HomeMy WebLinkAboutCC Res 4649 1998-07-13
RESOLUTION NUMBER M!J
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 1998/1999
THE CITY COUNCIL OF THE CITY OF SEAL BEACH DOES HEREBY RESOLVE:
WHEREAS, the California State Legislature passed legislation during the 1984 session
requiring the filing of an annual Statement of Investment Policy by local public
ag~cies; and
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WHERERAS, the Orange County bankruptcy resulted in further legislation in Senate Bills 563
And 866 reinforcing the "prudent man" investme~t 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 1:
That an annual Statement oflnvestment Policy and Guidelines has been filed by the
City Treasurer for Fiscal Year 1998/99 in compliance with Section 53646(a) of the
Government Code of the State of California.
PASSED, APPROVED AND ADO~~Y THE City Council
meeting hereof held on the ~ ~ day of
1998 by the foUowing vote: ' 11
AYES: COUNClLMEMB~
NOES: COUNCILMEMBERS
ABSENT:
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STATE OF CALIFORNIA)
COUNTY OF ORANGE )
CITY OF SEAL BEACH )
I, Joanne M. Yeo, City Clerk for the City of Seal Beach, CalifO~dWbY certifY that the
foregoing resolution is the original copy ofResolutio umber on file in that office of
the City Clerk, passed, approved an/~ by th C" C unci! oft City of Seal Beach at a
regular meeting hereof held on the day 0 1998..
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Resolution Number ~ ~?
CITY OF SEAL BEACH
STATEMENT OF INVESTMENT POLICY
1998/1999
I 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.
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 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 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:
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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 income within the parameters of this
Statement oflnvestment Policy and the Investment Portfolio Guidelines.
OBJECTIVES:
1. SAFETY OF PRlNCIP AL - Safety of principal is the foremost objective of the City of
Seal Beach. Each investment transaction shall seek to ensure that 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 contain investments, which provide the ability
of being easily sold at any time with minima1 risk ofloss of principal or interest.
3 . YIELD - The City's Fund shall be designed to attain a market-average rate of return
through economic cycles. The market-average rate of return is defined as the average
return on three-month U.S. Treasury Bills.
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The City strives to maintain 100"/0 investment of idle funds after consideration for a 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 of investments are not exceeded.
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AUTHORIZED INVESTMENTS:
Seal Beach invests idle funds under the "Prudent Man Rule" which states that:
Resolution Number~4177
"Investment shall be made with judgment 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 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:
u.s. Treasury securities are highly liquid in addition to being considered the safest of all
investments.
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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 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 original maturity
date.
Negotiable Certificates of Deposit are high-grade instruments, paying a higher interest rate than
regular certificates of deposit. They are liquid because they can be traded in the secondary
market.
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 I
Repurchase Agreements. The authorization shall limit Repurchase Agreements to those
investment vehicles purcHased only through the Local Agency Investment Fund (LAlF).
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.
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 (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 I
active deposits. The deposits caIUlOt 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 an eligible
security, first trust deeds having a value of 150"/0 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 insuJ:ed
pursuant to federal law. Currently, the first $100,000 ora deposit is federally insured. It is to the City's
advantage to waive this collateral requirement for the first $100,000 because we receive a higher
interest rate.
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Resolution Number~4?
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 State-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 which 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 retum the
appropriate questionnaire, and an audited Financial Statement must be provided within 120 days of the
Institution's fiscal year end.
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 agent for 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 standard 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, 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 investment policy shall be reviewed at least annually to ensure its consistency with the overall
objectives of preservation ofPRlNCIPAL, LIQUIDITY, AND YIELD and its relevance to current
law, financial and economic trends, and to meet the needs of the City of Seal Beach.
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Resolution Number t/~t/9
CITY OF SEAL BEACH
INVESTMENT PORTFOLIO GUIDELINES
1998/1999
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 I
requirements.
POOLED C~SH. Whenever practical, the City's cash should be consolidated into one 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 nay be invested in securities with maturities
greater than three years.
DIVERSIFICATION. The Fund should consist of a 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.
STRt\TEGY. 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 Implementiruz. 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.
. Rapport. 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.
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.
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INVESTMENT VEmCLES. The following parameters are outlined for authorized investments as
provided in the Statement ofInvestment Policy.
u.S. TREASURY's are direct obligations for which the full faith and credit of the United
States Government are 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.
Resolution Number ~49
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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 CorporatiOli),
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 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
commercial bank. Banker's Acceptances purchased may not exceed 270 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.
COMMERCIAL PAPER ranked "PI" 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 operating
within the United States. Commercial Paper may not exceed 180 days to maturity. No more than 30"/0
of the city's idle funds may be invested in coJTImercial paper. .'
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NEGOTIABLE CERTIFICATES OF DEPOSITS issued by a Nationally or S~hartered 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"/0 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 100% 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 coUateral for repurchase agreements, the only securities acceptable as coUateral 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 (LAlF) and not a direct
purchase by the City of Seal Beach.
WCAL AGENCY INVESTMENT FUND established by the State Treasurer for the benefit of
local agencies up to the maximum pennitted by State Law.
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MEDlUM- TERM NOTES of a 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 within the United States. No more than 30"/0 of the Fund may be 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 comply
with the investment restrictions (California Government Code, commencing with Section 53630),
companies shall either:
Resolution Nunbe~ t./Ptl?
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 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.
GUARANTEED INVESTMENT CONTRACTS are investment agreements approved by the I
Credit Provider which are with investment institutions having long-term obligations which are rates
"AA-" or higher by S & P and "Aa3" or higher by Moody's as to long term instruments are rated in the
highest rating category by S & P and Moody's; provided that if such rating falls below the two highest
rating categories, the investment agreement shaI1 require the Trustee to replace such financial
institution or shall provide for the investment agreement to be collateralized at levels and under such
conditions as are appropriate for the maintenance of the rating of the bonds.
Investments not described herein, including but not limited to common stocks are prohibited from use
in this Fund.
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