HomeMy WebLinkAboutCC AG PKT 2009-07-13 #FAGEN®A STAFF REP®RT
DATE: July 13, 2009
TO: Honorable Mayor and City Council
THRU: David Carmany, City Manager
FROM: Robbeyn Bird, CPA -
Director of Administrative Services/City Treasurer
SUBJECT: 2009/10 INVESTMENT POLICY AND INVESTMENT
GUIDELINES
SUMMARY OF REC~UEST:
Receive and file the FY 2009/2010 Statement of Investment Policy for investing
public funds. No changes are being requested by staff from the FY 2008/2009
investment Policy.
SACKGR®UND:
Prior to January 2006, the California Government Code Section 53646 (a)
required annual legislative approval of a local agency's "Statement of Investment
Policy". Legislative changes effective in January 2006 eliminated the requirement
for annual review of the Statement of Investment Policy. However, any changes
to the Statement of Investment Policy are still required to be reviewed by the
legislative body at a public meeting. In addition, California Government Code
Section 53646 (b) has been changed to allow for, rather than require, the
submittal of a quarterly report to the chief executive officer and legislative body.
Staff believes that it is good public policy to continue the practice of submitting
the Statement of Investment Policy to the City Council annually for your review.
Staff also believes that the submittal of the investment report monthly is good
public policy and adds to transparency of reporting. Therefore, staff will continue
to submit the Statement of Investment Policy annually and the investment report
monthly.
FISCAL IMPACT:
None
~RECOMMENDATI®N:
Receive and file the FY 2009/2010 Statement of Investment Policy.
SUBMITTED BY:
2~.b..Ya.u.,,.. ~..v~
Robbeyn ird, CPA
Director of Administrative Services
NOTED AND APPROVED:
C~+--=~~
David Carma y, City Manager
Agenda Item F~
CITY OF SEAL BEACH
STATEMENT OF INVESTMENT POLICY
2009/2010
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 Services/City Treasurer. 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 aze 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 aze based upon Federal, State and
Local law and prudent money management. The primary goals of these policies are:
To assure compliance with all Federal, State and Local law governing the
investment of moneys;
2. To protect the principal moneys of the City;
To generate the maximum amount of investment income within the parameters of
this Statement of Investment Policy and the Investment Portfolio Guidelines.
OBJECTIVES:
SAFETY OF PRINCIPAL -Safety of principal is the foremost objective of the
City of 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 contain investments, which provide
the ability of being easily sold at any time with minimal risk of loss of principal
or interest.
YIELD -The City's Fund shall be designed to attain a mazket-average rate of
return through economic cycles. The mazket-average rate of return is defined as
the average return on three-month U.S. Treasury Bills.
The City strives to maintain 100% 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 aze determined by cash flow projections updated daily. Investments aze monitored so
those legal limits on types of investments are not exceeded.
Seal Beach invests idle funds under the "Prudent Man Rule" which states that:
"Investments 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." ,.
AUTHORIZED INVESTMENTS:
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 -These securities are highly liquid in addition to-being considered the
safest of all investments.
Federal Agency Securities -These securities are highly liquid and considered riskless
Bankers Acceptances -These instruments, which aze frequently the highest in yield, are safe
highly liquid investments.
Commercial Paper -These instruments are issued by prime rated industrial and financial
institutions and allow the investment of money from one to 270 days at rates higher than we can
earn from the previously listed securities.
Certificates of Deposits -These 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 -These deposits 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.
Negotiable Certificates of Deposits must meet the following criteria to be eligible for
investment by the City:
They must be issued by a Nationally or State -Chartered Bank or a State or
Federal savings and Loan Association. No more than 30% of the city's idle
funds may be invested in Negotiable Certificates of Deposits.
REPURCHASE AGREEMENTS -These 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 aze 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 (LATE) and not a direct purchase by the
City of Seal Beach.
LOCAL AGENCY INVESTMENT FUND -This fund was established by the State Treasurer
for the benefit of local agencies. The Ciry can invest up to the maximum amount permitted by
State Law.
MEDIUM-TERM NOTES -The City can invest in these notes with 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 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 funds may be invested
in Medium-Term notes.
MUTUAL FUNDS -These funds or shazes 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 lazgest 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.
Investments not described herein, including but not limited to common stocks are prohibited from
use in this Fund.
GUIDELINES
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 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
yeazs.
DIVERSIFICATION -The Fund should consist of a 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.
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 Implementing -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.
INVESTMENT VEHICLES. The following parameters are outlined for
authorized investments as provided in the Statement of Investment Policy:
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U.S. TREASURY'S aze direct obligations for which the full faith and
credit of the United States Government aze 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 aze included in this category.
FEDERAL AGENCY ISSUES or obligations qualify as legal
investments and aze 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 TVA (Tennessee Valley
Authority). Although there is no percentage limitation on these issues,
he "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 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 any one bank.
COMMERCIAL PAPER must be ranked "P1"by Moody's Investor
Services or "A1" 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 270 days to maturity. No more than 25% of the
city's idle funds may be invested in commercial paper and the City may
purchase no more than 10 percent of the outstanding commercial paper
of any single issuer.
CERTICATE OF DEPOSIT shall be evaluated in terms of Federal
Deposit Insurance Corporation (FDIC) coverage. For deposits in excess
of the insured maximum of $250,000, approved collateral at the
percentage above mazket 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 lazge amounts of money for
less than thirty days at rates higher than we can eam 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
(LA1F).
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 are another authorized investment allowing the City to'
maintain liquidity and receive money market rates.
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 banks 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% 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 then discretion waive security for that portion of a deposit,
which is insured pursuant to federal law. Currently, the first $250,000 because
we receive a higher interest rate.
4UALIFIED 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 (NASD)/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 fu~m 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.
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 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 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.
~~
Robbeyn ird, CPA
Director of Administrative Services/City Treasurer
7