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HomeMy WebLinkAboutRES 2005-42RESOL A RESOLUTION OF THE CITY COUNTY OF LOS ANGELES, STATEMENT OF INVESTMENT WHEREAS, it is the City's and NO: 2005- 4E2 JNCIL OF THE CITY OF DIAMOND BAR, ATE OF CALIFORNIA, ADOPTING THE to annually adopt the City investment policy, NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF DIAMOND BAR HEREBY RESOLVES, that the attache Statement of Investment Policy (Exhibit A) be adopted as presented herein. PASSED, ADOPTED AND APPROVE] THIS 2Autlay of June , 2005 Wen Chang, M or I, Linda C. Lowry, City Clerk of the C ity of Diamond Bar, d h reby certify that the foregoing Resolution was passed, approved and adopted at meeting of the City Council of the City of Diamond Bar held on the ist day of June , 2005, by the following vote: AYES: COUNCIL MEMBERS: Hrreras Tanaka, Zi.rbes; .PT/O'Connor; xA Chang NOES: COUNCIL MEMBERS: IN lie ABSENT: COUNCIL MEMBERS: ABSTAIN: COUNCIL MEMBERS: Al n f ST: Linda C. Lowry City Clerk of the City of Diamond Bar 2005--42 EXHIBIT A CITY OF iNVES PURPOSE OND BAR POLICY - FY 2005-2006 This Statement is intended to provide gL idelines for the prudent investment of the City's temporarily idle cash and to outline the policies for maximizing the efficiency of the City's cash management system. The L Itimate goal is to enhance the economic status of the City while protecting its accumulat 3d cash. It is the policy of the City Council to Policy on an annual basis. INVESTMENT OBJECTIVE , update and adopt the City's Investment The investment of funds of the City of iamond Bar is directed to the goals of safety, liquidity and yield. The authority gover ing investments for municipal governments is set forth in the Government Code, Secti ns 53601, et. seq. 1. Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. The City will operate only in those investments that are considered very safe. A. Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk will be mitigated by: Limiting investments to the safest types of securities; Pre -qualifying the broker -deal rs with which the City will do business. This will be done via a competitive bid and the response on a questionnaire (Appendix 9) submitted by the prospective institution. In addition broker- dealers should be primary, registered investment securities dealers; Diversifying the investment portfolio in order that potential losses on individua! securities do not exceed the income generated from the remainder of the portfolio. B. Interest Rate Risk is the risk fall due to a change in gei mitigated by: the market value of portfolio securities will I interest rates. Interest rate risk will be Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securitids on the open markt prior to their maturation to meet specific operational needs; Operating funds will be invested primarily in shorter term securities. PAGE 2 - Investment Policy 2, Liquidity The investment portfolio w requirements which might be reasor structuring the portfolio so that securitie meet anticipated demands. Additional anticipated, the portfolio will consist larc markets. 3. Yield. Yield is the potential dt sometimes is described as the rate of policy of the City of Diamond Bar is ensure the preservation of capital in the be designed with the objective of attain and economic cycles, taking into accoL characteristics of the portfolio. Return ( the safety and liquidity objectives descr low risk securities in anticipation of assumed. Securities shall not be so' conditions exists: 1) a declining credit principal; 2) a security swap would irr liquidity needs of the portfolio require tr POLICY ill remain sufficiently liquid to meet all operating ably anticipated. This is accomplished by s mature at the same time as cash is needed to y, since all possible cash demands cannot be rely of securities with active secondary or resale filar earnings an investment can provide and -eturn. The primary objective of the investment SAFETY. Investments shall be undertaken to overall portfolio. The investment portfolio shall ng a market rate of return throughout budgetary nt the investment risk constraints and cash flow n investment is of least importance compared to bed above. Investments are limited to relatively ;arning a fair return relative to the risk being J prior to maturity unless one of the following security could be sold early to minimize loss of prove the quality of yield in the portfolio; or 3) at a security be sold. As a General Law city, Diamond Bar operates its accumulated idle cash investments under the prudent man rule. This ins ires that "...investment shall be made with the exercise of that degree of judgement and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation but for investment considering the probable safety of their capital as well as the probable income to be derived." (CC #2261) This affords the City a broad spectrum of invest trit opportunities, so long as the investment is deemed prudent and is allowable and r current law of the State of California and the regulations of the City of Diamond Bar. The City of Diamond Bar strives to maintain the level of investment of all funds as near 100% as possible, through daily arid projected cash flow determinations. Cash management and investment transactions are the responsibility of the Treasurer. Investments are allowed in the following media: United States treasury bills, bonds, notes or any other obligations or securities issued by the United States treasury or any other obligation guaranteed as to principal and interest by the United States. Federal agency or United States government-sponsored enterprise obligations, participations or other instruments, in luding those issued by or fully guaranteed as to principal and interest by federal ag ncies or United States government-sponsored enterprises. Local Agency Investment Fund (state pool) - Demand Deposits Certificates of Deposit (or Time D posits), placed with commercial banks and/or savings banks. 2005--42 PAGE 3 - Investment Policy Negotiable Certificates of Deposit Bankers Acceptances Commercial Paper Medium Term Corporate Notes Passbook Savings Accounts Active Deposits Money Market Funds comprised of Moody's Investors Services Inc. or by Repurchase Agreements vestments rated in the highest category by ndard & Poor's Corporation. Prohibited investments include securities not listed above(unless authorized pursuant to section 53601), as well as inverse floaters, range notes, interest only strips derived from a pool of mortgages (Collateralized Mortgage Obligations), and any security that could result in zero interest accrual if held to maturity, as specified in Section 53601.6. (Zero interest accrual means the security has the potential to realize zero interest depending upon the structure of the security. Zero coupon bonds and similar investments that start at a level below the face value are legal because their value does increase.) Government and agency paper are the highest quality investments available in terms of safety and liquidity. Certificates of deposit and savings accounts must be insured or collateralized. Only commercial paper, with A-1 Moody's and P-1 Standard & Poors ratings, is authorized for purchase. Most investments are highly liquid, with the exception of collateralized and insured certificates of deposit held by banks Ond savings banks. Maturities are selected to anticipate cash needs, thereby eliminating the need for forced liquidation. Effective January 1, 1989 the Governm nt Code, Section 53601 states..."no investment shall be made in any security, other then a security underlying a repurchase or reverse repurchase agreement authorized by t is section, which at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved no less t ian three months prior to the investment." Therefore longer-term investments (ov r one year) are limited to maturities of five years or less unless specifically approved by the City Council. Diamond Bar attempts to obtain the hi hest yield possible when selecting investments, provided that the criteria for safety anc liquidity are met. Ordinarily, through a positive yield curve, (i.e., longer term investment rates are higher than those of shorter term maturities), the City attempts to ladder its maturities to meet anticipated cash needs in such a way that longer term investments carry a higher rate than is available in the extremely short term market of 30 days or less. The City is authorized to invest in the Local Agency Investment Fund based upon periodic reviews of the book to markt value of the investment pool and an annual review of the goals and strategies of the investment board. If there are changes in the 2005•°-42 Page 4 - Investment Policy management of the Local Agency I City's investment goals, the City may �stment Fund, and there is a conflict with the ct to discontinue investment in LAIF. It should be noted that, per LAIF's inv stment policy, no more than 10% of its portfolio may be invested in Reverse Repurchase Agreements. Since these types of investments are extremely sophistica ed, the City of Diamond Bar chooses not to individually invest in these types of securities but will participate in LAIF's investment pool as long as the percentage of the ortfolio remains at 10% or less. POLICY CONSTRAINTS The City operates its investment pool The City does not purchase or sell many State and self-imposed constraints. rities on margin. The City does not buy stocks or deal in futures or options. The City does not use Reverse Repu The City does not invest in Guara SAFEKEEPING OF SECURITIES Agreements for the investment of funds. Small Business Administration (SBA) Notes. The City of Diamond Bar will adopt the operational practice of having all purchased securities delivered, versus payment to a safekeeping account at the City's depository bank. It is recognized this will be to a third party independent custodian under contractual agreement made with the Security Services Division of the chosen bank. Investment transactions will be autho the Finance Director or the Assistar monthly reconciliations by the Senior REPORTING A monthly report of investments will elements of this report are as follows: a) Type of investment b) Institution c) Date of Maturity d) Amount of deposit or cost of e) Current market value of secu f) Statement relating the report g) Rate of interest h) Statement that there are suffi ,ed by the City Treasurer and executed by either City Clerk. The transactions will be verified via -countant. be provided to the City Manager. The required curity ies with maturity in excess of twelve months the Statement of Investment Policy funds to meet the next six months' obligations 2005-42 Page 5 — Investment Policy The basic premise underlying the City Of Diamond Bar's investment philosophy is to insure that money is always available wh n needed. Attachment: Appendix A - Description of Investments Appendix B - Broker Dealer Questionnaire Appendix C - Local Agency Investment Fund Description Linda C. Lowry City Manager 2005-42 ix A Description of Investments U.S. Treasury Issues are direct obligations of the United States Government. These issues are called bills, notes and bonds. The maturity range of new issues is from 30 days (T -Bills) to 30 years (T -Bonds). These are highly liquid and are considered the safest investment security. Federal Agency Securities are issue government agencies. Many of these United States Government. Examples (FHLB) notes, Federal National Mort( Credit Bank (FFCB) notes, Small Bu National Bank (GNMA) notes, and I notes. I by direct U.S. Government agencies or quasi- ssues are guaranteed directly or indirectly by the of these securities are Federal Home Loan Bank age Associations (FNMA) notes, Federal Farm Jness Administration (SBA) notes, Government ederal Home Loan Mortgage Credit (FHLMC) Investment in these types of securities is limited to 20% of the portfolio. Local Agency Investment Fund (L� local agencies may use to deposit investment period and the minimum ti that, with a maximum of $40 million deposits can be converted to cash 1 interest is distributed to those ag determined by the amounts deposit Interest is paid quarterly via direct dep The State keeps an amount for rea exceed one-quarter of one percent of F) is a special fund in the State Treasury which funds for investment. There is no minimum insaction is $5,000, in multiples of $1,000 above or any agency. It offers high liquidity because twenty-four hours and no interest is lost. All ncies participating on a proportionate share d and the length of time they are deposited. sit into the agency's LAIF account. nable costs of making the investments, not to earnings. Certificates of Deposit are investments for inactive funds issued by banks, savings and loans and credit unions. Investments of $100,000 are insured respectively by Federal Deposit Insurance Corporation (FDIC), Federal Savings and Loan Insurance Corporation (FSLIC) and the National Credit Union Share Insurance Fund (NCUSIF). Certificates of Deposit can be issued from 14 days to several years in maturity allowing the City of Diamond Bar's investment of funds to be matched to cash flow needs. For deposits exceeding $100,000 the financial institution is required to collateralize with 110% government securities collateral. City of Diamond Bar does not accept 150% Collateral (First Trust Deeds) or 105% Letters of Credit (L.C.). Section 53635.2 of, the Government Code prohibits investments in certificates of deposits of state or federal credit unions if any member of the cit 's governing or managing officers (Council, City manager, Fiscal officers) serves on the credit union board or key committee positions. Negotiable Certificates of Deposi are unsecured obligations of the financial institution. These securities are genE rally issued in bearer form and pay interest at maturity. Although negotiable, a strong secondary market exists only in the NCD's issued by the largest United States b nks. Examples of large banks include Bank of America, Citibank, Chase Manhattan, anufacturers Hanover, etc. These securities Page 2 - Appendix A generally trade with minimum amounts the secondary market of $5 million. Investment in Negotiable Certificates portfolio per Government Code Section Bankers Acceptances are short-term obtain funds to finance commercial trap, by an exporter or importer to obtain f acceptance, the bank becomes primaril An acceptance is a high grade negotia various denominations for 30 to 180 da, calculated on a 360 day discount basis $1 million per trade with the average trade in Deposit is limited to 30% of the investment 601. credit arrangements to enable businesses to actions. They are time drafts drawn on a bank nds to pay for specific merchandise. By its liable for the payment of the draft at maturity, le instrument. Acceptances are purchased in but no longer than 180 days. The interest is milar to Treasury Bills. Investment in Banker's Acceptances is limited to 40% of the investment portfolio per Government Code Section 53601. Commercial Paper is a short term ur to raise working capital. These negoti to par value or interest bearing. Con General Motors Acceptance Corporat of America, Wells Fargo Bank, etc. Local agencies are permitted by state quality of the highest ranking or of the hi( Moody's Investor's Service, Inc. or Stand commercial paper may not exceed 270 c the local agency's total investments. Investment in Commercial Paper is lim 10% of the issuing corporation per Gov( Medium Term Corporate Notes a corporation organized and operating instruments and are traded in the secoi defined as extended maturity commerc capital. Examples of MTN issuers are Bank, etc. Investment in Medium T investment portfolio per Government C( :ured promissory note issued by a corporation e instruments may be purchased at a discount �rcial paper is issued by corporations such as (GMAC), Shearson American Express, Bank aw to invest in commercial paper of "prime" hest letter and numerical rating as provided by 3rd & Poors Corporation. Purchases of eligible ays maturity nor exceed twenty five percent of I to 25% of the total investment portfolio and ment Code Section 53601. unsecured promissory notes issued by a i the United States. These are negotiable ary market. Medium Term Notes (MTN) can be paper. Corporations use these MTN's to raise general Electric, GMAC, Citibank, Wells Fargo m Corporate Notes is limited to 30% of the e 53601. Notes must be rated "A" or better. Passbook Savings Account is a certifi ate 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. Mutual Funds are referred to in the Go% beneficial interest issued by diversified must be restricted by its by-laws to the Government Code. These investments < )rnment Code, Section 53601, K, as "shares of management companies". The Mutual Fund same investments as the local agency by the re Treasury issues, Federal Agency issues, Page 3 — Appendix A agency also, apply to the Mutual management companies or their invests The City may not invest in a mutual fun The purchase price of shares of mutual Investments in mutual funds shall nc investment portfolio. Active Deposits are demand or chec disbursements. Fund. Additional limitations apply to such hent advisors. , which invests in derivative types of products. nds shall not include any sales commission. exceed fifteen percent of the local agency's g accounts which receive revenues and pay Money Market Funds are comprised o short term government securities, certificates of deposit and highly rated commercial paper. Average length of maturity is twenty to fifty days. Money Market Funds are 100%1 quid at any time. Repurchase Agreements and Reve investment transactions. Banks buy tE him U.S. Government or other securiti the same securities on a future date. days in maturity. The customer rete reflects both the prevailing demand fo3 Some banks will execute repurchase a banks have a minimum of $500,000. A exactly what the name implies. The City of Diamond Bar does NOT i se Repurchase Agreements are short term nporarily idle funds from a customer by selling �s with a contractual agreement to repurchase repurchase agreements are typically one to ten /es interest from the bank. The interest rate Federal Funds and the maturity of the REPO. reements for a minimum of $100,000, but most everse-repurchase agreement (reverse -repo) is in Reverse Repurchase Agreements. Financial Futures and Financial Options are forward contracts for securities. The government code states that a local agency may incur future contracts/options in any of the investment securities enumerated in Section 53801 A -N. Due to the volatility of trading in financial futures the City of Diamond Bar does NOT invest in financial futures of financial options. Derivative Products are structured products, which limits, through imbedded options, the flow of principal and or interest tote note holder. This limitation could be on how fast payments are received, how much principal is returned or how high or low a coupon can move. Derivative is also a broad term referring to any security which derives its value from another underlying asset. The City of Diamond Bar does NOT invest in derivative products. APPENDIX B CITY Or DIAMOND BAR BROKERIDEALER QUE 1. Name of Firm: 2. Address: 3. Telephone: 4. Broker's Representative to the Name: Title: Telephone: 5. Manager/Partner-in-Charge ( Name: Title: Telephone: NAIRE AND CERTIFICATION (attach resume): resume) 6. List all personnel who will be trading with or quoting securities to City employees (attach resume) Name: Title: Telephone: 7. Which of the above personnel have read the City's investment policy? 8. Is your firm a primary dealer in United States Government Securities? Yes No CITY OF DIAMOND BAR Broker/Dealer Questionnaire and Certificati( Name of Firm: Page Two 9. List the total volume of United calendar year. Firm -wide $ No. Your local office $ No. 10. Which instruments are offered Treasury Bills Treasury Notes/Bonds ~_ BA's (domestic) BA's (foreign) Commercial Paper Agencies (specify): 11. References -- Please identify your our geographical area. Entity Contact Telephone Client Since Government and Agency Securities for the last Transactions Transactions arly by your local office? CMO's Bank CD's S&LCD's Repos Reverse Repos Other (specify): most directly comparable public sector clients in 12. Have any of your clients ever sutamed a loss on a securities transaction arising from a misunderstanding or m epresentation of the risk characteristics of the instrument? If so, explain. CITY OF DIAMOND BAR Broker/Dealer Questionnaire and Certifi Name of Firm: Page Three 13. Has your local office ever subjec to a regulatory or statelfederal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale of securities? lave any of your employees been so investigated? If so explain 14. Has a client ever claimed in writing that your firm was responsible for investment losses? If so, explain. 15. Explain your normal custody and delivery process. Who audits these fiduciary systems? Can you meet safekeeping requirements? 16. How many and what percentage of your transactions failed Last month? Last year? 17. Describe the capital line and tradi ig limits of the office that would conduct business with the City of Diamond Bar. 18. Does your firm participate in the S.I.P.C. insurance program if not, explain. CITY OF DIAMOND BAR Broker/Dealer Questionnaire and Certification Name of Firm: Page Four 19. What portfolio information, 20. What reports, transactions, 21. Does your firm offer investment Yes No 22. Please enclose the following: any, do you require from your clients? rmations and paper trail will the City receive? ning to your clients? Latest audited financial statements. Samples of reports, transactions, and confirmations the City will receive. Samples of research reports a dlor publications that your firm regularly provides to clients. Complete schedule of fees and charges for various transactions. CITY OF DIAMOND BAR Broker/Dealer Questionnaire and Certification Mme of Firm: ge Five ***CERTI I hereby certify that I have personally read th Diamond Bar, and have implemented reasc designed to preclude imprudent investment between our firm and the City of Diamond Bai of the City's investment objectives, horizo whenever we are so advised by the City. We F City of Diamond Bar of all foreseeable risks a with our firm. Under penalties of perjury, thi accurate to the best of my knowledge. Signed Title Countersignature* :le Date Date * Company president or person in charge of g operations. wlel►m Statement of Investment Policy of the City of nable procedures and a system of controls ctivities arising out of transactions conducted All sales personnel will be routinely informed is, outlooks, strategies and risk constraints hedge to exercise due diligence in informing the sociated with financial transactions conducted responses to this questionnaire are true and ment securities LAIF Introduction APPENDIX C June 14, 2005 Local Agen Prog Page 1 of 2 California State Treasurer's Office Search Phil Angelides, State Treasurer contact Investment Fund Description The Local Agency Investment Fun'' und (LAIF), is voluntary program created by statute; began in 1977 as an investment alternative for California's local overnments and special districts and it continues today under Treasurer Phil Angelides' administration The enabling legislation for the LAIF is Section 16429.1 et seq. of the California Government Code. This program offers local agencies the opportu ity to participate in a major portfolio, which invests hundreds of millions of dollars, using the investment expertise of the Treasurer's Office investment staff at no additional cost to the taxpayer. This in-house management team is comprised of civil servants who have each worked for the State Treasurers Office for an average of 20 years. The LAIF is part of the Pooled Money Investment Account (PMIA). The PMIA began in 1953 and oversight is provided by the Pooled Money Investment Board (PMIB) and an in-house Investment Committee. The PMIS members are the State Treasurer, Director of Finance, and State Controller. The Local Investment Advisory Board (LIAB) p ovides oversight for LAIF. The Board consists of five members as designated by statute. The Chair an is the State Treasurer or his designated representative. Two members qualified by trai iing and experience in the field of investment or finance, and the State Treasurer appoints two members who are treasurers, finance or fiscal officers or business managers employed by any county, city or local district or municipal corporation of this state. The term of each appointment is two years or at the ple sure of the appointing authority. All securities are purchased under the authority of Government Code Section 16430 and 16480.4. The State Treasurer's Office takes delivery of all securities purchased on a delivery versus payment basis using a third party custodian. All investments re purchased at market and a market valuation is conducted monthly. Additionally, the PMIA has Policies, Goals and Objectives for the portfolio to make certain that our goals of Safety, Liquidity and Yield are not jeopardiz d and that prudent management prevails. These policies are formulated by investment staff and reviewed by both the PMIB and the LIAB on an annual basis. The State Treasurer's Office is audited by the Bureau of State Audits on an annual basis and the resulting opinion is posted to the STO website ollowing its publication. The Bureau of State Audits also has a continuing audit process throughout the year. All investments and LAIF claims are audited on a daily basis by the State Controller's Office as ell as an in-house audit process involving three separate divisions. Under Federal Law, the State of California can ict declare bankruptcy, thereby allowing the Government Code Section 16429.3 to stand, his Section states that "moneys placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi -governmental agencies shall not be subj ict to either of the following: (a) transfer or loan pursuant to Sections 16310, 16312, or 16313, r (b) impoundment or seizure by any state official or state agency." During the 2002 legislative session, California overnment Code Section 16429.4 was added to the http://www.treasurer.ca.gov/pmia-laif/laif-prog am.htm 6/14/2005 LAIF Introduction PAGE 2 — APPENDIX C Page 2 of 2 LAI F's enabling legislation. The Section states that "the right of a city, county, city and county, special district, nonprofit corporation, or qualified quasi governmental agency to withdraw its deposited moneys from the LAIF, upon demand, may not be altered, impaired, or denied in any way, by any state official or state agency based upon the state's failure t adopt a State Budget by July 1 of each new fiscal year." The LAIF has grown from 293 participants and billion in 2005. STO Home I Comments j © 2005 million in 1977 to 2,715 participants and $17.9 I Career Opportunities I En Espanol State Treasurer's Office http://www.treasurer.ca.gov/poria-laif/laif-progr�m.htm 6/14/2005