HomeMy WebLinkAbout4.05 Annual Investmnt Policy
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CITY CLERK
File # D[3J~[Q]-~[Q]
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: (January 23,1996)
SUBJECT:
,. ft .I Adoption of Annual Investment Policy
~v Report Prepared by: Paul S. Rankin, Assistant City Manager
EXHIBITS ATTACHED: Resolution Adopting A Revised Policy For City Investments
RECOMMENDATION: ~doPt Resolution
FINANCIAL STATEMENT: None
DESCRIPTION: As part of the last legislative session a new State law was passed related to local
agency investments. SB 564 was authored by Senator Johnston and was signed into law by Governor
Wilson on October 12, 1995. In order to comply with the law Staff is recommending that the City
Council adopt a resolution, which will slightly modify the current investment policy as described in this
report.
In June of 1993, the City Council adopted the current investment policy, which emphasizes the need for
safety and liquidity above yield in the investment of public monies. The current policy is in substantial
.' compliance with the new law. The format of the current policy already reflects provisions intended to
. protect against a financial catastrophe such as that experienced in Orange County.
Attached is a Draft Resolution which has the proposed investment policy attached as Exhibit A. On
Exhibit A, Staffhas noted in brackets and larger type any wording which was added to the current policy.
Items which are proposed to be deleted are shown with an overstrike marking. All of the revised sections
occur on pages two and three of the draft investment policy.
Summary of Changes
Th~ first modification occurs in Section IV, which has been modified to state that the Assistant City
Manager / Administrative Services Director is designated as the City Treasurer and the City Manager is
designated as the Deputy City Treasurer. At times the City is requested to provide documentation to
brokers of the authorized investment officers. This will clarify the authorized positions. This issue has
also been addressed in the draft resolution adopting the policy. The change'to a quarterly reporting
schedule noted in Section IV will be discussed later in this report.
Staff has proposed a modification to section V which will explicitly preclude the investment in
Repurchase Agreements and Reverse Repurchase Agreements. Although State law allows these types of
investments, Staff does not feel they are compatible with the City investment portfolio.
In addition language has been added to Section V which explicitly lists those investment instruments
. stated as "Prohibited Investments" under State law. This includes inverse floaters, range notes, and
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COPIES TO:
ITEM NO.~. 7
interest only strips derived from a pool of mortgages. It is appropriate to highlight these items in the
policy in order to maintain only investments authorized by State Law.
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In June of 1993 the City Council adopted a Policy For the Management and Use of General Fund Assets
and Reserves. The policy considered the highest priority the use of General Fund Reserves to reduce or .
eliminate City indebtedness. Currently the only obligation is the Civic Center Certificate of Participation
financing, which can be called at par beginning in February of 1999. Staff has proposed a modification
to Section VI, which will recognize the existence of such policies in the selection of portfolio maturities.
Section VIII has been added to provide for a quarterly report including a listing of the minimum contents
of the report. As adopted, the State law requires a quarterly report. The law does contain language that
allows a local entity to elect to require monthly reports. Staff has recommended a quarterly reporting
basis as being reasonable to evaluate changes in the various factors affecting the City portfolio. Also, in
the past the rate of change over one month may be minimal, whereas quarterly figures begin to reflect
more significant trends. The Local Agency Investment Fund (LAIF) currently pays interest on a quarterly
basis and typically LAIF investments have represented at least 20% of the City portfolio.
The actual contents of the report outlined in Section VIII is as stated in the new law. There are only three
areas of information which will change from the current report. Two of the changes are relatively minor
as they relate to statements about conformance with the investment policy, and a statement that the City
can meet its expenditures for the next six months. The third area is the inclusion of current market value
information. The City investment parameters have previously relied on a philosophy of buying securities
(i.e., FNMA and FHLB Notes) and holding them until maturity. Therefore, the current market value has
minimal meaning unless you have a need to liquidate the holdings as a result of cash flow needs. The
Ci.ty.jnvestment policy is designed to avoid this type of situation by placing a priority on liquidity. The
new report will need to incorporate the current market value.
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Section IX was modified to refer to the use of a third party custodial account for safekeeping of securities.
Section XI was modified to refer to the new requirement for annual review of the policy by the City
Council at a public meeting.
Staff Recommendation
Staff recommends that the City Council adopt the Resolution.
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RESOLUTION NO. - 96
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
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ADOPTING A REVISED POLICY FOR CITY INVESTMENTS
WHEREAS, It is prudent for the 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 June 14,
1993 by Resolution 79-93; and
WHEREAS, Effective January 1, 1996 new State laws regulating investments by public agencies
became effective; and
WHEREAS, It is appropriate to designate by resolution the individuals authorized to make
investments on behalf of the City; and
WHEREAS, City Staff have prepared modifications to the investment policy in conformance
with the current State law.
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 supersede the content of Resolution 79-93,
which previously set forth an investment policy; and
BE IT FURTHER RESOLVED that the City Council recognizes that Paul S. Rankin, Assistant
City Manager / Administrative Services Director is authorized to perform the duties of City Treasurer, and
Richard C. Ambrose, City Manager is authorized to perform the duties of Deputy City Treasurer in
accordance with all applicable laws and City policies.
PASSED, APPROVED AND ADOPTED this 23rd day of January, 1996.
AYES:
NOES:
ABSENT:
ABSTAIN: None
ATTEST:
Mayor
City Clerk
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EXHIBIT A
STATEMENT OF INVESTMENT POLICY FOR THE
CITY OF DUBLIN
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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 citizens 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. . '.'
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EXHIBIT A
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VI.
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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. [The Assistant City Manager/Administrative Services
Director shall be designated as the City Treasurer and the City Manager shall
be designated as the Deputy City Treasurer. Monthly Quarterly] reports of said
transactions, if any, shall be provided to the City Council.
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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 r VIII below]IV aboye.- [The
City Treasurer shall not 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 III any of the
following instruments: inverse floaters, range notes, or interest only strips
derived from a pool of mortgages.] ,
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. [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.]
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EXHIBIT A
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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.
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.
[VIII. REpORT INFORMATION
rThe Treasurer shall report to the City Council on a quarterly basis within 30
aays following the end of the quarter specific information related to the City
investments. At a minimum the report shall include the following:
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Type of Investment
Issuer
Date of Maturity
Par and dollar amount invested
Current Market Value as of the date of the report
Source of the market value information
A statement of compliance with the investment policy
A statement as to tlte ability of the City to meet its expenditure
requirements for the next six months]
IX...3Im.SELECTION OF INSTITUTIONS
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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. [In the case of securities purchased br or on
behalf of the agency, a third party safekeeping account shall be maintamed in
the name of the City of Dublin.]
X.-!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. :X. REVIEW OF INVESTMENT POLICY
This J?olicy shall be subject to review by the City [Council] Staff 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.
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EXHIBIT A