HomeMy Public PortalAbout2009.015 (02-03-09)RESOLUTION NO. 2009.015
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; and
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 3'd day of February 2009.
ATTEST:
APPROVED AS TO FORM:
Fred Galante, City Attorney
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Maria T. Santillan, Mayor
APPROVED AS TO CONTENT:
Roger .Hale ity Manager
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 3`d day of February, 2009.
AYES: COUNCIL MEMBERS CASTRO, FLORES, MORTON, RODRIGUEZ, i
AND SANTILLAN
NOES: NONE
ABSENT: NONE
ABSTAIN: NONE
i
aria Quinonez, ty Clerk
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. 2009.015 on file in my office and that said Resolution was
adopted on the date and by the vote therein stated. Dated this 3~d day of February,
2009.
EXHIBIT "A" TO RESOLUTION NO ~p ~ -
PUFdPOSE
The purpose of this item is to establish guidelines for the prudent investment of
the ~ity of Lynwood's idle cash.
POLICY:
Annually, in accordance with California Government Gode (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 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
onl~ as provided by this policy, which offer guidance to brokers and any external
inv~stment advisors on the investment of City funds. This investment policy
applies to all investment activities of the City, except for the Employees
Retrrement 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
corr~ply with the provision of bonds indenture agreements.
SC~PE:
Polucy 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 statue. These funds are accounted for in the City of Lynwood
Cornprehensive Annual Financiai 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:
Th~ 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:
"lnvestments shall be made with judgment and care, under circumstances then
prevailing, which persons of prudence, discretion, and intelligent exercise in the
management of their own affairs, not for speculation, but for investment,
co~sidering the probable income to be derived"
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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 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 ttie
City's investment po-tfolio, when acting within the intent and scope of this
investment po(icy 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 timetly
mar~ner 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
law~ governing the investment of moneys under the control of the Treasurer, and
as ~pecified in CGC Section 53600.5, when investing, reinvesting, purchasing,
acquiring, exchanging, selling and 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
thir~ objective shall be to achieve a return on the funds under its control.
Talring into account the City's daily and periodic cash flow needs, the City
de~ires to invest all temporarily idle funds at a close to 100% as is reasonable
possible. The major portion of the City's investment portfolio will consist of
investment securities having maturates of one year or less. Longer term
maturates are authorized, but may not general exceed 15% of the investme'nt
portFolio.
Th~: basic goal of the City's investment policy is to ensure safety and availabili,ty
of temporarily idle funds when they are needed. The primary objectives, ;in
priarity order, of the investment activities shall be:
a. Safety: Safety of principal is the foremost objective of the investme;nt
program. Each investment transaction must seek to ensure that capital
losses are avoided, whether from securities default, broker-deal;er
default, or erosion of market value. The City will endeavor to preserye
principai 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 portfo,lio
so that the failure of any one issuer does not unduly harm the City's
capital base and cash flow. ~
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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 one year, sfructuring the portfolio to take into account historic and
current cash flow analysis, eliminating the need to sell securities for ttie
sole purpose of short term speculation. ~
u. 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 ct~mpared to current cash flow
requirements on an ongoing basis to ensure thaf the City's investment
portfolio will remain sufficiently liquid to enable the City to meet all ;
reasonable anticipated operating requirements. ,
~. Return on the Investment: The investment portfolio shall be designed
and managed with fhe objective of attaining a benchmark rate of return
throughout budgetary and economic cycles, taking into account ,the
investment objectives, authorized investments and the cash flow needs
of the City. '
DEL.EGATION OF AUTHORITY:
In ~ccordance with Section 53607 of the Government Code, the City of Lynwood
mas~agement 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 #he activities of subordinate officials, and
their procedures in the absence of the Treasurer. ~Under the provision of CG'C
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
De~uty City Treasurer, the Treasurer shall notify the City council and request
confirmation of the delegation. Delegation of investment authority will n"ot
remove or abridge the Treasurer's investment responsibility. ,'
INVESTMENT PROCEDURES:
The Treasurer shall establish written investment policy procedures for the
op~ration 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
Tr~asurer. ~
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ETWICS:
Eler.ted officials, City officers an employees and any other individual involved in
the investment operations are prohibited from personal business activity that
cou~d 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
thei~- jurisdiction, and they shall further disclose any large personal
finar~cial/investment positions that could be related to the perFormance of the
City. .
QUAL1FiED DEALERS AND lNSTITUTIONS:
Th~ City may transact business only with banks, savings and loans associations,
and registered investment dealers. Any investments other than those purchased
directly from a issuer must be purchased from (i) an individual or entity licen'sed
by the State as a broker-dealer, as defined in Section 25004 of the Corporations
Code, and which is a member of the National Association of Securities Dealers,
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. ,
Th~: City Treasurer must investigate and evaluate all financial institutions that
desire to do business with the City in order to determine whether they `are
ad~quately capitalized, whether they make markets in securities that ' are
appropriate to the City's needs, and whether they will agree to abide by ; the
cor~ditions and limitations set forth in the City's investment policy. This may be
accomplished by the following: a financial institution to complete and return an
appropriate questionnaire, audited financial statements, proof of National
As~ociation of Security Dealers certification. }
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AUTHORIZED AND SUITABLE INVESTMENTS:
Ger~eral, investments must be made in accordance with the "prudent investor
rul~;" 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. ,
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k~. Obligation issued by banks for cooperatives, Federal land banks, federal
intermediate credit banks, the Federal Home Loan Board (FHLB), and the
Federal National Mortgage Association (FNMA). Although there is ~ n;o
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. ;
r.. Commercial paper tated "PP' by Moody's Investor Services and "AL+", by
Standard & Poor, and issued by a domestic corporation having assets in
excess of $500,000,000 and having an "AA" or better rating on its long-
term debt as determined by Moody's or by Standard and Poor. The
purchase of eligible commercial paper may not exceed 180 days maturity
nor represent more than 10% of the outstanding paper of an issuin`g
corporation. The Purchase of commercial paper not to exceed 15% of;the
City's surplus funds. "
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~. 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°/a of the City's total portfolio.
Certificates purchased from a 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 association may not exceed the net worth of ;tlie
association. A maturity limitation of 5 years is appiicable. ;
e. State of California Local Agency Investment Fund (LAIF) is permitted, with
the knowledge that the fund may invest income vehicles allowed by statue
but not otherwise authorized by the City Council in this SlP. Ttie
Treasurer shall obtain from the State Treasurer 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 $30 million combined limit for all accounts.) ~
Investment in new government sponsored pools will be subject to due
diligence. A thorough investigation of the pool 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 mainta~ined
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.
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~. Medium term corporate notes with a maximum maturity of 5 years may be
purchased. Securities eligible for investment must be rated AA or better
by Moody's Standard & Poor's rating services. Medium term notes may
not exceed 30% of the market value of the City's portfolio, and not mo~e
than 15% of the market value of the portfolio may be invested in notes
issued by any one corporation. Commercial paper holding must ~ be
incfuded when calculating this 15% limitation.
PROHIBITED INVESTMENTS:
The City Treasurer is prohibited from the following:
1. Corporate share of stocks, corporate bonds and reverse purchase
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, swap, caps, floors, collars, US Treasu`ry
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 knows as
Structured Notes (e.g. Inverse floaters, leverage floaters, structured CD's
range notes, equity linked securities). Any such investments are
prohibited. .
6. Trading securities for the sole purpose of speculating on the future
direction of interest rates is prohibited.
COLLATERAL REQI~IREMENTS:
CoVlateral 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 collateralization level will be (102%) 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. ;
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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
sec~rity 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 siu~gle security type or with a single financial institution.
MAXIMUM MATURITIES:
Every effort will be made to match investment maturities to cash flow needs.
Matching maturities with cash flow dates will reduce the need to sell securities
prior to maturity, thus reducing the market risk. Unless matched to a specific
cash flow, the portfolio will not directly invest in securities maturing more than
one year or less from the date of purchase (excluding LAIF).
Reserve funds may be invested in securities exceed 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.
lNTERNAL 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.
PEi2FORMANCE ST/ANDARDS:
ThP investment portfolio shall be designed with the objective of obtaining a rate
of return throughout budgetary and economic cycles, commensurate with
investment risk constraints and cash flow needs:
a. Investment Strategy: The portfolio's basis 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 yea.r-
end average rates of return from a combination of indices: Local Agency
Investment Fund (LAIF), 3-month and 6-month treasury bills.
REPORTING:
In ~ompliance 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
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