HomeMy WebLinkAboutCC AG PKT 2006-09-11 #F
e AGENDA REPORT
DATE: September 11, 2006
TO: Honorable Mayor and Members of the City Council
FROM: Keith A. Evanoff; CIMA, CRP, CRRA
Director of Administrative ServicesfI'reasurer
SUBJECT: 2006/07 Investment Policy and Guidelines
SUMMARY OF REQUEST:
Approve the resolution adopting the Annual Statement of Investment Policy and
Guidelines for Fiscal Year 2006/2007. The City's Investment Policy establishes safety of
principal and liquidity as the primary objectives of the City's investment portfolio. Staff
requests no change from the FY 2005/2006 Investment Policy and Investment
Guidelines.
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BACKGROUND:
The City of Seal Beach adopted a Budget and Fiscal Policy on June 25, 2001 that
compliments the Investment Policy adopted annually to comply with AB 1073 - a Bill
that the State Assembly enacted in 1987. AB 1073 mandates that cities adopt furmal
investment policies out1ining the type of investments in which a city may place its idle
funds. Senate Bills 564 and 866, enacted subsequent to the Orange County bankruptcy,
require local agency treasurers to file an annual investment policy with their respective
governing bodies and also require treasurers to file a quarterly report on investments.
The City of Seal Beach currently prepares Investment Reports on a monthly basis. Senate
Bill 566 stipulates that the treasurer investing public funds is a trustee and has a fiduciary
responsibility under the ''Prudent Man" rule which states the fullowing:
''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 affuirs, not fur speculation, but for investment, considering the
probable safety of their capital as well as the probable income to be derived."
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The resolution adopting the annual statement of investment policy has been prepared in
accordance with Government Code Sections 53646(a) and 53600, 53600.5, 53601, and
53635 and guidelines published by the Califurnia Municipal Treasurers Association.
Agenda ItemL
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FISCAL IMPACT:
None
RECOMMENDATION:
Approve the resolution adopting the Investment Policy and Guidelines fur Fiscal Year
200612007 pursuant to Senate Bills 564 and 866.
~--.P~
Keit A. Evanoff; eIMA, CRP,
Director of Administrative Services/Treasurer
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Agenda Item
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RESOLlITION NUMBER
A RESOLlITION OF THE CITY COUNCil. OF THE CITY OF SEAL BEACH.
CALIFORNIA, ADOPI'lNG AND FILING THE ANNUAL STATEMENT OF INVESTMENT
POUCY AND GUIDELINES FOR THE FISCAL YEAR 2006107
WHEREAS. the Califomia State Legi.lature p....d legi.lation during the 1984 ....ion
requiring the filing of an annual Statement of Invesbnent Policy by local
public agencies; and
WHEREAS, the Orsnge County bankruptcy resulted in further legi.lation in Senate
Bill. 563 and 866 reinforcing the "prudent man" investment of public
fund.; and
,
WHEREAS. the City Tre..urer, in conjunction with the City Manager of the City of Seal
Beach. declares the annual Statement of Investment Policy and
Invesonent Guidelines to be as Slated 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 Guideline. h.. been filed by the
CIty Tre..urer for Fi.cal Year 200612007 io compliance with Section 53646(a) of the
Government Code of the State of California.
PASSED, APPROVED AND ADOPTED BY THE City Council of Seal Beach, at a meeting
hereof held on the dsy of , 2006 by the following
vote:
e AYES: COUNcn.MEMBERS
NOES: COUNcn.MEMBERS
ABSENT: COUNCll.MEMBERS
MAYOR
A TIEST:
Linda Devine. City Clerk
STATE OF CALIFORNIA)
COUNTY OF ORANGE )
CITY OF SEAL BEACH )
I, Linda Devine, City Clerk for the City of Seid Beach, California, do hereby certify that the
foregomg resolutions is the anginal copy of Resolution Number on file in that office
of the City Clerk, p...ed, approved an adopted by the City Couocil of the City of Seal Beach at a
regular meeting hereof held on the day of , 2006.
Linda Devine, Ctty clerk
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CITY OF SEAL BEACH
STATEMENT OF INVESTMENT POllCY
200612007
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
Progmm.
The responsibility for the day to day investment of the City's funds is the responsibility of the Director of
Administrative Services!TreaSUI'CT. The investment pohey 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 Progmm is designed to accurateJy 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 cub 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 managemenL 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 tho principal monoys of tho City:
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3. To gcnera%e the maximum amount of investment incorm within the parameters of this
Statement of Investment Policy and the Investment Portfolio Guidelines.
OBIECrIVES:
I. 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 - Liquidjl)' is the second most important objective of the City of Seal Beach. It
is important that the portfoUo contain investmenll, which provide the ability of being easily
sold at any time with mimmal risk of loss of principal or interesL
3. YIELD - The City's Fund shall be designed to attain a market....verage rate of return through
economic cycles. The market",ver&ge rate ofreturn is defined as the average return on threc-
month U.S. Treasury Bills.
The City strives to maintain 1009& investment of idle funds after consideration for a compensating
balance to cover the cost of services provided by the bank. The funds available for invcsbncnts are
detennined by cash flow projections updated dally. Invcstmenll U'C monitored so those legal limits on
types of investmeDts are not exceeded.
AUTHORIZED INVESTMENTS:
SeaJ Beach lnvests idle funds under the "Prudent Man Rule" which states that:
"Investment shall be made With judgement-and care, under circumstances then prevailing.
which persons of prudence discretion, and intelligence exercise in the management of
Lheir own affairs. not for speculation, but for investment, considering the probable snfety
of their capital as well as the probable income to be denved."
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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 riskJess.
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.
Cez titicates of Deposits allow the City to select the exact amount and day of maturity
as well as the exact depository, There are penalties for wlthdrawal of funds prior to the
original maturity date..
Nelotiab1e Certificates of Deposit are high-grade instruments, paying a higher interest
rate that regular ccrtificates of deposiL They are liquid because they can be traded In
tho sec:oodory maJtet.
COMMERCIAL PAPER ranked "PI"by Moody'slnve.lor Sorvic:ea or "AI" by StandanI snd Poor'.,
and issued by a domestic corporation having assets in excess of 5500,000,000 and having an MAu or better
rating on indebtedness oIher than commercial paper and be organized and operating within the United
Slates Commercial Paper may not exceed' 180 days to maturity No more than 25,. of the city'. idle
funds may be invested in commercial paper.
NEGOTIABLE CERTIFICATES OF DEPOSITS issued by s Nationally or Slate-Chartered Bank or a
Slate 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.
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REPURCHASE AGREEMENTS with banks and dcalen with which the city has entered into a mas.er
rcpurchnse contract, which specifies terms and conditions of repurchase agreements. The maturi[)' 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 nol
be allowed to fall below 102'IJ 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
collateraJ for repurchase agreements, the only securities acceptable as collateral shall be cligIble
negotiable certificates of deposit, eligible banker's acceptances, or securities that arc direct obligations of,
or that are fully guaranteed as to principal and interest by the United States or any agency of the United
Slates. The use of Repurchasc Agreements is limited to the extent they are investment vehicles
periodicalJy used by the LocaJ Agency Investment Fund (LAIF) and not a direct purchase by the Ci[)' of
Seal Beach.
LOCAL AGENCY INVESTMENT FUND eslablished by the Slate 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 (j) mcdiunHerm notes arc to
be rated "A" or better by a nationally recognized rating service. No more than 30lJJ of the City's idle
fund may be invested in Medium-Tcrm notes.
MUTUAL FUI\'DS or shares of beneficial interest issued by divenified 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 Governmcnt Code, commencing with Scction 53630), companies shall
either:
1) Attain the highest ranking or the highcstletter 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 5500.000.000. 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 15lJJ of the Funds may be invested
in mutuaJ funds
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Investments nol described herein. including but not limited to common stocks are prohibited from use in
this Fund.
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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 invesbnenbi scheduled so that adequate cash will be available
to meet the disbUJ'lement requiremenu.
POOLED CASH. Whenever practical, the City's cash should be consolidated into 011O
bank account and invested on a pooled concept basis. Interest earnings may be allocated
accorcnng to fund cash and investment balances.
LONG TERM MA TllRITIES. As a general rulo,long term malUrilics shOll!d nol
represent a significant percentage of the. total Fund, as the principal risk involved can
outweigh the potential for higher earnings. No more than 1S'I> of the tota1 Fund may
be invested in securities with maturities greater than three years.
DIVERSJF1CATION. The Fund should consist of a mix of various types of securities,
issuen. 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/dea1en shall be held in third pan.y
safekeeping by the Trust Department of the Bank designated by the Director of
Administrative Services. Said Securities shall be held in the Dame of the City of Seal
Beach with the trustce eJC.ecuting transactions as directed by the Director of Admin-
istrative Services.
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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.
Economic Forecasts. Economic forecast information developed by economists
and financial eJC.perts and obtained through bankers and brokers is used to assist
With the fonnulation of an investment strategy for the City.
Investment ImolementinR. Execute only investment transactions which confam
with anticipated cash flow requirements, economic condition and interest rate
trends and are consistent with the established Investment Policy StatemenL
RIumm:L. A close working relationship with City Departn'lenES having a signify-
cant impact on cash flow is maintained in order to maximize the effiCiency of the
City's cash management system and establish cash flow requjrements.
Yield EnhancemenL Utilize investment teclmiques to increase yield and to
Maintain a fully invested position.
Preserve Portfolio Value. Develop yield standards in order to maintain earnings
Consistent with Ehe market average rate ofretum to preserve the value of the
portfolio.
INVESTMENT VEHIa.ES. The following parameters are outlined for authorized
InvesEments as provided in the Statement of Investment Policy.
U.s. TREASURV.S are direct obligations for which the fwl faith and credit of
the United States Government and pledged for payment of principal and interesL
There is no limitation as to the percentage of the portfolio that can be invcsted
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 inveslmcnls
and are accepEable as security for public deposits. They usually provide
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higher yields than treasury issues with all of the same advanEages. Federal
Agenc)' Issues include, but are not limited to GNMA (Government National
Mortgage As.aeianon), FFCB (Fedenl FIIlh Credit Bank), FHLB (Fed-
enl Home Loon Bank Board), FHLMC (F.deraI Home Loan Mortgage
CllIponltion), FNMA. (Federal National Mortgage As.aeiat;on), SLMA
(Student Loan Mortgage Administration), REFCORP (Resolution Funding
Corporation), FHA (Fedenl Housing Admini.ttalion) aad TV A (T.nn.....
Valle)' Authority). Although there is no percentage limitation on these issues.
the "prudent investor" rule shall apply for a single agency name 15 U.S.
Government backilli ;. implied rmher than gU"""teed.
BANKERS' ACCEPTANCFS or billa of exchange or time drafts drawn on and
accepted by a commercial bank. Banker's Acceptances purchased may not exceed
180 day. to maturity or 40'1> of the city'. .orplu. funds. No more than 30% of the city'.
surplus funds may be invested in banker'. acceptances issued by anyone bank.
CERTICA TE OF DEPOSIT .hall be .vaIuated in terms of Federal D.po.;t Insurance
COrpon.tLon (FDIC) coverage. For deposits in excess of the insured maximum of
$100,000, approv.d coll.....I" the pen:entag. abo"" martc< value as specified by
law shall be required. The Directolr of Administrative Services may at their discretion
waive security for that portion of a deposit lhat is insured. pursuant to federal law.
Repurehase Agreements allow us to invest large amounts of money for leu than
Thiny days at rates higher than we can earn from other short-term investments
The aty 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).
Th. Loc.1 Agency In..BlmeIII Fund of the Stote of CoIirornto off." high
liquidity because our deposits can be wired to our checking account with-
in twenty-four hoon. Interest is computed on a daily basis.
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Medium Term Corporate Notes offer a competitive alternative to Negotiable
Certificates of Deposits and standard Certificates ofDepositl. 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 (Gle's)
DEPOSITORY SERVICES
Mane)' must be deposited in swe 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 intclest- bearing active deposits. The deposits cannot exceed the amount of the bank.'s
01 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 15 a n eligible security, first trust deeds having a value of lS09b of the total
amount of the deposits. A third class of collateral is letters of credit drawn on the Fed-
eral Home Loan Bank (FllLB).
The treasurer may at their discretion waive security for that portion of a deposit, which
is insured pursuant to federal law. Currently, the first 5100.000 because we receive a
higher-interest rate.
OUALIFlED DEALERS AND INSTITUTIONS:
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The City shall transact business only with banks. savings and loans and registered
investment securities dealers. The purchase by the City of any inveatment other than
those purchased directly from the issuer. shall be purchased either from an institution
licensed by the State as a brokcr-dealer. as defmed in Section 25004 of the Corporations
Code. who is a member of the National Association of Securities Dealen. or a member
of a Federally regulated securities C.llchange, a National or Sate-Chartered Bank. a Fed-
eral or State Association (15 defined by Section 5102 of the Flnancjal Code), or a
brokerage firm designated as a Primary Government Dealer by the Federal Reserve
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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 maJtets 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.
SAFEKEEPING OF SECURITIES:
To protect against potentiallos&es 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 tenns af 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 wUl 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
Secunties with a maturity of more than twelve months, rate of interest, and such data as
may be required by the City Council.
POUCY REVIEW:
This investment policy shall be reviewed at least annually to ensure its consistency
with overall objectives of preservation of PRINCIPAL, UQUIDITY, AND YIELD
and its relevance to current Jaw, financial and economic trends, and to meet the needs
oflhe Oty of Seal Beaoh.
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Keith A. Evanoff, CIMA. CRP, CRRA
Director of Admmistr8tive ServicesITreasurer
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