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HomeMy WebLinkAboutReso 30-2006 RESOLUTION NO. 30-2006 CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA A RESOLUTION CERTIFYING THE INVESTMENT POLICY FOR FISCAL YEAR 2006-07 WHEREAS, the City Treasurer desires approval of the Investment Policy with no changes; and WHEREAS, annual certification of the Investment Policy provides prudent financial oversight. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of South San Francisco that the City Council hereby approves the Investment Policy, attached hereto as Exhibit A. * * * * * I hereby certify that the foregoing Resolution was regularly introduced and adopted by the City Council of the City of South San Francisco at a regular meeting held on the 14th day of June 2006 by the following vote: AYES: Councilmembers Mark N. Addiego. Pedro Gonzalez and Karyl Matsumoto. Vice Mavor Richard A. Garbarino and Mayor Joseph A. Femekes NOES: None ABSTAIN: None ABSENT: None ATTEST: 6J?7 ~ City Clerk EXHIBIT "A" City of South San Francisco Investment Policy June 14,2006 INTRODUCTION: The following statement is intended to provide guidelines for the "Prudent Person Standard" of investment of the City's temporary idle cash and to outline the policies for an effective cash management system. Investments shall be made with judgment and care which persons of prudence and intelligence exercise in the management of their own affairs considering safety of principal as well as probable income to be derived. The City's cash management system's goal is to accurately monitors and forecasts revenues and expenditures enabling the City to invest funds to the fullest extent possible. The City Treasurer attempts to obtain the highest yield possible as long as investments meet the criteria established for safety and liquidity. This investment policy applies all City funds except retirement, pension, or bond funds. The investment policies and practices of the Treasurer of the City of South San Francisco are based upon federal, state, and local laws as well as prudent money management. The primary objectives of these policies are, in priority order: 1. To assure compliance with all federal, state, and local laws governing the investment of monies. 2. To maintain the principal of the City's investments. 3. To remain sufficiently liquid to meet all expenses. 4. After safety and liquidity are assured, to generate the maximum amolmt of investment income within the parameters of this statement of investment policy. TREASURER'S INVESTMENT OBJECTIVES: 1. SAFETY OF PRINCIPAL is the foremost objective of the investment policy. The Treasurer shall seek to ensure that capital losses are avoided with each investment transaction. The objective is to mitigate credit risk (the loss due to failure of the security issuer or broker) and interest rate risk (the market value of the security in the portfolio will fall due to changes in general interest rates). 2. LIQUIDITY is the second most impOliant objective of the investment policy. It is impOliant that a portion of the pOlifolio contain investments, which can be easily liquidated with minimal, or no risk to principal and/or interest. The longest maturity of any investment shall be five years. The portfolio shall be structured so that sufficient funds are readily available to meet all reasonably anticipated operating expenses. 1 3. YIELD is the interest earned by the City Treasurer on monies invested. The City's fund shall be designed to attain a market-average rate of return (defmed as the average return on a three month U.S. treasury bill) through various economic cycles. Yield will be considered only after the basic requirements of safety, liquidity, and credit quality have been met. AUTHORIZED INVESTMENTS: The City is governed by the California Government Code, Section 53600 et. seq. Within the context of these limitations, the following investments are authorized: U.S. TREASURY SECURITIES for which the faith and credit of the U.S. are pledged for the payment of principal and interest. OBLIGATIONS ISSUED BY AGENCIES OF THE UNITED STATES GOVERNMENT. including the Govenm1ent National Mortgage Association (GNMA), the Federal Farm Credit Bank System (FFC), the Federal Home Loan Bank Board (FHLB), the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC). and the Tennessee Valley Authority (TV A). BANKER'S ACCEPTANCES are bills of exchange or time drafts drawn on and accepted by a commercial bank, which are eligible for purchase by the Federal Reserve System. There is a time limit (180 days) and a 20% limit of surplus money, which may be invested in bankers' acceptances by municipalities. No more than $5.0 million may be invested in any one institution. COMMERCIAL PAPER must be of prime quality of the highest rating (PI by Moody's or Al by Standard and Poors). Eligible paper is limited to corporations organized and operating within the U.S. and having total assets of at least $500,000,000. There are also limitations as to the percent (15%) of the portfolio, the time of investment (270 days), and the dollar amount invested in anyone bank or corporation ($3.0 million). CERTIFICATES OF DEPOSIT are not really considered investments in the true sense of the word. They allow the City Treasurer to select the exact amount, the day of maturity, as well as the exact depository. (There are penalties for withdrawal of funds prior to the original maturity date.) Since time deposits are not liquid, no more than 20% shall be invested in this type of investment for longer than one year. Any investment over the $100.000 FDIC insurance shall be collateralized at 11 0% with United States Treasuries. No more than $5.0 million may be placed in anyone institution. REPURCHASE AGREEMENTS (Repos) allow a purchase of securities by a local agency; by agreement, the seller will repurchase the securities on or before a specified date and for a specified amount. The maturity should not exceed ninety days. Repos should only be purchased when a purchase agreement is executed with a bank in which the underlying U.S. Treasuries pledged as security shall have a market value of at least 102% of the funds borrowed. 2 THE LOCAL AGENCY INVESTMENT FUND is a pooled fund managed by the state treasurer whose permitted investments are identified in the government code. L.A.I.F. provides for deposits up to a maximum of forty million dollars ($40,000,000). L.A.I.F. offers high liquidity as deposits and withdrawals can be wired to and from South San Francisco on the same day, provided the request is made before 10:00 A.M. No maximum limit for LAIF is set by this investment policy. THE SAN MATEO COUNTY INVESTMENT FUND established for the benefit of local agencies, is a pooled fund managed by the San Mateo County Treasurer. Various county monies due local agencies are deposited in the fund rather than forwarded to the local agencies in check form. MUTUAL FUNDS are shares of beneficial interest issued by diversified management companies, as defined by Section 23701 M of the Revenue and Taxation Code. To be eligible for investment, these funds must strive to maintain a net asset value of $1.00 per share at all times and: a) Attain the highest ranking in the highest letter and numerical rating provided by not less than two of the three largest nationally recognized rating services; or b) Have an investment advisor registered with the Securities and Exchange Commission with not less than five years experience investing in the securities and obligations, and with assets under management in excess of five hundred million dollars; and c) Invest solely in those securities and obligations authorized by Sections 53601 and 53635 of the California Government Code. Where the City's Investment Policy may be more restrictive than the State Code, the Policy authorizes investments in mutual nmds that shall have minimal investment in securities otherwise restricted by the City's Policy. Minimal investment is defined as less than 5 percent of the mutual fund portfolio. Mutual fund investments shall not exceed 20% of the portfolio, with no more than 10% of the portfolio invested with anyone institution. MEDIUM-TERM NOTES issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of "A" or its equivalent or better by a nationally recognized rating service (Standard and Poors or Moody's). Purchases of medium-term notes may not exceed 10 percent of the agency's surplus money nor to be invested for longer than five years. No more than $2.0 million may be invested in a single issuer corporation. DEPOSITORY SERVICES Monies must be deposited in state or national banks, state or federal savings and loan associations, or state or federal credit unions in the state of California. The monies may be in inactive deposits, 3 active deposits, or interest-bearing active deposits. The deposits in any institution cannot exceed the amount of the bank's or savings and loan's paid up capital and surplus. The bank, savings and loan, or federal credit union must secure the active and inactive deposits with eligible goverm11ent securities having a market value of at least 110% of the total amount of the deposits. QUALIFIED DEALERS AND INSTITUTIONS Except for transactions with the State and County investment pools, the City shall transact investment business only with banks, savings and loans, and with investment securities dealers as defined in Government Code Section 53601.5: "The purchase by a local agency of any investment authorized pursuant to Section 53601 or 53601.1, not purchased directly from the issuer, shall be purchased either from an institution licensed by the state as a broker-dealer, as defined in Section 25004 of the Corporations Code, or from a member of a federally regulated securities exchange, from a national or state-chartered bank, from a federal or state association (as defined by Section 5102 of the Financial Code) or from a brokerage firm designated as a primary government dealer by the Federal Reserve bank." The City Treasurer shall investigate institutions that wish to do business with the City in order to determine if they are adequately capitalized, make markets in securities appropriate to the City's needs. Specifically. in order to achieve these objectives: The Treasurer shall establish a list of qualified securities dealers, and shall obtain a certification submitted by all financial institutions with which the City has an investment relationship on an annual basis. The celiification shall state that the institution has reviewed the City's investment management plan and that it will: . Exercise due diligence in monitoring the activities of its officers and employees engaged in transactions with the City. . Ensure that all of its officers and employees offering investments to the City are trained in the precautions appropriate to public sector investments. In order to be qualified for use by the City, a qualifying institution must have: a) At least three years experience operating with California municipalities. In addition. individual traders or agents representing a dealer must have a minimum of one year of experience operating with California municipalities; b) An inventory of trading securities of at least $10 million. SAFEKEEPING AND CUSTODY OF SECURITIES To protect against potential losses caused by the collapse of individual secuntIes dealers, all securities owned by the City. except for investments with LAIF, the San Mateo County Investment Pool, Repurchase Agreements, CD's, mutual funds as authorized in this Policy, or Commercial 4 Paper with matmities of ten days or less shall be kept in safekeeping by a trust department of a third party bank acting as agent for the City under the terms of a custody agreement executed by the bank and by the City. These funds will be held in the City's name. All trades will be executed by delivery vs. payment (DVP). This ensures that securities are deposited to the third party safekeeper prior to release of the City's funds to the broker, for a purchase, and ensures that cash is deposited with the safekeeper prior to release of the City's security for a sale. COMPETITIVE PURCHASE AND SALE OF ALLOWED SECURITIES Except for purchases in LAIF, the County Pool, or with a Mutual Fund otherwise authorized in this policy, any purchase or sale of individual securities shall be made after soliciting at least three quotes from authorized brokers, either verbally or in writing. The Treasurer shall make the purchase or sale from the broker that offers the highest yield. In the case of a tie of two or more brokers, the Treasurer shall select by his/her choice. The Treasurer shall maintain documentation relating to investment quotes for six months. COLLA TERALIZA TION Collateralizatiol1 is required on two types of investments: certificates of deposit of over $100,000 (CD's) and repurchase agreements (Repos). The collateralization level must be at least 102% for Repos and 110% for CD's. ETHICS AND CONFLICTS OF INTEREST There is a yearly mandated Form 700 issued by the state of California whereby all elected officials, including the City Treasurer, must disclose all personal assets such as stocks, bonds, properties, business entities, etc., in which said officials may be involved and which could create a conflict of interest with the proper execution of their offices or impair their ability to make impartial decisions. INTERNAL CONTROLS The Treasurer and the Finance Director are 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 internal control of the structure shall be designed to provide reasonable assurance that these objectives are met. The Director of Finance shall establish a process for an annual independent review by an external auditor to assure compliance with policies and procedures. The auditor shall meet with the City Treasurer and propose possible needed changes to the investment policy and/or comment on the diversification of the portfolio. Management responsibility for the investment program is delegated to the elected City Treasurer who shall be responsible for all investment transactions. The Deputy City Treasurer, appointed by the City Treasurer, acts at the discretion and direction of the City Treasurer. The City shall establis~1 an investment oversight committee. The committee shall consist of the City Treasmer. the City Manager, the Finance Director, and the Assistant Finance Director as his 5 alternate, and an outside investment advisor with which the City does not do business. The purpose of the committee is to: . Review the portfolio on a qUaIierly basis to ensure compliance with the City's investment policy and the requirements of the State of California. . Make recommendations to Council to change the investment policy where appropriate. . Meet as needed to review the investment portfolio as a result of changes in the marketplace or the economic position of any company or agency that affects the City's investments. City TreasLirer and Finance Director shall monitor ratings on Medium Term Notes on a monthly basis. The City Treasurer will report on aI1Y recommendations and/or actions taken by the investment oversight committee in his/her quarterly reports to the City Council. REPORTING The Treasurer shall present to the City Council a quarterly report showing the types of investments, institutions of investment dates of maturity, amolmts of deposit, current market value for all securities. rates of interest, and such data as may be required by the City Council. The State of California will be supplied with yearly reports per the State Code. WIRE TRANSFER CONFIRMATIONS Due to the needto preserve segregation of duties and checks and balances, all non-recurring, outgoing wire transactions initiated by the City Treasurer or a Deputy Treasurer appointed by the City Treasurer shall be confirmed by the bank with a second person, either a Deputy Treasurer or within the Finance Department, prior to the completion of that wire transfer. Recurring/repetitive wire transactions. such as with LAIF, the County Investment Pool, or to meet regular debt service payments, may be exempted provided that a list of recurring wire transfers is established with the bank and that both the City Treasurer and the Finance Director approve the list. POLICY REVIEW This investment policy shall be reviewed annually to ensure its consistency with. the overall objectives of safety of principal, liquidity, and yield. The policy should also be relevant to current law. financial and economic trends, and should meet the needs of the City of South San Francisco. 6