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HomeMy WebLinkAboutReso 65-2008 RESOLUTION NO. 65-2008 CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA A RESOLUTION CERTIFYING THE INVESTMENT POLICY FOR FISCAL YEAR 2008-09 WHEREAS, Califoll1ia Goverrullent Code Section 53646 provides that the treasurer of a city Inay annually render to the legislative body of that local agency a statelnent of investInent policy, which the legislative body of the local agency shall consider at a public nleeting; and WHEREAS, the City Treasurer desires approval of the FY 2008-09 InvestInent Policy; and WHEREAS, aIulual certification of the InvestInent Policy provides prudent financial oversight. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of South San Francisco hereby approve the changes to the InvestInent 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 Ineeting held on the 25th day of June 2008 by the following vote: AYES: CouncilInembers Mark N. Addiego. Richard A. Garbarino and IZevin Mullin. Mayor Pro TeIn IZaryl Matsulnoto and Mayor Pedro Gonzalez NOES: ABSTAIN: ABSENT: None City of South San Francisco Inveshnent Policy June 25, 2008 Exhibit A INTRODUCTION: The following staten1ent is intended to provide guidelines for the "Prudent Person Standard" of investment of the City's ten1porary idle cash and to outline the policies for an effective cash management systeIn. InvestInents shall be Inade with judgn1ent and care which persons of prudence and intelligence exercise in the InanageInent of their own affairs considering safety of principal as well as probable income to be derived. The City's cash Inanagen1ent systen1' s goal is to accurately Inonitors and forecasts revenues and expenditures enabling the City to invest funds to the fullest extent possible. The City Treasurer atten1pts to obtain the highest yield possible as long as investInents n1eet the criteria established for safety and liquidity. This investn1ent policy applies all City funds except retireInent, 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 n10ney n1anageInent. The priInary objectives of these policies are, in priority order: 1. To assure cOlnpliance with all federal, state, and local laws governing the investInent of Inonies. 2. To n1aintain the principal of the City's investn1ents. 3. To reInain sufficiently liquid to Ineet all expenses. 4. After safety and liquidity are assured, to generate the maxilnuln an10unt of investment incOll1e within the paraIl1eters of this statell1ent of investll1ent policy. TREASURER'S INVESTJVIENT 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 Initigate credit risk (the loss due to failure of the security issuer or broker) and interest rate risk (the Inarket value of the security in the portfolio will fall due to changes in general interest rates). 2. LIQUIDITY is the secondlnost iInportant objective of the investment policy. It is important that a portion of the portfolio contain investments, which can be easily liquidated with minin1al, 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 lTIonies invested. The City's fund shall be designed to attain a nlarket-average rate of retU111 (defined as the average retU111 on a three nlonth U.S. treasury bill) through various econonlic cycles. Yield will be considered only after the basic requirenlents 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 linlitations, the following investnlents are authorized: U.S. TREASURY SECURITIES for which the faith and credit of the U.S. are pledged for the paynlent of principal and interest. OBLIGATIONS ISSUED BY AGENCIES OF THE UNITED STATES GOVERNMENT, including the Governnlent National Mortgage Association (GNMA), the Federal Farnl Credit Bank System (FFC), the Federal HOlTIe Loan Bank Board (FHLB), the Federal National Mortgage Association (FNMA), the Federal HOlne Loan Mortgage Corporation (FHLMC), and the Tennessee Valley Authority (TV A). BANKER' S ACCEPTANCES are bills of exchange or til11e drafts drawn on and accepted by a comnlercial banle, which are eligible for purchase by the Federal Reserve Systenl. There is a time lill1it (180 days) and a 20% lilTIit of surplus lnoney, which nlay be invested in banleers' acceptances by municipalities. No 1110re than $5.0 nlillion nlay be invested in any one institution. COMMERCIAL PAPER lnust be of prinle quality of the highest rating (PI by Moody's or A 1 by Standard and POOl's). Eligible paper is lill1ited to corporations organized and operating within the U.S. and having total assets of at least $500,000,000. There are also lil11itations as to the percent (150/0) of the portfolio, the till1e of investll1ent (270 days), and the dollar aI110unt invested in anyone bank or corporation ($3.0 million). CERTIFICATES OF DEPOSIT are not really considered investlnents in the true sense of the word. They allow the City Treasurer to select the exact anl0Lll1t, the day of 111aturity, as well as the exact depository. (There are penalties for withdrawal of funds prior to the original lnaturity date.) Since till1e deposits are not liquid, no more than 200/0 shall be invested in this type of investll1ent for longer than one year. Any investnlent over the $100,000 FDIC insurance shall be collateralized at 1100/0 with United States Treasuries. No more than $5.0 111illion nlay be placed in anyone institution. REPURCHASE AGREEMENTS (Repos) allow a purchase of securities by a local agency; by agreenlent, 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 agreelnent 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 nlanaged by the state treasurer whose penl1itted investnlents are identified in the goverll1nent code. L.A.I.F. provides for deposits up to a lnaxilnunl of forty n1illion dollars ($40,000,000). L.A.I.F. offers high liquidity as deposits and withdrawals can be wired to and frOln South San Francisco on the SaIne day, provided the request is nlade before 10:00 A.M. No nlaxill1unl linlit for LAIF is set by this investnlent policy. THE SAN MATEO COUNTY INVESTMENT FUND established for the benefit of local agencies, is a pooled fund nlanaged by the S an Mateo County Treasurer. Various county 1110nies due local agencies are deposited in the fund rather than forwarded to the local agencies in check fornl. MUTUAL FUNDS are shares of beneficial interest issued by diversified 111anagelnent conlpanies, as defined by Section 23701 M of the Revenue and Taxation Code. To be eligible for investn1ent, these funds 111ust strive to nlaintain a net asset value of $1.00 per share at all tin1es and: a) Attain the highest ranking in the highest letter and nun1erical rating provided by not less than two of the three largest nationally recognized rating services; or b) Have an investnlent 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 Inanagell1ent in excess of five hundred lnillioil dollars; and c) Invest solely in those securities and obligations authorized by Sections 53601 and 53635 of the California Governll1ent Code. Where the City's Investlnent Policy may be more restrictive than the State Code, the Policy authorizes investments in mutual funds that shall have mini111al investment in securities otherwise restricted by the City's Policy. Mininlal investnlent is defined as less than 5 percent of the 111utual fund portfolio. Mutual fund investll1ents shall not exceed 20% of the portfolio, with no more than 100/0 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 111edium-term notes 111ay not exceed 10 percent of the agency's surplus 1110ney nor to be invested for longer than five years. No 1110re 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 lnonies may be in inactive deposits, 3 active deposits, or interest-bearing active deposits. The deposits in any institution cannot exceed the anlount of the banl(' 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 government securities having a 111arket value of at least 110% of the total anlount of the deposits. QUALIFIED DEALERS AND INSTITUTIONS Except for transactions with the State and County investll1ent pools, the City shall transact investll1ent business only with banks, savings and loans, and with investnlent securities dealers as defined in Governnlent Code Section 53601.5: "The purchase by a local agency of any investInent authorized pursuant to Section 53601 or 53601.1, not purchased directly fronl the issuer, shall be purchased either frOln an institution licensed by the state as a broker-dealer, as defined in Section 25004 of the Corporations Code, or fr0111 a 111enlber of a federally regulated securities exchange, fronl a national or state-chartered bank, froln a federal or state association (as defined by Section 5102 of the Financial Code) or fr0111 a brokerage finl1 designated as a primary goverml1ent dealer by the Federal Reserve banle." The City Treasurer shall investigate institutions that wish to do business with the City in order to detenl1ine if they are adequately capitalized, nlake 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 investnlent relationship on an annual basis. The certification shall state that the institution has reviewed the City's investll1ent 111anagell1ent plan aIld that it will: 41 Exercise due diligence in nlonitoring the activities of its officers and ell1ployees engaged in transactions with the City. f9 Ensure that all of its officers and enlployees offering investnlents to the City are trained in the precautions appropriate to public sector investll1ents. In order to be qualified for use by the City, a qualifying institution nlust have: a) At least three years experience operating with California nlunicipalities. In addition, individual traders or agents representing a dealer 111Ust have a 111ininlU111 of one year of experience operating with Califo111ia 111unicipalities; b) An inventory of trading securities of at least $10 111illion. SAFEKEEPING AND CUSTODY OF SECURITIES To protect against potential losses caused by the collapse of individual secuntles 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 maturities of ten days or less shall be kept in safekeeping by a trust departnlent of a third party bank acting as agent for the City under the terms of a custody agreell1ent executed by the bank and by the City. These funds will be held in the City's nanle. 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 fronl authorized brokers, either verbally or in writing. The Treasurer shall ll1ake the purchase or sale from the broker that offers the highest yield. In the case of a tie of two or l110re brokers, the Treasurer shall select by his/her choice. The Treasurer shall nlaintain docU111entation relating to investment quotes for six months. COLLA TERALIZA TION Collateralization is required on two types of investnlents: certificates of deposit of over $100,000 (CD's) and repurchase agreenlents (Repos). The collateralization level nlust be at least 1020/0 for Repos and 110% for CD's. ETHICS AND CONFLICTS OF INTEREST There is a yearly nlandated FOrIl1 700 issued by the state of California whereby all elected officials, including the City Treasurer, 111Ust disclose all personal assets such as stocks, bonds, propel1ies, business entities, etc., in which said officials nlay be involved and which could create a conflict of interest with the proper execution of their offices or impair their ability to nlake impm1ial decisions. INTERNAL CONTROLS The Treasurer and the Finance Director are responsible for establishing and 111aintaining an internal control structure designed to ensure that the assets of the entity are protected frOll1 loss, theft, or misuse. The intenlal control of the structure shall be designed to provide reasonable assurance that these objectives are 111et. The Director of Finance shall establish a process for an annual independent review by an external auditor to assure COll1pliance with policies and procedures. The auditor shall 111eet with the City Treasurer and propose possible needed changes to the investment policy and/or COl11111ent on the diversification of the portfolio. Management responsibility for the investl11ent program is delegated to the elected City Treasurer who shall be responsible for all investll1ent transactions. The Deputy City Treasurer, appointed by the City Treasurer, acts at the discretion and direction of the City Treasurer. The City shall establish an investment oversight committee. The cOll1mittee shall consist of the City Treasurer, 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. As an alternative to an outside advisor, the conzmittee shall have its policy and investments reviewed periodically by an outside advisor, with knowledge of California public sector investnzent practices. The purpose of the conl111ittee is to: 1Il Review the portfolio on a quarterly basis to ensure cOlnpliance with the City's investlnent policy and the requirenlents of the State of California. fj Make recOlnll1endations to Council to change the investIl1ent policy where appropriate. ~ Meet as needed to review the investnlent portfolio as a result of changes in the marketplace or the econonlic position of any conlpany or agency that affects the City's investnlents. City Treasurer and Finance Director shall monitor ratings on Medium Tenl1 Notes on a 1110nthly basis. The City Treasurer will report on any rec0111nlendations and/or actions taken by the investment oversight comnlittee 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 investInent, dates of maturity, amounts of deposit, current nlarket 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 need to 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 Investnlent Pool, or to 111eet regular debt service paYlnents, nlay be exell1pted 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 amlually 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 111eet the needs of the City of South San Francisco. 6