Loading...
HomeMy WebLinkAbout2008-045 - Considering the City's Statement of Investment Policy RESOLUTION NO. 2008-045 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, 953646, requires each city to have a written statement of investment policy to govern investment of the city's monies. B. Pursuant to 953646, the city treasurer shall annually submit a statement of investment policy to the city council for its consideration at a regular meeting. C. The City Treasurer shall submit quarterly reports to the city council stating that all investments in the preceding quarter have been made in conformance with the City's investment policy. D. The City Treasurer has submitted the attached Statement of Investment Policy to this Council at its regular meeting of July 7, 2008, for its consideration. Section 2. The City Council of the City of Santa Ana has duly considered and approves the City's statement of investment policy submitted by the City 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 ih day of Julv, 2008. Resolution No. 2008-045 Page 1 of 10 APPROVED AS TO FORM: Joseph W. Fletcher, City Attorney By: ..' AYES: Councilmembers: Alvarez. Benavides. Bustamante. Martinez. Pulido. Sarmiento. Tinaiero (7) NOES: Councilmembers: None (0) ABSTAIN: Councilmembers: None (0) NOT PRESENT: Councilmembers: None (0) CERTIFICATION OF ATTESTATION AND ORIGINALITY I, PATRICIA E. HEALY, Clerk of Council, do hereby attest to and certify the attached Resolution No. 2008-045 to be the original resolution adopted by the City Council of the City of Santa Ana on Julv 7. 2008. Date: ~~! ~ 51 ~------:;> /' /-; -<- - ~ . Patricia E. Healy Clerk of Council City of Santa Ana - \. Resolution No. 2008-045 Page 2 of 10 CITY OJ!' SANTA AHA ST~ OF INVBSTMI!2I'J' POLICY JULY 2008/2009 IN'1'ROIlt1C'UON : This statement is investment of idle investments while Management Program. intended ::0 Ci ty funds by maximizing the outline the policies providing guidelines 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 Treasur}' Manager only. The investment policy applies to all financial assets cf 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. Band proceeds are not considered part of the Fund nor subject to this Investment policy. The City's Cash Management Program is desigr.ed to accurately monitor and forecast expenditures and revenues, thus enabling the investment of funds to the fullest extent possible. Mat'xrities are matched as close as possible to coiLcide with cash requirements. The investment policies and practices of the City of Santa Ana are based upon Federal, State and Local law and prudent money management. The primary goals of these policies are: 1. To assure compliance with all Federal, state and Local laws governing the investment of monies. 2. To provide for the safecy of pr~ncipal and sufficient liquidity. 3. To provide an investment return within the parameters 0= this Statement of Invest:ment Folicy and chs Investment Portfolio Guidelines. Officers and employees involved in the investment. process shall refrain from personal business activity that could confli"t -.rith 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 finallc:i"l!investment positlrms that could be related to t~e 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. Attachment Resolution No. 2008-045 Page 3 of 10 CITY OF SANTA ANA S~ATBMENT OF INVESTMENT POLICY JULY 2008-2009 OBJ:lCTIVES: SAFETY OF PRINCIPAL Safety of principal is t::,e foremost objective of the City of Santa Ana. Each investment transaction shall be undertaken in a =er t~t seeks to ensure 'Oreservation 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 t::,e failure of the security issuer or backer. Credit risk may be mitigated by: Limiting investments to the safest types of securities; Pre-qualifying the financia: institutions. broker/dealers, intermediaries. and adv:cscrs wit:' which an entity will do business; and Diversifying the investment portfolio so that poten=ia1 losses on individua: securities will be minimi2ed. B. Interest Rat.e Risk Interest rate r~sk is the risk that the mar~t value cf securities in the portfolio will fall due to changes in general intereat rates. Interest rate risk may be mitigated by: Structuring the Fund so tr.at 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 se~rities. The cast. flow is updated on a daily basis and will be considered prior to the investment of securities, which w~lJ. reduce the necessity to sell jnvestments for liquidity purposes. ~ . LIQUIDI!rY The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the port=olio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Further1r.ore, since all possible cash demands cannot be ~~ticipated. the portfolio should cons:.st larssly of securities with active secondary or resale markets (dynamic liquidity) . 3. YIELD - The City's Fund shall be designed with the objective of attaining a market-average rate of return throughout bud~etary and economic cycles taking into account tr.e ~nvestment ",isk constraints ar.d liquidity needs. Return on investme:J.t is of least importance compared to the safety and liquidity objectives described aboVe. Tt.e core of investments are limit:ed to relatively low risk securities in anticipation of earning a fair return relative to the ::isk being assumed. Securities shall not be Bold prior to maturity with the Resolution No. 2008-045 Page 4 of 10 CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 200S-2009 following exceptions, 1) a declining credit security could be sold early to minimize loss of principal; 2) a security swap would improve the quality, yield, or target duration in the portfolio; or 3) liquidity needs of the portfolio require that the security be sold. 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 ClO.sh flow projections updated daily. Investments are monitored so that legal limits on types of investments are not exceeded. JW'l'HORIZED INVES~S: 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 responsibili ty 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 persona 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 536S4 et seq. Santa Ana further restr:.cts 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 ccnsidered the safest investments. .r.. United Stat:es Treasury Bill", 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. B. Obligations issued by Government Sponsored incl~de, but are not a Federal Agency or a United States Ent:erprise. Federal Agency Issues limited to GNMlL (Government National Resolution No. 2008-045 Page 5 of 10 CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2008-2009 Mortgage Association), Ii'I'CB (Federal Farm Credit Bank), E'IILEl (Federal Home Loan Bank Board), I'HLMC (Federal Home Loan Mortgage Corporacion), ~ (Pede~~l National Mo~L~d~e Association), S~ (Student Loan Mortgage Adminiscration), 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. C. 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 percenL (30\) of the City'S cost value of the Fund nay be invested in the bankers acceptances of anyone commercial bank pursuant to this section. D. 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 (SS.P) or Fitch Financial SeL-vices, IIlC. (Fitch). The corporation that issues the commercial paper shall be organized ~~d operating within the United States, shall have total assets in excess of five-hundred, million dollars ($500,OOO,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 comme=cial paper may not exceed twenty-five percent (25%1 of the surplus money which may be invested. E. Negotiable certificates of deposit issued "::Jy 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-:icensed 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 menber of the Cicy 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 otate or federal credit Wl:.on issuing the negotiable certificates of deposit. The City's investment in negotiable certificates of deposit may not exceed thirty percent 130%) of the cost value of the Fund. The amount so invested ahall be subject to the limitations of GOvernment Code Section 53638 which g..nerally provides that the deposit shall Resolution No. 2008-045 Page 6 of 10 CITY OF SANTA ANA STATEMENT OF ThVESTMENT POLICY JULY 2008-2009 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 industrial loan company. F. Repurchase Agreements. For purposes of this section, the term "repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by w~ich the seller will repurchase the securities on or before a specified date and for a specified amount and will deliver the underlying securities to a third party custodian. The City may invest in repurchase agreements with primary dealers of the Federal Reserve with which the City has entered intc a PSA master repurchase contract which specifies tems and conditions of repurchase agreements. The market value of securities used as collateral for repurchase agreements shall not be allowed to fall below 102 percent of the value of the repurchase agreement and shall be valued daily by the tri-party custodial agent. Securities that can be pledged for collateral shall consist only of investments permitted within this policy with a maximum maturity of five (5) years. If there io 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 va:ue of the repurchase agreement amount. Purchases in this category shall not exceed ninety (90) days or thirty percent (30t: of the cost value of the Fund. G. Local Agency Investment Fund - State Pool. The City may invest in the Local Agency Investment Fund lLAIF) established by the State Treasurer under California Government Code Section 16425.1 for the benefit of local agencies. Although there is no percentage ~imitation on this f'.md, the "prudent investor" rule sha1l apply for a single agency name. H. Medium Term corporace Notes issued by corporations organized and operating within the United States or by depository institutions licensed in the United Sta.tes or any state a..>J.d operating within the united States. Notes eligible for in'lestment shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized rating service. Purchases in this category shall not exceed three (3) years :0 maturity or fifteen percent (1St) of the cost value of the Fund. Purchases in a single issuer in this category ahall not exceed five percent (st) of the cost value of the Fund. I. Shares of beneficial interest iRsued by divergified management companies that are money market funds registered with the Securities ~nd Exchange Commission under the Investment Company Act .of IHO. The company shall have met either of the fo:lowing criteria: Resolution No. 2008-045 Page 7 of 10 CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2008-2009 1. Attain the highest ranking or the highest letter and numerical rating provided by not less than two of the three following: Moody's, S&P or Fitch, and 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. OEPOSITOay 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. Resolution No. 2008-045 Page 8 of 10 CITY OF SANTA ANA STATEMENT OF INVESTMENT POLICY JULY 2008-2009 QUALIFIED Dr." T "'I> 'J l\HO mS'l'I'lUt'IORS; 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 Securit~es Dealers, or a member of a Federally regulated securities excha.'1ge, 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 inves':igate all instit'.1tions 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 Instt tutions complete and return the appropriate questionnaire, and an audited Financial Statement nust be provided within one-hundred, twenty (120) days of the Institution's fiscal year-end. SAFl!:KEEPING OJ!' SECURITIES: TO protect against potential losses caused by collapse of individual secur~ties dealers, all securities owned by the City except secur:.ties used as collateral tor repurchase agreements, shall be kep:: in safekeeping with "pertectEld interest" by a third party bank trust departmen::, acting as agent for the City under the terms of a custody agreement executed by the bank and by the City. All securities ,,,ill be received and delivered using standard delivery versus payrr.enl procedures. INTERNAL CONTROLS: The Bxecutive D~rector, Finance and Management Services is responsible for establ~sh~ng and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse, The Executive Directo,,", Finance and Management Services has deve10ped 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 dut.iE'S, deli',ery of securities to a ::hird party for custodial safekeeping, and written procedures for placing investment transactions. Cash balances are reconciled daily by non-investment employees and rE'confirmed by the City's accounting staff. In addition, the City'S Resolution No. 2008-045 Page 9 of 10 CITY OF SANTA ANA STATEJolEN':' OF IN'lESTMENT POLICY JULY 2008-2009 accounting staff also verifies investment activities and holdings on a monthly basis. The Executive Director, Fi:1aIlce and Management Services shall establish a process for annual independent review by an external auditor to the extent contemplated by generally accepted auditing standards. RJl:l'ORTING : Under the provisions of Section 53646 of the Government Code, the Executive 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. ':'he 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 ~rends, and to meet the needs of the City of Santa Ana. ~~~~'-, \\'-"-~ Francisco Gutierrez Executive ~irector Finance & Management Services Agency Resolution No. 2008-045 Page 10 of 10