HomeMy WebLinkAboutCC AG PKT 2010-08-09 #HAGENDA STAFF REPORT
DATE: August 9, 2010
TO: Honorable Mayor and City Council
THRU: David Carmany, City Manager
FROM: Robbeyn Bird, CPA -
Director of Administrative Services /City Treasurer
SUBJECT: 2010/11 INVESTMENT POLICY AND INVESTMENT
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SUMMARY OF REQUEST:
Receive and file the FY 2010/2011 Statement of Investment Policy for investing
public funds and approve Resolution No. 6038. No changes are being requested
from the FY 2009/2010 Investment Policy.
BACKGROUND:
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.
As good public policy and transparency of reporting, the Statement of Investment
Policy will be submitted to the City Council annually for review and will continue
the submittal of the investment report monthly.
FISCAL IMPACT:
None
RECOMMENDATION:
Receive and file the FY 2010/2011 Statement of Investment Policy and approve
Resolution No. 6038.
Agenda Item H
Page 2
SUBMITTED BY:
Robbeyn Mrd, CPA
Director of Administrative Services
Attachment:
NOTED AND APPROVED:
5!�
David Carma y, City Manager
A. Resolution No. 6038
B. Statement of Investment Policy 2010/2011
RESOLUTION NUMBER 6038
A RESOLUTION OF THE SEAL BEACH CITY COUNCIL
ADOPTING AND FILING THE ANNUAL STATEMENT OF
INVESTMENT POLICY AND GUIDELINES FOR THE FISCAL
YEAR 2010/11
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 California State Legislature eliminated the requirement for local
agencies filing an annual statement of investment policy in January 2006; and
WHEREAS, the City prefers to continue the submittal of annual statement of
investment policy to enhance transparency of reporting; 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 Exhibit A.
NOW, THEREFORE, THE SEAL BEACH CITY COUNCIL DOES HEREBY
RESOLVE:
Section 1: That an annual Statement of Investment Policy and Guidelines has
been filed by the City Treasurer for Fiscal Year 2010/2011 in compliance with
Section 53646(a) of the Government Code of the State of California.
PASSED, APPROVED and ADOPTED by the Seal Beach City Council at a
regular meeting held on the 9th day of August , 2010 by the following vote:
AYES: Council Members
NOES: Council Members
ABSENT: Council Members
ABSTAIN: Council Members
ATTEST:
Mayor
City Clerk
STATE OF CALIFORNIA }
COUNTY OF ORANGE } SS
CITY OF SEAL BEACH }
I, Linda Devine, City Clerk of the City of Seal Beach, do hereby certify that the
foregoing resolution is the original copy of Resolution Number 6038 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 9th day of August , 2010.
City Clerk
CITY OF SEAL BEACH
STATEMENT OF INVESTMENT POLICY
2010/2011
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 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:
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 of Investment Policy and the Investment
Portfolio Guidelines.
OBJECTIVES:
1. 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.
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
2010 -2011
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 are determined by cash flow projections updated daily.
Investments are 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 are 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.
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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 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 — This fund was established by the State
Treasurer for the benefit of local agencies. The City 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 0) 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 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:
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.
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.
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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 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.
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 Implementinq - 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.
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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 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 are
included in this category.
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 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 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 "Al" 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.
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CERTIFICATE 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 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).
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 their 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.
QUALIFIED 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
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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 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.
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 Bird, CPA
Director of Administrative Services /City Treasurer
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