HomeMy WebLinkAboutAGENDA REPORT 2023 0503 CCSA REG ITEM 10DCITY OF MOORPARK, CALIFORNIA
City Council Meeting
of May 3, 2023
ACTION APPROVED STAFF
RECOMMENDATION, INCLUDING
ADOPTION OF RESOLUTION NO. 2023-
4174. (ROLL CALL VOTE: UNANIMOUS)
BY A. Hurtado.
D. Consider Approval of Investment Policy and Resolution Establishing the City of
Moorpark’s Investment Policy for Fiscal Year (FY) 2023/24 and Rescinding
Resolution No. 2021-4038. Administration, Finance, and Public Safety Committee
Recommendation: Adopt Resolution No. 2023-4174, adopting the Annual
Investment Policy for FY 2023/24 and rescinding Resolution No. 2021-4038.
(Staff: Yolanda Cunning, Finance/Administrative Services Director & City
Treasurer) (ROLL CALL VOTE REQUIRED)
Item: 10.D.
MOORPARK CITY COUNCIL
AGENDA REPORT
TO: Honorable City Council
FROM: Yolanda Cunning, Finance/Administrative Services Director and City
Treasurer
DATE: 05/03/2023 Regular Meeting
SUBJECT: Consider Approval of Investment Policy and Resolution Establishing
the City of Moorpark’s Investment Policy for Fiscal Year (FY) 2023/24
and Rescinding Resolution No. 2021-4038
BACKGROUND & DISCUSSION
The Administration, Finance and Public Safety Committee reviewed this Investment
Policy on April 19, 2023, and recommended the City Council adopt the Policy.
California Government Code 53646 (a)(2) reads:
In the case of any other local agency, the treasurer or chief fiscal officer of
the local agency may annually render to the legislative body of that local
agency and any oversight committee of that local agency a statement of
investment policy, which the legislative body of the local agency shall
consider at a public meeting. Any change in the policy shall also be
considered by the legislative body of the local agency at a public meeting.
As originally enacted on January 1, 1996, State law required the City Council to
annually review and adopt the City of Moorpark’s (City) Investment Policy at a public
meeting (California Government Code (CA GC) § 53646). In 2004 and 2009, the State
Legislature made changes to Section 53646 of the Government Code to make the
investment policy optional, rather than mandatory, but added language encouraging
local agency officials to continue taking the actions formerly mandated by
Section 53646. The City Council has reviewed and accepted such a policy on an
annual basis since 2010. The annual investment policy update ensures consistency
with respect to current laws and allows the City Council to review portfolio objectives.
The Investment Policy does not have any revisions other than making it current to
FY 2023/24 which are shown in legislative format.
At its meeting of April 19, 2023, the Administration, Finance and Public Safety
Committee reviewed the Investment Policy and recommended adoption by the City
Council with no proposed amendments.
Item: 10.D.
1314
Honorable City Council
05/03/2023 Regular Meeting
Page 2
ENVIRONMENTAL DETERMINATION
This action is exempt from the California Environmental Quality Act (CEQA) as it does not
constitute a project, as defined by Section 15378 of the State CEQA Guidelines. Therefore, no
environmental review is required.
FISCAL IMPACT
There is no direct impact associated with the approval of the proposed investment
policy.
COUNCIL GOAL COMPLIANCE
This action does not support a current strategic directive.
ADMINISTRATION, FINANCE AND PUBLIC SAFETY COMMITTEE RECOMMENDATION
(ROLL CALL VOTE REQUIRED)
Adopt Resolution No. 2023-_____, adopting the Annual Investment Policy for FY
2023/24 and rescinding Resolution No. 2021-4038.
Attachment: Resolution No. 2023-_____ (City of Moorpark Investment Policy)
1315
ATTACHMENT
RESOLUTION NO. 2023-____
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
MOORPARK, CALIFORNIA, ADOPTING THE ANNUAL
INVESTMENT POLICY FOR FISCAL YEAR 2023/2024 AND
RESCINDING RESOLUTION NO. 2021-4038
WHEREAS, on May 3, 2023, the City Council reviewed and adopted the City of
Moorpark’s annual Investment Policy, which is applicable to the City and its related
entities for which the members of the City Council serve as the governing body (the
“Related Entities”); and
WHEREAS, a staff report has been presented to the Council requesting adoption
of the annual Investment Policy; and
WHEREAS, the Investment Policy describes the investment of City funds in
compliance with the Municipal Code and state law, and, therefore, the Investment Policy
is to be hereby submitted to an oversight committee in compliance with state law; and
WHEREAS, the Administration, Finance and Public Safety Standing Committee
reviewed this Investment Policy on April 19, 2023, and recommended the City Council
adopt the Policy; and
WHEREAS, Investment Policy Resolution No. 2021-4038 is proposed to be
rescinded and an updated Investment Policy Resolution adopted.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The annual Investment Policy attached hereto as “Exhibit A” has
been reviewed in a public meeting and is hereby adopted.
SECTION 2. The City Council, for itself and as the legislative body of the
Related Entities, hereby delegates its investment authority with respect to the funds of
the City and the Related Entities to the City Treasurer-Finance/Administrative Services
Director (acting in the capacities of City Treasurer and treasurer of the Related Entities).
SECTION 3. City Council Resolution No. 2021-4038 is hereby rescinded.
SECTION 4. The City Clerk shall certify to the adoption of the resolution and
shall cause a certified resolution to be filed in the book of original resolutions.
PASSED AND ADOPTED this 3rd day of May, 2023.
Chris R. Enegren, Mayor
ATTEST:
Ky Spangler, City Clerk
Attachment: Exhibit “A” - City of Moorpark Investment Policy 1316
EXHIBIT A
CITY OF MOORPARK
INVESTMENT POLICY
1.0 Introduction. The purpose of this document is to identify various policies and
procedures that enhance opportunities for a prudent and systematic investment policy
and to organize and formalize investment-related activities of the City of Moorpark,
Successor Agency to the Moorpark Redevelopment Agency and Moorpark Public
Financing Authority. As used in this policy, the term “City” may refer to the City, or the
City and its related entities for which the members of the City Council serve as the
legislative body, as the context may require. Related activities which comprise good
cash management include accurate cash projections, the expeditious collection of
revenue, the control of disbursements, cost-effective banking relations, and arranging
for a short-term borrowing program, which coordinates working capital requirements
and investment opportunities.
2.0 Policy. It is the policy of the City of Moorpark to invest public funds not
required for immediate day-to-day operations in accordance with the principals of
sound treasury management and the provisions of California Government Code §
53600 et seq., the Municipal Code and this policy.
3.0 Scope. This policy applies to all investment activities of the City of Moorpark,
except for the proceeds of certain debt issues that are invested and managed by
trustees appointed under indenture agreements.
3.1 Pooled Investments. Investments for the City and its component units will
be made on a pooled basis, including the City of Moorpark, the Successor
Agency to the Moorpark Redevelopment Agency, and the Moorpark Public
Financing Authority.
All pooled funds are accounted for in the Annual Comprehensive Financial
Report of the City of Moorpark. Funds include the General Fund, Special
Revenue Funds, Debt Service Fund, Capital Projects Funds and Trust and
Agency Funds.
3.2 Investments held separately. Investments of bond proceeds will be held
separately when required by the bond indentures or when necessary to meet
arbitrage regulations. If allowed by the bond indentures, or if the arbitrage
regulations do not apply, investments of bond proceeds will be held as part of
the pooled investments.
4.0 Objectives. Section 53600.5 of the California Government Code outlines the
primary objectives of a trustee investing public money. The primary objectives, in
order of priority, of the City’s investment activities shall be:
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4.1 Safety. Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to ensure
preservation of capital in the overall portfolio.
4.2 Liquidity. The City’s investment portfolio will remain sufficiently liquid to
enable the City to meet all operating requirements which might be reasonably
anticipated. This is accomplished by maintaining a portion of the portfolio in
money market funds and the State Local Agency Investment Fund with
immediate withdrawal provisions. The City’s practice is to buy and hold
instruments to maturity, since all cash demands cannot be forestalled, the
portfolio will include securities with active secondary or resale markets should
the need to sell prior to maturity arises.
4.3 Yield. Investment return becomes a consideration only after the basic
requirements of safety and liquidity have been met.
The investment portfolio shall be designed with the objective of attaining a
market rate of return throughout budgetary and economic cycles while adhering
to the list of authorized investments.
5.0 Duties and Responsibilities. The State of California gives the City Council, in
its capacity as legislative body of the City and its related entities, the ability to delegate
the investment authority to the City Treasurer (acting in the capacities of City
Treasurer and treasurer of the City’s related entities) for a one-year period in
accordance with Section 53607 of the California Government Code. The delegation
will require renewal each year. So long as the City Council’s annual delegation of
investment authority pursuant to California Government Code Section 53607 to the
City Treasurer is effective, no person may engage in investment transactions unless
directed by the City Treasurer, or in the absence of such effective delegation, unless
directed by the City Council.
In the execution of this delegated authority, the City Treasurer may establish accounts
with well qualified, financially sound financial institutions and/or brokers/dealers for the
purpose of completing investment transactions in accordance with this policy. The
criteria used to select qualified financial institutions and broker/dealers for effecting
purchases of authorized investments are identified in Section 14 of this policy. The
criteria used to select qualified financial institutions for the custody of the City’s
investments are identified in Section 16 of this policy.
The City Treasurer (acting in the capacities of City Treasurer and treasurer of each
City-related entity) may designate in writing a Deputy City Treasurer, who in the
absence of the City Treasurer, will assume the City Treasurer’s duties and
responsibilities. The City Treasurer shall retain full responsibility for all transactions
undertaken under the terms of this policy.
Pursuant to Section 53607 of the California Government Code, so long as the City
Council, in its capacity as legislative body of the City and its related entities, has
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delegated its investment authority to the City Treasurer (acting in the capacities of City
Treasurer and treasurer of the City’s related entities) and such delegation is in full
force and effect as described in Section 18.2 of this policy.
The City Treasurer may annually or when a change is made render a statement of
investment policy to the City Council to be considered at a public meeting.
Pursuant to Sections 53607 and 53646 of the California Government Codes, the City
Treasurer shall submit reports to the City Council as described in Section 18.1 of this
policy.
6.0 Prudence. Section 53600.3 of the California Government Code identifies the
legal standard applicable to the City Council, as legislative body of the City and its
related entities, and to those persons authorized to make investment decisions on
behalf of a local agency and Section 53600.3 deems the legislative body and such
authorized persons to be trustees, and therefore fiduciaries subject to the “prudent
investor” standard. As a trustee and fiduciary, the standard of prudence to be used
shall be the “prudent investor” standard and shall be applied in the context of
managing the overall portfolio. Specifically, as set forth in Section 53600.3, when
investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public
funds, the City Council, as legislative body of the City and its related entities, and other
persons authorized to make investment decisions on its behalf, shall act with care,
skill, prudence, and diligence under the circumstances then prevailing, including but
not limited to the general economic conditions and the anticipated needs of the
agency, that a prudent person acting in a like capacity and familiarity with those
matters would use in the conduct of funds of a like character with like aims, to
safeguard the principal and maintain the liquidity needs of the agency.
Investment officers acting in accordance with written procedures and the investment
policy and exercising due diligence shall be relieved of personal responsibility for an
individual security’s credit risk changes or market price changes, provided deviations
from expectations are reported in a timely manner and appropriate action is taken to
control adverse developments.
7.0 Ethics and Conflicts of Interest. All participants in the City’s investment
process shall seek to act responsibly as custodians of the public trust. Officers and
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 recommendations and decisions.
Employees and investment officials shall make all disclosures appropriate under the
Fair Political Practices Act, and may seek the advice of the City Attorney and the Fair
Political Practices Commission whenever there is a question concerning personal
financial or investment positions that could represent potential conflicts of interest.
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8.0 Authorized Investments.
8.1 Pooled Investments. The City Treasurer may invest City funds in the
following instruments as specified in the California Government Code, Section
53601, subject to the limitations set out in that section and as further limited in
this policy. See also Section 12.0 for limitations on issuer concentration for
certain types of investments authorized under this Section 12.0. Investments
will be made only in readily marketable securities actively traded in the
secondary market.
8.1.1 U.S. Treasury Bills, Notes and Bonds: provided that the stated
final maturity of such security does not exceed five (5) years from the
date of purchase.
8.1.2 Federal Agency debentures and mortgage-backed securities with
a final maturity not exceeding five (5) years from the date of purchase
issued by the Government National Mortgage Association (GNMA).
8.1.3 Federal Instrumentality (government sponsored enterprise)
debentures, discount notes, bullets, callables and step-up securities, with
a final maturity not exceeding five (5) years from the date of purchase,
issued by the following only: Federal Home Loan Banks (FHLB), Federal
National Mortgage Association (FNMA), Federal Farm Credit Bureau
(FFCB), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal Agricultural Mortgage Corporation (FAMCA).
8.1.4 Time Certificates of Deposit, nationally or state-chartered banks;
savings or federal associations; or state or federal credit unions:
Deposits should not exceed five-year maturity and shall be collateralized
as specified in paragraph 9.0 of this policy or FDIC or NCUA insured up
to $250,000. Section 12.0 of this policy applies with respect to issuer-
concentration limits.
8.1.5 Negotiable Certificates of Deposit issued by nationally or state-
chartered banks; savings or federal associations; state or federal credit
unions; or federally licensed or state licensed branches of foreign banks.
Purchases may not exceed 30% of the portfolio and final maturity may
not exceed five (5) years from date of purchase. Section 12.0 of this
policy applies with respect to issuer-concentration limits.
8.1.6 Banker’s Acceptances, Foreign/Domestic, with a minimum rating
of “A1” by S&P Global Ratings or “P1” by Moody’s Investors Service, Inc.
(prime) rating provided that the acceptances are eligible for purchase by
the Federal Reserve System and the maturity does not exceed 180 days
maturity or 40% of the total portfolio. Section 12.0 of this policy applies
with respect to issuer-concentration limits.
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8.1.7 Commercial Paper: Short-term instruments with a maximum
maturity of 270 days or less, an “A1/P1” (prime) rating or better, with
fixed coupons, fixed maturity and no call provisions and meeting all of
the additional conditions in either paragraph (A) or (B) below.
(A) The issuer is a general corporation organized and operating
within the United States, has total assets in excess of five hundred
million dollars, and has debt other than commercial paper, if any, that
is rated in a rating category of “A” or its equivalent or higher by a
nationally recognized rating agency.
(B) The issuer is organized within the United States as a special
purpose corporation, trust, or limited liability company; has
programwide credit enhancements including, but not limited to,
overcollateralization, letters of credit, or a surety bond, and has
commercial paper that is rated “A1/P1” (prime) or better by a
nationally recognized rating agency.
Purchases of commercial paper may not exceed 25% of the portfolio.
Section 12.0 of this policy applies with respect to issuer-concentration
limits.
8.1.8 Medium-term Corporate Notes of a maximum of five years until
maturity issued by corporations organized and operating within the
United States and rated in the rating category of “A-” or better of Moody’s
Investors Service, Inc. and S&P Global Ratings. Purchases may not
exceed 30% of the portfolio. Section 12.0 of this policy applies with
respect to issuer-concentration limits.
8.1.9 Repurchase Agreements with a maximum maturity of one year.
Repurchase Agreements will only be with primary dealers of the Federal
Reserve Bank of New York, and who have long-term debt rated in the
“AAA” or “AA” categories of Moody’s Investors Service, Inc. or S&P
Global Ratings. Investments will be collateralized as specified in
paragraph 9.0 of this Investment Policy. Section 12.0 of this policy
applies with respect to issuer-concentration limits.
8.1.10 Money Market Funds registered under the Investment Company
Act of 1940 which (1) are “no-load” (meaning no commission or fee shall
be charged on purchases or sales of shares); (2) have a constant daily
net asset value per share of $1.00; (3) invest only in the securities and
obligations authorized in this investment policy and (4) have a rating of at
least two of the following: AAAm by S&P Global Ratings, Aaa by
Moody’s or AAA/V1+ by Fitch. The aggregate investment in money
market funds shall not exceed 20% of the City’s total portfolio. Section
12.0 of this policy applies with respect to issuer-concentration limits.
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8.1.11 County Pooled Investment Funds in accordance with the laws
and regulations governing those Funds and State law (GC 53684).
8.1.12 State of California pooled “Local Agency Investment Fund” in
accordance with the laws and regulations governing those Funds and
State law (GC 16429.1 et seq.).
8.1.13 Insured deposits: Deposits not exceeding $250,000 shall be
permitted only in those nationally or state-chartered banks, savings or
federal associations, or state or federal credit unions that are active
members of the Federal Deposit Insurance Corporation (FDIC) and
provided that the final maturity does not exceed five (5) years from date
of purchase. Section 12.0 of this policy applies with respect to issuer-
concentration limits.
8.1.14 The “Sweep” account for the overnight investment of idle funds
shall be subject to this policy.
8.1.15 City of Moorpark bonds, or bonds issued by its related entities for
which the members of the City Council serve as the legislative body,
provided that the stated final maturity of such security does not exceed
five (5) years from the date of purchase. Section 12.0 of this policy
applies with respect to issuer-concentration limits.
8.1.16 Registered state warrants, treasury notes or bonds of the State of
California. Registered treasury notes or bonds from any of the remaining
49 States. The stated final maturity of such security shall not exceed five
(5) years from the date of purchase. Rated in the rating category of “A-”
or “A-1” or better of Moody’s Investors Service, Inc. or Standard & Poor’s
(S&P) Global Ratings. Section 12.0 of this policy applies with respect to
issuer-concentration limits.
8.1.17 Bonds, notes, warrants, or other indebtedness of any local
government agency within California. The stated final maturity of such
security shall not exceed five (5) years from the date of purchase. Rated
in the rating category of “A-” or “A-1” or better of Moody’s Investors
Service, Inc. or S&P Global Ratings. Section 12.0 of this policy applies
with respect to issuer-concentration limits.
8.1.18 Supranational Organizations Securities, Limited to United States
dollar denominated senior unsecured unsubordinated obligations issued
or unconditionally guaranteed by: International Bank for Reconstruction
and Development (IBRD), International Finance Corporation (IFC), and
Inter-American Development Bank (IADB). The stated final maturity of
such security shall not exceed five (5) years from the date of purchase.
Rated in the rating category of “AA” or its equivalent or higher by a
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nationally recognized rating agency. Purchases may not exceed 30% of
the portfolio. Section 12.0 of this policy applies with respect to issuer-
concentration limits.
8.2 Investments held separately. Investments of bond funds will be made in
conformance with the trust indenture for each issue. Such investments will be
held separately when required.
9.0 Collateralization. Investments in time certificates of deposit shall be fully
insured for the entire term of the certificate by the Federal Deposit Insurance
Corporation (FDIC). The FDIC limit has been established by the Congress at
$250,000.00. Investments in time certificates of deposit, or deposits not insured in
accordance with Section 8.1.13 of this policy, in excess of the limit shall be properly
collateralized in accordance with California Government Code Section 53630 et seq.
(constituting Article 2 of Chapter 4 of Part 1 of Division 2 of Title 5 of the California
Government Code). Without limiting the foregoing, Section 53652 of the California
Government Code requires that the depository pledge securities with a market value of
at least 10% in excess of the City’s deposit as collateral in government securities, and
50% in excess of the deposit as collateral in mortgage pools. Section 53649 of the
California Government Code specifies that the City Treasurer is responsible for
entering into deposit contracts with each depository.
Investments in repurchase agreements must also be collateralized. In order to
anticipate market changes and provide a level of security for all funds, the
collateralization level will be 102% or greater of market value of principal and accrued
interest.
10.0 Unauthorized Investments/Investment Activities. Section 53601.6 of the
California Government Code prohibits the following investments: inverse floaters,
range notes, or mortgage-derived, interest-only strips.
10.1 No investment will be made that has either (1) an embedded option or
characteristic which could result in a loss of principal if the investment is held to
maturity, or (2) an embedded option or characteristic which could seriously limit
accrual rates or which could result in zero accrual periods.
10.2 No investment will be made that could cause the portfolio to be leveraged.
11.0 Investment Strategy.
11.1 Pooled Investments. A buy and hold strategy will generally be followed;
that is, pooled investments once made will usually be held until maturity. A
buy and hold strategy will result in unrealized gains or losses as market interest
rates fall or rise from the coupon rate of the investment. Unrealized gains or
losses, however, will diminish as the maturity dates of the investments are
approached or as market interest rates move closer to the coupon rate of the
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investment. A buy and hold strategy requires that the portfolio be kept
sufficiently liquid to preclude the undesirable sale of investments prior to
maturity. Occasionally, the City Treasurer may find it advantageous to sell an
investment prior to maturity, but this should be only on an exception basis and
only when it is clearly favorable to do so.
11.2 Investments held separately. Investments held separately for bond
proceeds will follow the trust indenture for each issue.
12.0 Diversification. To the extent feasible the portfolio will be diversified to avoid
incurring unreasonable and avoidable risks regarding specific security types or
individual financial institutions. In addition to the limitations on specific security types
indicated in Section 8.0 of this Investment Policy, and with the exception of U.S.
Treasury/Federal agency securities and authorized pools, for each type of investment,
no more than five percent (5%) of the City’s portfolio will be placed with a single issuer.
13.0 Maximum Maturities. To the extent possible, the City will attempt to match its
investments with anticipated cash flow requirements. Unless matched to a specific
cash flow, the City will not directly invest in securities with a final stated maturity date
of more than five (5) years from the date of purchase settlement. The intent to invest in
securities with longer maturities shall be disclosed in writing to the City Council.
13.1 Callable investments will be recorded at their maturity dates.
13.2 Investments Held Separately. Maturities for investments held
separately will conform to the trust indenture for each issue.
14.0 Selection of Financial Institutions and Broker/Dealers. Investments shall be
purchased only through well established, financially sound institutions meeting the
requirements of California Government Code Sections 53601.5 or 53601.8, as
applicable. The City Treasurer shall maintain a list of financial institutions and
broker/dealers approved for investment. All financial institutions and broker/dealers
who desire to become qualified bidders for investment transactions will be given a
copy of the City’s Investment Policy, and a return cover letter which must be signed
indicating that the investment policy has been read and understood. Qualified
financial institutions and broker/dealers must supply the City Treasurer with the
following:
14.1 Financial Institutions.
• Current audited financial statements.
• Depository contracts, as appropriate.
• A copy of the latest FDIC call report.
• Proof that commercial banks, savings banks, or savings and loan
associations are state or federally chartered.
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14.2 Broker/Dealers.
• Current audited financial statements.
• Proof that brokerage firms are members in good standing of a national
securities exchange.
15.0 Purchase, Payment, and Delivery. A competitive bid process, when
applicable or practical, will be used to place all investment transactions. This does not
apply to investment pools. Purchases on margin will not be made. Payment for
securities will be done on a Delivery Versus Payment (DVP) basis via the City’s
custodian. Delivery of securities will be made to the City in accordance with the third
party custodial agreement.
16.0 Safekeeping and Custody. All security transactions, including collateral for
repurchase agreements, entered into by the City shall be conducted on a delivery-vs.-
payment basis. All securities owned by the City will be held by a third-party custodian
meeting the requirements of California Government Code Section 53608 and
designated by the City Treasurer, and the securities will be evidenced by a monthly
statement from the custodian. Collateral for time deposits in savings and loans will be
held by the Federal Home Loan Bank of an approved Agent of Depository. Collateral
for time deposits in banks will be held in the City’s name in the bank’s Trust
Department or in the Federal Reserve Bank.
17.0 Performance Standard. Investment performance is regularly monitored and
evaluated to attain a market-average rate of return throughout budgetary and
economic cycles, commensurate with the investment risk constraints and the cash flow
needs. The rate of return of the investment portfolio will be based on the maturity
value of the investments.
18.0 Reporting. Pursuant to California Government Code Sections 53646(b) and
53607, respectively, City Treasurer may render a quarterly investment report and shall
make a monthly transactions report in accordance with subsections 18.1 and 18.2,
respectively, below.
18.1 Quarterly Investment Report. Section 53646(b) of the California
Government Code allows a quarterly investment report be submitted to the City
Council. This quarterly report shall be submitted within 30 days following the
end of the quarter covered by the report.
18.1.1 Pooled Investments. The quarterly investment report shall be
submitted by the City Treasurer within 30 days following the end of the
quarter covered by the report. The quarterly report shall include the
following elements:
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• Itemized listing of portfolio investments by type, date of maturity,
and issuer.
• Par value, dollar amount invested, amortized cost, and current
market value as of the date of the report will be given for the total
of all securities, investments, and moneys held by the City and its
component units. The source of the market values will be cited.
• Investment transactions for the reporting period.
• Statement that the investment portfolio has the ability to meet the
City’s cash flow demands for the next six (6) months, or an
explanation as to why sufficient money shall, or may not be
available.
• Statement of compliance of the portfolio with the City’s Investment
Policy. When applicable, any material exceptions will be noted.
18.1.2 Investments Held Separately. A report of investments held
separately may be rendered quarterly within 30 days following the end
of the quarter submitted as an exhibit in the City Treasurer’s quarterly
investment report. The quarterly investment report shall contain the
information required by Section 53646 when available.
18.2 Monthly Transactions Reports. Section 53607 of the California
Government Code states that the authority of City Council to invest or to
reinvest funds of the City, or to sell or exchange securities so purchased, may
be delegated for a one-year period by the City Council to the City Treasurer,
who shall thereafter assume full responsibility for those transactions until the
delegation of authority is revoked or expires, and shall make a monthly report of
those transactions to the City Council.
19.0 Short-term Borrowing. The City is permitted by law to borrow money to meet
current short-term cash flow needs. These needs may arise either because projected
cash disbursements exceed projected cash receipts, or because the City’s cash
accounts may be temporarily overdrawn due to the efforts to invest 100% of inactive
funds at all times. To provide for these contingencies the City Treasurer is authorized
to take the following actions, in each instance subject to compliance with applicable
California law authorizing and establishing limitations on such borrowings:
19.1 Short-term Loan. When there is a shortfall between projected cash
revenues and projected cash disbursements, the City Treasurer will secure a
loan in the amount that would equal the cash deficit plus projected cash
disbursements for one month. Any such loan will be repaid within one year.
19.2 Line of Credit. The City Treasurer may maintain a line of credit with the
City’s bank in an amount to cover sums temporarily overdrawn because of
efforts to invest all inactive funds at all times.
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20.0 Exceptions. Occasionally, exceptions to some of the requirements specified in
this Investment Policy may occur for pooled investments because of events
subsequent to the purchase of investment instruments, e.g. the rating of a corporate
note held in the portfolio is downgraded below an “AA” rating, or total assets in the
portfolio decline causing the percentage invested in corporate notes to rise above
30%.
State law is silent as to how exceptions should be corrected. Exceptions may be
temporary or more lasting; they may be self-correcting or require specific action. If
specific action is required, the City Treasurer should determine the course of action
that would correct exceptions to move the portfolio into compliance with State and City
requirements. Decisions to correct exceptions should not expose the assets of the
portfolio to undue risk, and should not impair the meeting of financial obligations as
they fall due. Any subsequent investments should not extend existing exceptions.
21.0 Internal Control. The City Treasurer shall establish an annual process of
independent review by an external auditor. This review will provide internal control by
assuring compliance with policies and procedures.
22.0 Investment Policy Adoption. California Government Code § 53646(a)(2)
states that a City Treasurer may annually render to the City Council a statement of
investment policy, which shall consider at a public meeting. Any change in the policy
shall also be considered by the City Council at a public meeting.
23.0 Social Responsibility. Investments in corporate securities and depository
institutions shall be made in compliance with socially responsible goals to the extent
that such investments achieve substantially equivalent safety, liquidity and yield
compared to investments permitted by state law. Investments are to be made that will
bear in mind the responsibility of city government to its citizens. Investments that
support community well-being; promote equality of rights regardless of sex, race, age,
disability or sexual orientation; and promote community economic development,
positive impact on the environment, fair workplace practices, robust corporate
governance, high product integrity and positive community involvement will be given
consideration.
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INVESTMENT POLICY
GLOSSARY
Administrator of Local Agency Security: The State office or entity designated by
California Government Code Section 53661 from time to time to approve and
authorize “agents of depositories” to hold securities that secure and collateralize local
agency deposits. Currently, the “Administrator of Local Agency Security” is the
California Commissioner of Business Oversight.
Agent of Depository: Any one of the following entities that is duly authorized
pursuant to California Government Code Section 53657 and by the Administrator of
Local Agency Security to hold securities that secure and collateralize a local agency’s
deposits, as more specifically designated by the local agency’s treasurer in the
applicable contract for deposit of the local agency’s funds under California
Government Code Section 53649: a trust company located within the State of
California, the trust department of a bank located in the State of California, or the
Federal Home Loan Bank of San Francisco.
Amortized Cost: The cost of investments adjusted for amortized premiums and
discounts. Amortized cost is used to maintain comparability with market value.
Arbitrage Regulation: The law to control the use of profit making by purchasing
securities on one market for immediate resale on another in order to profit from a price
difference.
Ask: The price at which securities are offered.
Bankers’ Acceptances (BA): A time draft of invested funds that have been drawn on
and accepted for repayment by a bank. By accepting the draft (investment of City
funds), the bank is liable for the payment at maturity. The credit worthiness of Bankers’
Acceptances is enhanced because they are secured by the issuing bank, the goods
themselves, and the importer. This financial instrument is short-term, not more than
180 days and is sold on a discounted basis.
Bear Market: A period of generally pessimistic attitudes and declining market prices.
Bid: The price offered for securities.
Bond: An interest-bearing security issued by a corporation, government,
governmental agency or other body, which can be executed through a bank or trust
company. A bond is a form of debt with an interest rate, maturity, and face value, and
is usually secured by specific assets. Most bonds have a maturity of greater than one
year, and generally pay interest semiannually.
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Bond Indenture: Written agreement specifying the terms and conditions for issuing
bonds, including; the form of the bond, the maturity date and payment schedule with
interest rate, call provisions and protective covenants, if any, collateral pledged, and
other terms. Obligations of the bond issuer are identified as well as the trustee’s
responsibility for ensuring that interest payments are made to registered bondholders.
Bond Rating: The classification of a bond’s investment quality.
Book Value: A term synonymous with amortized cost.
Broker: A broker brings buyers and sellers together for a commission paid by the
initiator of the transaction or by both sides; a broker does not position. In the money
market, brokers are active in markets, in which banks buy and sell money, and in inter-
dealer markets.
Bull Market: A period of generally optimistic attitudes and increasing market prices.
Bullet Bond: A debt instrument whose entire face value is paid at once on the
maturity date. Bullet bonds are non-callable. Bullet bonds cannot be redeemed early
by an issuer, so they pay a relatively low rate of interest because of the issuer's
exposure to interest-rate risk. Both corporations and governments issue bullet bonds,
and bullet bonds come in a variety of maturities, from short- to long-term.
Buy and Hold: Management strategy in which the intent is to hold each security until
maturity.
Callable Bond: A bond that can be redeemed by the issuer prior to its maturity.
Sometimes, a premium is paid to the bond owner when the bond is called. It is also
known as a "redeemable bond." The main cause of a “call” is a decline in interest
rates. If interest rates have declined since an issuer first issued the bonds, it will likely
want to refinance this debt at a lower rate of interest. In this case, the issuer will “call”
its current bonds and issue replacement bonds at a lower rate of interest.
Certificate of Deposit (CD): A time deposit with a specific maturity and interest rate
evidenced by a certificate. Maturities range from a few weeks to several years.
Interest rates are set by competitive forces in the marketplace. There is a penalty for
early withdrawal. CD’s in large denominations are typically negotiable.
Collateralization: Refers to securities pledged by a bank to secure deposits of public
monies. Also refers to evidence of deposit or other property that a borrower pledges to
secure repayment of a loan.
Commercial Book-Entry: The commercial book-entry system is operated by the
Federal Reserve Banks in their capacity as fiscal agents of the Treasury. Investors
who maintain their securities in this system generally have purchased their securities
through a financial institution or a government securities broker or dealer. These
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securities are recorded in the commercial book-entry system as book-entry issues held
for the account of a depository institution. The depository institution (e.g., bank,
brokerage firm or securities clearance organization) maintains records identifying the
owners of securities held in its account in the system.
Commercial Paper: A short-term IOU, or unsecured money market obligation, issued
by prime rated commercial firms and financial companies, with maturities from two (2)
days up to 270 days. A promissory note of the issuer used to finance current
obligations, and is a negotiable instrument. The notes are typically in minimum
denominations starting at $100,000.00 to comply with criteria for exemption from
registration under federal securities laws.
Commission: The broker’s or agent’s fee for purchasing or selling securities for a
client.
Coupon: The annual rate of interest that a bond’s issuer promises to pay the
bondholder on the bond’s face value or a certificate attached to a bond evidencing
interest due on a payment date.
Dealer: A dealer, as opposed to a broker, acts as a principal in all transactions, buying
and selling for their own account.
Debenture: An unsecured bond backed only by the general credit of the issuer.
Delivery Versus Payment: There are two methods of delivery of securities: “delivery
versus payment” and “delivery versus receipt” (also called free). Delivery versus
payment is delivery of securities with an exchange of money for the securities
indicating payment is due when the buyer has securities in hand or in book entry.
Discount: The difference between the cost price of a security and its value at maturity
when quoted at lower than face value. A security selling below original offering price
shortly after sale also is considered to be a discount.
Discount Securities: (1) Non-interest bearing money market instruments that are
issued at a discount and redeemed at maturity for full face value, e.g., U.S. Treasury
bills; or (2) any security sold below face value and which can be re-sold later at a
higher price
Diversification: Dividing investment funds among a variety of securities offering
independent returns.
Embedded Option: A statement within the bond structure that gives the issuer a right
to perform a specific action in the future and may alter the interest rate earned by the
bond. Examples of embedded options include the right of redemption, a put feature,
or mortgage prepayment rights in a mortgage-backed security.
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Federal Credit Agencies: Agencies of the Federal government set up to supply
credit to various classes of institutions and individuals, e.g., small business firms,
farmers, farm cooperatives, and exporters. These are securities such as the Federal
National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac), Federal Farm Credit Bureau (FFCB), Government National
Mortgage Association (GNMA) and the Small Business Administration (SBA).
Federal Funds Rate: The rate of interest at which FED funds are traded. This rate is
currently pegged by the Federal Reserve through open market operations.
Federal Open Market Committee: Consists of seven members of the Federal
Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President
of the New York Federal Reserve Bank is a permanent member while the other
Presidents serve on a rotating basis. The Committee periodically meets to set Federal
Reserve Guidelines regarding purchases and sales of Government Securities in the
open market as a means of influencing the volume of bank credit and money.
Federal Reserve System: The central bank of the United States created by Congress
and consisting of a seven member Board of Governors in Washington, D.C., twelve
Regional Banks and commercial banks that are members of the system.
Federal Deposit Insurance Corporation (FDIC): A federal agency that insures bank
deposits, currently up to $250,000.00 per depositor per insured bank.
Federal Home Loan Banks (FHLB): Eleven regional banks within the Federal Home
Loan Bank System, a government sponsored enterprise, that lend to its member
financial institutions, which generally consist of thrift institutions, commercial banks,
credit unions, insurance companies, and certified community development financial
institutions. The Federal Home Loan Banks play a role analogous to that played by the
Federal Reserve Banks vis-à-vis member commercial banks.
Fiscal Year: An accounting or tax period comprising any twelve month period. The
City’s fiscal year begins on July 1.
Interest-Only Strips: Financial instrument where investor receives only the interest,
no principal, from a pool of debt instruments such as mortgages, treasuries, or other
bonds. Issues are highly interest rate sensitive. Cash flows vary between interest
periods. As well, the maturity date may occur earlier than that stated if all loans within
the pool are pre-paid. High prepayments on underlying debt instruments can return
less to the holder than the dollar amount invested.
Inverse Floater: A bond or note that does not earn a fixed rate of interest. Rather,
the interest rate that is earned is tied to a specific interest-rate index identified in the
bond/note structure. The interest rate earned by the bond/note will move in the
opposite direction of the index, e.g. if market interest rates as measured by the
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selected index rises, the interest rate earned by the bond/note will decline. An inverse
floater increases the market rate risk and modified duration of the investment.
Laddered Portfolio: Bond investment portfolio with securities in each maturity range
(e.g. monthly) over a specified period of time (e.g. five years).
Leverage: (1) Investing with borrowed money with the expectation that the interest
earned on the investment will exceed the interest paid on the borrowed money; or (2)
the use of debt to undertake an investment or project.
Liquidity: A liquid asset is one that can be converted easily and rapidly into cash
without a substantial loss of value. In the money market, a security is said to be liquid
if the spread between bid and asked price is narrow and reasonable size can be done
at those quotes.
Local Agency Investment Fund (LAIF): The State of California Local Agency
Investment Fund held in the custody of the State Treasurer for investment and
reinvestment, created in 1977 by California Government Code Section 16429.1 to
provide an investment alternative for California’s local governments and special
districts. This is a voluntary investment program offering agencies the opportunity to
participate in a major portfolio which daily invests billions of dollars and using the
investment expertise of the State Treasurer's Office investment staff, at no additional
cost to the taxpayer. Investment in LAIF, considered a short-term investment, is readily
available for cash withdrawal on a daily basis.
Market Risk: The risk that market interest rates will rise causing a loss of value in
investments held. All investments made by the City involve a degree of market risk.
See also “Unrealized Gains (Losses).
Market Value: The price at which a security is trading and could presumably be
purchased or sold.
Maturity: The date upon which the principal or stated value of an investment becomes
due and payable.
Medium Term Corporate Notes: Corporate notes issued with fixed coupons and
maturity. A promissory note of the issuer used to finance current obligations, which is a
negotiable instrument.
Modified Duration: A measure of the sensitivity that the value of a fixed-income
security has exposure to changes in market rates of interest. Modified duration is the
best single measure of a portfolio’s or security’s exposure to market risk. Modified
duration identifies the potential gain/loss in value before the gain/loss actually occurs.
It is a prospective measurement, e.g., a modified duration of 1.5 indicates that when
and if a 1% change in market interest rates occurs, a 1.5% change in the value of a
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security will result. Investments with modified durations of one to three are considered
to be relatively conservative.
Money Market: The market in which short-term debt instruments (bills, commercial
paper, bankers’ acceptances, etc.) are issued and traded.
Negotiable Certificates of Deposit (NCD): A certificate of deposit that can be bought
and sold on the secondary market prior to maturity. Negotiable certificates of deposit
were developed so large deposits ($100,000.00 or more) could be made at a
competitive interest rate with some liquidity.
Nominee Name: Registered owner of a stock or bond if different from the beneficial
owner, who acts as holder of record for securities and other assets. Typically, this
arrangement is done to facilitate the transfer of securities when it is inconvenient to
obtain the signature of the real owner, or the actual owner may not wish to be
identified. Nominee ownership simplifies the registration and transfer of securities.
Offer: The price asked by the seller of securities. When buying securities you ask for
an offer. See Ask and Bid.
Open Market Operations: Purchases and sales of government and certain other
securities by the New York Federal Reserve Bank as directed by the Federal Open
Market Committee in order to influence the volume of money and credit in the
economy. Purchases inject reserves into the bank system and stimulate growth of
money and credit; sales have the opposite effect. Open market operations are the
Federal Reserve’s most important and most flexible monetary policy tool.
Operational Liquidity: To insure that adequate funds are available to meet
current obligations without having to sell securities prior to maturity. This dollar
amount will be set at a level equal to one and one-half times the City’s highest
level of liquidity demand within the most recent three year period.
Pooled Investments: Resources grouped for advantage of the participants.
Portfolio: Collection of securities held by an investor.
Primary Dealer: A group of government security dealers that submit daily reports of
market activity and positions and monthly financial statements to the Federal Reserve
Bank of New York and are subject to its informal oversight. Primary dealers include
Securities and Exchange Commission (SEC) registered securities broker-dealers,
banks, and a few unregulated firms.
Principal: The face or par value of an instrument.
Prudent Person Rule: An investment standard. In some states the law requires that a
fiduciary, such as a trustee, may invest money only in a legal list of securities selected
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by the state. In other states, the trustee may invest in a security if it is one, which
would be bought by a prudent person of discretion and intelligence who is seeking a
reasonable income and preservation of capital.
Range Note: Investment whose coupon payment varies (e.g. either 7% or 3%) and is
dependent on whether the current benchmark (e.g. 30 year Treasury) falls within a
pre-determined range (e.g. between 6.75% and 7.25%).
Rate of Return: The yield obtainable on a security based on its purchase price or its
current market price. This may be the amortized yield to maturity on a bond or the
current income return.
Rating: The designation used by investors’ services to rate the quality of a security’s
creditworthiness. Moody’s ratings range from the highest Aaa, down through Aa, A,
Bbb, Ba, B, etc. while S&P’s ratings range from the highest AAA, down through AA, A,
BBB, BB, B, etc.
Refinancing: Rolling over the principal on securities that have reached maturity or
replacing them with the sale of new issues. The object may be to save interest costs
or to extend the maturity of the loan.
Repurchase Agreement: A transaction where the seller (bank) agrees to buy back
from the buyer (City) the securities at an agreed upon price after a stated period of
time.
Reverse Repurchase Agreement: A transaction where the seller (City) agrees to
buy back from the buyer (bank) the securities at an agreed upon price after a stated
period of time.
Safekeeping: A service to customers rendered by banks for a fee whereby securities
and valuables of all types and descriptions are held in the bank’s vaults for protection.
See Third Party Custodian.
Secondary Market: A market made for the purchase and sale of outstanding issues
following the initial distribution.
Securities and Exchange Commission (SEC): Agency created by Congress to
protect investor’s transactions by administering securities legislation.
SEC Rule 15C3-1: See uniform net capital rule.
Spread: The difference between two figures or percentages. For example, it may be
the difference between the bid and asked prices of a quote, or between the amount
paid when bought and the amount received when sold.
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Structured Notes: Notes issued by Government sponsored enterprises and
corporations which have imbedded options in their debt structure (e.g., call features,
step-up coupons, floating rate coupons and derivative-based returns). Their market
performance is impacted by the fluctuation of interest rates, the volatility of the
imbedded options and shifts in the yield curve. This includes securities from the
Federal National Mortgage Association (FNMA) and Federal Home Loan Bank
(FHLB).
Supranational: are organizations that provide development financing, advisory and
financial services to their member countries to promote political, cultural unity, or
economic growth.
Sweep Account: Short-term income account into which all uninvested cash balances
from the non-interest bearing checking account are automatically transferred on a daily
basis. The sweep is used in conjunction with “zero balance” accounts to maximize
investment of idle cash.
Third-Party Custodian: Corporate agent, usually a commercial bank, who, acting as
trustee, holds securities under a written agreement for a corporate client and buys and
sells securities when instructed. Custody services include securities safekeeping, and
collection of dividends and interest. The bank acts only as a transfer agent and makes
no buy or sells recommendations.
Treasury Bills: A short-term non-interest bearing security that matures in one year or
less and are issued by the U.S. Treasury to finance the national debt. Bills (commonly
known as “T” bills) are sold at a discount (a price less than par (face) value) and are
paid at par value at maturity. They do not pay interest before maturity. Return is the
difference between par and discount price.
Treasury Bonds: Long-term coupon bearing U.S. Treasury securities issued as
direct obligations of the U.S. Government and having initial maturities of more than ten
years. The bonds pay a fixed rate of interest every six months.
Treasury Notes: Medium term coupon bearing U.S. Treasury securities issued as
direct obligations of the U.S. Government. Treasury notes mature in two, three, five,
seven, or ten years. The notes pay a fixed rate of interest every six months.
Trustee: A bank designated as the custodian of funds and the official representative
for bondholders.
Underwriter: A dealer bank or financial institution which arranges for the sale and
distribution of a large batch of securities and assumes the responsibility for paying the
net purchase price.
Uniform Net Capital Rule: Securities and Exchange Commission requirement that
member firms, as well as non-member broker/dealers in securities, maintain a
maximum ratio of indebtedness to liquid capital of 15 to 1: also called net capital ratio.
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Indebtedness covers all money owed to a firm, including margin loans and
commitments to purchase securities, and is one reason new public issues are spread
among members of underwriting syndicates. Liquid capital includes cash and assets
easily converted into cash.
Unrealized Gains (Losses): Increases (decreases) in the value of investments
representing the difference between the amortized cost of the investments and their
current market value. Increases (decreases) in value are caused primarily by changes
in market interest rates subsequent to purchasing the investments. Increases
(decreases) in value indicate two (2) things: 1. The portfolio has a potential gain (loss)
in principal if the securities are sold, and 2. The portfolio is over-performing
(underperforming) the current market for similar investments. An increase in value
indicates the portfolio is earning relatively more interest than current market
conditions, and a decrease in value indicates that the portfolio is earning relatively less
interest than current market conditions.
U.S. Government Agencies Debt: Instruments issued by various U.S. Government
Agencies or U.S. government-sponsored enterprises, most of which are secured only
by the credit worthiness of the particular agency.
•U.S. Agency Callable: A callable federal agency or government security gives
the issuer of the bond the right (not the obligation) to redeem it at
predetermined prices at specified times prior to maturity. Yields on callable
bonds tend to be higher than yields on noncallable, “bullet” maturity bonds
because the investor must be rewarded for taking the reinvestment risk the
issuer will call the bond if interest rates decline, forcing the investor to reinvest
the proceeds at lower yields.
•U.S. Agency Bullet: A security issued by various U.S. Government Agency
which cannot be “called” back by the issuer. The security is non-callable and
therefore the reinvestment risk is zero.
Yield: The rate of annual return on an investment expressed as a percentage. Income
yield is calculated by dividing the current dollar income by the current market price for
the security. Net yield, or yield to maturity, is the current income minus any premium or
plus any discount from par on purchase price, with the adjustment amortized over the
period from the date of purchase to the date of maturity of the instrument.
Zero Accrual Periods: A period of time in which an investment accumulates no
interest.
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