Loading...
HomeMy WebLinkAboutItem 4.08 UpdateFinancialPolicies (2) '..---- .. . . . CITY OJ' DUBLIN AGENDA STATEMENT CITY COUNCIL MEETING DATE: June 14, 1993 SUBJECT: Update to Financial policies Regarding Banking/Investments/General Pund Reserves ~(prepared by: Paul S. Rankin, Assistant city Manager) ATTACHED: Exhibit l:~Resolution Designating the Provider of Banking Services for the city Exhibit 2: ~ Resolution Establishing an Investment Policy Exhibit 3: ~ Resolution Establishing a POlicy tor Management and Use of General Fund Assets EXHIBITS RBCOMMBNDATIOH:~oPt the Resolutions. PINANCIAL STATEMENT: None DESCRIPTION: The Staff has reviewed various City documents related to tinancial management issues. In order to maintain current documents and update the content, Staff has developed revised documents for consideration by the city council. DESIGNATION OF BANK The proposed resolution designating the provider of banking services (EXhibit 1) is primarily a housekeeping item. The city's records currently designate a bank which has been subsequently merged with the City'S current Bank. Staff has prepared an updated resolution Which is consistent with the current provider of these services. The resolution will clarify that Bank of America is the provider of the city's banking services and will reflect current practice. ReSOlution Establishina Investment policy The current investment policy is contained in a resolution which sets forth an investment policy for Fiscal Year 1991-92. Prior to 1991, state Law required the city to adopt an annual investment pOlicy. Therefore, the title designated the fiscal year which the policy was to cover. since annual adoption by the city Council is no longer required, it is more appropriate to have a document clearly identified as the City'S Investment POlicy, without reference to a particular year. The content of the proposed pOlicy is similar to policies previously adopted by the city council. The format has been revised to follow a suggest model developed by the california Municipal Treasurer's Association. The proposed pOlicy clearly references the appropriate sections of the Government Code which are consistent with the city's current practice. As noted in the pOlicy, the primary emphasis in determining public investments is safety. The portfolio must also be structured to provide adequate liquidity. One change which is proposed in section VI of the poiicy is the authorization to invest a limited po~tion of the city's portfolio in investments which have a maturity ot greater than five years, but not more than ten years. state Law requires that the city council explicitly authorize investments with maturities greater than five years. The adoption.of this provision will provide greater flexibility in evaluating ---------------------------------------------------------------------- ITEM NO. ~ COPIES TO: X REF 320 ~30 CITY CLERK FILE ~ . . investment options. At the same time, the policy would- not allow more than 10% of the portfolio to be invested in these longer term instruments without city council modification of the Investment pOlicy. This attempts to balance the need for liquidity which is stated as a key objective of the investment policy. staff recommends adoption of the proposed policy, which will update the city's investment program. POLICY FOR MANAGEMENT OF GENERAL FuND RESERVES On March 22, 1993, Staff presented a report to the city council related to a plan. to refinance the Civic Center Certificate of participation (COP) Issue. This transaction was successfully completed on June 8, 1993. The city council also accepted a recommended list of goals to be considered in managing city Assets including the City'S General Fund Reserve. At the time of that report, Staff had recommended development of a Civic Center Project Reserve. The maintenance of reserve funds by public agencies is a common practice and is considered prudent management. In the March 22, 1993 report, Staff identified that neighboring agencies also maintain reserves designated for specific projects or potential liabilities. In reviewing investment reports for the Cities of Livermore and Pleasanton, both cities have investment portfolios including reserve funds, which individually total in excess of $43 million. This information is presented to provide some perspective to the size of the city of Dublin reserves. Due to the city of Dublin's organizational structure, the reserves have tradi tionally been accounted for as a General Fund Reserve. In larger agencies, it is typical to segregate funds into individual reserves for thinqs such as capital projects; economic uncertainty; liability claims; etc. These are all appropriate goals and would be the type of proposed uses identified in the proposed Resolution (Exhibit 3). If you consider the scope of responsibilities the city of Dublin is responsible for funding (i.e. over 50 miles of streets; approximately 100 miles of sidewalks; over 145 acres of parkland; pUblic safety services, recreation programs; etc.), it is clear that reserves are appropriate. In essence, this is a multi- million dollar municipal corporation, which has responsibilities which extend beyond the current year's operating Budget. As with other public agencies, the investment of these reserves also qenerate income which can be used to directly provide services. The proposed resolution is based upon discussions with the COP refinancing Bond Counsel. staff have also discussed the issues with special tax counsel as the designation of reserves can create implications for the existing tax exempt financing on the Civic Center project. IRS regUlations have been strengthened in recent years to discourage the issuance of tax-exempt investments, which are used to reinvest at higher interest rates and are not actually intended for a specific project. Tax Counsel has advised that designation by the city ot a fund which is designated solely for the purpose of defeasing debt results in the creation of a "sinking fund" associated with that debt issue. Federal regulations would require that earnings on the fund be yield restricted to no more than the average yield of the tax-exempt debt issued. The City'S Financial Consultants believe that there is potential for increased interest rates over any 6 year period; therefore, they recommended that the city not self- impose actions which would yield restrict the city's General Fund Reserves. The calculation of Federal Arbitrage Rebates is also very complicated. If the city were to add General Fund Reserves to this calculation, additional Consultant and Staff costs would be required to prepare the report required by the IRS. ~ As previously noted, Staff has completed a refinancing which has qenerated adequate - savings in J'iscal Year 1993-94 to abandon consideration by the . . city council of additional property tax assessments. Direct linkage of the city Reserves as a "Sinking Fund" to the COP issue could have implications that there was an overissuance of tax-exempt deb't. Legal counsel has stressed the importance of not jeopardizing the tax exemption of the COP's. The proposed resolution has been drafted in a manner which should not conflict with regulations imposed by the Federal Government on tax exempt financinqs. The Resolution establishes as the highest priority tor the use of Reserves the reduction or elimination of City indebtedness. The proposed policy will formalize the direction previously given by the city Council related to General Fund reserves. These tunds are considered a significant asset which can provide a certain level of fiscal independence tor the city. The resolution clearly identifies that these tunds may be used to eliminate indebtedness. The structure of the 1993 Civic Center COP refinancing provides for the ability to call all outstanding Certificates at par on Pebruary 1, 1999. The exact implications of this transaction will need to be reviewed at a future date based upon the economic conditions at that time. staff would recommend that the city council adopt the three resolutions which are presented with this report. a:614refin.agenda#12 . . RESOLUTION NO. - 93 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN *************************** DESIGNATING THE PROVIDER OF BANKING SERVICES AND RESCINDING RESOLUTION NO. 68-86 WHEREAS, on July 28, 1986, the Dublin city Council adoJ;>ted resolution No. 68-86, which designated the bank to be used by the c~ty; and WHEREAS, due to mergers and changes in the banking industry the bank identified in Resolut~on No. 68-86 is no longer in existence; and WHEREAS, it is appropriate to have a resolution which clearly designates the current provider of banking services to the city of Dublin; and WHEREAS, Bank of America National Trust and Savings Association (Bank of America) is the surviving company of the most recent merger transaction involving the provider of banking services to the city of Dublin; and WHEREAS, on May 23, 1988, the Dublin City council adopted Resolution 70-88, authorizing Staff to secure "Night Deposit services" from the provider of banking services to the city of Dublin; and WHEREAS, this resolution shall continue to authorize staff to secure such services to the extent that they are deemed necessary by city staff. NOW, THEREFORE, BE IT RESOLVED that the city council of the city of Dublin does hereby designate Bank of America as the provider of general banking services for the city of Dublin. BE IT FURTHER RESOLVED that the city Treasurer and/or the Deputy city Treasurer are hereby authorized to execute any documents on behalf of the city of Dublin to establish or amend the banking services provided to the city of Dublin by Bank of America. PASSED, APPROVED AND ADOPTED this AYES: th day of , 1993. NOES: ABSENT: Mayor ATTEST: City Clerk EXHIBIT 1 . . RESOLUTION NO. - 93 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN **************** RESOLUTION ESTABLISHING A POLICY FOR CITY INVESTMENTS AND DESIGNATING THE CITY TREASURER AS AUTHORIZED OFFICIAL TO INVEST CITY MONIES WHEREAS, it is prudent for the City to place investments of public funds in accordance with adopted policy; and WHEREAS, State Law prior to 1991 required the City to adopt annual investment policies; and WHEREAS, the provisions for an annual policy have been rescinded; and WHEREAS, the most recent investment policy was adopted by the City Council on June 14, 1991 by Resolution 47-91; and WHEREAS, California Government Code Section 53607 authorizes the City Treasurer to undertake investments of City monies; and WHEREAS, California Government Code Section 41006 authorizes the City Treasurer to appoint Deputy City Treasurers; and WHEREAS, City Staff have prepared an updated investment policy based upon recommendations presented by the California Municipal Treasurers Association. NOW, THEREFORE, BE IT RESOLVED that the City Council of the 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 supercede the content of Resolution 47-91, which previously set forth an investment policy. PASSED, APPROVED AND ADOPTED this 14th day of June, 1993. AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk a: ResoTres.agenda#12 EXHIBIT 2 . . EXHIBIT A 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. 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 ci tizens of the community is 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. Certificates of deposit (negotiable and nonnegotiable) and savings accounts must be insured by FDIC, SAIF, or collateralized. 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. 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 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. . . (2) Liquidity: An adequate percentage of the portfolio should be maintained in liquid short-term investments which 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. (3) Yield: Yield should become a consideration only after the basic requirements of safety and liquidity have been met. (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 of investment decisions in accordance with this policy 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. 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. Monthly 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 5J601 and 53635 of the California . . . . Government Code as they may be amended. Reporting of all transactions shall occur as noted in Section IV above. VI . TERM OF INVESTMENTS As specified in Government Code Section 53601, the City Council must expressly authorize the investment of funds which mature in excess of five years. Placement of such investments cannot occur until three months has lapsed from the date of authorization. As identified in this policy, it is important to retain availability of cash in the event of immediate disbursement requirements. It shall be the policy of the City of Dublin that no investment shall have a maturity which exceeds 10 years. The total amount of investments with maturities between 5 years and 10 years shall not exceed 10 per cent of the total portfolio, as measured against the portfolio value on the date the specific investment is made. Placement of any investment maturing beyond 5 years shall not occur until 3 months following the approval of this policy by the city Council. VI I. 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. - VIII.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. Efforts shall be made to monitor the credit characteristics and financial history throughout the period in which agency funds are deposited or invested. IX. 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. X. REVIEW OF INVESTMENT POLICY This policy shall be subject to review by city Staff on an annual basis. Any recommended modifications or amendments shall be presented to the City Council for their consideration and adoption. PSR/tss a:lnvstExA.doc.agenda#12 . , . . RESOLUTION NO. - 93 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN **************** ESTABLISHING A POLICY FOR MANAGEMENT AND USE OF GENERAL FUND ASSETS WHEREAS, the City Council of the City of Dublin recognizes the importance of General Fund Reserves; and WHEREAS, General Fund Reserves are an important asset of the City and it is prudent to have an established policy to guide their use; and WHEREAS, typically, General Fund monies are a discretionary funding source which can be appropriated as enacted through the annual budget process; and WHEREAS, interest earnings from City General Fund Reserves can provide an independent local revenue source; and WHEREAS, it is not possible to exactly predict over time how economic conditions may impact either the interest earnings (income) or the need to utilize reserves to provide the level of municipal services deemed adequate by City Council policy; and WHEREAS, prudent management would dictate that the City have a general policy for the management of its assets, including the anticipated purpose of General Fund Reserves. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does hereby establish the attached Policy for the Management and Use of General Fund Reserves (Exhibit A), attached hereto and by reference made a part hereof. BE IT FURTHER RESOLVED that City Staff are hereby authorized and directed to undertake all administrative steps necessary to implement said "Policy" and present periodic reports to the City Council. PASSED, APPROVED AND ADOPTED this 14th day of June, 1993. AYES: NOES: ABSENT: ABSTAIN: Mayor ATTEST: City Clerk PSR/lss a:ResoFund.agenda#12: 8HI81r 3 it - EXHIBIT A CITY OF DUBLIN GENERAL FOND RESERVE POLICY PURPOSE The purpose of this document is to formally outline the city council policy of maintaining General Fund Reserves and designating the potential types of uses for such reserves. General Fund Reserves shall not be considered as being readily available for appropriations towards operating expenses, except as allowed for in this policy and through explicit action by the city council. AMOUNT OF RESERVES The amount of General Fund Reserves will fluctuate over time. The City Council recognizes that there are numerous events which could place a legitimate demand on the reserves. INTEREST EARNINGS All interest earnings on the General Fund Reserves shall accrue to the city's General Fund Unreserved Fund Balance, for appropriation by the city council in accordance with local and State laws, regulations and pOlicies. ABILITY TO ACCOMMODATE CITY NEEDS The city Council recognizes the importance of maintaining flexibility at this time as well as in the future. Proper maintenance of the City's General Fund Reserves will accommodate a response to economic conditions affecting earnings on said funds as well as unanticipated events which require an appropriation. POTENTIAL USE OF RESERVES Any appropriation of General Fund Reserves is subject to action by the city Council. The following events are the basis for a policy to protect and carefully plan for any expenditure from General Fund Reserves: . city Indebtedness: Reserves may be utilized to reduce or eliminate the need for current or future debt service payments. The limitation of debt service as an annual operating expense allows for available monies to be expended for other public purposes. This shall be considered the highest priority for the use of General Fund Reserves. . Economic Uncertainty: A prudent reserve can be used to finance municipal services in the event that economic condi tions have deteriorated to the extent that traditional revenue sources can no longer support the services. . . . Response to Reductions in Revenues: In recent years, state Government has taken revenues which were previously considered to be local revenues. Development of a locally controlled revenue source can be important. . catastrophic Loss: The city currently participates in a pooled self-insured liability and property program. A catastrophic event may require additional appropriations in order to attain a full recovery. . Preservation of Funds as Revenue Generator: The preservation of General Fund Reserves provides revenue as a result of investment income. This is an important discretionary income source. . Economic Development stimulus: A locally controlled funding source could become one component of an investment plan, which would provide a positive return to the city and a public benefit. This listing is not intended to be all inclusive; however, it is generally reflective of the types of considerations to be made when proposing the use of such funds. Proposed uses which are inconsistent with this policy should demonstrate a public benefit and a finding that it is in the best interest of the city. REVISIONS Revisions to this policy shall be approved by the city Council in the form of a Resolution. PSR/lss a:FundExbA.agenda#12