HomeMy WebLinkAbout4.08 AdoptAnnual InvestmtPolicy
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CITY CLERK
File # nf1lwfOl-(B~
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: (October 7, 1997)
SUBJECT: Adoption of Annual Investment Policy I
~Report Prepared by: Paul S. Rankin, Assistant City Manager
EXIllBITS ATTACHED: A. Resolution Adopting A Revised Policy For City Investments
B. Exhibit A - Statement of Investment Policy for the City
RECOMMENDATION: ~ Adopt Resolution
FINANCIAL STATEMENT: In Fiscal Year 1997/98 the City will be required to report annually
on its financial statements any changes in the market value of its
investments. This may affect the reported value of holdings,
depending on market conditions.
DESCRIPTION: The City's current investment policy, as well as State Law, require that it be
reviewed by the City Council on an annual basis. City Staff has thus reviewed the City's current
investment policy and is recommending that the City Council adopt the attached resolution, which will
modify the current investment policy as described in this report.
. In January of 1996, 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
compliance with State laws regulating investments. 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.
Summary of Chane:es
Section II on Scope was expanded to list in detail the City's funds covered under this policy, and to
exclude funds held with a fiscal agent from this policy, as they have their own limitations on permitted
investments as shown in their bond covenants.
Section liI, part 1 on Objectives, was modified to clarify that the City Treasurer will not directly enter into
repurchase agreements, although they are an authorized investment. Due to the volatility and complexity
of these investments, they do not fit well with the size of the City's portfolio and the primary goal of
safety .
Section IV was updated to include the designation of the Finance Manager as the Deputy City Treasurer,
. as specifi~ in the job description for this position.
G:\INVSMNTS\AGPOLICY.DOC
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ITEM NO.
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In order to maximize its return on its investments and minimize its exposure to potential losses resulting ·
from temporary declines in its investments, language has been added to part 3 of Section III that states
that the City intends to hold its investments to maturity.
Section VI on the Term of the City's Investments was modified to eliminate some conflicting languag.
regarding restrictions on any proposed investment with a maturity in excess of five years. As a result of
the proposed change, the investment policy now clearly states that placement of such an investment
requires the approval of City Council and cannot occur until three months have lapsed from the date of
authorization by the Council.
UncomiDe: Chane:es in Accountine: for Investments
As a result of the passage by the Governmental Accounting Standards Board (GASB) of Statement 31,
"Accounting and Financial Reporting for Certain Investments,", the City will now be required to report at
market value on its financial statements all of its investments with maturity dates in excess of one year. In
previous reports the City has disclosed the market value, however, unrealized gains/losses were not
recorded in the City's Financial Records.
The philosophy behind the reporting in the past has been that the City holds all securities to maturity and
does not actively trade securities in the portfolio. After June 30, 1997 GASB will no longer allow this
treatment. The City will be required to recognize any change in the value of its investments on an annual
basis and spread this gain or loss across all of the City's funds, based upon each fund's share of the City's
total investments. Language has been added to section VIII on Report Information to reflect these new
requirements. Staff will also work with the City's Auditors to present the unrealized gains/losses in a
manner which will not distort the actual cash available in City Reserves.
In reviewing the effect of this Statement on the amount of investment gain or loss that the City would.
have to recognize on an annual basis, no loss would have to be recorded on the City's investments in
LAlF and Certificates of Deposit. The City would, however, have to record an annual ACCOUNTING
gain or loss on its investments in Federal Securities/Agencies and its Mutual Fund investments, due to the
fluctuations that occur in their market value from year to year. However, by holding the Federal
Securities to maturity, the City WILL NOT recognize any OVERALL losses and will recoup the full
amount of these investments.
With Mutual Fund investments the City receives income throughout the year. Although the market value
will fluctuate, it is important to consider this in the context of the earnings over the period the investment
was held. Staff will evaluate this overall impact for presentation when the accounting change is fully
implemented at the conclusion of the 1997/98 Fiscal Year.
Staff Recommendation
Staff recommends that the City Council adopt the Resolution.
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RESOLUTION NO. - 97
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 January 23,
1996 by Resolution 10-96; 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, City Staff have prepared modifications to the investment policy, resulting primarily
from new requirements issued by the Governmental Accounting Standards Board (GASB) relating to the
reporting of investments and interest income, as well as stating the City's intention to hold its investments
to maturity.
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 10-96,
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 and Fred Marsh, Finance Manager are authorized to perform the
duties of Deputy City Treasurer in accordance with all applicable laws and City policies.
PASSED, APPROVED AND ADOPTED this 15th day of July, 1997.
AYES:
NOES:
ABSENT:
ABSTAIN: None
Mayor
ATTEST:
City Clerk
EXlllBIT A
STATEMENT OF INVESlMENT POLICY FOR THE
CITY OF DUBLIN
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I. INTRODUCTION
The pwpose 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 :eolicy cover all funds and investment activities under the direct authority
of the City of Dublin, Las 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 ~ooled funds are accounted for in the City's
Comprehensive Annual Financial~eport and include:
Funds
General Fund
fuJecial 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.]
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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.
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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 agreementsj althougb this
investment tool may be used by authorized poo ed investments
which are managed by others (i.e. LAIF, Mutual Funds, etc.]
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EXHIBIT A
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(2)
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(3)
(4)
(5)
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(6)
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Certificates of deposit (negotiable and nonnegotiable) and savings accounts must
be insured 1?Y FDIC, SAlF, or collateralized (at 110% of market value
with U.S. Treasury and Agency SecuritIes].
. Bankers acceptances must be secured by the irrevocable primary obligation of the
accepting domestic bank.
. The Local Agency Investment Fund (LAlF) 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.
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 (Le. 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. Altliough there may be
opportunities to resell securities, this tyl!e of regular trading is not
considered consistent with the City's goaTs.]
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.
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 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.
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 des~ed and managed
with a degree of professionalism that is worthy of the public trust. [Thus employees
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EXHffiIT A
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 im~artial
investment aecislOns. Additionally the Ci~ 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 Assistant City Manager/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 striys derived from a pool of mortgages [(i.e. Collateralized
Mortgage Obligations)J.
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.]
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.
:\5 iaentified Hi this peliey, it is impertant te retain w.'ailabilit)' of cash in tee ev/ent of immediate
aisBtifsamem reltwemeBts. It sha,ll Be tee petie)' of the City of DubliR teet BO investment shall
have a matwity whieh eJrGeeas 10 yam-s. The teW 8:Rlel:Ult ef in'.'estmems with maturities
ber.veen 5 yaars and 1 9 years shall not eJreeea 1 Q fle! oent of the total pertfelio, as measared
against the pertfelie value on the aate the speoifiG investment is maaa. PlaGement ef any
investment maturing be)'onB 5 years shall net eee1:1f 1:1Rtil 3 menths follovoog tee approval of this .
peliey by the City Ce1:1:t1oil.
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EXHmIT A
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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 tlie related
general ledger accounts is conducted to ensure (!roper handling of all
lDvestment transactions. An independent analysis by an external auditor
shall be conducted periodically to review internal controls, account activity
and compliance witli 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)
b)
c)
d)
e)
f)
g)
h)
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 the ability of the City to meet its expenditure requirements for
the next six months
rIn 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 wilfnow 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 take effect for the year ending June 30,
1998.]
IX. SELECTION OF INSTITUTIONS
In selecting the fmandal institutions for the deposit or investment of City of Dublin funds, the
City Treasurer shall consider the credit worthiness of institutions which are utilized. rAil
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 fmancial 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.
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EXHmIT A
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X. RISK TOLERANCE
As noted, diversification shall be utilized to control risk. No individual investment transaction.
shall be wtdertaken 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.
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EXHIBIT A