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HomeMy WebLinkAboutItem 4.16 AnnualInvestPolicy CITY CLERK File # DI31[Z][oH3JlãJ AGENDA STATEMENT CITY COUNCIL MEETING DATE: September 20.2005 SUBJECT: Adoption of Annual Investment Policy Report Prepared by: Carole A. Perry, Administrative Services Director and Fred w: Marsh, Finance Manager ATTACHMENTS: 1. RECOMMENDATION~ ~. b 2, FINANCIAL STATEMENT: None Resolution Receive the report Adopt the Resolution DESCRIPTION: In October of 2004, thc City Council adopted the current investment policy, which emphasized the necd for safety and liquidity above yield when investing public monies. The City's current investment policy requires that the policy be reviewed by the City Council on an annual basis. As part of the Investment Guidelines for 2005, the Cali fornia Debt and Investment Advisory Commission (CDIAC) issued an Executive Summary to update local agencies on the statutory changes that affect local government investments. Some of the revisions include changing the mandatory requirement for local agencies to file an annual investmcnt policy and a quarterly investment report to an optional status. IF an entity detennines that the filing of an annual policy will continue, then it is further suggested that to be timel y and to be ofthe greatest assistance that the annual policy should be in effect prior to the production of the first quarterly report (of the fiscal year). Other rccommcndations involve percentages of an agency's money that may be held in either Bankers' Acceptances of anyone commercial bank and in the percentages of commercial paper by any single corporate issuer. Although the City does not current own either of these investment vehicles, Staff rccommcnds that the policy be amended to be in general confonnance. City Staff has examined the City's current investment policy, in regards to the latest changes made to Government Code Sections 53601, 53630 and 53646, and recommends that the City of Dublin's Investmcnt Policy be modificd. A proposed revision to the City's Investment Policy is attached (as Exhibit A) and thc intcndcd changcs, on pages two and five, items ill (I) and XI, are bolded for easy reference. In summary, the following revisions in accordance with the current state laws regulating investments are: I. CHANGE: For Bankers Acceptance, that no more than 30% is with anyone commercial bank (the City's current policy allows for a 40% investment maximum). ------------------------------------------------------------------------------~-~~------------------------------------------ O:\lnvcstmcnts\Agcnda Investmcnt policy.doc COPIES TO: I~~ ITEM NO. 11.'~ v 2. CHANGE: For purchases of Commercial Paper, that it be rated A-I by Standard and Poors, pol by Moody's and F-l by Fitch (which are the highest ratings by thesc three rating companies), that it be no more than 25% of the total portfolio (no morc than 10% with anyone corporate issuer), and that it have a maturity of no more than 270 days (the City'.~ current policy limits commercial paper to a 15%, investment maximum and a 180 day maturity). 3. CHANGE: That any revisions to the City investment policy be implemented by the second Council meeting in September (the City's current policy is silent in regards to a date certain). As mentioned previously, changes to State law also now have made OPTIONAL the annual adoption of an investment policy and quarterly reporting of investments. However, Staff is not proposing to changc the City's investment policy to reflect these latter two options now offered in State law. Staff has determined that by including the proposed modifications above, the City's policy will: a. Comply with current State laws that regulate investments b. Continue to provide for the adequate diversification of the City's investments, and; c, Contain the necessary controls over the City's investment related activities. RECOMMENDATION: Staff recommends that the City Council receive the report and adopt the Resolution. af"ba ltttv RESOLUTION NO. - 05 A RESOLUTION OF THE CITY COUNCIL OF TilE CITY OF DUBLIN ********* ADOPTING A REVISED POLICY FOR CITY INVESTMENTS WHEREAS, It is pmdcnt for thc City to place investments of public funds in accordance with an adopted policy; and WHEREAS, The most recent investment policy was adopted by the City Council on October 19, 2004; and WHEREAS, The City's investment policy requires that it be reviewed by the City Council on an annual basis, at a public meeting; and WHEREAS, Staff recommends that the policy be modified to include revisions in accordance with current Statc laws regulating investments that require the policy to reflcct thc following changes; 1. For Bankers Acceptance, that no more than 30% is with anyone commercial bank, 2. For Purchases of Commercial Paper, that it be rated A-I by Standard and Poors, P-l by Moody's and F-l by Fitch, that it bc no more than 25% of the total portfolio (no more than 10% with any one corporate issuer), and that it have a maturity of no more than 270 days, and; 3. That any revisions to the City investment policy be implemented by the second Council mccting in Septcmbcr. NOW, THEREFORE, BE IT RESOLVED that the City Council of thc City of Dublin does hereby adopt the Statement of Investment Policy, attached hereto as Exhibit A, and by reference made a part hereof. BE IT FURTHER RESOLVED that this action shall supersede the content of Resolution 205- 01, which previously sct forth an investment policy. PASSED, APPROVED AND ADOPTED this 20th day of September, 2005. AYES: NOES: ABSENT: ABSTAIN: Mayor ~~.~_._.- ATTEST: (1:\/nve.'ilment...\Re.mlution Investment PolÙ.:y 2005.DOC City Clerk "1-2D-c5 41~ A TT ACHMENT 1 ';¿lfjJli ST A TEMENT OF INVESTMENT POLICY FOR THE CITY OF DUBLIN 1. 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 formali;>;e investm.ent related activities. II. SCOPE It is intcndcd that this policy cover all funds and investmcnt 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 thc 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: FWlds Gcneral Fund Special Revenuc Funds Capital Project Funds Intemal Scrvicc Funds Enterprise Funds Agency Funds Excluded funds are those held with a fiscal agent. They may have their own specific "penuitted investments" as shown in their bond covenants. III. OB,JECTIVES General: The overall obligation of the City Treasurer is to maintain sufficient cash to pay cxisting 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: (I) 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 foJ1owing list provides examples of investments which demonstrate safety. . Treasury and Federal agency paper and repurchase agreements are the highest quality investment available in tenus of safety and liquidity. The City shaJ1 not directly enter into repurchase agreements, although this investment tool may be uscd by authorized pooled investments which arc managed by others (i.e. LAIF, CAMP, Mutual Funds, etc). . Certificates of deposit (negotiable and nonnegotiable) and savings accounts must bc insured by FDIC, SAIF, NCUI, or collateralized at 110% of market value with U.S. Treasury and Agency Securities. EXHIBIT A ~ 'V£, · Bankcrs acccptanccs must be securcd by the irrevocable primary obligation of the accepting domestic bank. · The Local Agcncy Invcstmcnt Fund (LAIF) shall be considered as a proper invcstment for safety inasmuch as the State Treasurer of California is the State Elected Officer responsible for that investment portfolio. The California Assct Managcmcnt Program (CAMP) shall be considered as a propcr investment for safety inasmuch as it is a professionally managed money market portfolio rated AAAm by Standard and Poor$ 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 ratings of A-I by Standard and Poors, P-l by Moody's and F-l by Fitch rating or higher shall be considered as a safe investment. Only money market and mutual fund accounts that bave J 00% of their asscts 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 pcrcentage limits and maturities allowed by State Law is established for the City's investment portfolio: · Investment T e U.S. Treasur IA enc Securities Certificates of de osit Bankers acceptances Maximum % of Portfolio 100% 30% 40% (30% in anyone commercial bank 100% 25% (10% in anyone cor orate issuer 100% 20% 20% (10% in anyone mutual fund 5 Years N/A N/A Maximum Maturity See Section VI Below 5 Years 5 Years 180 days LAIF I CAMP Commercial paper N/A 270 days CA Local A enc Bonds Mone Market Funds U.S. Treasury Mutual Funds (2) Liquidity: An adequate percentage of the portfolio should be maintained in liquid short- tenn investments that can be converted to cash if nccessary 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. ccrtificates of deposit held by banks and savings and loans) shall be staggered to maximizc liquidity. 2 EXHIBIT A +~ (., Many of the investment examplcs idcntified in paragraph #1 above demonstrate the type of investments which demonstrate liquidity. (3) 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 maximizc its return on its invcstments and minimize its exposure to potential losses resulting from temporary declines in the market values of its investments. Although there 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 shaJ1 also conforn1 with applicable sections ofthe Government Code. (5) Prudence: The agency adheres to the guidance provided by Calífornia Civil Code Section 2261 relatcd to thc "prudent pcrson rule." Thc exercise of 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 shaJ1 recognize that the investment portfolio is subject to public rcview and cvaluation. 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 Polítical 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 appointcd Deputy City Treasurer is/are hereby authorized to invest, reinvcst, scll, 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 shaJ1 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 madc by the City Treasurer shall be in accordance with Sections 53601 and 53635 of the Califomia Govemment Code as they may be amended. Reporting of all transactions shall occur as noted in Section Vill below. The City Treasurer / Deputy City Treasurer shall not directly invest any monies in Repurchase Agreements or Revcrse Repurchase Agreements unless this policy is amended by the City Council. In accordance with Govemment Code Section 53601.6 (including as it may be further amended) no investment shall be made directly in any of the foJ1owing instruments: inverse floaters, rangc notes, or interesttonly strips derived from a pool of mortgages (i.e. Collatcralízcd Mortgage Obligations). 3 EXHIBIT A 5'0'1)0 VI. TERM OF INVESTMENTS Maturities of investments will be sclcctcd based on liquidity requirements to minimize interest rate risk and maximize earnings. Current and expected yields will be aDalyzed and the portfolio will be invested accordingly. As spccificd in Govcrnment 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 fiom 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 aDd 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 imprudeDt 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 eDsure 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. Vill. 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 invcstments. At a minimum the report shall include the following: a) Type ofInvestment b) Issuer c) Date of Maturity d) Par and dollar amount invested e) Current Market Value as of the date ofthe report f) Source ofthe market value infonnation 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. ADY 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 4 EXHIBIT A iJ'{)/.p In selecting the financial institutions for the deposit or investment of City of Dublin funds, the City Treasurer shall considcr the credit worthiness of institutions which are utilized. All brokcr/dcalcrs should be primary dealers regularly reporting to the New York Federal Reservc Bank. Efforts shall be made to monitor the credit charactcristics and financial history throughout thc period in which agency funds are deposited or invcsted. In the case of securities purchascd by or on behalf of the agency, a third party safekceping account, who is in no way related to the company who sold the securitics, shall be maintained in the name of the City of Dublin. 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 executcd 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, by the second Council meeting in September. Any recommended modifications or amendments shaH be presented by Staff to the City Council for their consideration and adoption. G:\Investmentslinvestment policy. doc 5 EXHIBIT A