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HomeMy WebLinkAbout2004-046 - Considering the City's Statement of Investment Policy . . . mjv: 6/29/04 RESOLUTION NO. 2004-046 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA ANA CONSIDERING THE CITY'S STATEMENT OF INVESTMENT POLICY 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: A. 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. B. 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. C. 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. D. The City Council of the City of Santa Ana has, at its regular meeting of July 6, 2004, 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 Ana 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 6th day of Julv, 2004. ~~ I Miguel A. Pulido Mayor Resolution No. 2004-046 Page 1 of2 APPROVED AS TO FORM: Joseph W. Fletcher, City Attorney Bylt. l/~ Mike Vigliotta :j Deputy City Attorney AYES: Councilmembers: Alvarez. Bist. Christy. Franklin. Garcia, Solorio (6) NOES: Councilmembers: None (0) ABSENT: Council members: ~) ABSTAIN: Council members: None (0) CERTIFICATION OF ATTESTATION AND ORIGINALITY I, PATRICIA E. HEALY, Clerk of Council, do hereby attest to and certify the attached Resolution No. 2004-046 to be the original resolution adopted by the City Council of the City of Santa Ana on July 6. 2004. Date: /-/9-6J~ ¿, r lerk of Council City of Santa Ana Resolution No. 2004-046 Page 2 of 2 . CITY OF SANTA ANA Statement of Investment Policy July 2004-2005 EXHIBIT 1 . . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004/2005 INTRODUCTION: This statement is investment of idle investments while Management Program. intended to outline the policies City funds by providing guidelines maximizing the efficiency of the for prudent for suitable City's Cash Under the direction of the Executive Director, 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 financial 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 requirements and restrictions outlined in the bond documents. Bond proceeds are not considered part of the Fund 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 based upon Federal, State and Local law and prudent The primary goals of these policies are: 1. To assure compliance with all Federal, State and Local laws governing the investment of monies. of Santa Ana are money management. 2. To provide liquidi ty. for the safety of principal and sufficient 3. To provide an investment Statement of Investment Guidelines. return within the parameters of this Policy and the Investment Portfolio Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004-2005 OBJECTIVES: 1. SAFETY OF PRINCIPAL Safety of principal is the foremost objective of the City of Santa Ana. Each investment transaction shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. A. Credit Risk Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: Limiting investments to the safest types of securities; Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which an entity will do business; and Diversifying 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 may be mitigated by: Structuring the Fund 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 securities. The cash flow is updated on a daily basis and will be considered prior to the investment of securities, which will reduce the necessity to sell investments for liquidity purposes. 2. LIQUIDITY - The investment po tfolio shall remain sufficiently liquid to meet all operating r quirements that may be reasonably anticipated. This is accomplis ed by structuring the portfolio so that securities mature concu rent with cash needs to meet anticipated demands (static li uidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). YIELD - The City's Fund shall b designed with the objective of attaining a market-average rate of return throughout budgetary and economic cycles taking in 0 account the investment risk constraints and liquidity need. Return on investment is of least importance compared t the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relativ to the risk being assumed. 3 . . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004-2005 Securities shall not following exceptions: 1) a declining credit security could be sold minimize loss of principal; a security swap would improve the quality, target duration in the portfolio; or liquidity needs of the portfolio require that the security be sold. I be sold prior to maturity with the early to yield, or 2) 3 ) The market-average rate of return is defined as the average return on three-month U.S. Treasury Bills. The City strives to maintain one hundred percent (100%) investment of idle funds after consideration for a compensating balance to cover the cost of services provided by the bank. The funds available for investment are determined by cash flow projections updated daily. Investments are monitored so that legal limits on types of investments are not exceeded. AUTHORIZED INVESTMENTS: The "prudent person" standard shall be applied in the context of managing the overall portfolio. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security'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 prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The City is governed by the California Government Code, Sections 53600, 16429.1 and 53684 et seq. Santa Ana further restricts the permitted investments to those listed below. Within this scope, the City diversifies its investments by maturity dates and types of investments. Concentration limits are indicated for all investment categories except Treasury securities, which are considered the safest investments. B. Obligations Government issued by Sponsored a Federal Enterprise. Agency or a Federal United Agency States Issues 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 and interest. Purchases of this category shall not exceed five years to maturity. There is no percentage limit in this category. -------- . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004-2005 C. D. include, but are not limited to GNMA (Government National Mortgage Association), FFCB (Federal Farm Credit Bank), FHLB (Federal Home Loan Bank Board), FHLMC (Federal Home Loan Mortgage Corporation), FNMA (Federal National Mortgage Association), SLMA (Student Loan Mortgage Administration), FHA (Federal Housing Administration) and TVA (Tennessee Valley Authority). Although there is no percentage limitation on these issues, the "prudent investor" rule shall apply for a single agency name as U. S. Government backing is implied rather than guaranteed. Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as banker's acceptances, which are eligible for purchase by the Federal Reserve System. Purchases of banker's acceptances may not exceed one hundred, eighty (180) days or forty percent (40%) of the cost value of the Fund which may be invested pursuant to this section. However, no more than thirty percent (30%) of the City's cost value of the Fund may be invested in the bankers acceptances of anyone commercial bank pursuant to this section. Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by Moody's Investor Services, Inc. (Moody's), Standard and Poor's (S&P) or Fitch Financial Services, Inc. (Fitch) . The corporation that issues the commercial paper shall be organized and operating within the United States, shall have total assets in excess of five-hundred, million dollars ($500,000,000), and shall issue debt, other than commercial paper, if any, that is rated "A" or higher by Moody's or S&P or Fitch. Eligible commercial paper shall have a maximum maturity of two-hundred seventy (270) days or less. The City may purchase no more than ten percent (10%) of the outstanding commercial paper of any single corporate issue. Purchases of commercial paper may not exceed twenty-five percent (25%) of the surplus money which may be invested. E. Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union or by a state-licensed branch of a foreign bank. However, the City shall not invest in negotiable certificates of deposit issued by a state or federal credit union if a member of the City Councilor any City personnel with investment decision making authority also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. The City's investment in negotiable certificates of deposit may not exceed thirty percent (30%) of the cost value of the Fund. The amount so . . CITY OF SANTA ANA STATEMENT OF INVE$TMENT POLICY JULY 2004-2005 F. G. H. invested shall be subject to the limitations of Government Code Section 53638 which generally provides that the deposit shall not exceed the shareholder's equity of any depository bank, or the total net worth of any depository savings association or federal association, or the total of the unimpaired capital and surplus of an insured i ustrial loan company. Repurchase Agreements. For purposes of this section, the term "repurchase agreement ans a purchase of securities by the local agency pursuant t an agreement by which the seller will repurchase the securitie on or before a specified date and for a specified amount and ill deliver the underlying securities to a third party custod'an. The City may invest in repurchase agreements with primary dealers of the Federal Reserve with which the City has e tered into a PSA master repurchase contract which specifie terms and conditions of repurchase agreements. The market value of securities used as collateral for repurchase agreemen s shall not be allowed to fall below 102 percent of the valu of the repurchase agreement and shall be valued daily by the ri -party custodial agent. Securities that can be pledged f r collateral shall consist only of investments permitted ithin this policy with a maximum maturity of five (5) y ars. If there is a default of the broker, the collateral securities can be sold. Since the securities are valued daily, it is likely that the sale proceeds will equal or exceed the value of the repurchase agreement amount. Purch ses in this category shall not exceed ninety (90) days or thi ty percent (30%) of the cost value of the Fund. Local Agency Investment in the Local Agency Inv State Treasurer under 16429.1 for the benefit no percentage limitation rule shall apply for a si und - State Pool. The City may invest stment Fund (LAIF) established by the California Government Code Section f local agencies. Although there is on this fund, the "prudent investor" gle agency name. Medium Term Corporate N tes issued by corporations organized and operating within t e United States or by depository institutions licensed in the united States or any state and operating within the U ited States. Notes eligible for investment shall be rate in a rating category of "A" or its equivalent or better by a nationally recognized rating service. Purchases in this catego y shall not exceed three (3) years to maturity or fifteen peroent (15%) of the cost value of the Fund. Purchases in a single issuer in this category shall not exceed five percent (5%) of the çost value of the Fund. 1. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940. The company shall have met either of the . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004-2005 following criteria: 1. Attain the highest ranking or the highest numerical rating provided by not less than three following: Moody's S&P or Fitch, and letter and two of the 2 . Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five (5) years experience managing money market funds with assets under management in excess of five-hundred, million dollars ($500,000,000). The purchase price of shares of beneficial interest, (mutual funds) purchase pursuant to this subdivision shall not include any commission that these companies may charge. J. Ineligible investments. Investments 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 derived from a pool of mortgages. In addition, the City shall not invest any funds in any security that could result in zero interest accrual if held to maturity. However, prohibited securities that are in the City's portfolio, as of the date of this policy adoption, may be held until their maturity dates. DEPOSITORY SERVICES Money must be deposited in state or national banks, state or federal savings associations or state or federal credit unions in the state. It may be in inactive deposits, active deposits or interest-bearing active deposits. The deposits cannot exceed the amount of the bank's or savings and loan's paid up capital and surplus. The bank or savings and loan must secure the active and inactive deposits with eligible securities having a market value of one- hundred, ten percent (110%) of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of one-hundred, fifty percent (150%) of the total amount of the deposits. A third class of collateral is letters of credit drawn on the Federal Home Loan Bank (FHLB). The treasurer may waive, at his discretion, security for that portion of a deposit which is insured pursuant to federal law. Currently, the first one-hundred, thousand dollars ($100,000) of a deposit is federally insured. It is to the City's advantage to waive this collateral requirement for the first $100,000 because we receive a higher interest rate. . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004-2005 QUALIFIED DEALERS AND INSTITUTIONS: The City shall transact business only with banks, savings and loans and registered investment securities 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 defined in Section 25004 of the Corporations Code, who is a member of the National Association of 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 Government Dealer by the Federal Reserve Bank. The City's Treasurer's staff shall investigate all institutions which wish to do business with the City, in order to determine if they are adequately capitalized, make 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 Policy and Investment Portfolio Guidelines. This will be done annually by having the Financial Institutions complete and return the appropriate questionnaire, and an audited Financial Statement must be provided within one-hundred, twenty (120) days of the Institution's fiscal year-end. SAFEKEEPING OF SECURITIES: To protect against potential losses caused by collapse of individual securities dealers, all securities owned by the City except securities used as collateral for repurchase agreements, shall be kept in safekeeping with "perfected interest" by a third party bank trust department, acting as agent for the City under the terms of a custody agreement executed by the bank and by the City. All securities will be received and delivered using standard delivery versus payment procedures. INTERNAL CONTROLS: 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 Executi ve Director, Finance and Management Services has developed a system of internal investment controls and a segregation of responsibilities of investment functions in order to assure an adequate system 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 investment transactions. Cash balances are reconciled daily by non-investment employees and reconfirmed by the City's accounting staff. In addition, the City's accounting staff also verifies investment activities and holdings on ----- . . CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2004-2005 a monthly basis. The Executive Director, Finance and Management Services shall establish a process for annual independent review by an external auditor to the extent contemplated by generally accepted auditing standards. REPORTING: Under the provisions of Section 53646 of the Government Code, the Executi ve Director, Finance and Management Services shall render a report to the City Council, City Manager, and the internal auditor containing detailed information on all securities, investments, and moneys of the City. The report will be submitted on at least a quarterly basis and provided to the Council within thirty (30) days following the end of the quarter. The report will contain the following information on the funds that are subject to this 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 contracted parties, 4) the market value and source of the valuation, 5) a description of the compliance with the statement of investment policy, and 6) a statement denoting the City's ability to meet its pool's expenditure requirements for the next six months. POLICY REVIEW: This investment policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of PRINCIPAL, LIQUIDITY, AND YIELD and its relevance to current law, financial and economic trends, and to meet the needs of the City of Santa Ana. oma Director & Management Services Agency