HomeMy Public PortalAbout10) 7G FY 12-13 Investment PolicyCity Council
June 19, 2012
Page 2
ANALYSIS:
The Administrative Services Director/City Treasurer is required to render an annual
statement of investment policy to the legislative body of the local agency. The Investment
Policy establishes an administrative plan which allows investment of the City's idle funds in
financial institutions, government agencies and the State's Local Agency Investment Fund
which meet the criteria required for safety and liquidity. Further, the Administrative
Services Director/City Treasurer is also required to report on a quarterly basis, to the City
Council and City Manager, information regarding investment and deposits. In order to be
proactive and completely transparent, the City Treasurer provides a monthly report on the
investment of the City of Temple City's funds to both the City Council and City Manager.
CONCLUSION:
It is recommended that the City Council adopt Resolution No. 12-4829, approving the
Investment Policy for FY 2012-13.
FISCAL IMPACT:
This agenda item has no fiscal impact on the Adopted FY 2011-12 City Budget.
ATTACHMENTS
A. Resolution No. 12-4829 (including the Statement of Investment Policy)
S:\Word\Agenda Items\FY 11~12 City\lnvestment Policy FY 2012~13.docx
ATTACHMENT "A"
CITY OF TEMPLE CITY
STATEMENT
OF
INVESTMENT POLICY
I. PURPOSE
II. OBJECTIVE
Ill. SCOPE
CITY OF TEMPLE CITY
STATEMENT OF INVESTMENT POLICY
IV. STANDARDS OF CARE
1. PRUDENCE
2. DELEGATION OF AUTHORITY
V. INTERNAL CONTROLS
VI. SUITABLE AND AUTHORIZED INVESTMENTS
VII. REPORTING METHODS
VIII. POLICY CONSTRAINTS
1. CITY CONSTRAl NTS
2. LEGAL CONSTRAINTS
IX. POLICY REVIEW
CITY OF TEMPLE CITY
STATEMENT OF INVESTMENT POLICY
I. PURPOSE
This statement is intended to provide a guideline for the prudent investment of
temporary idle cash, trust funds and restricted monies and to outline a policy for
maximizing the efficiency of the cash management system. Ultimate investment
goal is the protection of cash investments.
II. OBJECTIVE
The cash management system of the City of Temple City is designed to accurately
monitor and forecast expenditures and revenues, thus insuring the investment of
monies to the fullest extent possible. Attempts to obtain highest interest yields
possible are a statement of fact as long as investments meet the criteria required
for safety and liquidity.
Ill. SCOPE
This investment policy applies to activities of the City with regard to investing the
financial assets of all funds, including the following: General Fund, Special
Revenue Funds, Assessment Funds, Internal Service Funds, Capital Projects
Funds, Debt Service Funds, Reserve Funds, Trust and Agency Funds, and any
other Funds that may be created from time to time.
IV. STANDARDS OF CARE
1. PRUDENCE
The standard of prudence to be used by investment officials shall be the
"prudent investor" standard as set forth in Section 53600.3 of the California
Government Code, which states in part that, "When investing, reinvesting,
purchasing, acquiring, exchanging, selling, and managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, 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 Agency". The prudent investor standard
shall be applied in the context of managing the overall portfolio.
2. DELEGATION OF AUTHORITY
The authority to manage and operate the investment program is granted to
the Treasurer pursuant to Section 53607 of the California Government
Code. Individuals who may execute investment transactions are those
positions who are authorized signatures for warrants and checks or those
persons designated as a Deputy City Treasurer by the City Treasurer. No
other persons are authorized to execute an investment transaction.
STATEMENT OF INVESTMENT POLICY
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V. INTERNAL CONTROLS
The Treasurer/Deputy Treasurer 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 Treasurer/Deputy Treasurer shall establish the investment functions so that
specific responsibility for the performance of duties and segregation of duties are
assigned with a clear line. The functions of authorizing, recording transactions,
and performing reconciliations are handled by separate persons to reduce the risk
that a person is in a position to conceal errors or fraud in the normal course of
duty.
The current segregation of duties are as follows :
Function Responsibility
Develop formal investment policy Treasurer/Deputy Treasurer
Review formal investment policy City's Auditing Firm
Adopt formal investment policy City Council
Execute investment transactions Treasurer/Deputy Treasurer
(the above signer as well as one
of signers listed below)
City Manager, City Clerk, Director
of Parks & Recreation
Investment verification and Administrative Services Director
recordation
Reconcile investment records to Accountant
bank statements
While no internal control system, however elaborate, can guarantee absolute
assurance that the City's assets are safeguarded, it is the intent of the City's
internal control system to provide reasonable assurance that management of the
investment function meets the City's objectives. These i nternal controls shall be
reviewed annually by the independent auditor.
STATEMENT OF INVESTMENT POLICY
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VI. SUITABLE AND AUTHORIZED INVESTMENTS
The California Government Code (Section 53601 and 53635) allows the City to
invest in the following instruments :
CGC Investment Type Maximum Authorized Required
Section Maturity Limit(%) Rating
53601(a) Local Agency Bonds 5 years None None
53601(b) U.S. Treasury Obligations 5 years None None
53601 (c) State of California Obligations 5 years None None
53601(d) CA Local Agency Obligations 5 years None None
53601(e) U.S. Agencies 5 years None None
53601(f) Bankers Acceptances• 180 days 40% Fed Reserve
Eligible
53601 (g) Commercial Paper•• 270 days 25% AI/PI Rating
53601(h) Negotiable Certificates of Deposit 5 years 30% None
5360I (i) Repurchase Agreements I year None None
53601(i) Reverse Repurchase Agreements•• • 92 days 20% ofbase None
53601(j) Medium Term Notes 5 years 30% A rating
53601(k) Mutual Funds•••• NIA 20% Multiple
5360l{k) Money Market Funds NIA 20% Multiple
53601(m) Collateralized Bank Deposits 5 years None None
5360l(n) Mortgage Pass-Through Securities 5 years 20% AA Rating
5360l(d) Local Agency Investment Fund (LAIF) NIA None None
53601 (d) County Pooled Investment Funds N/A None None
53635 Time Deposits 5 years None None
* No more than 30% of surplus funds may be invested in Bankers Acceptances of any one commt-'I'C ial bank .
•• Commercial paper issum must be U.S. Corporations with SSOO million plus in assets . Purchases may not represent more than
I 0% of outstanding paper of an issuing corporati<m.
••• Rev er.;e Repurchase Agreements must be made with primary dealers of the Federal Reserve Bank of New York and th e
sec urities used fo r the agreement must have been held by the issuer for atleast30 days.
•••• No more than I 0% of an agency's surplus fund s may be in vested in any one mutual fund.
STATEMENT OF INVESTMENT POLICY
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For Fiscal Year 2011-12, the City of Temple City is limiting its purchase of
investments to the following vehicles:
• LAIF (Local Agency Investment Fund) - a special fund in the State Treasury
which local agencies may use to deposit funds for investment. There is no
minimum investment period and the minimum transaction is $5,000, in
multiples of $1,000 above that, with a maximum balance of $40,000,000 as
of January 1, 2002 for any agency. However, any investment with LAIF
must comply with other self-imposed restrictions as specified in this
Investment Policy. The City is restricted to a maximum of fifteen
transactions per month. It offers high liquidity because deposits can be
converted to cash in twenty-four hours and no interest is lost. All interest is
distributed to those agencies participating on a proportionate share basis
determined by the amounts deposited and the length of time they are
deposited. Interest is paid quarterly. The State retains an amount for
reasonable costs of making the investments, not to exceed one-half of one
percent of the earnings.
The interest rates are fairly high because of pooling the State's surplus cash
with the surplus cash deposited. This creates a multi-billion dollar money
pool and allows diversified investments. In a high interest rate market, the
City does better than LAIF, but in times of low interest rates, LAIF yields are
higher. The City continually invests in the Local Agency Investment Fund.
• Certificates of Deposit -time deposits of a bank or savings and loan. They
are purchased in various denominations with maturities ranging from 30
days 60 months. The interest is calculated on a 360-day basis and is
payable monthly, semi-annually, or at maturity in case of short term CD's.
• Passbook Savings Account - a certificate of deposit issued in any amount
for a non specified amount of time. Interest rate is much lower than CD's
but the savings account allows flexibility. Funds can be deposited and
withdrawn according to daily needs.
• Interest Bearing Checking Accounts - a checking account which receives
revenues and pays disbursements. Interest earned can be paid to the local
jurisdictions on a regular basis or left in the account to offset the fees for
monthly services.
• Money Market Mutual Funds -referred to in the California Government
Code Section 53601 (k) as shares of beneficial interest issued by diversified
management companies investing in securities authorized by Section
53601 (a) to (I) inclusive. Money Market Mutual Funds must have an
average maturity of 90 days or less, per SEC regulations.
STATEMENT OF INVESTMENT POLICY
PAGES
• U.S. Treasuries -Debt instruments issued directly by the United States
Government. These instruments are of highest credit quality and payment
of principal and interest are backed by the full faith and credit of the United
States Government.
• U.S Agencies -Debt instruments issued by the various federally chartered
agencies. These instruments are also of the highest credit quality.
VII. REPORTING METHODS
The Treasurer shall prepare a quarterly investment report as required by Section
53646 of the California Government Code which provides a clear picture of the
status of the current investment portfolio . The report should be provided to the
City Manager and legislative body. The report should include the following :
a) Type of investment
b) Institution or issuer
c) Date of Maturity
d) Amount of deposit or cost of security
e) Current market value of securities and source of market value
f) State that there are sufficient funds to meet the next 6 months' obligations
or provide an explanation as to why sufficient monies shall or may not be
available.
g) State that investments are in compliance with the City's investment policy or
manner in which the portfolio is not in compliance
VIII. POLICY CONSTRAINTS
1. CITY CONSTRAINTS
The City of Temple City operates its pooled idle cash investments under the
Prudent Investor Standard . The Treasurer will evaluate local banks and
savings institutions and may invest idle cash funds with such institutions
when the criteria for prudent investment previously stated are met. The City
operates its investment pool according to State and self-imposed
constraints. It does not buy stocks; it does not speculate; it does not deal in
futures or options. It does not purchase or sell securities on margins or
invest in derivative type investments such as inverse floaters , range notes
or interest only strips derived from a pool of mortgage as prohibited under
Section 53601 .6 of the California Government Code. Any investment
extending beyond a five-year period requires prior City Council approval.
STATEMENT OF INVESTMENT POLICY
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2 . LEGAL CONSTRAINTS
Surplus funds must be deposited in State or national banks, State or
Federal savings association or State or Federal credit unions within the
State of California . 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 public funds deposits with
eligible securities having a market value of 110% of the total amount of the
deposits. State law also allows as an eligible security, first trust deeds
having a value of 150% of the total amount of the deposits.
IX. POLICY REVIEW
As required by Section 53646 of the California Government Code , this Statement
of Investment Policy shall be reviewed at least annually as a public meeting of the
City Council to ensure its consistency with the overall objectives of preservation of
principal, liquidity and return, and its relevance to current law, financial and
economic trends.