HomeMy WebLinkAbout24706RESOLUTION NO. 24706
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM
SPRINGS, CALIFORNIA, ADOPTING AN INVESTMENT POLICY
GOVERNING THE INVESTMENT OF CITY FUNDS AND
SUPERCEEDING RESOLUTION NO. 24438.
THE PALM SPRINGS CITY COUNCIL FUNDS, APPROVES, AND RESOLVES AS
FOLLOWS:
SECTION 1. The City Council finds the Investment Policy is consistent with the City's
commitment to safeguarding public funds; and
SECTION 2. The City of Palm Springs Investment Policy, attached as Exhibit A and
incorporated by reference, is hereby adopted; and
SECTION 3. Resolution No. 244438 is hereby superseded in its entirety.
ADOPTED THIS 9T" DAY OF JANUARY, 2020.
ATT T: David H. Ready�City Man
6
Ajithony J. Mej' ,
City Clerk
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF RIVERSIDE ) ss.
CITY OF PALM SPRINGS)
I, ANTHONY J. MEJIA, City Clerk of the City of Palm Springs, hereby certify that
Resolution No. 24706 is a full, true and correct copy, and was duly adopted at a regular meeting
of the City Council of the City of Palm Springs on the 9th day of January, 2020, by the following
vote:
AYES: Councilmembers Garner, Middleton, Woods, Mayor Por Tem Holstege, and
Mayor Kors
NOES: None
ABSENT: None
ABSTAIN: None
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City
of Palm Springs, California, this J3+- day of �e
Anthony J.
City Clerk
CITY OF PALM SPRINGS
2019-2020
INVESTMENT POLICY
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Adopted January 9, 2020
CITY OF PALM SPRINGS
INVESTMENT POLICY AND GUIDELINES
1.0 Purpose:
The purpose of this Investment Policy (Policy) is to set forth the investment and
operational guidelines for the management and investment of the public funds of the City
of Palm Springs, California. The Policy requires adoption by, and can only be changed
by, a majority vote of the City Council.
The Policy is designed to ensure the prudent management of public funds, the availability
of operating and capital funds when needed, and an investment total return that is
comparable to established benchmarks, as appropriate.
A copy of this statement will be provided to all investment dealers and investment
managers doing business with the City of Palm Springs, and will be provided to other
interested parties on request. Receipt of this policy, including confirmation that it has been
reviewed by individuals working directly with the City's investment account will be
received prior to any organization providing investment services to the City of Palm
Springs.
2.0 Policy:
The investment Policy and practices of the City of Palm Springs are based upon state law
and prudent money management consistent with City policies. The primary goals of these
practices are:
A. To ensure compliance with all Federal, State, and local laws governing the
investment of public funds under the control of the Director of Finance/Treasurer.
B. To protect the principal of monies entrusted to the City's Finance Department.
C. Achieve a reasonable rate of return within the parameters of prudent risk
management while minimizing the potential for capital losses arising from market
changes or issuer default.
3.0 Scope:
This Investment Policy applies to all financial assets of the City of Palm Springs. These
funds are accounted for in the City's Comprehensive Annual Financial Report.
The Director of Finance/Treasurer is responsible for investing the unexpended cash in
the City Treasury for all funds, except for the employee's retirement funds or deferred
compensation accounts, which are administered separately, and those funds which are
managed separately by trustees appointed under indenture agreements.
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These funds include, but are not limited to:
• General Fund
• Special Revenue Funds
• Capital Project Funds
• Debt Service Fund
• Enterprise Funds
• Internal Service Funds
• Trust and Agency Funds
• Bond Proceeds
• Any new fund created by the legislative body, unless specifically exempted
This Investment Policy applies to all transactions involving the financial assets and related
activity of the foregoing funds.
4.0 Prudence:
The standard of prudence to be used by the Director of Finance/Treasurer shall be the
"prudent investor standard." This shall be applied in the context of managing an overall
portfolio. The "prudent investor standard" shall be applied to the City, pursuant to
California Government Code Section 53600.3 which provides, in pertinent part:
" ... all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing public
funds pursuant to this chapter are trustees and therefore fiduciaries
subject to the prudent investor standard. 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...."
4.1 Personal Responsibility:
The Director of Finance/Treasurer, as the investment officer acting in accordance with
written procedures and the Investment Policy and exercising due diligence, shall be
relieved of personal responsibility for an individual security's credit risk or market
price changes, provided deviations from expectations are reported to the City Council in
a timely fashion and appropriate action is taken to control adverse developments.
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5.0 Objective:
Consistent with this aim, investments are made under the terms and conditions of
California Government Code Section 53600, et seq. Criteria for selecting investments and
the absolute order of priority are:
Safety
Safety of principal is the foremost objective of the investment program. Investments of
the City of Palm Springs shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. To attain this objective, diversification is
required in order that potential losses on individual securities do not exceed the income
generated from the remainder of the portfolio.
Liquidity
The City of Palm Springs's investment portfolio will remain sufficiently liquid to enable the
City to meet all operating requirements which might be reasonably anticipated and to
maintain compliance with any indenture agreement, as applicable. Liquidity is essential
to the safety of principal.
Return on Investments
The City of Palm Springs's investment portfolio shall be designed with the objective of
attaining a market -average rate of return throughout budgetary and economic cycles
(market interest rates), within the City's Investment Policy's risk parameters and the City's
cash flow needs. See also Section 16.1.
6.0 Delegation of Authority:
The Director of Finance/Treasurer shall be responsible for all transactions undertaken
and shall establish a system of controls to regulate the activities of subordinate
officials. The responsibility for the day-to-day investment of City funds may be delegated
to other Department of Finance staff members as determined by the Director of
Finance/Treasurer.
Procedures should include references to: ACH/wire transfer agreements, and
collateral/depository agreements, as appropriate. Such procedures shall include explicit
delegation of authority to persons responsible for investment transactions. No person may
engage in an investment transaction except as provided under the terms of this policy
and the procedures established by the Director of Finance/Treasurer. The Director of
Finance/Treasurer shall be responsible for all transactions undertaken and shall establish
a system of controls to regulate the activities of subordinate officials. Under the provisions
of California Government Code 53600.3, the Director of Finance/Treasurer is a trustee
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and a fiduciary subject to the prudent investor standard.
The City may engage the services of one or more external investment managers to assist
in the management of the City's investment portfolio in a manner consistent with the City's
Investment Policy and objectives. Such external managers may be granted discretion to
purchase and sell investment securities in accordance with this Investment Policy. Such
managers must be registered under the Investment Advisers Act of 1940.
7.0 Ethics and Conflicts of Interest:
Consistent with state statutes and regulations and the City's local policies relating to
conflicts of interest, all persons involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the investment
program, or which could impair their ability to make impartial investment decisions.
Employees and investment officers are required to file annual disclosure statements as
required for "public officials who manage public investments" [as defined and required by
the Political Reform Act and related regulations, including Government Code Sections
81000, et seq., and the rules, regulations and guidelines promulgated by California's Fair
Political Practices Commission (FPPC)].
8.0 Authorized Financial Dealers and Institutions:
The City's Director of Finance/Treasurer will maintain a list of the financial institutions and
brokers/dealers authorized to provide investment and depository services and will
perform an annual review of the financial condition and registrations of qualified bidders
and require annual audited financial statements to be on file for each company. The City
shall annually send a copy of the current Investment Policy to all financial institutions and
brokers/dealers approved to do business with the City.
If the City uses an external investment adviser, the adviser is authorized to enter into
transactions with its own approved Broker -Dealer list on behalf of the City. The adviser
shall perform all due diligence for all brokers/dealers on its approved list. The external
investment adviser shall annually provide the City its approved Broker -Dealer list so that
the Director of Finance/Treasurer may conduct their own review.
As far as possible, all money belonging to, or in the custody of, a local agency, including
money paid to the City's Director of Finance/Treasurer or other official to pay the principal,
interest, or penalties of bonds, shall be deposited for safekeeping in state or national
banks, savings associations, federal associations, credit unions, or federally insured
industrial loan companies in this state selected by the City's Director of
Finance/Treasurer; or may be invested in the investments set forth in Section 9.0. To be
eligible to receive local agency money, a bank, savings association, federal association,
or federally insured industrial loan company shall have received an overall rating of not
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less than "satisfactory" in its most recent evaluation by the appropriate federal financial
supervisory agency of its record of meeting the credit needs of California's communities,
including low- and moderate -income neighborhoods.
To provide for the optimum yield in the investment of City funds, the City's investment
procedures shall encourage competitive bidding on transactions from approved
brokers/dealers. In order to be approved by the City, the dealer must meet the following
criteria: (i) the dealer must be a "primary" dealer or regional dealer that qualifies under
Securities and Exchange Commission Rule 15C3-1 (Uniform Net Capital Rule); (ii) the
dealer's institution must have an office in California; (iii) the dealer must be experienced
in institutional trading practices and familiar with the California Government Code as
related to investments appropriate for the City; and (iv) all other applicable criteria, as
may be established in the investment procedures. All brokers/dealers and financial
institutions who desire to become qualified bidders for investment transactions must
submit a "Broker/Dealer Application" and related documents relative to eligibility including
a current audited annual financial statement, U4 form for the broker, proof of state
registration and proof of National Association of Securities Dealers certification. The
City's Director of Finance/Treasurer shall have also have received a signed Certification
from the firm of having read and understood the City's Investment Policy and agreeing to
comply with the Investment Policy. The City's Director of Finance/Treasurer shall
determine if they are adequately capitalized (i.e. qualifies under SEC Rule 15C3-1,
Uniform Net Capital Rule and five years of operation). If the City uses an external
investment advisor, the investment adviser will use the firm's best execution procedures,
and must retain documentation of competitive pricing execution on each transaction and
provide such documentation to the Director of Finance/Treasurer upon request.
9.0 Cash and Investment Instruments:
City active and inactive deposits may be kept in checking accounts and savings accounts
at financial institutions as identified in California State Government Code Section 53648
provided that they are adequately secured with proper collateral as prescribed by
Government Code Sections 53656 and/or 53658. Funds may be automatically swept from
the above accounts into investment instruments provided those investment instruments
are allowable investments as listed in this section, and limited to the percentage of the
portfolio prescribed for each investment instrument.
Allowable investments for the portfolio of the City of Palm Springs are limited by California
State Government Code Sections 53601 et seq.; and Section 53635. They are further
restricted by the Director of Finance/Treasurer's investment strategy. Limitations on
percentage of portfolio, single issue or issuer, credit quality, diversification, and maturity
apply at the time of purchase. Purchased securities may not exceed five-year maturities.
Exceptions can only be approved by the City Council. The investment instruments and
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percentage of the portfolio permitted by this policy are described below. Investments
not specifically listed below are deemed inappropriate and prohibited.
OBLIGATIONS OF THE UNITED STATES TREASURY
United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for
which the faith and credit of the United States are pledged for the payment of principal
and interest.
• Maximum Maturity: 5 Years
• Maximum Percentage of Portfolio: 100%
BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY WITHIN THE STATE OF
CALIFORNIA OR THE STATE OF CALIFORNIA
Registered California warrants, treasury notes or bonds of this state, including bonds
payable solely out of the revenues from a revenue -producing property owned, controlled
or operated by the state or by a department, board, agency, or authority of the state.
Bonds, notes, warrants or other evidences of indebtedness of any local agency within
California including bonds payable solely out of the revenues from a revenue -producing
property owned, controlled, or operated by the local agency, or by a department, board,
agency, or authority of the local agency. Investments under this section must be rated "A"
or better by a nationally recognized rating service.
• Maximum Percentage of Portfolio: 15%
• Maximum Exposure: 5% per Issuer.
FEDERAL AGENCIES
Obligations issued by banks for cooperatives, federal land banks, federal intermediate
credit banks, federal home loan banks, the Federal Home Loan Bank Board, Federal
Home Loan Mortgage Corporation, Federal Home Loan Bank, Federal Farm Credit Bank,
the Tennessee Valley Authority, or in obligations, participations, or other instruments of,
or issued by, or fully guaranteed as to principal and interest by, the Federal National
Mortgage Association; or in guaranteed portions of Small Business Administration notes;
or in obligations, participations, or other instruments of, or issued by, a federal agency or
United States government -sponsored enterprise.
• Maximum Maturity: 5 Years
• Maximum Percentage of Portfolio: 60%
BANKERS'ACCEPTANCES
Bills of exchange or time drafts drawn on and accepted by a commercial bank, typically
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created from a letter of credit issued in a foreign trade transaction. Eligibility is limited to
U.S. banking corporations.
• Maximum Maturity: 180 Days
• Maximum Percentage of Portfolio: 20%
• Maximum Exposure: 5% per bank
• Credit Requirement: A-1, P-1, F-1 (Per S&P/ Moody's /Fitch)
COMMERCIAL PAPER
Commercial Paper ranked A-1, P-1, F-1 by one of the major rating agencies and issued
by a domestic corporation having assets in excess of $500,000,000 and having an "A" or
better rating on its long term debentures, if any, as determined by a recognized national
rating agency.
• Maximum Maturity: 270 Days
• Maximum Percentage of Portfolio: 15%
• Maximum Exposure: 5% per Issuer
• Credit Requirement A-1, P-1, F-1 (Per S&P/ Moody's / Fitch)
NEGOTIABLE CERTIFICATES OF DEPOSIT
Negotiable certificates of deposit issued by a nationally or state -chartered bank, a savings
association or a federal association, a state or federal credit union, or by a state -licensed
branch of a foreign bank. Securities in this category exceeding federal deposit insurance
limits shall be rated or issued by institutions which have long-term debt obligations rated
"A" (or the equivalent) or better and short-term debt obligations, if any, rated "A-1" (or the
equivalent) or better by at least two nationally recognized statistical rating agencies.
• Maximum Maturity: 5 Years
• Maximum Percentage of Portfolio: 30%
• Maximum Exposure: 5% per Issuer
• FDIC -insured up to $250,000
• Credit Requirement if over $250,000: Rating of "A" or the equivalent (Per S&P/
Moody's / Fitch)
MEDIUM -TERM CORPORATE NOTES
Medium term notes, defined as all corporate and depository institution debt securities with
a maximum remaining maturity of five years or less, 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. Notes eligible for investment
under this subsection must be rated "A" or better by a nationally recognized rating service
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at the time of purchase.
If the credit rating of a security falls below the "BBB" grade, it must be sold and removed
from the City Portfolio unless the City Council approves the Director of
Finance/Treasurer's recommendation that the security should be retained. Director of
Finance/Treasurer will monitor and report status of such security to City Council on each
quarterly report prepared pursuant to Section 18.0.
• Maximum Maturity: 5 Years
• Maximum Percentage of Portfolio: 30%
• Maximum Exposure: 5% per Issuer
MUTUAL FUNDS AND MONEY MARKET MUTUAL FUNDS
California Government Code Sections 53601 (k) permits public agencies to invest 20%
of their portfolio in mutual funds or money market. Money market funds are limited to a
maximum dollar -weighted average maturity of 90 days; each investment must have a
remaining maturity of thirteen months or less at time of purchase; and the fund must strive
to maintain a constant net asset value of $1.00. These restrictions are designed to protect
assets from a loss in value that can result from substantial increases in interest rates.
The California Government Code Section 53601 (k) (2) permits public agencies to invest
in "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.) as long as the
company shall have met either of the following criteria: (A) Attained the highest
ranking or the highest letter and numerical rating provided by not less than two
nationally recognized statistical rating organizations or (B) Retained an investment
advisor registered or exempt from registration with the Securities and Exchange
Commission with no less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to 0), inclusive, or subdivisions (m) or (n) and
with assets under management in excess of five hundred million dollars ($500,000,000)."
• Maximum Percentage of Portfolio: 10 %
The California Government Code Section 53601 (p) permits public agencies to invest in
"shares of beneficial interest issued by a joint powers authority organized pursuant to
Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a)
to (o), inclusive. Each share shall represent an equal proportional interest in the
underlying pool of securities owned by the joint powers authority. To be eligible under this
section, the joint powers authority issuing the shares shall have retained an investment
adviser that meets all of the following criteria: (1) The adviser is registered or exempt from
registration with the Securities and Exchange Commission; (2) The adviser has not less
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than five years of experience investing in the securities and obligations authorized in
subdivisions (a) to (o), inclusive; and (3) The adviser has assets under management in
excess of five hundred million dollars ($500,000,000)."
• Duration: Less than 1 year; Maximum Percentage of Portfolio: 50%
• Duration: More than 1 year; Maximum Percentage of Portfolio: 25%
TIME DEPOSITS -CERTIFICATES OF DEPOSIT (non-negotiable certificates of deposit.)
Time deposits, non-negotiable and collateralized in accordance with the California
Government Code, may be purchased through banks or savings and loan associations
with an "A" or better rating.
• Maximum Maturity: 1 Year
• Maximum Percentage of Portfolio: 10%
• Maximum Exposure: $500,000 per Issuer
THE LOCAL AGENCY INVESTMENT FUND (LAIF)
A pooled investment fund managed by the State Treasurer's Office, which operates like
a money market fund for the exclusive benefit of governmental entities within California.
• Maximum of Portfolio: Maximum set by LAIF
9.1 Bond Proceeds
In addition to the investment vehicles enumerated in Section 9.0, the proceeds of bond
issues (including reserve funds) may be invested in long term Guaranteed Investment
Contracts (GIC), Investment Agreements (IA), or other Structured Products (SP) that
comply with the Permitted Investment restrictions of the particular bond issue.
Before soliciting bids from providers of GIC's, IA's, or SP's, the Director of
Finance/Treasurer shall obtain approval from the City Council to proceed.
9.2 Investment Pools:
The City's Director of Finance/Treasurer or designee shall be required to investigate all
local government investment pools and money market mutual funds prior to investing and
performing an annual review thereafter while the City is invested in the pool or the money
market fund. LAIF is authorized under provisions in Section 16429.1 of the California
Government Code as an allowable investment for local agencies even though some of
the individual investments of the pool are not allowed as a direct investment by a local
agency.
9.3 Prohibited Investments:
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Under the provisions of California Government Code Sections 53601.6 and 53631.5, the
City of Palm Springs shall not invest any funds covered by this Investment Policy in
inverse floaters, dual index, stepped inverse derivatives, repurchase agreements, reverse
repurchase agreements, range notes, interest -only strips derived from mortgage pools,
stock in any joint company, corporation or association, or any investment that may result
in a zero interest accrual if held to maturity.
9.4 Social Responsibility:
The City shall not knowingly make any investments in any institution, company,
corporation, subsidiary, or affiliate that practices or supports directly or indirectly through
its actions, discrimination on the basis of race, religion, color, creed, national or ethnic
origin, age, sex, sexual orientation, or physical disability, as this is not in accordance with
the City of Palm Springs policies regarding discrimination.
Investments are encouraged in entities that support community well-being through safe
and environmentally sound practices and fair labor practices. Investments are
encouraged in entities that support equality of rights regarding race, religion, color, creed,
national or ethnic origin, age, sex, sexual orientation, or physical disability. Investments
should be made to the extent reasonable under the circumstances that such socially
responsible investments meet minimum permitted requirements by state law, and achieve
substantially equivalent safety, liquidity, and yield when compared to similar investments
permitted by state law.
Prior to making investments the City's Director of Finance/Treasurer's office will
reasonably verify an entity's support of the socially responsible goals listed above through
direct contact or through the use of a third party resource.
10.0 Portfolio Adjustments:
Periodic purchase and sale transactions may be executed to align the portfolio with the
City's stated strategic risk profile or market benchmark, or to capitalize on perceived
relative value opportunities to improve safety, liquidity, yield, or risk/return profile of the
portfolio. Transaction information will be included in the Monthly Investment Report that
is submitted to the City Council. Should any investment listed in section 9.0 exceed a
percentage -of -portfolio limitation due to an incident such as fluctuation in portfolio size,
the affected securities may be held to maturity to avoid losses. If it becomes necessary
to sell an investment prior to maturity (either at a profit or loss) due to unexpected cash
flow needs, the Director of Finance/Treasurer shall first obtain approval for the transaction
from the City Manager.
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11.0 Collateral ization:
Under provisions of the California Government Code, California banks and savings and
loan associations are required to secure the City's deposits by pledging government
securities with a value of 110 % of principal and accrued interest. California law also
allows financial institutions to secure City deposits by pledging first trust deed mortgage
notes having a value of 150% of the City's total deposits. Collateral will always be held
by an independent third party. The market value of securities that underlay a repurchase
agreement shall be valued at 102% or greater of the funds borrowed against those
securities and the value shall be adjusted no less than quarterly. Since the market value
of the underlying securities is subject to daily market fluctuations, the investments in
repurchase agreements shall be in compliance if the value of the underlying securities is
brought back up to 102% no later than the next business day. The Director of
Finance/Treasurer, at his or her discretion, may waive the collateral requirement for
deposits that are fully insured up to $250,000 by the Federal Deposit Insurance
Corporation. The right of collateral substitution is granted.
12.0 Safekeeping and Custody:
All City investments shall identify the City of Palm Springs as the registered owner, and
all interest and principal payments and withdrawals shall indicate the City of Palm Springs
as the payee. All securities shall be safe kept with the City itself or with a
qualified financial institution, contracted by the City as a third party. All agreements and
statements will be subject to review annually by external auditors in conjunction with their
audit. In the event that the City has a financial institution hold the securities, a separate
custodial agreement shall be required. All securities shall be acquired by the safekeeping
institution on a "Delivery -Vs -Payment" (DVP) basis.
13.0 Diversification:
The City's investment portfolio will be diversified to avoid incurring unreasonable or
avoidable risks associated with concentrating investments in specific security types,
maturity segment, or in individual financial institutions. With the exception of U.S.
Treasury securities and authorized pools, no more than 50% of the total investment
portfolio will be invested in a single security type or with a single financial institution. In
addition, no more than 10% of the investment portfolio shall be in securities of any one
issuer except for U.S. Treasuries and U.S. Government Agency issues.
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall
be mitigated by investing in those securities with an "A" or above rating and
approved in the Investment Policy and by diversifying the investment portfolio so
that the failure of any one issuer would not unduly harm the City's cash flow.
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B. Market risk, defined as the risk of market value fluctuations due to overall changes
in the general level of interest rates, shall be mitigated, when possible, by
structuring the portfolio so that securities mature at the same time that major cash
outflows occur, thus eliminating the need to sell securities prior to their maturity.
It is explicitly recognized, however, that in a diversified portfolio, occasional
measured losses are inevitable and must be considered within the context of
overall investment return. The City's investment portfolio will remain sufficiently
liquid to enable the City to meet all operating requirements which might be
reasonably anticipated.
14.0 Maximum Maturities:
To the extent possible, the City will attempt to match its investments with anticipated cash
flow requirements. Unless matched to a specific cash flow, the City will not directly invest
in securities maturing more than five (5) years from the date of purchase, unless, the City
Council has granted express authority to make that investment either specifically, or as a
part of an investment program approved by the City Council. The weighted average
maturity of the pooled portfolio shall not exceed 3 years (1,095 days) and individual
maturities are subject to the limitations described in Section 9.0.
15.0 Internal Control:
The Director of Finance/Treasurer shall establish a system of internal controls designed
to prevent loss of public funds due to fraud, employee error, and misrepresentation by
third parties, or unanticipated market changes. No investment personnel may engage in
an investment transaction except as provided for under the terms of this Investment Policy
and the procedure established by the Director of Finance/Treasurer.
The external auditors shall annually review the investments with respect to the Investment
Policy. This review will provide internal control by assuring compliance with policies and
procedures for the investments that are selected for testing. Additionally, account
reconciliation and verification of general ledger balances relating to the purchasing or
maturing of investments and allocation of investments to fund balances shall be
performed by the Finance Department and approved by the Director of
Finance/Treasurer.
To provide further protection of City funds, wiring of any City funds is prohibited without
the authorization of one of the following designated City staff:
1. Director of Finance/Treasurer
2. Assistant Director of Finance
3. Assistant City Manager
4. City Manager
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16.0 Performance Standards:
This Investment Policy shall be reviewed at least annually by the Director of
Finance/Treasurer to ensure its consistency with the overall objective of preservation of
principal, liquidity, and return, and its relevance to current law and financial and economic
trends. All financial assets of all other funds shall be administered in accordance with the
provisions of this Investment Policy.
16.1 Market Yield (Benchmark):
The investment portfolio shall be managed to attain a market -average rate of return
throughout budgetary and economic cycles, taking into account the City's investment risk
constraints and cash flow. Investment return becomes a consideration only after the
basic requirements of investment safety and liquidity have been met. The Finance
Director/Treasurer shall establish an appropriate benchmark or benchmarks, as
appropriate, for investment parameters that reflect the types and maturities of
investments allowed under this policy. While the City will not make investments for the
purpose of trading or speculation as the dominant criterion, the Director of
Finance/Treasurer shall seek to enhance total portfolio return by means of ongoing
portfolio and cash management. The prohibition of highly speculative investments
precludes pursuit of gain or profit through unusual risk and precludes investments
primarily directed at gains or profits from conjectural fluctuations in market prices. The
Director of Finance/Treasurer will not directly pursue any investments that are leveraged
or deemed derivative in nature. However, as long as the original investments can be
justified by their ordinary earning power, trading in response to changes in market value
can be used as part of on -going portfolio management.
17.0 Oversight Committee:
A committee comprised of one Council member appointed by Council, the City Manager
and the Director of Finance/Treasurer, shall provide oversight of the City's investments.
The Committee shall meet quarterly to review the City's investment activity.
18.0 Reporting:
The Director of Finance/Treasurer shall submit a monthly investment report to the City
Council following the end of each month. This report will include the following elements:
• Type of investment
• Institutional Issuer
• Purchase Date
• Date of maturity
• Amount of deposit or cost of the investment
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• Face value of the investment
• Current market value of securities and source of valuation
• List of transactions occurring during the reporting period
• Rate of interest
• Percentage of Portfolio by Investment Type and by Maturity
• Days to Maturity for all Investments
• Performance of the portfolio relative to benchmark(s), as appropriate
• Comparative report on Quarterly Investment Balances and Yields
• Statement relating the report to its compliance with the Statement of Investment
Policy or the manner in which the portfolio is not in compliance
• Statement on availability of funds to meet the next six month's obligations
This monthly investment report shall be an information item for the City Council. A
commentary on capital markets and economic conditions may be included with the report
but is not required. The Director of Finance/Treasurer shall include in the monthly reports
for September, December, March and June a calculation of interest income for the quarter
and the comparison of the portfolio yield to the benchmark described in Section 16.1.
19.0 Investment Policy Adoption:
This Investment Policy shall remain in full force and effect until such time as the City
Council amends this policy. The City Manager will submit the Investment Policy to the
City Council for review and adoption on an annual basis.
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GLOSSARY
AGENCIES: Federal agency securities.
ASKED: The price at which securities are offered. (The price at which a firm will sell a
security to an investor.)
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust
company. The accepting institution guarantees payment of the bill, as well as the issuer.
The drafts are drawn on a bank by an exporter or importer to obtain funds to pay for
specific merchandise. An acceptance is a high-grade negotiable instrument.
BASIS POINT: One one -hundredth of a percent (i.e., 0.01 %)
BID: The price offered by a buyer of securities. (When you are selling securities, you
ask for a bid.)
BROKER: A broker brings buyers and sellers together for a commission. He does not
take a position.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by
a certificate. Large -denomination CDs are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property, which a borrower
pledges to secure repayment of a loan. Also refers to securities pledged by a bank to
secure deposits of public monies.
COMMERCIAL PAPER: Short term unsecured promissory note issued by a corporation
to raise working capital. These negotiable instruments are purchased at a discount to par
value or at par value with interest bearing. Commercial paper is issued by corporations
such as General Motors Acceptance Corporation, IBM, Bank of America, etc.
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual
financial report for the City. It includes combined statements and basic financial
statements for each individual fund and account group prepared in conformity with
Generally Accepted Accounting Principles (GAAP).
COUPON: a) The annual rate of interest that a bond's issuer promises to pay the
bondholder on the bond's face value. b) A certificate attached to a bond evidencing
interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying
and selling for his own account.
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DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities:
delivery versus payment and delivery versus receipt. Delivery versus payment is delivery
of securities with an exchange of money for the securities. Delivery versus receipt is
delivery of securities with an exchange of a signed receipt for the securities.
DISCOUNT: The difference between the cost price of a security and its maturity when
quoted at lower than face value. A security selling below original offering price shortly
after sale also is considered to be at a discount.
DISCOUNT SECURITIES: Non -interest bearing money market instruments that are
issued at a discount and redeemed at maturity for full face value (e.g., U.S. Treasury
Bills).
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
DURATION: A measure of the sensitivity of the price (value of principal) of a fixed -income
investment to a change in interest rates over a period of time. Duration is expressed by
a number of years. Stagnant or falling interest rates may result in the duration of an
investment being shorter than the stated maturity date.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply
credit to various classes of institutions (e.g., S&Ls, small business firms, students,
farmers, farm cooperatives, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A Federal agency that
insures bank deposits, currently up to $250,000 per deposit.
FEDERAL FUNDS RATE: The rate of interest at which Federal funds are traded. This
rate is currently pegged by the Federal Reserve though open -market operations.
FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to
savings and loan associations. The Federal Home Loan Banks play a role analogous to
that played by the Federal Reserve Banks vis-a-vis member commercial banks.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): Created to promote
the development of a nationwide secondary market in mortgages. It does this by
purchasing residential mortgages from financial institutions insured by an agency of the
federal government and selling its interest in them through mortgage backed securities.
The interest and principal payments from the mortgages pass through to the investors
either monthly, semiannually or annually.
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FEDERAL LAND BANK (FLB): Long-term mortgage credit provided to farmers by
Federal Land Banks. These bonds are issued at irregular times for various maturities
ranging from a few months to ten years.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a
Federal corporation working under the auspices of the Department of Housing and Urban
Development (HUD). It is the largest single provider of residential mortgage funds in the
United States. Fannie Mae, as the corporation is called, is a private stockholder -owned
corporation. The corporation's purchases include a variety of adjustable mortgages and
second loans, in addition to fixed-rate mortgages. FNMA's securities are highly liquid and
are widely accepted. FNMA assumes and guarantees that all security holders will receive
timely payment of principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the
Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The
President of the New York Federal Reserve Bank is a permanent member, while the other
presidents serve on a rotating basis. The committee periodically meets to set Federal
Reserve guidelines regarding purchases and sales of Government Securities in the open
market as a means of influencing the volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by
Congress and consisting of a seven -member Board of Governors in Washington, D.C.;
12 regional banks and about 5,700 commercial banks are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIEMAE):
Securities influencing the volume of bank credit guaranteed by GNMA and issued by
mortgage bankers, commercial banks, savings and loan associations and other
institutions. Security holder is protected by full faith and credit of the U.S. Government.
Ginnie Mae securities are backed by the FHA or VA mortgages. The term "pass -through"
is often used to describe Ginnie Mae securities.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash
without a substantial loss of value. In the money market, a security is said to be liquid if
the spread between bid and asked prices is narrow and reasonable size can be done at
those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment
and reinvestment.
MARKET VALUE: The price at which a security is trading and could presumable
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be purchased or sold.
MARKET REPURCHASE AGREEMENT: A written contract covering all future
transactions between the parties to repurchase -reverse agreements that establish each
party's rights in the transactions. A master agreement will often specify, among other
things, the right of the buyer -lender to liquidate the underlying securities in the event of
default by the seller- borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes
due and payable.
NEGOTIABLE CERTIFICATES OF DEPOSIT: Unsecured obligations of the financial
institution, bank or savings and loan, bought at par value with the promise to pay face
value plus accrued interest at maturity. They are high-grade negotiable instruments,
paying a higher interest rate than regular certificates of deposit.
OFFER: The price asked by a seller of securities. (When you are buying securities, you
ask for an offer).
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other
securities in the open market by the New York Federal Reserve Bank as directed by the
FOMC in order to influence the volume of money and credit in the economy. Purchases
inject reserves into the bank system and stimulate growth of money and credit: Sales
have the opposite effect. Open market operations are the Federal Reserve's most
important and most flexible monetary Policy tool.
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers who submit daily reports
of market activity and positions and monthly financial statements to the Federal Reserve
Bank of New York and are subject to its informal oversight. Primary dealers include
Securities and Exchange Commission (SEC) registered securities broker/dealers, banks
and a few unregulated firms.
PRUDENT PERSON RULE: An investment standard. In some states, the law requires
that a fiduciary, such as a trustee, may invest money only in a list of securities selected
by the custody state -the so - called "legal list". In other states, the trustee may invest in
a security if it is one that would be bought by a prudent person of discretion and
intelligence who is seeking a reasonable income and preservation of capital.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or
its current market price.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
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securities to an investor with an agreement to repurchase them at a fixed date. The
security "buyer" in effect lends the "seller" money for the period of the agreement, and the
terms of the agreement are structured to compensate him for this. Dealers use RP
extensively to finance their position. Exception: when the Fed is said to be doing RP, it
is lending money that is, increasing bank reserves.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities
and valuables of all types and descriptions are held in the bank's vaults for protection.
SUPRANATIONALS: Development banks that share the same goal of providing an
improved standard of living in their member countries, but each having different
mandates. There are three banks (Supranationals) in which California local agencies can
invest their debt obligations; the International Bank for Reconstruction and Development
(IBRD), International Finance Corporation (IFC) and Inter -American Development Bank.
STUDENT LOAN ASSOCIATION NOTES (SLMA or SALLIE MAE): A U.S. Corporation
and instrumentality of the U.S. Government. Through its borrowings, funds are targeted
for loans to students in higher education institutions. SLMA securities are highly liquid
and are widely accepted.
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which
are guaranteed by the Federal government to provide financial assistance through direct
loans and loan guarantees to small businesses. Cash flows from these instruments may
not be in equal installments because of prepayments.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See "Uniform Net Capital Rule".
TENNESSEE VALLEY AUTHORITIES (TVA): A U.S. Corporation created in the 1930s
to electrify the Tennessee Valley area; currently a major utility headquartered in Knoxville,
Tennessee. TVA securities are highly liquid and are widely accepted.
TREASURY BILLS: A non -interest bearing discount security issued by the U.S. Treasury
to finance the national debt. Most bills are issued to mature in three months, six months,
or one year.
TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of more
than10 years.
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TREASURY NOTES: Intermediate -term coupon bearing U.S. Treasury having initial
maturities of one year to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement
that member firms as well as nonmember broker/dealers in securities maintain a
maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and
net capital ratio. Indebtedness covers all money owed to a firm, including margin loans
and commitments to purchase securities, one reason new public issues are spread
among members of underwriting syndicates. Liquid capital includes cash and assets
easily converted into cash.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
(a) Income Yield is obtained by dividing the current dollar income by the current market
price for the security. (b) Net Yield or Yield to Maturity is the current income yield minus
any premium above par or plus any discount from par in purchase price, with the
adjustment spread over the period from the date of purchase to the date of maturity of the
bond.
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