HomeMy WebLinkAbout11/17/1999 - STAFF REPORTS (8) DATE: November 17, 1999
TO: City Council
FROM: Director of Finance & Treasurer
CITY INVESTMENT POLICY
RZOOMMEND11TIONt
It is recommended that the City Council approve the City's Investment Policy with
the following revisions to the current policy: increase the percentage of
portfolio (POP) that may be invested in obligations issued by Agencies or sponsored
enterprises of the U.S. Government from 40% to 50%. (Section BE); replace the
requirement that 40% of the portfolio be maintained in investments with maturities
between 1 day and 365 days with the requirement that a minimum of $8,000,000 be
held in such maturities, and eliminate the maximum 85i; increase the maximum that
can be invested in the 1 to 3 year maturity range from 40% of the total portfolio
to 50% of the total portfolio; and increase the maximum weighted average maturity
of the portfolio from two years (730 days) to 3 years (1,095 days) (Section 11.0).
BACKGROUND
State law requires each city to have an investment policy that governs how surplus
cash is to be invested, and further requires that the policy be reviewed annually
by the legislative body at a public meeting.
The City of Palm Springs has had an investment policy since 1985. The current
policy was last reviewed and approved by the City Council in December, 1998.
The revised policy being considered by Council is substantially the same as the
current policy. Its primary objectives, in order of importance, are Safety,
Liquidity, and Return on Investments. It provides the necessary internal controls
and investment constraints, prohibitions, and/or parameters to most those
objectives.
The changes noted above in the Recommendation provide a bit more flexibility in
managing the City's portfolio while maintaining effective controls. It would
increase the POP limitation for U.S. Government Agency obligations to 50%. Agency
obligations, such as those of the Federal Nome Loan Bank, are not direct
obligations of the U.S. Government like U.S. Treasury bills or notes. The
likelihood of default is very low, and Agency paper usually pays about 1/28 per
year higher interest than T-Bills with similar maturities. Annually, this could
mean an additional $15,000 in interest earnings for the City.
The recommendations to change the short term (one year and under) investments from
a minim in of 40% of the total portfolio to a flat $8 million minimum and to
increase the allowable percentage for medium term investments (1 to 3 years) from
40% to 50% would likewise add flexibility to the management of the City's
portfolio. An $8 million minimum would provide cash flow for about two months,
even if no revenues were collected. The higher weighted average maturity should
produce, on average, higher yields.
The City of Palm Springs has had a perfect record on the safety of its investment.
There has never been a cash flow or liquidity problem. The portfolio has very low
turnover of investments, and earns a reasonable yield. If for some reason the
portfolio needed to be made liquid, the current market value exceeds the cost.
The proposed change helps fine-tune an investment policy that has provided the
framework for meeting the City's goals of Safety, Liquidity and Return on
Investment.
Approved:
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Dallas Flicek Thomas M. Kanarr
Interim City Manager Director of Finance & Treasurer
Attachments: Investment Policy
Resolution
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CITY OF PALM SPRINGS INVESTMENT POLICY
1.0 POLICY
WHEREAS; The Legislature of the State of California has declared that the
deposit and investment of public funds by local officials and local
agencies is an issue of statewide concern (California Government Code
Sections 53600.6 (CGC 553600.6) and 53630.1) ; and
WHEREAS; the legislative body of a local agency may invest surplus monies
not required for the immediate necessities of the local agency in
accordance with the provisions of California Government Code Sections
53601 et seq; and
WHEREAS; the treasurer of the City of Palm Springs shall annually prepare
and submit a statement of investment policy and such policy, and any
changes thereto, shall be considered by the legislative body at a public
meeting; (CGC S53646 (a) ) ; now
THEREFORE; it shall be the policy of the City of Palm Springs to invest
funds in a manner which will provide the highest investment return with
the maximum security while meeting the daily cash flow demands of the
entity and conforming to all statutes governing the investment of City of
Palm Springs funds.
2.0 SCOPE
This investment policy applies to all financial assets of the City of Palm
Springs and its component units. These funds are accounted for in the
Comprehensive Annual Financial Report and include, but are not limited to:
General Fund
Community Promotion Fund
Special Revenue Funds
Capital Projects Fund
Debt Service Fund
Enterprise Funds
Internal Service Funds
Trust and Agency Funds
Community Redevelopment Funds
Proceeds from Bond Issues (see 8.2)
Contributions made by or on behalf of employees to Deferred Compensation
accounts are not covered by this policy.
3.0 PRUDENCE
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. The standard of prudence to be used
by investment officials shall be the "prudent investor" standard (CGC
553600.3) and shall be applied in the context of managing an overall
portfolio. Investment officers 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 in a timely fashion and appropriate action is taken to control
adverse developments.
4.0 OBJECTIVES
As specified in CGC 553600.5, when investing, reinvesting, purchasing,
acquiring, exchanging, selling and managing public funds, the primary
objectives, in priority order, of the investment activities shall be:
1. 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.
2. Liquidity: The investment portfolio will remain sufficiently liquid
to enable the City of Palm Springs to meet all operating requirements
which might be reasonably anticipated.
3. Return on Investments: The investment portfolio shall be designed
with the objective of attaining a market rate of return throughout
budgetary and economic cycles, taking into account the investment risk
constraints and the cash flow characteristics of the portfolio.
5.0 DELEGATION OF AUTEORITY
Authority to manage the investment program is derived from California
Government Code Sections 53600, et. seq. Management responsibility for
the investment program is hereby delegated to the Treasurer, who shall
establish written procedures for the operation of the investment program
consistent with this investment policy. Procedures should include
references to: 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
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established by the Treasurer. The 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 Treasurer is a trustee and a
fiduciary subject to the prudent investor standard.
6.0 ETHICS AND CONBLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain
from personal business activity that could conflict with the proper
execution of the investment program, or which could impair their ability
to make impartial investment decisions.
7.0 AUTHORISED FINANCIAL INSTITUTIONS AND DEALERS
The Treasurer will maintain a list of financial institutions, selected on
the basis of credit worthiness, financial strength, experience and minimal
capitalization authorized to provide investment services to the City of
Palm Springs. No public deposit shall be made except in a qualified
public depository as established by state laws.
For broker/dealers of government securities and other investments, the
City of Palm Springs shall select only broker/dealers who are licensed and
in good standing with the California Department of Securities, the
Securities and Exchange Commission, the National Association of Securities
Dealers or other applicable self-regulatory organizations.
Before engaging in investment transactions with a broker/dealer, the
Treasurer shall have received from said firm a signed Certification Form.
This form shall attest that the individual responsible for the City of
Palm Springs' account with that firm has reviewed the City of Palm
Springs' Investment Policy and that the firm understands the policy and
intends to present investment recommendations and transactions to the City
of Palm Springs that are appropriate under the terms and conditions of the
Investment Policy.
8.0 AUTHORISED AND SUITABLE INV902M ITB
The City of Palm Springs is empowered by California Government Code 53601
et seq. to invest in the following:
A. Bonds issued by the City of Palm Springs
B. United States Treasury Bills, Notes & Bonds
C. Registered state warrants or treasury notes or bonds issued by the
State of California.
D. Bonds, notes, warrants or other evidence of debt issued by a local
agency within the State of California, including pooled investment
accounts sponsored by the State of California, County Treasurers, other
local agencies or Joint Powers Agencies.
E. Obligations issued by Agencies or sponsored enterprises of the U.S.
Government. Not more than 50% of surplus funds may be invested in these
obligations.
F. Bankers Acceptances with a term not to exceed 270 days. Not more than
40% of surplus funds can be invested in Bankers Acceptances and no more
than 20% of surplus funds can be invested in the bankers acceptances of
any single commercial bank.
G. Prime Commercial Paper of U.S. Corporations with assets greater than
$500 million with a term not to exceed 180 days and the highest ranking
issued by Moody's Investors Service or Standard & Poor's Corp. Commercial
paper cannot exceed 15% of total surplus funds.
H. Negotiable Certificates of Deposit issued by federally or state
chartered banks or associations. Not more than 30% of surplus funds can
be invested in negotiable certificates of deposit.
I. Repurchase Agreements of any securities authorized by this Section.
Securities purchased under these agreements shall not exceed one year in
duration and be collateralized by Government Securities with a market
value no less than 102% of the repurchase agreements. (See special limits
in CGC 553601A)
J. Medium term notes (not to exceed 5 Years) of US corporations rated "A"
or better by Moody's or S&P. Not more than 20% of surplus funds can be
invested in medium term notes.
K. Shares of beneficial interest issued by diversified management
companies (Money Market Mutual Funds) investing in the securities and
obligations authorized by Section 53601(K) . Such Funds must carry the
highest rating of at least two of the three largest national rating
agencies. Not more than lot of surplus funds can be invested in Money
Market Mutual Funds.
L. Funds held under the terms of a Trust Indenture or other contract or
agreement may be invested according to the provisions of those indentures
or agreements.
M. Collateralized bank deposits with a perfected security interest in
accordance with the Uniform Commercial Code (UCC) or applicable federal
security regulations.
N. Any mortgage pass-through security, collateralized mortgage
obligation, mortgaged backed or other pay-through bond, equipment lease-
backed certificate, consumer receivable pass-through certificate or
consumer receivable backed bond of a maximum maturity of five years.
Securities in this category must be rated AA or better by a nationally
recognized rating service. Not more than 20% of surplus funds may be
invested in this category of securities.
O. The various limits on what percentage of surplus funds (the
Percentage of Portfolio, or POP limits) may be invested by type or
maturity shall be calculated when the investment or reinvestment is
made.
Also, see CGC 553601 for a detailed summary of the limitations and special
conditions that apply to each of the above listed investment securities.
CGC S53601 is attached and included by reference in this investment
policy.
8.1 Prohibited Investments. Under the provisions of CGC 553601.6 and
553631.51 the City of Palm Springs shall not invest any funds covered
by this Investment Policy in inverse floaters, dual index, stepped
inverse derivatives, reverse repurchase agreements, range notes,
interest-only strips derived from mortgage pools or any investment
that may result in a zero interest accrual if held to maturity.
8.2 BOND PROCEEDS:
In addition to the investment vehicles enumerated in Section 8, the
proceeds of bond issues (including reserve funds) may be invested in long
term Guaranteed Investment Contracts (GIC) or Investment Agreements (IA)
that comply with the Permitted Investment restrictions of the particular
bond issue.
Before soliciting bids from providers of GIC's or IA's, the Treasurer
shall obtain approval from the City Council to proceed.
9.0 COLLATERALISATION:
All certificates of deposits must be collateralized by U.S. Treasury
Obligations or U.S. Government Agency Securities. Collateral must be held
by a third party trustee and valued on a monthly basis. The percentage of
collateralization on repurchase agreements will adhere to the amount
required under CGC 553601(i) (2) .
10. SAFEKEEPING MM CUBTODY:
All security transactions entered into by the City of Palm Springs shall
be conducted on delivery-versus-payment (DVP) basis. All securities
purchased or acquired shall be delivered to the City of Palm Springs by
book entry, physical delivery or by third party custodial agreement as
required by CGC 553601.
11. DIVERSIFICATION:
The City of Palm Springs will diversify its investments by security type
and institution. It is the policy of the City of Palm Springs to
diversify its investment portfolio. Assets shall be diversified to
eliminate the risk of loss resulting from over Concentration of assets in
a specific maturity, a specific issuer or a specific class of
securities. Diversification strategies shall be determined and
revised periodically. In establishing specific diversification
strategies, the following general policies and constraints shall
apply:
(a) Portfolio maturities shall be matched versus liabilities to avoid
undue concentration in a specific maturity sector.
(b) Maturities selected shall provide for stability of income and
liquidity.
(c) Disbursement and payroll dates shall be covered through
maturities investments, marketable U.S. Treasury bills or other cash
equivalent instruments such as money market mutual funds.
Specifically, the following amounts or percentages of the total portfolio
for the maturities noted shall be maintained:
Maturity Ranae MinimumMax
1 days to 365 days $80000,000 NA
1 year to 3 years 0% 50%
3 years to 5 years 0% 30%
over 5 years Council Action Required
The weighted average maturity of the pooled portfolio shall not exceed
three years (1,095 days) .
12. STRATEGY OF INVESTMENTS
It shall be the strategy of the City of Palm Springs to hold investments
to maturity. If, because of changing market conditions or the City's cash
flow needs, it becomes necessary to sell an investment prior to maturity
(either at a profit or loss) , the Treasurer shall first obtain written
approval for the transaction from the City Manager. The City Manager
shall inform the Mayor and City Council of the transaction at the earliest
opportunity, but no later than the next regularly scheduled Council
meeting or study session.
13. OVERSIGET CTTEE
A committee comprised of one Councilmember appointed by Council, the City
Manager and the Treasurer, shall provide oversight of the City's
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investments. The Committee shall meet at least quarterly to review the
city's investment activity.
14. REPORTING
In accordance with CGC §53646(b) (1) , Treasurer shall submit to each member
of the City Council monthly investment reports within 30 days of the end
of the quarter in which the month falls. The report shall include a
complete description of the portfolio, the type of investments, the
issuers, maturity dates, par values and the current market values of each
component of the portfolio, including funds managed for City of Palm
Springs by Fiscal Agents, Deferred Compensation Plan Provider (except
Deferred Comp funds held in trust) or third party contracted managers.
The report will also include the source of the portfolio valuation, and
the changes in the value of each investment over the last quarter. As
specified in CGC 553646(e) , if all funds are placed in LAIF, FDIC-insured
accounts and/or in a county investment pool, the foregoing report elements
may be replaced by copies of the latest statements from such institutions,
including changes in value over the last quarter. The report must also
include a certification that (1) all investment actions executed since the
last report have been made in full compliance with the Investment Policy
and, (2) the City of Palm Springs will meet its expenditure obligations
for the next six months as required by CGC S53646(b) (2) and (3)
respectively. The Treasurer shall maintain a complete and timely record
of all investment transactions.
15. INVESTEM POLICY ADOPTION:
The Investment Policy shall be adopted by resolution of the City of Palm
Springs. The Policy shall be reviewed on an annual basis, and
modifications approved by the City Council.
Submitted by:
Name:
Thomas M. Kanarr
Title: Director of Finance & Treasurer
Date: November 17, 1999
Adopted and Approved by:
City Council Resolution #
Date:
RESOLUTION Mo. 19685
OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS,
CALIFORNIA, ADOPTING AN INVESTMENT POLICY GOVERNING THE
INVESTMENT OF CITY FONDS.
WHEREAS, Section 53646(a) of the State of California Government Code requires that
an investment policy is annually rendered to and considered by the City Council in
a public meeting; and
WHEREAS, the City Treasurer has prepared an investment policy which meets the
standards delineated in the California Debt Advisory Caamiesion's report on Local
Agency Investment Guidelines; and
WHEREAS, the revised investment policy was reviewed by the Finance Committee of the
City Council, the City Manager, City attorney, and the City's outside Auditors,
Conrad & Associates; and
WHEREAS, the comments and suggestions of these parties were incorporated into the
revised Investment Policy document before Council; and
WHEREAS, the revised Investment Policy describes the City's commitment to
safeguarding its funds;
NOW, TEMWORE, BE IT RESOLVED by the City Council of the City of Palm Springs,
that the Investment Policy recommended is hereby adopted.
ADOPTED THIS 17th day of November , 1999.
AYES: Members Barnes, Hodges, Oden, Reller-Spurgin and Mayor Kleindienst
NOES: None
ABSENT: None
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk "City Manager
REVIEWED & APPROVED AS TO FOR —r) `