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HomeMy Public PortalAbout2012.029 (02-07-12)RESOLUTION NO. 2012.029 ' A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LYNWOOD APPROVING THE TREASURER'S STATEMENT OF INVESTMENT POLICY WHEREAS, the Treasurer is responsible for the City of Lynwood's cash flow whereby funds are transferred from various accounts to meet operating obligations, and WHEREAS, the Treasurer is also responsible for the investment of idle cash; man, WHEREAS, the Treasurer has prepared guidelines for a prudent investment policy; and ' WHEREAS, the policy contains certain investment criteria, and WHEREAS, the basic premise of the policy is to ensure the safety of funds and assure that the Lynwood City Council's cash needs are met. NOW, THEREFORE, THE LYNWOOD CITY COUNCIL DOES HEREBY FIND, PROCLAIM, ORDER AND RESOLVE AS FOLLOWS: Section 1. That the Treasurer's Statement of Investment Policy attached hereto as Exhibit "A" is hereby approved, Section 2. This Resolution shall go into effect immediately upon its adoption PASSED, APPROVED and ADOPTED this 7th day of February, 2012. i ATTEST: APPROVED AS TO CONTENT: J� APPROVED AS TO FORM: Fred Galante, City Attorney STATE OF CALIFORNIA ) ) SS. COUNTY OF LOS ANGELES ) I, the undersigned, City Clerk of the City of Lynwood, do hereby certify that the foregoing Resolution was passed and adopted by the City Council of the City of Lynwood at a regular meeting held on the 7 day of February, 2012. AYES. COUNCIL MEMBERS RODRIGUEZ, SANTILLAN -BEAS, ALATORRE AND MORTON NOES NONE ABSENT COUNCIL MEMBER CASTRO ABSTAIN: NONE �� o�� V i WIN � +i Lv� STATE OF CALIFORNIA ) ) SS. COUNTY OF LOS ANGELES ) I, the undersigned, City Clerk of the City of Lynwood, and the Clerk of the City Council of said City, do hereby certify that the above foregoing is a full, true and correct copy of Resolution No 2012.029 on file in my office and that said Resolution was adopted on the date and by the vote therein stated. Dated this 7 day of February, 2012. Exhibit "A" To Resolution No 2012.029 PURPOSE The purpose of this item is to establish guidelines for the prudent investment of the City of Lynwood's idle cash. POLICY Annually, in accordance with California Government Code (CGC) Section 53646, the Treasurer will render to the City Council a Statement of Investment Policy for consideration and approval at a public meeting. Any investments currently held at that time that do not meet the guidelines of this policy, as changed from time to time by the City Council, shall be exempt from the requirements of this policy However, at the investment maturity or liquidation, such funds shall be reinvested only as provided by this policy, which offer guidance to brokers and any external investment advisors on the investment of City funds. This investment policy applies to all investment activities of the City, except for the Employees Retirement and Deferred compensation funds are excluded because it is separately managed by a third party administrator This policy applies to all City funds, except for bond proceeds that are managed by trustees. Trustees must comply with the provision of bond's indenture agreements. SCOPE Policy statements outlined in this document apply to the City's pooled funds, as well as other financial assets under the City Treasurer's control unless exempted by resolution or by statute. These funds are accounted for in the City of Lynwood Comprehensive Annual Financial Report and include 3 1 Fund: 3.1 1 General Fund 3.1.2 Special Revenue Funds 3.1.3 Capital Project funds 3.1 4 Enterprise Funds 3 1 5 Trust and Agency Funds 3.1 6 Retirement Pension Funds 3.1 7 Internal Service Funds PRUDENCE The standard of prudence to be used by investment officials shall be the "prudent investor" standard (CGC Section 53600.3) and shall be applied in the context of managing an overall portfolio which states that: "a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims to safeguard the principal and maintain the liquidity needs of the City" At the time of purchase, it is the City's intent to hold all investments until maturity to ensure the return of all invested principal. However, it is recognized that market prices - Exhibit "A" To Resolution No 2012.029 of securities will vary depending on economic and interest rate condition at any point in time. The City Treasurer, and other individuals who may be designated to manage the City's investment portfolio, when acting within the intent and scope of this. investment policy and other authorized ;written procedures, and when exercising due diligence, are relieved of personal liability for the individual security's credit risk or market price change of a security or other investment, provided that deviations from expectations are reported to the City of Lynwood in a timely manner and that appropriate action is taken to mitigate unforeseen adverse conditions. GOALS AND OBJECTIVES Within the overriding requirement of compliance with. all Federal, State and local laws governing the investment of moneys under the control of the Treasurer,.and as specified in CGC Section 53600.5, when investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the primary objective of a trustee shall be to safeguard the. principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor The third objective shall be to achieve a return on the funds under its control. Taking into account the City's daily and periodic cash flow needs, the City desires to invest all temporarily idle funds as.close to 100% as is reasonably possible. The major portion of the City's investment portfolio will consist of investment securities having maturities of one year or less. Longer term maturities are authorized, but may not generally exceed 50% of the investment portfolio. The basic goal of the City's investment policy is to ensure safety and availability of temporarily idle funds when they are needed. The primary objectives, in priority order, of the investment activities shall be: a. Safety Safety of principal is the foremost objective of the investment program. Each investment transaction must seek to ensure that capital losses are avoided, whether from securities default, broker- dealer default, or erosion of market value. The City will endeavor to preserve principal by mitigating both credit risk and market risk, as specified below Credit risk, which is defined as the risk of loss due to insolvency or other failure of the issuer of a security, must be mitigated by purchasing investment grade securities and by diversifying the investment portfolio so that the failure of any one issuer does not unduly harm the City's capital base and cash flow Market risk, which is defined as market value fluctuations, must be mitigated by limiting the average maturity' of the City's investment portfolio to one year, limiting the maximum maturity of any one security to.five years, structuring the portfolio to take into account historic and current cash flow analysis, eliminating the need to sell securities for the sole purpose of short term speculation. b. Liquidity Because the City operates its own water utility and bills monthly for utility services, cash flow is generated on a daily basis. Historical cash flow trends must be compared to current cash flow requirements on an ongoing Exhibit "A" To Resolution No. 2012.029 basis to ensure that the City's investment portfolio will remain sufficiently liquid to enable the City to meet all reasonable anticipated operating requirements. C. Return on the Investment: The investment portfolio shall be designed and managed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment objectives, authorized investments and the cash flow needs of the City DELEGATION OF AUTHORITY In - accordance with Section 53607 of the Government Code, the City of Lynwood management responsibility for the investment program is hereby delegated to the Treasurer, who shall be responsible for all transactions undertaken and shall establish a system of control to regulate the activities of subordinate officials, and their procedures in the absence of the Treasurer Under the provision of CGC Section 53600.3, the Treasurer is a trustee and a fiduciary subject to the prudent investor standard. The City may delegate to the City Treasurer the authority to invest or reinvest City funds for a one -year period. The Treasurer may delegate all, or a portion of his /her investment authority to a Deputy City Treasurer Prior to the,delegation of the investment - authority to a Deputy City Treasurer, the Treasurer shall notify the City council and request confirmation of the delegation. Delegation of investment authority will not remove or abridge the Treasurer's,investment responsibility INVESTMENT PROCEDURES The Treasurer shall establish written investment policy procedures for the operation of the investment program consistent with this policy The procedures should include reference to: safekeeping, wire transfer agreements, banking service contracts and collateral /depository agreements. Such procedures shall include' explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer ETHICS Elected officials, City officers, employees and any other individual involved in the investment operations are prohibited from personal. business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions, or which could give the appearance thereof Furthermore, these same individuals shall disclose any material financial interest in financial institutions that conduct business within their jurisdiction, and they shall further disclose any large personal financial /investment positions that could be related to the performance of the City QUALIFIED DEALERS AND INSTITUTIONS The City may conduct investment transactions only with banks, savings and loans associations, and registered broker / dealers. Any investments other than those purchased directly from a issuer must be purchased from (i) an individual or entity licensed by the State as a broker - dealer, as defined in Section 25004 of the Exhibit "A" To Resolution No 2012.029 Corporations Code, and which is a member of the Financial Industry Regulatory Authority, (FINRA) or (ii) from a member of a federally - regulated securities exchange, or (iii) a national or state charted bank; or (iv) a federal or state association (as defined by Section 5102 of the Financial Code); or (v) a brokerage firm designated as a primary government dealer by the Federal Reserve Bank. The City Treasurer, either directly or through an authorized party, must investigate and evaluate all financial institutions that desire to do business with the City in order to determine whether they are adequately capitalized and whether they make markets in securities that are appropriate to the City's needs. This may be accomplished by the following: a financial institution to complete and return an appropriate questionnaire, audited .financial statements and proof of Financial Industry Regulatory Authority (FINRA) registration and goodstanding. Nothing in this section iprecludes, the City from engaging the services of a Registered Investment Advisory firm to assist the City, on a non- discretionary basis, with the investment of the City's portfolio AUTHORIZED AND SUITABLE INVESTMENTS General, investments must be.made in accordance with the "prudent investor rule" that is cited under the heading "Prudence." The City is subject to California Government Code, Sections 53600 et seq. within the context of these limitations, the following investments are authorized, subject to the restrictions noted below a. United States treasury bills, notes, and bonds or similar instruments for which the full faith and credit of the United States is pledged for payment of principal and interest. There is no limitation on the percentage of the City's surplus' funds that can be invested in these instruments. The maximum maturity period may not exceed 5 years. b. Obligation issued by banks for cooperatives, federal land . banks, federal intermediate credit banks, the Federal Home Loan Board (FHLB), Federal Home Loan Mortgage Corporation (FHLMC), Federal Farm Credit Bank (FFCB), and the Federal National Mortgage Association (FNMA). Although there is no percentage limitation on investments in these obligations, the "prudent investor rule' applies to' obligations issued by any of these agencies, because U S. Government backing is implied rather than guaranteed. c. Commercial paper rated "PI" by Moody's Investor Services and "A1 +" by Standard & Poor's, and issued by a domestic 'corporation .having assets in excess of $500,000,000 and having an "A" or better rating on its long -term debt as determined by Moody's or by Standard & Poor's. The purchase of eligible commercial paper may not exceed 270 days maturity nor represent more than 5% of the outstanding paper of an issuing corporation, The Purchase of commercial paper not to exceed 25% of the City's surplus funds. d. Negotiable certificates of deposit issued by a national or state - charted bank or a state or federal saving and loan association. Negotiable certificates of deposit may not exceed'30% of the City's total portfolio. Certificates purchased from a Exhibit "A" To Resolution No 2012.029 bank may not exceed 30% of the City's total portfolio Certificates purchased from a bank may not exceed the shareholder's equity in the bank. Certificates over $500,000 purchased from savings and loan associations may not exceed the net worth of the association. A maturity limitation of 5 years is applicable. e. State of California Local Agency Investment Fund (LAIF) is permitted, with the knowledge that the fund may invest in income vehicles allowed by statute but not otherwise authorized by the City Council in this IPS. The Treasurer shall obtain from the State Treasurer, or other reliable source, no less than quarterly, reports providing sufficient detail to adequately judge the risk inherent in the LAIF portfolio, and shall inform the City Council immediately of any risk noted that may warrant reconsideration of this investment vehicle. (Limits: Maximum concentration $40 million combined limit for all accounts.) f Investment in new government sponsored pools will be subject to due diligence. A thorough investigation, and approval of the new pool by City Council is required prior to investing, and on a continual basis. g. Funds held under the terms of a Trust Indenture or other contract or debt issuance agreement -may be invested according to the provisions of those indentures' agreements. h. The City may invest in non - negotiable time deposits that are collateralized as required by the California Government Code, and that are maintained in banks and savings and loans associations that meet the requirement for accepting deposits of public funds. Because time deposits are not liquid, no more than 25% of the City's temporarily idle funds may be invested in this category i. Medium' term corporate notes with a maximum maturity of 5 years may be purchased. Securities eligible for investment must be rated "A" or better by both Moody's and Standard & Poor's rating services. Medium term notes may not exceed 30% of the market value of the City's portfolio, and not more than 2% of the market value of the portfolio may be invested in notes issued by any one corporation. Commercial paper holdings must be included when calculating this 2% limitation. PROHIBITED INVESTMENTS The City Treasurer is prohibited from the following: 1 Corporate share of stock and reverse repurchase agreements. 2. Borrowing for investment purposes ( "Leverage ") is prohibited. 3. Buying or selling securities "on Margin" is prohibited. 4 Investing in any instrument, which is commonly known as a "derivative" instrument (options, futures, swaps, caps, floors, collars, US Treasury strips, interest only bonds, interest only strips derived from mortgage pools), or any investment that may result in a zero interest accrual, even if held to maturity, is prohibited. 5 Under the provision of CGC Sections 53601 6 and 53631 5, the City shall not invest any funds covered by this SIP in instruments known as Structured Notes (e g. Inverse floaters, leverage floaters, structured CD's range notes, equity linked securities). Any such investments are prohibited. Exhibit "A" To Resolution No. 2012.029 Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited. COLLATERAL REQUIREMENTS: Collateral is required ' for investments in certificates of deposit and repurchase agreements. In order to reduce market risk and provide a level of security for all funds, the collateralizatiori level will be 110% market value of principal and accrued interest. In conformity with the provisions of the Federal Bankruptcy Code that provide for the liquidation of securities held as collateral, the only securities acceptable as collateral are certificates of deposit, commercial paper, eligible bankers acceptances, and medium term notes or securities that are the direct obligation of, or are fully guaranteed as' to principal and interest by the United States or any City of the United States. An independent third party with whom the City has a current custodial agreement will always hold collateral. The right of collateral substitution is granted with prior approval of the City Treasurer DIVERSIFICATION The Treasurer shall maintain a diversified portfolio to minimize the risk of loss resulting from over concentration of assets in a specific maturity, issuer, or security type. With the exception of U S. Treasury securities and authorized pools, no more than 50% of the City's total investment portfolio will be invested in a single security type or with a single financial institution. Additionally, no more than 2 %, calculated at the time of purchase, of the portfolio shall be invested in one name or with one credit counterparty MAXIMUM MATURITIES i To the extent possible the portfolio will attempt to match its investments with anticipated cash flow requirements: Matching maturities with cash flow dates will reduce the need to sell securities prior to maturity, thus reducing a potential realized loss. The portfolio will not directly invest in securities maturing more than five (5) years from the date of purchase pursuant to Government Code Section 53601 (Excluding LAIF). Reserve funds may be invested in securities exceeding one year if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds. No portion of the portfolio may exceed five years. INTERNAL CONTROL Internal policies and procedures, subject to approval by the City Council, shall be developed to assure that appropriate controls are in place to document and confirm all transactions. The Treasurer shall recommend establishing an annual process of independent review by an external auditor This review will provide internal control' by assuring compliance with policies and procedures. PERFORMANCE STANDARDS Exhibit "A" To Resolution No 2012.029 The investment portfolio shall be designed with the objective of obtaining a market rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and cash flow needs: a. Investment Strategy The portfolio's basic investment strategy is to buy and hold investments until maturity However the Treasurer may sell a security due to adverse changes in credit risk or due to adverse changes in credit risk or due to unexpected cash flow needs. b. Market Yield (Benchmark) Market average will be determined by year -end average rates of return from a combination of indices: Local Agency Investment Fund (LAIF), 3 -month and 6 -month treasury bills. REPORTING In compliance with Government code Section 53607 and 53646, the Treasurer shall provide the City Council quarterly investment reports, which provide a clear picture of the status of the current investment portfolio. The management report should provide a condensed summary of the most important information in the report, plus a detailed report covering the following elements: ' 1. A listing of individual securities held at the end of the reporting period by authorized investment category 2. Average life and final maturity of all investments listed. 3. Coupon, discount or earnings rate. 4 Par value, amortized book value and market value 5 Percentage of the portfolio represented by each investment category INVESTMENT POLICY ADOPTION The Treasurer shall annually render to the City Council a Statement of Investment policy as required in Section 53646(a) of the Government Code. The City's investment policy shall be adopted by resolution of the City Council and shall be reviewed annually; any modification made thereto must be approved by the legislative body