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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 PAGE2 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 PAGE3 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 PAGE4 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 PAGE6 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.