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HomeMy WebLinkAbout11/1/2000 - STAFF REPORTS (2) DATE: November 1, 2000 TO: City Council FROM: Director of Finance &Treasurer CITY INVESTMENT POLICY RECOMMENDATION: It is recommended that the City Council approve the City's Investment Policy with no revisions to the current policy. 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 November, 1999. The policy being considered by Council is 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 meet those objectives. 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 is virtually the same as cost. The investment policy has provided the framework for meeting the City's goals of Safety, Liquidity and Return on Investment, and should continue to do so into the foreseeable future. Approved: David H. Ready Thomas M. Kanarr City Manag Director of Finance &Treasurer Attachments: Investment Policy Resolution 42A 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 §53600.6) 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 §53646 (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§53600.3) 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 2A11 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§53600.5,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 AUTHORITY 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 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 CONFLICTS 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 AUTHORIZED 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. J1A3 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 AUTHORIZED AND SUITABLE INVESTMENTS 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 §53601.i) 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 10% 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. y 42 i� 1 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 §53601 for a detailed summary of the limitations and special conditions that apply to each of the above listed investment securities. CGC§53601 is attached and included by reference in this investment policy. 8.1 PROHIBITED INVESTMENTS: Under the provisions of CGC §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, 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 Ws, the Treasurer shall obtain approval from the City Council to proceed. 9.0 COLLATERALIZATION: 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 §53601(i)(2). 10. SAFEKEEPING AND CUSTODY: 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§53601. 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: 42Ar (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 forthe maturities noted shall be maintained: Maturity Range Minimum Maximum 1 days to 365 days $8,000,000 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. OVERSIGHT COMMITTEE A committee comprised of one Council member appointed by Council, the City Manager and the Treasurer, shall provide oversight of the City's 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, parvalues 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 overthe last quarter. As specified in CGC §53646(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 §53646(b)(2) and (3) respectively. The Treasurershall maintain a complete and timely record of all investment transactions. 42A ` 15. INVESTMENT 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 1, 2000 Adopted and Approved by: City Council Resolution # Date: 2A7 RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, ADOPTING AN INVESTMENT POLICY GOVERNING THE INVESTMENT OF CITY FUNDS. ------------ 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 Commission'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,THEREFORE, BE IT RESOLVED by the City Council of the City of Palm Springs, that the Investment Policy recommended is hereby adopted. ADOPTED THIS day of 12000 AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED&APPROVED AS TO FORM