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HomeMy WebLinkAbout2003-056 - Considering the City's Statement of Investment PolicyRESOLUTION NO. 2003-056 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA ANA CONSIDERING THE CITY'S STATEMENT OF INVESTMENT POLICY my: 6/27/02 BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS FOLLOWS: Section 1. The City Council of Santa Ana hereby finds, determines and declares as follows: The California Government Code, section 53646 requires each city to have a written statement of investment policy to govern investment of the city's monies. Each city's treasurer or chief financial officer must, pursuant to this state law, quarterly submit a report to the city council and the State stating, in part, whether all investments in the preceding quarter have been made in conformance with the statement of investment policy. Pursuant to section 53646, the city's statement of investment policy must be submitted by the city's treasurer or chief financial officer to the city council for its consideration at a regular meeting. The City Council of the City of Santa Ana has, at its regular meeting of June 16, 2003, considered the proposed statement of investment policy attached to this Resolution and by this reference incorporated herein as though fully set forth. Section 2. The City Council of the City of Santa Aha hereby states that it has duly considered the City's statement of investment policy submitted by the City's Treasurer. Section 3. This Resolution shall take effect immediately upon its adoption by the City Council, and the Clerk of the Council shall attest to and certify the vote adopting this Resolution. ADOPTED this 16th day of June, 2003. Resolution No. 2003-056 Page 1 of 11 APPROVED AS TO FORM: Joseph W. Fletcher, City Attorney By: AYES: NOES: ABSENT: ABSTAIN: Councilmembers: Alvarez, Bist, Christy, Franklin, Garcia, Pulido, Solorio (7) Councilmembers: None (0) Councilmembers: None (0) Councilmembers: None (0) CERTIFICATION OF ATTESTATION AND ORIGINALITY I, PATRICIA E. HEALY, Clerk of the Council, do hereby attest to and certify the attached Resolution No. 2003-056 to be the original resolution adopted by the City Council of the City of Santa Aha on June 16, 2003. Date: ~ ~-~.5'- ~ ~ C~ Clerk of the City of Santa Ana Resolution No. 2003-056 Page 2 of 11 EXHIBIT Resolution No. 2003-056 Page 3 of 11 CITY OF SANTA ANA BTATEME~T OF INVESTMENT POLIC~ J~LY 2003-20.04 This statement is intended to outline the policies for prudent investment of Jd]e City funds by providing guidelines for suitable investments while maximizing the efficiency of the City's Cash Management Program. Under the direction of the Executive Direenor, Finance and Management Services, the responsibility for the day 'to day investment of the City's funds is delegated to the Treasury Manager only. The investment policy applies to all ~inancial assets of the city and are pooled in an actively managed portfolio. The investment pool or portfolio will be referred to as the "Fund" throughout this document, Bond proceeds shall be invested in accordance with reqairements and restrictions outlined ill the bond documents. Bond proceeds are not considered part of the F~nd nor subject to this Investment Policy. The City's Cash Management Program is designed to accurately monitor and forecast expenditures and revenues, thus enabling the investment of funds to the fullest extent possible. Maturities are matched as close as possible to coincide with cash requirements. The investment policies and practices of the City of Santa Asa are based upon Federal, State a~d Local ]aw and p~dent money management. The primary goals of these policies are: 1. To assure compliance with all Federal, ~tate and I~cal laws governing the investment of monies. 2. To provide for the safety of principal and sufficient liquidity. 3. TO provide an investment retura within the paIameters of this Statemmnt of Investment Policy and the Investment Portfolio Guidelines. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and mauagement of the investment program, or the= could i~pa]r their ability to make impartial decisions, Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. ~ey shall further disclose a~ personal financial/investment positions that could be related to the performance of the investmenc portfolio. Employees and officers shall refrain from ,~dertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. Resolution No. 2003-056 Page 4 of 11 CITY OF SANTA ~A S'i~AT~ENT OF INVES~ POLICY JULY 2003-2004 SA~-~T¥ 0F PRINCIPAL Safety of principal ~S the foremost objective of the city of Santa Aha. Each investment transaction shall be undertaken in a ma~er that seeks ko ensure preservation of capital in the overall portfolio. The object,ye will be to mitigate credit risk and interest rate risk. A. Credit Risk Credit Risk ~s the risk of loss due to %he failure of the security issuer or backer. Credit risk may be mitigated by: Limiting investments to tha safest t~rpes of securities; Pre~0slifying the financial institutions, broker/dealers, intermediaries, and advisors with which an entity will do business; ~ld Dzversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, interest rate risk ~?~y be mitigated by: Structuring tho ~ur~d so that .securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and By investing operating funds primarily in shorter-term The cash flow is updated on a daily basis and will be considered prior to thc investment of securities, which will reduce the necessity to sell investments for liquidity purposes~ LXQUIDITY ~ The ~nvestment portfolio' shall =~l~in sufficiently liquid to meet all operating requirements that may be reasonably antmcipated. This is accomplished by structuring the portfolio so tP~t securities matur~ Concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash dewmnds cannot be anticipated, the portfolio should consist largely of securities with active seconda~! or resale [*~rkets (dynamic liq~idityl . YIELD - The City's Fund shall be designed with the objective of attaining a market-average rate of return throughout budgetary and economic cycles taking into account the investment risk constraints and ]~idity needs. Return on invesument is of least importance compared to the safety and liquidity objectives described above. The core of investments are Resolution No. 2003-056 Page 5 of 11 CITY OF S;~gTA ANA STATEMENT OF INVESTMP2gT POLICY ~JL¥ 2003-2004 limited to relatively ].ow risk securities in anticipation of earning a fair return relative to the risk being assumed~ Securities shall not be sold prior to maturity with the following exceptions: 1) a declining credit security could be sold early to minimize loss of principal; 2) a security swap would improve the ~ality, yield, cr target duration in the portfolio; or 3) liquidity needs of ~he portfolio {e~ire that the security be sold. The ~rket-average rate of return is defined as the average return on thres-monch U.S. Treasury Bills. The city strives to maintain 100% investment of idle funds after consideration for a compensating balas~ce to cover the cost of services provided by the bar~. The f~nds available for investment are determined by cask flow projections updated daily. Investments are monitored so that legal limits on ty~e~ of investments are r. ot exceeded. The "prudent person" standard shall be applied in the context of m~naging the overall portfelio, Investment officers acting in accordance with written procedures and this investment policy arid exercising due diligence shall be 'relieved of personal responsibility for aa indiv/dl~al secLhrity's credit risk or market price changes, provided deviations from exceptions are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. Investments shall be made with judgement and care, under circumstances then prevailing, which persons of p~udence, discre=ion, a~ intelligence exercise in the management of their ow~. affairs, not for speculation, but for investn%ent, considering the probable safety Of their capital as wall as the probable incom~ to be derived. The City is governed by the California Government Code, Sections 53600, 16429.1 and 5~684 et seq. Santa Aaa further restricts the permitted investments to those listed below. Within this scope, the City diversifies its investments by ~aturity dates and types of investments. Concentration limits are indicated for all investment categories except Treasury securities, which are considered the safest investments. A. United States Treasury Bills, Notes, and Bonds, for which the full faith and credit of the United States are pledged for payment of principal a~ interest. Purchases of this category shall not exceed five years to maturity. There is no percentag~ ]~m~t ~n th~s category. B. Obligatior~s issued by a Federal Agency or a United State% Resolution No. 2003-056 Page 6 of 11 CITY OF SAC'fA ANA STATES,let OF iNn;E~NT POLICY JULy ~003-- 2004 C~vernment Sponsored Ente~rise. Federal Agency Issues ~nelude, but are not limited to ~ (Government National Mortgage Association), FFCB (Federal Farm Credit Bank), FHLB (Federal ~ome Loan Bank Board), FHLMC (Federal Home Loan Mortgage Corporation), FNMA (Federal National Mortgage Association), SL~A (Student Loan Marketing Administration), FHA Authority), Although there ia no percentage li~itation on these issues, the "prudent investor" rule shall apply for a single agency name as U.S. Government backin~ is implied rather than guaranteed. Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise ~nown as banker's acceptances, which are eligible for purchase by the Federal Reserve System. Purchases of banker's a~eep%ances may no~ exc%ed 1~0 d~ys or ~0 percent cf the cost value of the Fund which may be invested pursuant to this section. However, no more than 30 percent of the City's cost va!u~ of the ~und ~y be invested in the bankers acceptances of any one cormnercial bank pursuant to this sectfon~ Commercial paper of '~prime" quality of the highest ra~<ing or of the highest ]etter and number rating as provided for by Moody's Investor Services, Inc, {Moody's), Star~rd and ~oor's (s&P)or Fitch Financial Services, Inc. (Fitch). The corporation that issues the c~lercial paper shall be organized and operating within the United States, shall have total assets in excess of five h~ndred million dollars ($500~000,000), and shall issue debt, other than co~%~ercial paper, if any, that is rated "A" or higher by Moody's or S&P or Fitch. Eligible commercial paper shall have a maximum maturity of 270 days or le~s. The City may purchase no more than 101 of the outsta~din9 cormn, ercial paper of any single co.~porate issue. Purchases of commercial paper may not exceed 25 percent of ~he surplus money which may be invested. Negotiable certiCicates of deposit i~sued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financ]a] Code}, a state or federal credit %u~ion or by a state-licensed branch of a ~oreign bank. Mowever, the City shall not inves: in negotiable certificates of deposit issued by a state o~ federal credit union if a me~er of the City Council or any Cisy personnel with investment decision making authority also serves on the board of directors, or any coT. mitres appointed by the board of directors, or the Trediu co~lit~ee or the supervisory committee of the s~ate or federal credit union issuing the negotiable certif!cates of deposit. The City's investment in negotiable certificates of deposit may not exceed 30 percent of the cost value of the Fund. The amount so invested shall be subjec~ to tb.e limitations of Government C. ode Section 53638 which generally provides that the deposit Resolution No. 2003-056 Page 7 of 11 CITY OF SAN'iA A.MA STATW-M~ OF INVESTMENT POLICY JULY 2003-2004 shall not exceed the shareholder's equity of any depository ba~, or the total net w~rth of any depository savings association or federal association, or the total of the unimpaired capital and surplus of an insured industrial loan company. Repurchase Agreements. For purposes of this section, the term "repurchase agreement moans a purchase o£ securities by the local agency pursuant .to an agreement by which the seller will repurchase the securities oH or before~ specified date and for a specified amount and will deliver the underlying securities to a third party custodian. The City may invest in repurchase agreeme~ts with primary dealers of the Federal Reserve with which the City has entered into a PSi master repurchase contract which specifies te~ns and conditions of repurchase agreements. The market value of securl=ies used as collateral for repurchase agreements shall not be allowed to fall below 102 percent of the value cf the repurchase ag-reement and shall be valued daily by the rtl-party custodial agent. Securities that can De pledged for collateral shall consist only of investments pMrm~tted within this policy wi=h a maximum maturity of five years. If there is a default of the broker, the collateral securities cae be sold. Since the securities are valued daily, it is likely that the sale proceeds will equal or exceed the value of the repurcP~se agreement amount. Purchases in this category shall not exceed 90 days Or 30 percent of the cost valum of the Local Agency Investmen~ Fund - State P~ol. The City may invest in the Local Agency Inveatmeut Fund (~tlF) established by the State Treasurer under California Government Code Section 16429.1 for the benefit of local agencies. Although there is no percentage limitation on this fund, the ,,prudent investor" rule shall apply for a single agency name. Medium Term Co_~porate Notes issued by co~porations or~anlzed and operating within the United States or by deposiuory lnstitutions licensed in the united ~tate~ or any state and operat~n~ within the united States. Notes eligible for investment shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized ratiz~ service. Purchases in this category shall not exceed three years to maturity or 15 percent of the cost value of the Fund. Purchases in a single issuer in this category shall not exceed 5 percent of the cost value of the Fund. Shares of beneficial interest issued ~y diversified management companies that are money market fun~g registered with the Securities and Exchange Commission under the InVestment Company Act of 19~0. The company shall have met either of the following criteria: 1. Attained the highest ranking Or the hi~hest letter Resolution No. 2003-056 Page 8 of 11 CITY OF SANTA A_NA $'fAT~MENT OF INVESTMENT POLICY JULY 2003-2004 i~.umerical rating provided by not ~ less than two of the following: Moody's, S&P or Fitch, and Retained an inYestment adviser registered or sn<empt from registration w~th the Securities and Exchange Commission with not less than five years experience managing money marke~ funds with assets under ma~.agement in excess of five hundred ~llion dullars ($500,000,000). The purchase price of shares of beneficial interest, (mutual '~unds) purchase pursuant to this subdivision shall not include any commission that these companies may charge. Ineligible investments. Invsstments not described herein are ineligible investments. In accordance with Section 53631.5 of the Government Code, the City shall not invest any funds in inverse floaters, range notes, or interest only strips that are dsrived froln a pool of mortgages. In addition, ~he C~ty shall not invest any f~nds in any security that could result in zero interest accrual if held to maturity. However, prohibited securities c~hat ar~ in t~ City's portfolio, as of the date of this policy adoption, may be held ~until their maturity dates. Money musz be deposited in state or national bar~s, state or federal savings associasions or state or federa~ credit ,anions in the state. It m~y be in i~ctive deposit~, active depqsics or interest-bearing active d~posits. The deposits cannot exceed the amount of the bank's or savings and loan's paid up capital and suz~lus. Tbs bank or savings eu~d loan must secure the active ~u]d inactive deposits with ellgible securities having a market value of 110% of the total smother of the deposits. State ]aw also allows as an eligible security, first tr~st deeds having a value o~ 150% o~ the total amount of the deposits. A third class of collateral is letters of credit drawn on the Federal Home.Loan Ba~ (FHLB). The treasurer may waive, at his discretion, security for that portion of a deposit which is insured pursuant to federal law. Currently, the f~rst $I00,000 of a deposit is federally insured. It is to the City's advantage to waive this collateral requirement ~or the first $100,000 because we receive a higher interest rate. The City shall transact business only with banks, savings and loans and registered investment sscurities dealers. The purchase by the City of any investment other than those purchased directly from the issuer, shall be purchased either from an institution licensed by the State as a broker-dealer, as d~ined in Section 25004 of the Co~o%l~ticns Code, who is a ~t~er of the National Association of Resolution No. 2003-056 Page 9 of 11 CITY OF SANTA ANA STATEMENT O~' INVESTMENT POLICY ~JLY 2003-2004 Securities Dealers, or a member of a Federally regulated securities exchange, a National or State-Chartered Bank, a Federal or State Association (as defined by Section 5102 of the Financial Code), or a brokerage firm, designated as a Primary Goverr~ent Dealer by the Federal Reserve Bank. The City Treasurer's staff shall investigate all institutions which wish to do business with the City, in order to determine if they are adequately capitalized, ~ake markets in securities appropriate to the City's needs, and agree to abide by the conditions set forth in the City' Of Santa Ana's Investment Poll~t and Investment Portfolio ~lidel~nes. This will be done arn%ually by having the Financial Institutions complete and resurn the appropriate questionnaire, and an audited Financial Statement must be provided within 120 days of the Institution's fiscal year- end. To protect against potential losses caused ~y collapse of individual securities dealers, all securities owned by [he City except securities used as collateral for repurchase agreements, shall be kept in safekeeping with "perfected interest" by a third party bark trust department, acting as agent for the City under the terms of a custody agreement executed by the bank and by ~he City. Ail securities will be zeceived ~nd delivered using standard delivery versus payment procedures. The Executive Director, Finance and Management Services is responsible for establishing and maintaining an internal control structure designed to ensure that the assets Of the entity are protected from loss, theft Or misuse. The Executive Director, Finance and Management Services has developed a system of internal investment controle and a segregation of respo~sibilities of investment functions in order to assure . an adequate ~yetem of internal control over the investment function, internal control procedures address wire controls, separation of duties, delivery of securities to a third party for custodial safekeeping, and written procedures for placing inYestme~t =ransactions. Cash balances are reconciled daily by non-investment employees and reconfirmed by the City's accountin~ staff, in addition, the City's accountinG staff also verifies investment activities ~d holdings on a monthly basis. The Executive Director, Fin~ce and Management Services shall establish a process for ann~al independent review by an external auditor to the extent contemplated by generally accepted auditing standards. Resolution No. 2003-056 Page 10 of 11 CITY OF SARTA ANA STATEMENT OF INVESTMENT POLICY JULY 2003-2004 Under the provisions of Section 53646 of 5he Government code., the Executive Director, Finance and Management Servicea shall render a report to th~ City Co.ancil, City Manager, and the internal auditor containing detailed information on all securities, investn~nts, and ~neys of the City. The report will be submitted o~. at ]east a quarterly basis and provided to the Council within 30 days ~oliowing the end of th~ quarter. The report will contain the following information on the funds that are subject to ~h~s investment policy: 1) the type of investment. name of the issuer, date of maturity, par and cost in each investment, 2) the weighted average maturity of the investments, 3) any investments, including loans and security lending programs, that are under the management of con,ratted parties, 4) the market value and source of the valuation, 5) a description o~ the compliance with the atatemen~ of inves~men~ policy~ and 6) a statement deno~ing ~he City's ability tc meet its pool's expenditure requirements ~or the next six months. This investment policy shall be reviewed at least a~mually to ensure its consistency wi=h ~he overall objectives of preservation of PRINCIPAL, LIQUIDITY, AND YIELD and its r~levance to current law, financial and economic trends, and to meet the ~eeds of the City of Santa oma Finance & Management Servicee Agency Resolution No. 2003-056 Page 11 of 11