-average rate of retum is defined as the
average rerum'bit'tfuee-month U,S, Treasury Bills,
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3.
The City strives to maintain 100% investment of idle funds after consideration for a I
compensating balance to cover the cost of services provided by the bank, The funds available _
for investments are determined by cash flow projections updated daily, Investments are
monitored so those legal limits on types ofinvestments are not exceeded,
AUTHORIZED INVESTMENTS:
Seal Beach invests idle funds under the "Prudent Man Rule" which states that:
"Investment shall be made with judgment and care, under circumstances then prevailing,
which persons of prudence discretion, and intelligence exercise in the management of
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Resolution Number 5366
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 City is governed by the California Govemment Code, Sections 53600 et seq, Within
the context of these limitations, the following investments are authorized, reflected by the
advantages of each:
U,S, Treasury securities are highly liquid in addition to being considered the safest of all
investments,
Federal Agency securities are highly liquid and considered riskless,
Bankers Acceptances are frequently the highest in yield, are safe investments, and are
highly liquid,
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 eam 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
original maturity date,
Negotiable Certificates of Deposit are high-grade instruments, 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,OOO,OOO and having
an "A" or better rating on indebtedness other than commercial paper and be organized and
operating 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 savings and loan association will be considered, No more than 30% of the
city's idle funds may be invested in Negotiable Certificates of Deposits,
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 monitored 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 Investment Fund (LAIF) and not a direct 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 years maturity issued by corporations
organized and operating within the United States or by depository institutions licensed by the
United States or any state and operating with in the United Sates, Per Government Code Section
53601 G> 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 maybe invested in Medium-Term notes,
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
Resolution Number 5366
comply with the investment restrictions (California Government Code, commencing with
Section 53630), companies shall either:
I) 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 I
funds) purchase 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 limited to common stocks are prohibited
from use in this Fund,
CITY OF SEAL BEACH
INVESTMENT PORTFOLIO GUIDELINES
2005/2006
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,
POOLED CASH. Whenever practical, the City's cash should be consolidated into one I
bank account and invested on a pooled concept basis, Interest earnings 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 potential for higher earnings. 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,
COMPETIVE 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 in
the most advantageous manner, The Director of Administrative Services uses the
following elements in developing strategy,
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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 ImDlementing, Execute only investment transactions which conform
with anticipated cash flow requirements, economic condition and interest rate
trends and are consistent with the established Investment Policy Statement.
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Resolution Number 5366
RaDDort, A close working 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 Utilize investment techniques to increase yield and to
maintain a fully invested position,
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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
portfolio,
INVESTMENT VEHICLES. The following parameters are outlined for authorized
Investments as provided in the Statement of Investment Policy,
U.S. TREASURY'S are direct obligations for which the full faith and credit of
the United States Government and pledged for payment of principal 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.
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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 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 TV A (Tennessee Valley Authority), Although there
is no percentage limitation on these issues, the ''prudent investor" rule shall apply
for a single agency name as U,S, Government backing is implied rather than
guaranteed,
BANKERS' ACCEPTANCES or bills of exchange or time drafts drawn on and
accepted by a cornmercial 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,
CERTICATE 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 shall limit
Repurchase Agreements to those investment vehicles purchased only through the
Local Agency Investment Fund (LAIF),
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The Local Agency Investment Fund of the State of California offers high liquidity
because our deposits can be wired to our checking account with-in twenty-four
hours. Interest is computed on a daily basis,
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 is another authorized investment allowing the City to maintain
liquidity and receive money market rates,
Guaranteed Investment Contracts (GlC's)
Resolution Number 5366
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 I
having a market value of 110% of the total amount of the deposits, State law also allows as an
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,
OUALIFIED DEALERS AND INSTITUTIONS:
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 in 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 capitalized, make
markets in securities appropriate to the City's needs, and agree to abide by the conditions set
forth in the City of Seal Beach's Investment Policy and Investment Portfolio Guidelines, This
will be done annually by having the Financial 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,
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SAFEKEEPING OF SECURITIES:
To protect against potential losses caused by collapse of individual securities dealers, all
securities 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
delivered using standlird delivery versus payment procedures,
REPORTING:
The Treasurer shall render a monthly report to the City Council showing the type of investment,
institution, date of maturity, amount of deposit, and 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.
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POLICY REVIEW:
This investment policy shall be reviewed at least annually to ensure its consistency with overall I
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,
(/~af.' efJ..- ~- a
Pamela Arends-King,
Director of Administrative ServiceslTreasurer