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Home My WebLink About4.06 Investment Policy CITY CLERK File # n~~[D1-~[O] AGENDA STATEMENT CITY COUNCIL MEETING DATE: October 19, 2004 SUBJECT: Adoption of Annual Investment Policy Report Prepared by: Carole A. Perry, Administrative Services Director and Fred W Marsh, Finance Manager A TT ACHMENTS: A ~tatement of Investment Policy for the City RECOMMENDATION~ rv Receive the report . FINANCIAL STATEMENT: None DESCRIPTION: In October of 2003, the City Council adopted the current investment policy, which emphasizes the need for safety and liquidity above yield when investing public monies. Both the City's current investment policy and California State Law require that the policy be reviewed by the City Council on an annual basis. City Staff has again examined the City's current investment policy and has determined that it complies with current State laws that regulate investments and that the policy continues to provide for the adequate diversification of the City's investments and contains the necessary controls over the City's investment related activities. Staff Recommendation Staff recommends no changes to the policy at this time; and further recommends that the City Council receive the report. ------------------------------------------------------------------------------------------------------------------------~~_. G:\Investments\Agenda Investment policy. doc COPIES TO: \Vb\ \fJbç STATEMENT OF INVESTMENT POLICY FOR THE CITY OF DUBLIN I. INTRODUCTION The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment policy. This document also serves to organize and formalize investment related activities. II. SCOPE It is intended that this policy cover all funds and investment activities under the direct authority of the City of Dublin, as set forth in the State Government Code, sections 53600 et seq.. Cash held by the City shall be pooled in order to more effectively manage City cash resources. All pooled funds are accounted for in the City's Comprehensive Annual Financial Report and include: Funds General Fund Special Revenue Funds Capital Project Funds Internal Service Funds Enterprise Funds Agency Funds Excluded funds are those held with a fiscal agent. They may have their own specific "permitted investments" as shown in their bond covenants. III. OBJECTIVES General: The overall obligation of the City Treasurer is to maintain sufficient cash to pay existing debts. It shall be the policy of the City to invest the maximum amount of idle cash available to the City in order to generate interest earnings, which supplement other City revenue sources. The investment program shall be subject to the following parameters, which are presented in their order of importance: (1) Safety: The first priority for the investment program shall be the safety of the principal amount invested. Speculation or risky investment media will be avoided, even though high interest rates might be offered. Protection and preservation of municipal investments on behalf of the citizens of the community are of primary importance. The following list provides examples of investments which demonstrate safety. · Treasury and Federal agency paper and repurchase agreements are the highest quality investment available in terms of safety and liquidity. The City shall not directly enter into repurchase agreements, although this investment tool may be used by authorized pooled investments which are managed by others (Le. LAIF, CAMP, Mutual Funds, etc). . Certificates of deposit (negotiable and nonnegotiable) and savings accounts must be insured by FDIC, SAIF, NCUI, or collateralized at 110% of market value with U.S. Treasury and Agency Securities. 1 ID-I'1"'O'-t ~hrV\ðrd- 'flÞ - -- -- (2) (3) ~ "1J Þ · Bankers acceptances must be secured by the irrevocable primary obligation of the accepting domestic bank. · The Local Agency Investment Fund (LAIF) shall be considered as a proper investment for safety inasmuch as the State Treasurer of California is the State Elected Officer responsible for that investment portfolio. · The California Asset Management Program (CAMP) shall be considered as a proper investment for safety inasmuch as it is a professionally managed money market portfolio rated AAAm by Standard and Poors and created for California Public Agencies. · Commercial paper of "prime" quality from a domestic corporation having total assets in excess of five hundred million dollars and an "A" rating or higher shall be considered as a safe investment. · Only money market and mutual fund accounts that have 100% of their assets invested in Treasury Federal agency paper shall be considered safe. This list has been presented for descriptive purposes only and actual investments shall be in accordance with authorized Sections of the Government Code. The following summary of maximum percentage limits and maturities allowed by State Law is established for the City's investment portfolio: Maximum % of Portfolio 100% 30% 40% 100% 15% 100% 20% 20% (10% in anyone mutual fund Maximum Maturity See Section VI Below 5 Years 5 Years 180 da s N/A 180 da s 5 Years N/A N/A Liquidity: An adequate percentage of the portfolio should be maintained in liquid short- term investments that can be converted to cash if necessary to meet disbursement requirements. Since all cash requirements must be anticipated, investments in securities with active secondary or resale markets is highly recommended. Emphasis should be on marketable securities with low sensitivity to market risk. Maturities of investments for which there is limited opportunity for resale (i.e. certificates of deposit held by banks and savings and loans) shall be staggered to maximize liquidity. Many of the investment examples identified in paragraph # 1 above demonstrate the type of investments which demonstrate liquidity. Yield: Yield should become a consideration only after the basic requirements of safety and liquidity have been met. The City intends to hold its investments to maturity in order to maximize its return on its investments and minimize its exposure to potential losses resulting from temporary declines in the market values of its investments. Although there 2 ,..- 3õb!:::> may be opportunities to resell securities, this type of regular trading is not considered consistent with the City's goals. (4) Diversification: The investment portfolio will be diversified to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions. This shall also conform with applicable sections of the Government Code. (5) Prudence: The agency adheres to the guidance provided by California Civil Code Section 2261 related to the "prudent person rule." The exercise Qf investment decisions in accordance with this policy shall be made with judgment and care and shall consider the probable safety of the invested capital as well as the probable income to be derived. (6) Public Trust: All participants in the investment process shall act as custodians of the public trust. Investment officials shall recognize that the investment portfolio is subject to public review and evaluation. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust. Thus employees and officials involved in the investment process shall refrain from personal business activity that conflicts with proper execution of the investment program, or impairs their ability to make impartial investment decisions. Additionally the City Treasurer and the Deputy Treasurer shall file applicable financial disclosures as required by the Fair Political Practices Commission (FPPC). In a diversified portfolio it must be recognized that occasional measured losses are inevitable, and must be considered within the context of the overall portfolio's investment return, provided that adequate diversification has been implemented. IV. DESIGNATION OF CITY TREASURER TO CARRY OUT INVESTMENT DUTIES As authorized in Government Code Section 53607, the City Treasurer and/or any duly appointed Deputy City Treasurer is/are hereby authorized to invest, reinvest, sell, or exchange monies within the City Treasury. The Administrative Services Director shall be designated as the City Treasurer and the City Manager and/or Finance Manager shall be designated as the Deputy City Treasurer. Quarterly reports of said transactions, if any, shall be provided to the City Council. V. INVESTMENT INSTRUMENTS The authorized investments to be made by the City Treasurer shall be in accordance with Sections 53601 and 53635 of the California Government Code as they may be amended. Reporting of all transactions shall occur as noted in Section VIII below. The City Treasurer / Deputy City Treasurer shall not directly invest any monies in Repurchase Agreements or Reverse Repurchase Agreements unless this policy is amended by the City Council. In accordance with Government Code Section 53601.6 (including as it may be further amended) no investment shall be made directly in any of the following instruments: inverse floaters, range notes, or interest only strips derived from a pool of mortgages (i.e. Collateralized Mortgage Obligations). VI. TERM OF INVESTMENTS Maturities of investments will be selected based on liquidity requirements to minimize interest rate risk and maximize earnings. Current and expected yields will be analyzed and the portfolio will be invested accordingly. 3 y~S- As specified in Government Code Section 53601, the City Council must expressly authorize the investment of funds that mature in excess of five years. Placement of such investments cannot occur until three months has lapsed from the date of authorization. The selection of maturities by the Treasurer shall also take into consideration any other policies adopted by the City Council such as an adopted policy on the Use and Management of General Fund Reserves. VII. INTERNAL CONTROLS City Treasurer and City Staff shall develop and implement such administrative procedures and internal controls which are considered prudent, given the size of the organization and the complexity of investments. The controls are designed to prevent losses of public funds arising from fraud, error or imprudent actions by employees and officers of the City. Existing procedures require all wire transfers involving investments to be fully documented and approved by the City Treasurer and Deputy City Treasurer. Monthly reconciliations to bank statements and the related general ledger accounts is conducted to ensure proper handling of all investment transactions. An independent analysis by an external auditor shall be conducted periodically to review internal controls, account activity and compliance with policies and procedures. VIII. REPORT INFORMATION The Treasurer shall report to the City Council on a quarterly basis within 30 days following the end of the quarter specific information related to the City investments. At a minimum the report shall include the following: a) Type of Investment b) Issuer c) Date of Maturity d) Par and dollar amount invested e) Current Market Value as of the date of the report t) Source of the market value information g) A statement of compliance with the investment policy h) A statement as to the ability of the City to meet its expenditure requirements for the next six months In accordance with the Governmental Accounting Standards Board (GASB) Statement No. 31, "Accounting and Financial Reporting for Certain Investments", as of June 30th of each Fiscal Year the City will report all investments with maturity dates in excess of one year at market value in the Comprehensive Annual Financial Report. Any change in the value of the investments will be recognized on an annual basis, as a component of interest income. This reporting change shall begin to take effect for the year ending June 30, 1998. IX. SELECTION OF INSTITUTIONS In selecting the financial institutions for the deposit or investment of City of Dublin funds, the City Treasurer shall consider the credit worthiness of institutions which are utilized. All broker/dealers should be primary dealers regularly reporting to the New York Federal Reserve Bank. Efforts shall be made to monitor the credit characteristics and financial history throughout the period in which agency funds are deposited or invested. In the case of securities purchased by or on behalf of the agency, a third party safekeeping account, who is in no way related to the company who sold the securities, shall be maintained in the name of the City of Dublin. 4 56b~ X. RISK TOLERANCE As noted, diversification shall be utilized to control risk. No individual investment transaction shall be undertaken which jeopardizes the total capital position of the overall portfolio. All transactions will be executed on a delivery versus payment basis. When practical, a competitive bid process will be used to place all investment purchases. XI. REVIEW OF INVESTMENT POLICY This policy shall be subject to review by the City Council on an annual basis, at a public meeting. Any recommended modifications or amendments shall be presented by Staff to the City Council for their consideration and adoption. G:\Investments\investment policy.doc 5