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HomeMy WebLinkAboutRES 2005-50NO: 2005- 5 0 A RESOLUTION OF THE CITY C UNCIL OF THE CITY OF DIAMOND BAR, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, RESCINDING RESOLUTION 05-42 IN ITS ENTIRETY AND ADOPTING THE AMENDED INVESTMENT POLICY FY2005-2006 WHEREAS, the City adopted R solution 2005 – 042 A Resolution of the City of Diamond Bar, County of Los Angeles State of California, Adopting the Statement of Investment on June 21, 2005, and WHEREAS, the City wishes to amend the City investment policy, NOW, THEREFORE, THE CIT COUNCIL OF THE CITY OF DIAMOND BAR HEREBY RESOLVES, that Resolution 005-042 be rescinded in its entirety and that the attached Investment Policy FY2005-20 6 (Exhibit A) be adopted as presented. PASSED, ADOPTED AND APPROVED THIS 6th day of September , 2005 Wen Chang, Mayor, 1, Linda C. Lowry, City Clerk of the City of Diamond Bar, do heYgby/certify that the foregoing Resolution was passed, approved and adopted at a meeting of the City Council of the City of Diamond Bar held on the 6th day of _selaterber , 2005, by the following vote: AYES: COUNCIL MEMBERS: 'errerz�r Tanakz— :tPT/['Comer, M/Chang NOES: COUNCIL MEMBERS: ne ABSENT: COUNCIL MEMBERS: Zirbes ABSTAIN: COUNCIL MEMBERS: 0 in a C. Lowry City Clerk of the City o iamond Bar 2.005--50 EXHIBIT A CITY OIC DIAMOND BAR iNVESTMONT POLICY FY 2005-2006 PURPOSE This Statement is intended to provide c uidelines for the prudent investment of the City's temporarily idle cash and to outline le policies for maximizing the efficiency of the City's cash management system. The ultimate goal is to enhance the economic status of the City while protecting its accumuk ited cash. It is the policy of the City Council to Policy on an annual basis. INVESTMENT OBJECTIVE The investment of funds of the City of liquidity and yield. The authority gove set forth in the Government Code, Sect! ew, update and adopt the City's Investment Diamond Bar is directed to the goals of safety, ming investments for municipal governments is ons 53601, et. seq. 1. Safety. Safety of principal s the foremost objective of the investment program.. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overa I 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-dea ers with which the City will do business. This will be done via a competitive bid and the response on a questionnaire (Appendix B) submitted byte prospective institution. In addition broker- dealers should be primary, registered investment securities dealers; Diversifying the investment portfolio in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. B. Interest Rate Risk is the risk t fall due to a change in gen( mitigated by: iat the market value of portfolio securities will ;ral interest rates. Interest rate risk will be 2005--50 PAGE 2 - Investment Policy Structuring the investment portfolio requirements for ongoing operations, t the open market prior to their maturatio Operating funds will be invested prima 2. Liquidity. The investment portfolio w requirements which might be reasor structuring the portfolio so that securities meet anticipated demands. Additionall anticipated, the portfolio will consist larg markets. so that securities mature to meet cash areby avoiding the need to sell securities on to meet specific operational needs; in shorter term securities. I remain sufficiently liquid to meet all operating ably anticipated. This is accomplished by mature at the same time as cash is needed to since all possible cash demands cannot be ly of securities with active secondary or resale 3. Yield. Yield is the potential do lar earnings an investment can provide and sometimes is described as the rate of return. The primary objective of the investment policy of the City of Diamond Bar is SAFETY. Investments shall be undertaken to ensure the preservation of capital in the overall portfolio. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and cash flow characteristics of the portfolio. Return on investment is of least importance compared to the safety and liquidity objectives described above. Investments are limited to relatively low risk securities in anticipation of a rning a fair return relative to the risk being assumed. Securities shall not be solc prior to maturity unless one of the following conditions exists: 1) a declining credit security could be sold early to minimize loss of principal; 2) a security swap would improve the quality of yield in the portfolio; or 3) liquidity needs of the portfolio require that a security be sold. POLICY As a General Law city, Diamond Bar o under the prudent man rule. This insu� exercise of that degree of judgement a which persons of prudence, discretion their own affairs, not for speculation but of their capital as well as the probable it the City a broad spectrum of investme deemed prudent and is allowable under regulations of the City of Diamond Bar. The City of Diamond Bar strives to maim 100% as possible, through daily and management and investment transaction erates its accumulated idle cash investments ,s that "...investment shall be made with the id care, under circumstances then prevailing, id intelligence exercise in the management of or investment considering the probable safety :ome to be derived." (CC #2261) This affords t opportunities, so long as the investment is current law of the State of California and the sin the level of investment of all funds as near projected cash flow determinations. Cash are the responsibility of the Treasurer. 2005--50 PAGE 3 - Investment Policy Investments are allowed in the followin6 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, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. Local Agency Investment Fund (state Certificates of Deposit (or Time D savings banks. Negotiable Certificates of Deposit Bankers Acceptances Commercial Paper Medium Term Corporate Notes Passbook Savings Accounts Active Deposits 1) - Demand Deposits ), placed with commercial banks and/or Money Market Funds comprised of linvestments rated in the highest category by Moody's Investors Services Inc. or by Standard & Poor's Corporation. Repurchase Agreements 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 legall 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 & Poor's ratings, is authorized for purchase. Most investments are highly liquid, with the exception of collateralized and insured certificates of deposit held by banks and savings banks. Maturities are selected to anticipate cash needs, thereby eliminating the need for forced liquidation. Page 4 - Investment Policy Effective January 1, 1989 the Governm( shall be made in any security, other that repurchase agreement authorized by tt has a term remaining to maturity in excE granted express authority to make that investment program approved no less th Therefore longer-term investments (ov or less unless specifically approved by Diamond Bar attempts to obtain the hig provided that the criteria for safety and yield curve, (i.e., longer term investme maturities), the City attempts to ladder such a way that longer term investmei extremely short term market of 30 days The City is authorized to invest in th+ periodic reviews of the book to marks review of the goals and strategies of the management of the Local Agency Inv City's investment goals, the City may elE It should be noted that, per LAIF's invE may be invested in Reverse Repu investments are extremely sophistical individually invest in these types of se pool as long as the percentage of the pi POLICY CONSTRAINTS The City operates its investment pool w The City does not purchase or sell secu The City does not buy stocks or deal in The City does not use Reverse Repuref The City does not invest in Guaranteed SAFEKEEPING OF SECURITIES .nt Code, Section 53601 states..."no investment i a security underlying a repurchase or reverse is section, which at the time of the investment ss of five years, unless the legislative body has investment either specifically or as a part of an an three months prior to the investment." one year) are limited to maturities of five years e City Council. lest yield possible when selecting investments, iquidity are met. Ordinarily, through a positive it rates are higher than those of shorter term s maturities to meet anticipated cash needs in is carry a higher rate than is available in the r less. Local Agency Investment Fund based upon value of the investment pool and an annual nvestment board. If there are changes in the 3tment Fund, and there is a conflict with the :t to discontinue investment in LAIF. 'nent policy, no more than 10% of its portfolio lase Agreements. Since these types of , the City of Diamond Bar chooses not to rities but will participate in LAIF's investment Folio remains at 10% or less. many State and self-imposed constraints. ies on margin. tures or options. se Agreements for the investment of funds. mall Business Administration (SBA) Notes. The City of Diamond Bar will adopt th operational practice of having all purchased securities delivered, versus payment to a safekeeping account at the City's depository 2005-50 Page 5 — Investment Policy bank. It is recognized this will be contractual agreement made with the a third party independent custodian under irity Services Division of the chosen bank. Investment transactions will be authori ed by the City Treasurer and executed by either the Finance Director or the + City Gle Assistant City Manager. The transactions will be verified via monthly reconciliations by the Senior Accountant. 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 sec e) Current market value of securitii f) Statement relating the report to g) Rate of interest h) Statement that there are sufficiE The basic premise underlying the C insure that money is always available Attachment: Appendix A - Description Appendix B - Broker Dea Appendix C - Local Agen 'n C. Lowry City Manager provided to the City Manager. The required with maturity in excess of twelve months Statement of Investment Policy funds to meet the next six months' obligations of Diamond Bar's investment philosophy is to en needed. 4 Investments :r Questionnaire y Investment Fund Description 2005--50 De Appendix A 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 -Bilis) to 30 years (T -Bands). These are highly liquid and are considered the safest investment security. Federal Agency Securities are issued by direct U.S. Government agencies or quasi - government agencies. Many of theseissues are guaranteed directly or indirectly by the United States Government. Examples of these securities are Federal Home Loan Bank (FHLB) notes, Federal National Mortgage Associations (FNMA) notes, Federal Farm Credit Bank (FFCB) notes, Small Business Administration (SBA) notes, Government National Bank (GNMA) notes, and ederal Home Loan Mortgage Credit (FHLMC) notes. Local Agency Investment Fund (Li local agencies may use to deposit investment period and the minimum t that, with a maximum of $40 million deposits can be converted to cash 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 Certificates of Deposit are investmei and loans and credit unions. Investr Federal Deposit Insurance Corporatioi Corporation (FSLIC) and the National Certificates of Deposit can be issued fr the City of Diamond Bar's investment ( deposits exceeding $100,000 the fina 110% government securities collateral Collateral (First Trust Deeds) or 105% Government Code prohibits investmen credit unions if any member of the city manager, Fiscal officers) serves on the 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 LAW account. able costs of making the investments, not to earnings. its for inactive funds issued by banks, savings nents of $100,000 are insured respectively by i (FDIC), Federal Savings and Loan Insurance Credit Union Share Insurance Fund (NCUSIF). )m 14 days to several years in maturity allowing if funds to be matched to cash flow needs. For ,)cial institution is required to collateralize with . City of Diamond Bar does not accept 150% Letters of Credit (L.C.). Section 53635.2 of, the is in certificates of deposits of state or federal s governing or managing officers (Council, City -redit union board or key committee positions. Page 2 - Appendix A Negotiable Certificates of Deposit institution. These securities are gener maturity. Although negotiable, a stror issued by the largest United States bai America, Citibank, Chase Manhattan, M generally trade with minimum amounts the secondary market of $5 million. are unsecured obligations of the financial ally issued in bearer form and pay interest at g secondary market exists only in the NCD's iks. Examples of large banks include Bank of inufacturers Hanover, etc. These securities )f $1 million per trade with the average trade in Investment in Negotiable Certificatesdf Deposit is limited to 30% of the investment portfolio per Government Code Section 3601. Bankers Acceptances are short-term obtain funds to finance commercial tran by an exporter or importer to obtain i 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 credit arrangements to enable businesses to actions. They are time drafts drawn on a bank ends to pay for specific merchandise. By its liable for the payment of the draft at maturity. ►le instrument. Acceptances are purchased in s 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 uns to raise working capital. These negotiai to par value or interest bearing. Comn General Motors Acceptance Corporatio 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 Stanc commercial paper may not exceed 270 the local agency's total investments. ured promissory note issued by a corporation > instruments may be purchased at a discount rcial paper is issued by corporations such as (GMAC), Shearson American Express, Bank law to invest in commercial paper of "prime" Ihest letter and numerical rating as provided by and & Poors Corporation. Purchases of eligible lays maturity nor exceed twenty five percent of Investment in Commercial Paper is limited to 25% of the total investment portfolio and 10% of the issuing corporation per Gove nment Code Section 53601. Medium Term Corporate Notes ar corporation organized and operating instruments and are traded in the secon defined as extended maturity commerci� capital. Examples of MTN issuers are Bank, etc. Investment in Medium Te investment portfolio per Government Cc unsecured promissory notes issued by a the United States. These are negotiable ary market. Medium Term Notes (MTN) can be paper. Corporations use these MTN's to raise eneral Electric, GMAC, Citibank, Wells Fargo n Corporate Notes is limited to 30% of the e 53601. Notes must be rated "A" or better. Page 3 — Appendix A Passbook Savings Account is 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 deposit d and withdrawn according to daily needs. Mutual Funds are referred to in the Gc beneficial interest issued by diversifie must be restricted by its by-laws to th Government Code. These investments State of California and City (within Ca Repurchase Agreements, Reverse R Financial Options and Medium Terr percentage restrictions in each investm agency also, apply to the Mutual management companies or their invest vernment Code, Section 53601, K, as "shares of f management companies". The Mutual Fund s same investments as the local agency by the are Treasury issues, Federal Agency issues, fornia) debt obligations, Certificates of Deposit, purchase Agreements, Financial Futures and i Corporate Notes. The quality rating and ;nt category, which are applicable to the local Fund. Additional limitations apply to such gent advisors. The City may not invest in a mutual fund, which invests in derivative types of products. The purchase price of shares of mutual funds shall not include any sales commission. Investments in mutual funds shall not exceed fifteen percent of the local agency's investment portfolio. Active Deposits are demand or chegking accounts which receive revenues and pay disbursements. Money Market Funds are comprised o short term government securities, certificates of deposit and highly rated commercial p per. Average length of maturity is twenty to fifty days. Money Market Funds are 100% liquid at any time. Repurchase Agreements and Reverse Repurchase Agreements are short term investment transactions. Banks buy # mporarily idle funds from a customer by selling him U.S. Government or other securit es with a contractual agreement to repurchase the same securities on a future date. Repurchase agreements are typically one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal Funds and the maturity of the REPO. Some banks will execute repurchase agreements for a minimum of $100,000, but most banks have a minimum of $500,000. A reverse -repurchase agreement (reverse -repo) is exactly what the name implies. The City of Diamond Bar does NOT invest in Reverse Repurchase Agreements, Financial Futures and Financial Options are forward contracts for securities. The government code states that a local ag ncy may incur future contracts/options in any of Page 4 — Appendix A the investment securities enumerated in Section 53601 A -N. Due to the volatility of trading in financial futures the City of Dimond Bar does NOT invest in financial futures of financial options. Derivative Products are structured prc ducts, which limits, through imbedded options, the flow of principal and or interest tot a 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 rete another underlying asset. to any security which derives its value from The City of Diamond Bar does NOT invest in derivative products. APPENDIX B CITY OF DIAMND BAR BROKERMEALER QUES IONNAIRE AND CERTIFICATION 1. Name of Firm: Z. Address: 3. Telephone: 4. Broker's Representative to the City (attach resume): Name: Title: Telephone: 5. Manager/Partner-in-Charge (attach resume) Name: Title: Telephone: 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 Sttes Government Securities? Yes No CITY OF DIAMOND BAR Broker/Dealer Questionnaire and Certifi Name of Firm: Page Two 9. List the total volume of United States Government and Agency Securities for the last calendar year. Firm -wide $ No. of Transactions Your local office $ No. of Transactions 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 12. Have any of your clients ever s from a misunderstanding or m instrument? If so, explain. Iularly by your local office? CMO's Bank CD's _S&LCD's Repos Reverse Repos Other (specify): most directly comparable public sector clients in ned a loss on a securities transaction arising resentation of the risk characteristics of the CITY Broke Name Page OF DIAMOND BAR WDealer Questionnaire and Certification of Firm: Three 13. Has your local office ever subject investigation for alleged improper, related to the sale of securities? investigated? If so explain to a regulatory or state/federal agency fraudulent, disreputable or unfair activities Have any of your employees been so 14. Has a client ever claimed in writing losses? If so, explain. that your firm was responsible for inve: 15. Explain your normal custody and systems? Can you meet safeke delivery process. Who audits these fid ping requirements? 16. How many and what percentage Last month? Last 17. Describe the capital line and trading with the City of Diamond Bar. of your transactions failed year? limits of the office that would conduct bu: 18. Does your firm participate in the S.I.P.C. insurance program if not, e) fitment uclary ;Iness :plain, CITY OF DIAMOND BAR Broker/Dealer Questionnaire and 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: Latest audited financial Samples of reports, transactio Samples of research reports to clients. n any, do you require from your clients? ations and paper trail will the City receive? ing to your clients? and confirmations the City will receive. publications that your firm regularly provides Complete schedule of fees and charges for various transactions. CITY OF DIAMOND BAR Broker/Dealer Questionnaire and Certification Name of Firm: Page Five ***CEFRTI FICATION*** I hereby certify that I have personally rea the Statement of Investment Policy of the City of Diamond Bar, and have implemented r tasonable procedures and a system of controls designed to preclude imprudent investmc nt activities arising out of transactions conducted between our firm and the City of Diamond Bar. All sales personnel will be routinely informed of the City's investment objectives, ho izons, outlooks, strategies and risk constraints whenever we are so advised by the City. We pledge to exercise due diligence in informing the City of Diamond Bar of all foreseeable risks associated with financial transactions conducted with our firm. Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of my knowledge. Signed Title Countersignature* Title Date Date * Company president or person in charge cif government securities operations. LAIF Introduction Appendix C August 31, 2005 Local Agenc, Prog Page 1 of 2 California State Treasurer's Office Search Phil Angelldes, State Treasurer Contact Investment Fund Description The Local Agency Investment Fund (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 Califomia Government Code. This program offers local agencies the opportunity 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 (PMIS) and an in-house Investment Committee. The PMIB 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 training 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 pleasure 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 se urities purchased on a delivery versus payment basis using a third party custodian. All investmentsre 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 PMIS 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 following 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 f=ederal Law, the State of California cannot declare bankruptcy, thereby allowing the Government Code Section 16429.3 to stand. This 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 subject to either of the following: (a) transfer or loan pursuant to Sections 16310, 16312, or 16313, or (b) impoundment or seizure by any state official or state agency." During the 2002 legislative session, California http://www.treasurer.ca.gov/pmia-laif/laif t Code Section 16429.4 was added to the 2005-50 8/31/2005 LAIF Introduction Appendix C — Page 2 Page 2 of 2 LAIF'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 to adopt a State Budget by July 1 of each new fiscal year." The LAIF has grown from 293 participants and 468 million in 1977 to 2,702 participants and $18.6 billion in 2005. STO Home I Comments I Privacy Statement I Career Opportunities E En Espanol O 2005 CaliforniaState Treasurer's Office 2405-.50 http://www.treasurer.ca.gov/pmia-laif/laif-progr .htm 8/31/2005