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HomeMy WebLinkAboutReso 94-080 - Amending its investment policy No 408 RESOLUTION NO. 94-KO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING AMENDING ITS INVESTMENT POLICY NO. 408. WHEREAS, on April 2 , 1991 , by Resolution 91-148, the City Council of the City of Redding adopted an Investment Policy numbered 408 to provide guidelines for the prudent investment of the City' s idle funds; and WHEREAS, said Policy has been amended by Resolution Nos. 91-230, 92-143 , and 93-85; and WHEREAS, the City Treasurer wishes to further amend Investment Policy No. 408 as recommended in her accompanying Report to City Council dated April 5, 1994; NOW, THEREFORE, IT IS HEREBY RESOLVED by the City Council of the City of Redding that the City' s Investment Policy No. 408 be amended as set forth in the "Annual Update Investment Policy #408" attached hereto and incorporated herein by reference. I HEREBY CERTIFY that the foregoing Resolution was introduced and read at a regular meeting of the City Council of the City of Redding on the 5th day of April, 1994, and was duly adopted at said meeting by the following vote: AYES: COUNCIL MEMBERS: Anderson, Kehoe, Moss and Arness NOES: COUNCIL MEMBERS: None ABSENT: COUNCIL MEMBERS: Dahl ABSTAIN: COUNCIL MEMBERS: None CARL ARNESS, Mayor City of Redding V ATTEST: FORM APPROVED: CONNIE STROHMAYER, City Clerk ALL A. HAYS, City Attorney INVESTMENT POLICY #408 April 05, 1994 , Annual Update BACKGROUND Government Code 53646 requiring City Treasurers or Fiscal Officers to submit an annual update of investment policy and monthly reports to Council, is no longer enforceable since January 1, 1991. It seems in the best interest of the City to have the Treasurer' s Investment Policy adopted by resolution in order to have consistent guidelines for reporting and updating of procedures relating to the investment of City revenue. PURPOSE The treasurer, who has been given the authority by Council to invest and reinvest City funds, fRME 2728.7939) , should have clear guidelines in place for reporting this activity to Council. Therefore, the Investment Policy is designed to provide guidelines for the prudent investment of the City' s idle funds and reporting of the same. Amending or updating of this policy shall be conducted no less than once a year. POLICY The City has the fiduciary responsibility to maximize the productive use of assets entrusted to its care and to invest and manage those funds wisely and circumspectly. Therefore, the City must operate its idle cash investment pool under the "prudent man rule" (Probate Code Article 2, Sections 16040/042) . This affords the City a broad spectrum of investment opportunities as long as the investment is deemed prudent and is allowable under current legislation of the State of California (Government Code Section 53600 , et seq. ) . The City recognizes that it has an obligation to be aware of the possible social and political impacts of its investments and will act responsibly if issues of this nature arise. April 05 , 1994 . Annual Update Invettment Policy #408 Page 2 The City shall strive, whenever possible, to make invest- ments that benefit the local area. Priority will be given to investments that promote community economic development ( i.e. dealing with local financial institutions , etc. ) provided that the investment selection criteria is met and yield is not significantly impacted. The City shall strive to maintain the level of investment of all idle funds as near 100% as possible. Concurrently, the City shall layer investment maturities to meet anticipated cash needs and attempt to maximize investment yields while satisfying the guidelines here presented. The City shall attempt to take advantage of imperfections in the investment market and contra-cyclical changes in interest rates as long as the investment complies with the selection criteria herein stated. ADMINISTRATION/RESPONSIBILITY The City Treasurer and Deputy Treasurer are responsible for idle cash management. Investments shall be made by the individual so directed by the Treasurer. Cash flow and technical information shall be provided by the Finance Department. Each investment must be authorized by the Treasurer or the Deputy Treasurer. The Director of Finance or the Assistant Director of Finance shall review each investment transmittal as to compliance with City Policy and for the purpose of financial tracking. Trustee accounts, as well as being governed by State Code, shall have guidelines included in their contracts as to the strength of financial institutions in which they may choose to invest City funds. As designated in the long-term debt resolutions, the Treasurer, Director of Finance or Assistant Director of Finance shall establish guidelines for Trustee contracts and jointly monitor the monthly accounts. The City Treasurer shall call together an advisory meeting once a year, or as needed, for the purpose of reviewing and updating this Policy. Those conferring with the Treasurer will be the City Manager, Assistant City Manager, Director of Finance and Assistant Director of Finance. April 05 , 1994 Annual Update Invtment Policy #408 • Page 3 Investments Allowable/Current California Code No. 53601 Obligations, participations or other instruments of or issued by the U. S. Government or its agencies; State and Municipal Bonds Small Business Administration loans ( federally guaranteed portion only) Federal Home Loan Bank obligations Federal National Mortgage Association loans ( federally guaranteed) Certificates of deposit (time deposits) placed with commercial banks and/or savings and loan companies Negotiable certificates of deposits Bankers acceptances Commercial paper Local Agency Investment Fund demand deposits (LAIF state pool) *(See addendum on page 4) Repurchase agreements (Repos) Passbook savings account demand deposits Mutual Funds Medium Term Corporate Notes California Arbitrage Management Program (CAMP) Resolution 90-594 Local Agency Investment Fund deposit of bond proceeds not subject to arbitrage (SB 614) Mortgage Pass-Through Securities with maximum maturity of (5) years (AB 3576) Criteria for Selecting Investments in Priority Order 1. Safety - The safety and risk associated with an investment refers to the potential loss of principal and/or interest. There are basically two types of risk in cash investment. The first, credit risk, refers to the financial strength of the entity that is obligated to repay the investment. The second, principal protection, refers to the potential loss of principal due to market fluctuations or due to an early liquidation of the investment. In order for the City to fulfill its fiduciary responsibility in regard to the funds entrusted to it, the City must participate in only those investments which present no substantial threat to principal. April 05 , 1994 Annual Update Invtment Policy #408 Page 4 2. Liquidity - This is the marketability of an investment or the ease with which it can be converted to cash. Generally, the more liquid or marketable the security, the lower the yield. The importance of this factor in investment selection is dependent upon the possibility of the circumstance arising that would necessitate the investment being converted to cash before maturity. Funds must be available in varying amounts to meet the City' s daily cash needs. The City therefore, shall structure its investments in such a manner as to provide for the daily cash needs of the City while, at the same time, participating in longer term* higher yield instruments with cash that is not currently restricted from expenditure or for which there is not an immediate need. *Legislation effective 1/2/89 restricts the length of investment term to five years. 3 . Yield - The yield is the earnings an investment provides. It is usually expressed as an annual rate of return (the percentage annual earnings are of the invested principal) . Since obtaining investment earnings is the motivation for investing, yield is a significant factor in all investment transactions. However, it shall become a consideration only after all other investment criteria is satisfied. Whenever possible, interest is to be paid to the City Treasurer monthly. * When the City LAIF account has reached the maximum deposit, the City Treasurer may at her discretion, transfer City funds into an Entity LAIF account**, if in so doing the yield will be significantly higher than other lawful investments. In this case, the Treasurer will keep a separate set of books for City and Entity investments and will allocate the interest earnings proportionately. ** Entity in this case, is referring to Public Agencies related to the City of Redding but separate by law, whose funds the City Treasurer manages in the area of bank reconciliation and investment of idle cash. (i.e. , Redding Area Bus Authority) Investment Limitations: Security purchases and holdings shall be maintained within the statutory limits imposed by the California Government Code. Investment securities must be fully paid for at the time of purchase. April 05 , 1994 Annual Update Invotment Policy #408 Page 5 Collateral Requirements: Collateral requirements for government funds are 110% if backed by U. S. Government securities or 150% if backed by a Real Estate pool. The City of Redding funds are backed by Government Security pools. Securities underlying a repurchase agreement must have a market value of at least 105% of the cost of the repurchase agreement. If the market value of the underlying security falls below this requirement, the dealer bank shall assign additional securities to the repurchase agreement so that the margin requirement is met, or the dealer bank shall return the City' s investment. Repurchase Agreements must include this in writing. Selling Securities Prior To Maturity: Losses may be acceptable on a sale and should be taken if the reinvested proceeds will generate earnings (net of the resultant capital loss or early withdrawal penalty) that are greater than the earnings that would be generated if the existing investment were held to maturity. Any sale of securities at a loss, without this purpose of reinvestment, must be reviewed by the City Treasurer, Director of Finance, and approved by the City Manager. Diversification: The portfolio shall contain a variety of security types, issuers and maturities. With Whom To Transact: The City shall make investment transactions only with financial institutions, national firms, or security dealers that are reputable and that exhibit financial stability. The security dealers must, in addition, be able to meet the requirements for classification as primary dealers with the New York Federal Reserve Bank. Competitive Offers: The Treasurer shall contact the applicable investment officer or broker/dealer and log the potential yield for investments and the estimated cost of services that would result from dealing with that institution or individual. This information shall be utilized as a significant factor in the selection and periodic review of the institutions and/or individuals utilized for investment transactions. April 05, 1994 • Annual Update Invcsstment Policy #408 Page 6 Safekeeping: Investment securities purchased by the City shall be held in the name of the City of Redding, or delivered to the City, or to its third-party custodian. Investment purchases shall be delivery versus payment. Monthly .Report: The City Treasurer shall file a monthly report to the City Council and City Manager. This report shall state its relationship to this investment policy, shall include information that demonstrates that the City' s expenditure requirements can be met in the following month and shall disclose the investment information that is required by Government Code Section 53646. In addition, the report shall list the number of wire transfer investment transac- tions which took place during the month. Debt Proceeds• (Debt Proceeds section added by Resolution No. 91-230 effective June 18 , 1991 ) Notwithstanding any other provisions to the contrary, debt issue proceeds shall be invested in "permitted investments" as defined by the trust agreement associated with the debt issue. Such investment shall be in compliance with requirements imposed by rating agencies, bond insurers, and Federal and State law. Investments allowable under current California Government Code No. 53601 are stated in the City Council Investment Policy. (Amendment 4/07/92, Council approval for the investment of bond proceeds in the State Pool, Local Agency Investment Fund, LAIF) . Included in the investment policy is the criteria to be utilized for the selection of investments and the order of priority. For purposes of this policy, the term "Treasur- er" is that individual defined in the bond documents and amendments of the debt issue. The Treasurer is subject to the applicable provisions of any indenture, trust agree- ment, or resolution providing for a trustee or other fiscal agent. April 05 , 1994 Annual Update Invtment Policy #408 • Page 7 DEBT PROCEEDS continued This individual is designated as the depositary of the issuing authority to have custody of all the money of the issuing authority from whatever source and, as such, shall have the powers, duties, and responsibilities specified in 6505. 5 of the Government Code. The Treasurer is designated as the public officer or person who has charge .of, handles, or has access to any property of the authority. and sueh effieer shall file an effieial bead in the amount of $257889 as required by 650571 of the Government Fede; provided that sxeh bend shall net be required if the issuing autherity does net possess or own property or funds with an aggregate value of greater than $508. Due Diligence: It shall be the responsibility of the Treasurer to structure and monitor the bond proceeds investment process and to verify that fees paid to brokers are reasonable and commensurate with the work performed. The Treasurer shall consult with bond counsel and financial advisors (when applicable) , during the development of the bond issue documents and shall be responsible for determining whether the proceeds shall be actively or passively invested as a result of Federal regulations that may govern the issue. Conflicts of Interest: Underwriters and financial advisors may not receive compensation or finder' s fees from parties involved in investment transactions. Subject to any restrictions imposed by Federal regulations, the bond underwriter or advisor may bid for investment funds in an openly competi- tive bidding, but not as a sole source broker or intermedi- ary. If a financial advisor or underwriter also acts in an investment capacity, the firm shall certify that its fees do not exceed the fees it customarily charges for invest- ment activity and include no compensation for services provided in the underwriting. April 05, 1994 • • y Annual Update InvOtment Policy #408 Page 8 Avoidance of Abuses: The City will refrain from abusive practices in the investment of bond proceeds and will obtain market price instruments. For bond issues to which Federal yield or regulatory restrictions apply, the primary objective shall be to prudently obtain satisfactory market yields and to minimize the costs associated with investment of such funds. The Treasurer shall obtain full disclosure of brokerage and other fees associated with investment of bond proceeds and shall require written disclosure of any payments made by investment firms or brokers to third parties associated with the City or the issuance of its bonds. Arbitrage Record Keeping: The Treasurer shall establish systems and procedures to comply with Federal regulations governing the investment of bond proceeds, including investment record keeping systems. The reeerd keeping system shall be reviewed annually by the independent audlber far preeedural eempllanee and adeguaey In traeking arbitrage or penalties.