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HomeMy WebLinkAboutResolution No. THCA 2022-05RESOLUTION NO. THCA 2022-05 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE TRES HERMANOS CONSERVATION AUTHORITY, ADOPTING THE STATEMENT OF INVESTMENT POLICY FOR FISCAL YEAR 2022-23 WHEREAS, the Statement of Investment Policy provides the Board of Directors shall annually review the Statement of Investment Policy; and WHEREAS, the Tres Hermanos Conservation Authority (Authority) requests to adopt the Statement of Investment Policy for the Fiscal Year 2022-23. NOW, THEREFORE, BE IT RESOLVED, Section 1. Investments of the Authority's funds for the Fiscal Year 2022-23 shall be made in accordance with the Authority's Statement of Investment Policy attached to this Resolution as Exhibit "A". Section 2. The policy adopted by this Resolution is in addition to and supplements any other legal requirements. Section 3. The Statement of Investment Policy adopted by this Resolution supersedes all investment policies previously adopted by the Board of Directors. Section 4. The Treasurer must make a monthly report of any investment transactions to the Board of Directors as required by Government Code section 53607. Section 5. This Resolution will take effect on July 1, 2022. PASSED, APPROVED, AND ADOPTED this 16th day of March 2022. Cathy Marcucci, Chair Tres Hermanos Conservation Authority 1 Resolution No. THCA 2022-05 ATTEST: I, Kristina Santana, Secretary of the Tres Hermanos Conservation Authority, do hereby certify that the foregoing Resolution was duly and regularly passed, approved and adopted by the Board of Directors of the Tres Hermanos Conservation Authority, at its regular meeting held on the 16th day of March 2022, by the following Roll Call vote: AYES: DIRECTORS: Marquez, Moss, Rogers, Ruggles, Tye, C/Marcucci NOES: DIRECTORS: None ABSENT: DIRECTORS: VC/Lyons ABSTAIN: DIRECTORS: None Kristina Santana, Secretary Tres Hermanos Conservation Authority 2 -1- Exhibit A TRES HERMANOS CONSERVATION AUTHORITY Statement of Investment Policy Fiscal Year 2022-23 I. POLICY It is the policy of the Tres Hermanos Conservation Authority ("Authority") to meet the short and long-term cash flow demands of the Authority in a manner which will provide for the safety of principal and sufficient liquidity while providing an investment return. The purpose of this Statement of Investment Policy ("Investment Policy") is to outline a process of the investment of Authority funds in a prudent manner in order to meet Authority objectives. II. SCOPE This Investment Policy applies to all investment activities and financial assets of the Authority held by the Authority and its agents and trustees. III. DELEGATION OF AUTHORITY Pursuant to the Authority’s By-Laws the Treasurer shall perform the duties as authorized in Section 6506 et seq. of the Government Code. Where the Board of Directors delegates the responsibility for investing the Authority’s funds to the Treasurer, if the Treasurer is absent or otherwise unavailable to make investments, the Treasurer delegates those responsibilities to the Finance Manager at the City of Chino Hills. Investments made by the Finance Manager will be restricted to the State of California Local Agency Investment Fund ("LAIF"). The Treasurer may delegate to subordinates the execution of daily investment transactions. These investment transactions shall be approved by the Treasurer. IV. PRUDENCE All investments purchased shall have daily liquidity or a final stated maturity date upon which the full principal value of the security will be received. Although the investment will mature at full principal value, it is recognized that the market will vary throughout the life of the security. V. OBJECTIVE The objective of the investment portfolio is to meet the short and long-term cash flow demands of the Authority. To achieve this objective, the portfolio will be structured to provide safety of principal and liquidity while then providing a return on investments. -2- The following criteria, in priority order, shall govern all investment decisions. A. Safety of Principal Investments of the Authority shall be undertaken in a manner that seeks to ensure that capital losses are minimized, whether from institution default or erosion of the market value of securities. The Authority shall seek to preserve principal by mitigating the two types of risk in order of importance: 1) credit risk, and 2) market or interest rate risk. 1. Credit Risk. Credit risk, defined as the risk of loss due to failure of an issuer of a security, shall be mitigated by purchasing Treasuries or high-grade securities. All investments beyond Treasury securities will be diversified so that the failure of any one issuer would not unduly harm the Authority's cash flow. Credit risk shall also be mitigated by pre-qualifying financial institutions, broker/dealers, intermediaries and advisors with which the Authority does business. 2. Market or Interest Rate Risk. Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by structuring the funds so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and by investing operating funds primarily in shorter-term securities. The cash flow is updated on a daily basis and will be considered prior to the investment of securities, which will reduce the necessity to sell investments for liquidity purposes. Long-term securities shall not be purchased for the sole purpose of short-term speculation. Securities shall not be sold prior to maturity with the following exceptions: 1) a declining credit security would be sold early to minimize loss of principal, 2) a security swap would improve the quality, yield, or target duration in the portfolio, or 3) liquidity needs of the portfolio require that the security be sold. Purchases of investments will be restricted to securities with a final stated maturity not to exceed five (5) years. B. Liquidity The funds shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. C. Return on Investments The funds shall be designed to attain a return on investments through budgetary and economic cycles, taking into account the investment risk -3- constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. VI. ETHICS AND CONFLICTS OF INTEREST The Treasurer and other employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair their ability to make impartial investment decisions. The Treasurer and investment employees shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio and shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. The Treasurer and investment employees are required to file annual disclosure statements as required by the Fair Political Practices Commission (FPPC). During the course of the year, if there is an event subject to disclosure that could impair the ability of the Treasurer or investment employees to make impartial decisions, the Board of Directors will be notified in writing within 10 days of the event. VII. SAFEKEEPING OF SECURITIES Investments in LAIF are undeliverable and are not subject to delivery or third-party safekeeping. The Treasurer shall not be responsible for securities delivered to and receipted for by a financial institution until they are withdrawn from the financial institution by the Treasurer. On a monthly basis, the custodial asset statement shall be reconciled with the month end portfolio holdings. On an annual basis, the external auditor confirms investment holdings. VIII. REPORTING Pursuant to Section 53607 and Section 53646 of the Government Code, the Treasurer shall render a report to the Board of Directors containing detailed information on all investments and moneys of the Authority. The report will be submitted on a monthly basis and be provided to the Board of Directors within 30 days following the end of the month. The report will contain the following information on the funds that are subject to this Investment Policy: 1) the type of investment, name of the insurer, date of maturity, cost in each investment, 2) the market value and source of the valuation, 3) a description of the compliance with the statement of Investment Policy, and 4) a statement denoting the Authority's ability to meet its pool's expenditure requirements for the next six months, and 5) transactions for the period. -4- IX. INTERNAL CONTROLS The Treasurer shall develop a system of internal investment controls and a segregation of responsibilities of investment functions in order to assure an adequate system of internal control over the investment function. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. X. AUTHORIZED INVESTMENTS The Authority’s investments are governed by California Government Code, Sections 53600 et seq. Within the investments permitted by the Code, the Authority seeks to further restrict eligible investments to the guidelines listed below. In the event a discrepancy is found between this policy and the Code, the more restrictive parameters will take precedence. Percentage holding limits and credit limits listed in this section apply at the time the security is purchased. STATE OF CALIFORNIA LOCAL AGENCY INVESTMENT FUND (LAIF), provided that:  The Authority may invest up to the maximum amount permitted by LAIF.  LAIF’s investments in instruments prohibited by or not specified in the Authority’s policy do not exclude the investment in LAIF itself from the Authority’s list of allowable investments, provided LAIF’s reports allow the Treasurer to adequately judge the risk inherent in LAIF’s portfolio. XI. PROHIBITED INVESTMENTS AND TRANSACTIONS A. The Authority shall not invest any funds in inverse floaters, range notes, or mortgage derived, interest-only strips. B. The Authority shall not invest any funds in any security that could result in zero interest accrual if held to maturity. However, the Authority may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to Authority investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to Section XIV, above. C. No credit union may act as a selected depository institution under Section 53601.8 or Section 53635.8 for certificates of deposit. D. The Authority shall not purchase or sell securities on margin. -5- E. Reverse Repurchase Agreements shall not be directly used by the Authority. F. The purchase of foreign currency denominated securities is prohibited. XII. POLICY REVIEW In accordance with amended Section 53646 of the Government Code, the Treasurer will annually render a Statement of Investment Policy for review by the Board of Directors to ensure its consistency with the overall objectives of preservation of principal, liquidity, and return, and its relevance to current law, financial and economic trends, and to meet the needs of the Authority. (ATTACHMENT “A”) -6- TRES HERMANOS CONSERVATION AUTHORITY OFFICE OF THE TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm: _____________________________________________ 2 Address: __________________________________________________ 3 Telephone No. ( ) _____________ ( ) ___________________ (Local) (Nat. Headquarters) 4 Primary Representative: Manager: Name: _____________________ Name: ________________________ Title: ____________________ Title: ______________________ Tel. No. ( ) ____________ Tel. No. ( ) ______________ 5 What are the Total Assets of the Bank/Savings and Loan? ___________________________________________________________ 6 What is the current Net Worth Ratio of your institution? ___________________________________________________________ 7 What was the Net Worth Ratio for the Previous Year? ___________________________________________________________ 8 What is your required Capital Ratios? A. Tangible Capital Ratio _______________________________ B. Core Capital Ratio ___________________________________ C. Risk-Based Capital Ratio _____________________________ 9 What are your Ratings (i.e., S&P, Moody's, Thompson, Fitch)? ___________________________________________________________ 10 What is the date of your Fiscal Year-End? _________________ A. Has there been a year during the past three years in which the Bank/Savings and Loan did not make a profit? ____________________________________________________________ (ATTACHMENT “A”) -7- 11 Have you read the California Government Code Section 53630 through 53684 pertaining to the State's requirements governing the deposit of monies by Local Agencies? [ ] YES [ ] NO 12 Amounts above the FDIC insurance coverage must be collateralized as specified in the Government Code. Where is the collateral for Deposits held? ___________________________________________________________ Has there ever been a failure to fully collateralize? If Yes, please attach explanation. 13 What is the education level of the Primary Contact(s)? ___________________________________________________________ 14 How many years of related experience does the Primary Contact(s) have? ___________________________________________________________ 15 What transaction documents and reports would we receive? ___________________________________________________________ 16 What information would you provide to our Treasurer? ___________________________________________________________ 17 Describe the precautions taken by your Bank/Savings and Loan to protect the interest of the public when dealing with government agencies as depositors or investors. ___________________________________________________________ 18 Please provide your Contract of Deposit of Moneys pre-signed and sealed by your institution, as well as, any signature cards that you may require. 19 Please provide your Wiring Instructions: ___________________________ ___________________________________________________________ 20 Please provide your Bank/Savings and Loan most recent certified financial statement. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. (ATTACHMENT “A”) -8- - CERTIFICATION - I hereby certify that I have personally read the Authority’s Investment Policy and the California Government Codes pertaining to the investments and deposits of the Authority, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the Authority. I understand however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of the Authority’s investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing the Authority’s Treasurer of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. NOTE: Completion of Questionnaire is only part of the Authority’s Certification process and DOES NOT guarantee that the applicant will be approved to do business with the Authority. SIGNED: ______________________________ DATE: __________________ COUNTERSIGNED: _______________________ DATE: __________________ (ATTACHMENT “B”) -9- Glossary of Investment Terms AGENCIES. Shorthand market terminology for any obligation issued by a government- sponsored entity (GSE), or a federally related institution. Most obligations of GSEs are not guaranteed by the full faith and credit of the US government. Examples are: FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural industry. FFCB issues discount notes and bonds. FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB issues discount notes and bonds. FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in the housing market. FHLMC, also called “FreddieMac” issues discount notes, bonds and mortgage pass-through securities. FNMA. Like FHLB and FreddieMac, the Federal National Mortgage Association was established to provide credit and liquidity in the housing market. FNMA, also known as “FannieMae,” issues discount notes, bonds and mortgage pass- through securities. GNMA. The Government National Mortgage Association, known as “GinnieMae,” issues mortgage pass-through securities, which are guaranteed by the full faith and credit of the US Government. PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not guaranteed by the full faith and credit of the US government. TVA. The Tennessee Valley Authority provides flood control and power and promotes development in portions of the Tennessee, Ohio, and Mississippi River valleys. TVA currently issues discount notes and bonds. BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a commission. A broker does not sell securities from his own position. COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also, securities pledged by a financial institution to secure deposits of public monies. CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes in the condition of the issuer. DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own position. DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash flows. Duration measures the price sensitivity of a bond to changes in interest rates. (See modified duration). LIQUIDITY. The speed and ease with which an asset can be converted to cash. LOCAL AGENCY INVESTMENT FUND (LAIF). A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office. MARGIN. The difference between the market value of a security and the loan a broker makes using that security as collateral. (ATTACHMENT “B”) -10- MODIFIED DURATION. The percent change in price for a 100 basis point change in yields. Modified duration is the best single measure of a portfolio’s or security’s exposure to market risk. PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its execution of market operations to carry out U.S. monetary policy, and (2) that participates for statistical reporting purposes in compiling data on activity in the U.S. Government securities market. REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the securities back at a higher price. From the seller’s point of view, the same transaction is a reverse repurchase agreement. SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer’s name. TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted instruments, and are called Treasury bills. The Treasury currently issues three- and six-month T-bills at regular weekly auctions. It also issues “cash management” bills as needed to smooth out cash flows. TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes, and pay interest semi-annually. TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury bonds. Like Treasury notes, they pay interest semi-annually.