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.
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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
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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
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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