HomeMy WebLinkAboutCC Res 7406 2023-05-22 RESOLUTION 7406
A RESOLUTION OF THE SEAL BEACH CITY COUNCIL
APPROVING THE STATEMENT OF INVESTMENT POLICY AND
ANNUAL DELEGATION OF INVESTMENT AUTHORITY TO THE
DIRECTOR OF FINANCE/CITY TREASURER
THE SEAL BEACH CITY COUNCIL DOES HEREBY RESOLVE:
Section 1. The City Council hereby approves the Fiscal Year 2023-24 Statement
of Investment Policy as stated in Exhibit A, attached hereto and incorporated
herein by this reference.
Section 2. The City Council hereby reauthorizes the delegation of its investment
authority and the management of the investment program to the Director of
Finance/City Treasurer for a period of one year following the date this Resolution
is adopted.
PASSED, APPROVED and ADOPTED by the Seal Beach City Council at a
regular meeting held on the 22r'd day of May, 2023 by the following vote:
AYES: Council Members: Kalmick, Landau, Moore, Steele, Sustarsic
NOES: Council Members: None
ABSENT: Council Members: None
ABSTAIN: Council Members: None
Thomas Moore, Mayor
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Gloria b. Harper, City Clerk ' ` CQUNj.I C'P�
STATE OF CALIFORNIA }
COUNTY OF ORANGE } SS
CITY OF SEAL BEACH }
I, Gloria D. Harper, City Clerk of the City of Seal Beach, do hereby certify that the
foregoing resolution is the original copy of Resolution 7406 on file in the office of
the City Clerk, passed, approved, and adopted by the Seal Beach City Council at
a regular meeting held on the 22nd day of May, 2023.
loria D. Hal-r, ity Clerk
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EXHIBIT A
CITY OF SEAL BEACH
two
Statement of Investment Policy
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SECTION 1 - POLICY
This Statement of Investment Policy is intended to identify the policies for prudent
investment of temporarily idle funds of the City of Seal Beach (the "City") by providing
guidelines for suitable investments while maximizing the efficiency of the City's Cash
Management Program.
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.
The investment policies and practices of the City of Seal Beach are based upon state
law and prudent money management. All funds will be invested in accordance with
California Government Code Sections 53601 et seq. and the City's Investment Policy.
SECTION 2 - SCOPE
The Investment Policy applies to all funds and investment activities of the City except
the investment of bond proceeds, which are governed by the appropriate bond
documents, and any pension or other post-employment benefit funds held in a trust.
SECTION 3 - PRUDENCE
The standard of prudence to be used by investment officials will be the "prudent
investor" standard, which states that, "when investing, reinvesting, purchasing,
acquiring, exchanging. selling, or managing public funds, a trustee shall act with care,
skill, prudence, and diligence under the circumstances then prevailing, including, but not
limited to, the general economic conditions and the anticipated needs of the agency,
that a prudent person acting in a like capacity and familiarity with those matters would
use in the conduct of funds of a like character and with like aims, to safeguard the
principal and maintain the liquidity needs of the agency."
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SECTION 4 - OBJECTIVES
The primary objectives, in priority order, of the investment activities of the City are:
1. SAFETY — Safety of principal is the foremost objective of the City of Seal Beach.
2. LIQUIDITY — The City's portfolio will remain sufficiently liquid to enable the City
to meet its cash flow requirements. It is important that the portfolio contain
investments which provide the ability of being easily sold at any time with minimal
risk of loss of principal or interest.
3. YIELD — The City's portfolio will be designed to attain a market rate of return
through economic cycles consistent with the constraints imposed by its safety
objective and cash flow considerations.
SECTION 5 - DELEGATION OF AUTHORITY
Pursuant to California Government Code Section 53607, the City Council has delegated
its investment authority and the management responsibility for the investment program
to the Director of Finance/City Treasurer for a period of one year concurrently with the
City Council's adoption of this Investment Policy. This delegation of investment
authority is subject to review and annual renewal by the City Council in its discretion,
which annual renewal may be made by the City Council in connection with its annual
budget adoption or an amendment to this Investment Policy, or at such other time as
appropriate and convenient. The Director of Finance/City Treasurer will monitor and
review all investments for consistency with this Investment Policy. The Director of
Finance/City Treasurer may grant investment decision making and execution authority
to an investment advisor, provided that the Director of Finance/City Treasurer exercises
prudence in the selection of the investment advisor, imposes suitable safeguards to
prevent abuse in the exercise of discretion by the investment advisor, and remains
responsible for any investment decisions made by the investment advisor. The advisor
will follow the Investment Policy and such other written instructions as are provided.
SECTION 6 - INVESTMENT PROCEDURES
The Director of Finance/City Treasurer will establish investment procedures for the
operation of the City's investment program.
SECTION 7 - ETHICS AND CONFLICT OF INTEREST
Officers and employees involved in the investment process will refrain from personal
business activities that could conflict with proper execution of the investment program,
or which could impair their ability to make impartial decisions.
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SECTION 8 - AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
If the City is executing transactions on its own behalf, other than those executed directly
with issuer, the Director of Finance/City Treasurer will maintain a list of financial dealers
and institutions qualified and authorized to transact business with the City.
In accordance with California Government Code Section 53601.5, the purchase by the
City of any investment other than those purchased directly from the issuer, will be
purchased either from an institution licensed by the State as a broker-dealer, as defined
in Section 25004 of the Corporations Code, which is a member of the Financial Industry
Regulatory Authority (FINRA), 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 Director of Finance/City Treasurer will investigate all institutions that wish to do
business with the City, to determine if they are adequately capitalized, make markets in
securities appropriate for the City's needs, and agree to abide by the conditions set forth
in the City of Seal Beach's Investment Policy and any other guidelines that may be
provided. This will be done annually by having the financial institutions:
1. Provide written notification that they have read, and will abide by, the City's
Investment Policy.
2. Submit their most recent audited Financial Statement within 120 days of the
institution's fiscal year end.
If the City has an investment advisor, the investment advisor may use its own list of
authorized broker/dealers to conduct transactions on behalf of the City, provided that
the broker/dealer meets the requirements of the second paragraph, above, in this
Section 8.
Purchase and sale of securities will be made on the basis of competitive bids and offers
with a minimum of three quotes being obtained.
SECTION 9 - AUTHORIZED AND SUITABLE INVESTMENTS
Where this section specifies a percentage limitation for a particular security type, that
percentage is applicable only on the date of purchase. Credit criteria listed in this
section refers to the credit rating at the time the security is purchased. If an investment's
credit rating falls below the minimum rating required at the time of purchase, the
Director of Finance/City Treasurer will perform a timely review and decide whether to
sell or hold the investment.
The City will limit investments in any one non-government issuer, except
investment pools, to no more than 5% regardless of security type.
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1. U.S. Treasury obligations for which the full faith and credit of the United States
are pledged for the payment of principal and interest.
2. Federal agency or United States government-sponsored enterprise
obligations, participations, or other instruments, including those issued by or
fully guaranteed as to principal and interest by federal agencies or United States
government-sponsored enterprises. This will include any mortgage pass through
security issued and guaranteed by a Federal Agency with a maximum final
maturity of five years. Purchase of Federal Agency issued mortgage-backed
securities authorized by this subdivision may not exceed 20% of the City's
investment portfolio; portfolio concentration for all other investments in Federal
Agency securities is unrestricted.
3. Obligations of the State of California or any local agency within the state,
including bonds payable solely out of revenues from a revenue producing
property owned, controlled or operated by the state or any local agency, or by a
department, board, agency or authority of the state or any local agency.
4. Registered treasury notes or bonds of any of the other 49 states in addition
to California, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by a state, or by a
department, board, agency, or authority of any of these states.
5. Bankers' Acceptances with a rating of the highest ranking or highest letter and
number rating as provided for by a nationally recognized statistical-rating
organization (NRSRO). Purchases of bankers' acceptances may not exceed 180
days. No more than 40% of the City's portfolio may be invested in bankers'
acceptances.
6. Commercial Paper of "prime" quality of the highest ranking or of the highest
letter and number rating as provided for by a NRSRO. The entity that issues the
commercial paper must meet all of the following conditions in either paragraph a
or paragraph b:
a. The entity meets the following criteria: (i) is organized and operating in the
United States as a general corporation, (ii) has total assets in excess of five
hundred million dollars ($500,000,000), and (iii) has debt other than
commercial paper, if any, that is rated in a rating category of "A" or higher,
or the equivalent, by a NRSRO.
b. The entity meets the following criteria: (i) is organized within the United
States as a special purpose corporation, trust, or limited liability company,
(ii) has program-wide credit enhancements including, but not limited to, over
collateralization, letters of credit, or surety bond, and (iii) has commercial
paper that is rated in a rating category of "A-1" or higher, or the equivalent,
by a NRSRO.
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Eligible commercial paper will have a maximum maturity of 270 days or less. No
more than 25% of the City's portfolio may be invested in commercial paper. The
City may purchase no more than 10% of the outstanding commercial paper of
any single issuer.
7. Non-negotiable Certificates of Deposit (time CDs) in a state or national bank,
savings association or federal association, or federal or state credit union with a
branch in the State of California. In accordance with California Government Code
Section 53635.2, to be eligible to receive City deposits, a financial institution will
have received an overall rating of not less than "satisfactory" in its most recent
evaluation, pursuant to the federal Community Reinvestment Act, by the
appropriate federal financial supervisory agency of its record of meeting the
credit needs of California's communities. Time CDs are required to be
collateralized as specified under Government Code Section 53630 et seq. The
City, at its discretion, may waive the collateralization requirements for any portion
that is covered by federal deposit insurance. The City will have a signed
agreement with any depository accepting City funds per Government Code
Section 53649. No deposits will be made at any time in time CDs issued by a
state or federal credit union if a member of the City Council or the Director of
Finance/City Treasurer serves on the board of directors or any committee
appointed by the board of directors of the credit union. In accordance with
Government Code Section 53638, any deposit will not exceed that total
shareholder's equity of any depository bank, nor will the deposit exceed the total
net worth of any institution.
8. Negotiable Certificates of Deposit issued by a nationally or state-chartered
bank, a savings association or a federal association (as defined by Section 5102
of the Financial Code), a state or federal credit union, or by a federally- or state-
licensed branch of a foreign bank. No more than 30% of the City's portfolio may
be invested in negotiable CDs.
9. Medium-Term Notes issued by corporations organized and operating within the
United States or by depository institutions licensed by the U.S. or any state and
operating within the U.S. Medium-term corporate notes will be rated in a rating
category "A" or its equivalent or better by a NRSRO. No more than 30% of the
City's portfolio may be invested in medium-term notes.
10.Shares of beneficial interest issued by diversified management companies
that are money market funds registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1,
et seq.). To be eligible for investment pursuant to this subdivision these
companies will either: (i) attain the highest ranking letter or numerical rating
provided by at least two NRSROs or (ii) have retained an investment advisor
registered or exempt from registration with the Securities and Exchange
Commission with not less than five years of experience managing money market
mutual funds and with assets under management in excess of $500,000,000. In
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addition, an eligible money market fund must maintain a stable net asset value
(NAV). No more than 20% of the City's investment portfolio may be invested in
money market funds.
11.State of California's Local Agency Investment Fund (LAIF) an investment
pool run by the State Treasurer. The City can invest up to the maximum amount
permitted by the State Treasurer.
12.Shares of beneficial interest issued by a joint powers authority (Local
Government Investment Pools) organized pursuant to Government Code Section
6509.7 that invests in the securities and obligations authorized in subdivisions (a)
to (q) of California Government Code Section 53601. inclusive. Each share will
represent an equal proportional interest in the underlying pool of securities
owned by the joint powers authority. The Pool will be rated in a rating category
"AAA" or its equivalent by a NRSRO. To be eligible under this section, the shares
will maintain a stable net asset value (NAV) and the joint powers authority issuing
the shares will have retained an investment adviser that meets all of the following
criteria:
a. The adviser is registered or exempt from registration with the Securities and
Exchange Commission.
b. The adviser has not less than five years of experience investing in the
securities and obligations authorized in subdivisions (a) to (q) Government
Code Section 53601, inclusive.
c. The adviser has assets under management in excess of five hundred million
dollars ($500,000,000).
13.Asset-Backed Securities (ABS) such as a mortgage passthrough security,
collateralized mortgage obligation, mortgage-backed or other pay-through bond,
equipment lease-backed certificate, consumer receivable passthrough certificate,
or consumer receivable-backed bond of a maximum remaining maturity of five
years or less. ABS eligible for investment shall be rated in a rating category of
"AA" or its equivalent or better by an NRSRO. No more than 20% of the City's
investment portfolio may be invested in ABS.
14.Supranationals. United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development, International Finance
Corporation, or Inter-American Development Bank, with a maximum remaining
maturity of five years or less, and eligible for purchase and sale within the United
States. Obligations issues by supranationals will be rated in a rating category
"AA" or better by an NRSRO. No more than 30% of the City's investment
portfolio may be invested in supranationals.
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SECTION 10 - INVESTMENT POOLS/MONEY MARKET FUNDS
A thorough investigation of investment pools and money market funds is required prior
to investing, and on a continual basis.
SECTION 11 - MAXIMUM MATURITY
Maturities will be based on an analysis of the receipt of revenues and maturity of
investments. Maturities will be scheduled to permit the City to meet all disbursement
requirements.
The City may not invest in a security whose maturity exceeds five years from the
date of purchase unless City Council has provided approval for a specific
purpose at least 90 days before the investment is made.
SECTION 12 - PROHIBITED INVESTMENTS
Investments not described herein, including, but not limited to, reverse repurchase
agreements, stocks, inverse floaters, range notes, commercial mortgage-backed,
interest-only strips, or any security that could result in zero interest accrual if held to
maturity are prohibited for investment by the City.
SECTION 13 - INTERNAL CONTROL
The Director of Finance/City Treasurer will establish an annual process of independent
review by an external auditor. This review will provide internal control by assuring
compliance with policies and procedures.
SECTION 14 - CUSTODY OF SECURITIES
All securities owned by the City except time deposits and securities used as collateral
for repurchase agreements (if added to this Investment Policy as an authorized
investment), will be kept in safekeeping by a third-party bank's trust department, acting
as an agent for the City under the terms of a custody agreement executed by the bank
and the City.
All securities will be received and delivered using standard delivery versus payment
procedures.
SECTION 15 - REPORTING
The Director of Finance/City Treasurer will provide a monthly investment report to the
City Council showing all transactions, type of investment, issuer, purchase date,
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maturity date, purchase price, par amount, yield to maturity, and current market value
for all securities.
SECTION 16 - POLICY REVIEW
This Investment Policy will be reviewed at least annually to ensure its consistency with:
1. The California Government Code sections that regulate the investment and
reporting of public funds.
2. The overall objectives of preservation of principal, sufficient liquidity, and a
market return.
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Glossary
Asset-Backed Securities (ABS) are securities whose income payments and hence
value is derived from and collateralized (or "backed") by a specified pool of underlying
assets which are receivables. Pooling the assets into financial instruments allows them
to be sold to general investors, a process called securitization, and allows the risk of
investing in the underlying assets to be diversified because each security will represent
a fraction of the total value of the diverse pool of underlying assets. The pools of
underlying assets can comprise common payments credit cards, auto loans, mortgage
loans, and other types of assets. Interest and principal is paid to investors from
borrowers who are paying down their debt.
Bankers' Acceptances are short-term credit arrangements to enable businesses to
obtain funds to finance commercial transactions. They are time drafts drawn on a bank
by an exporter or importer to obtain funds to pay for specific merchandise. By its
acceptance, the bank becomes primarily liable for the payment of the draft at maturity.
An acceptance is a high-grade negotiable instrument.
Broker-Dealer is a person or a firm who can act as a broker or a dealer depending on
the transaction. A broker brings buyers and sellers together for a commission. They do
not take a position. A dealer acts as a principal in all transactions, buying and selling for
his own account.
Certificates Of Deposit
1. Negotiable Certificates of Deposit are large-denomination CDs. They are
issued at face value and typically pay interest at maturity, if maturing in less than
12 months. CDs that mature beyond this range pay interest semi-annually.
Negotiable CDs are issued by U.S. banks (domestic CDs), U.S. branches of
foreign banks (Yankee CDs), and thrifts. There is an active secondary market for
negotiable domestic and Yankee CDs. However, the negotiable thrift CD
secondary market is limited. Yields on CDs exceed those on U.S. treasuries and
agencies of similar maturities. This higher yield compensates the investor for
accepting the risk of reduced liquidity and the risk that the issuing bank might fail.
State law does not require the collateralization of negotiable CDs.
2. Non-negotiable Certificates of Deposit are time deposits with financial
institutions that earn interest at a specified rate for a specified term. Liquidation of
the CD prior to maturity incurs a penalty. There is no secondary market for these
instruments, therefore, they are not liquid. They are classified as public deposits,
and financial institutions are required to collateralize them. Collateral may be
waived for the portion of the deposits that are covered by FDIC insurance.
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Collateral refers to securities, evidence of deposits, or other property that a borrower
pledges to secure repayment of a loan. It also refers to securities pledged by a bank to
secure deposits. In California, repurchase agreements, reverse repurchase
agreements, and public deposits must be collateralized.
Commercial Paper is a short term, unsecured, promissory note issued by a corporation
to raise working capital.
Federal Agency Obligations are issued by U.S. Government Agencies or Government
Sponsored Enterprises (GSE). Although they were created or sponsored by the U.S.
Government, most Agencies and GSEs are not guaranteed by the United States
Government. Examples of these securities are notes, bonds, bills and discount notes
issued by Fannie Mae (FNMA), Freddie Mac (FHLMC), the Federal Home Loan Bank
system (FHLB), and Federal Farm Credit Bank (FFCB). The Agency market is a very
large and liquid market, with billions traded every day.
Issuer means any corporation, governmental unit, or financial institution that borrows
money through the sale of securities.
Liquidity refers to the ease and speed with which an asset can be converted into cash
without loss of value. In the money market, a security is said to be liquid if the difference
between the bid and asked prices is narrow and reasonably sized trades can be done at
those quotes.
Local Agency Investment Fund (LAIF) is a special fund in the State Treasury that
local agencies may use to deposit funds for investment. There is no minimum
investment period and the minimum transaction is $5,000, in multiples of $1,000 above
that, with a maximum of $65 million for any California public agency. It offers high
liquidity because deposits can be converted to cash in twenty-four hours and no interest
is lost. All interest is distributed to those agencies participating on a proportionate share
determined by the amounts deposited and the length of time they are deposited.
Interest is paid quarterly via direct deposit to the agency's LAIF account. The State
keeps an amount for reasonable costs of making the investments, not to exceed one-
quarter of one per cent of the earnings.
Market Value is the price at which a security is trading and could presumably be
purchased or sold.
Maturity is the date upon which the principal or stated value of an investment becomes
due and payable.
Medium-Term Notes are debt obligations issued by corporations and banks, usually in
the form of unsecured promissory notes. These are negotiable instruments that can be
bought and sold in a large and active secondary market. For the purposes of California
Government Code, the term "Medium Term" refers to a maximum remaining maturity of
five years or less. They can be issued with fixed or floating-rate coupons, and with or
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without early call features, although the vast majority are fixed-rate and non-callable.
Corporate notes have greater risk than Treasuries or Agencies because they rely on the
ability of the issuer to make payment of principal and interest.
Money Market Fund is a type of investment comprising a variety of short-term securities
with high quality and high liquidity. The fund provides interest to shareholders. Prior to
amendments to the money market fund regulations adopted by the U.S. Securities and
Exchange Commission in 2014, all money market funds were required to strive to
maintain a stable net asset value (NAV) of $1 per share. Following the 2014 money
market fund reform, certain money market funds are required to sell and redeem shares
based on the current market-based value of the securities in their underlying portfolios
rounded to the fourth decimal place (i.e., transact at a floating or fluctuating net asset
value (NAV)). Accordingly, money market funds available today may be either a floating
NAV money market fund or a stable NAV money market fund.
Principal describes the original cost of a security. It represents the amount of capital or
money that the investor pays for the investment.
Repurchase Agreements are short-term investment transactions. Banks buy
temporarily idle funds from a customer by selling him U.S. Government or other
securities with a contractual agreement to repurchase the same securities on a future
date at an agreed upon interest rate. Repurchase Agreements are typically for one to
ten days in maturity. The customer receives interest from the bank. The interest rate
reflects both the prevailing demand for Federal Funds and the maturity of the Repo.
Repurchase Agreements must be collateralized.
Supranationals are securities issued or unconditionally guaranteed by multi-lateral
international financial institutions whose member nations contribute capital and
participate in management.
U.S. Treasury Issues are direct obligations of the United States Government. They are
highly liquid and are considered the safest investment security. U.S. Treasury issues
include:
1. Treasury Bills which are non-interest-bearing discount securities issued by the
U.S. Treasury to finance the national debt. Bills are currently issued in 4-week, 8-
week, 13-week, 26-week, and 52-week maturities.
2. Treasury Notes that have original maturities of one to ten years.
3. Treasury Bonds that have original maturities of greater than 10 years.
Yield to Maturity is the rate of income return on an investment. minus any premium
above par or plus any discount with the adjustment spread over the period from the date
of the purchase to the date of maturity of the bond.
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