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HomeMy WebLinkAboutRES CC 2002 2026 2002 1106RESOLUTION NO. 2002 -2026 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MOORPARK, CALIFORNIA, ADOPTING THE ANNUAL STATEMENT OF INVESTMENT POLICY WHEREAS, on October 17, 2001, the City Council reviewed and adopted the City of Moorpark's investment policy; and WHEREAS, a staff report has been presented to the Council requesting adoption of the annual statement of 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. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The annual statement of investment policy attached hereto as "Exhibit A" has been reviewed in a public meeting and is hereby adopted. SECTION 2. The City Clerk shall the resolution and shall cause filed in the book of original Resc PASSED AND ADOPTED this 6th c ATTEST: Deborah S. Traffenst , City Clei certify to the adoption of Attachment: City of Moorpark Investment Policy Resolution No. 2002 -2026 Page 2 CITY OF MOORPARK INVESTMENT POLICY 1. PURPOSE This policy is intended to establish objectives and criteria for the investment of idle and surplus public funds for the City of Moorpark and the Redevelopment Agency. 2. POLICY It is the policy of the City of Moorpark to invest public funds 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. The objectives of this investment policy are, in order of priority: • Safety - Safety of principal is foremost. Investments shall be made exercising the "prudent person" standard to ensure preservation of capital in the portfolio by limiting investment risk. Since all possible cash demands cannot be anticipated, the portfolio shall consist largely of securities with active secondary or resale markets and instruments that can be easily converted to cash. The City shall seek to preserve principal by mitigating credit risk and market risk. Credit risk is defined "as the risk of loss due to failure of the issuer of a security ". Investing in the highest grade of securities and diversifying the portfolio will mitigate this risk. Market risk is defined "as the market value fluctuations due to overall changes in the general level of interest rates ". Structuring the portfolio based upon historic and current cash flow analysis and limiting the average investment to portfolio to three years will mitigate this economic cycle risk. • Liquidity - The portfolio will remain sufficiently liquid to meet unforeseen events reasonably anticipated. The cash management system is designed to monitor and forecast revenues and expenditures in order to maximize investment to the fullest extent possible. Cash management, timing of maturity and retaining investments that can be converted to cash within a 24 -hour period assure liquidity. • Return on Investment - The portfolio is designed to meet the safety and liquidity objectives first, then return, which represents a source of significant potential revenues, throughout budgetary and economic cycles. Resolution No. 2002 -2026 Page 3 3. 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. To effectively manage resources, cash is pooled separately for the City and Redevelopment Agency. The City Treasurer shall strive to invest as close to 100% of all surplus funds as possible. All pooled funds are accounted for in the Comprehensive Annual 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. 4. PRUDENCE The "prudent investor" standard shall be used and applied to the management of the overall portfolio. Persons to whom investment decisions have been delegated are trustees with fiduciary duty. The prudent investor shall act with care, skill and diligence under circumstances then prevailing as established by law. (Gov. Code, §53637). 5. DUTIES AND RESPONSIBILITIES By Council Ordinance investment authority is delegated to the City Treasurer. No person may engage in investment transactions unless directed by the Treasurer. The City Treasurer may establish accounts with well qualified, financially sound financial institutions and/or brokers /dealers for the purpose of completing investment transactions. The City Treasurer is required to annually render a statement of investment policy to the City Council to be considered at a public meeting. A copy of the investment policy shall be filed with to the California Debt and Investment Advisory Commission. The City Treasurer is required to submit the investment policy to the Commission each calendar year and within 60 days of any subsequent policy amendment. The City Treasurer is required to submit quarterly investment reports to the City Council and City Manager. The investment report shall comply with the requirements of Gov. Code, §53646. A copy of the City's second and fourth quarter investment report shall be filed with the California Debt and Investment Advisory Commission that is due within 60 days following the close of the quarter. 6. ETHICS AND CONFLICTS OF INTEREST Resolution No. 2002 -2026 Page 4 Officers and employees involved in the investment process shall refrain from personal business activity that may conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall make appropriate disclosures 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. 7. AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS No public deposit shall be made except in a qualified public depository as established by State law. The City Treasurer shall maintain a list of financial institutions authorized to provide investment services. All institutions who desire to become qualified bidders will be given a copy of the City's investment policy and verify understanding by completing the City's Investment Policy receipt. The City Treasurer will conduct an annual review of the financial condition and registrations of qualified institutions. Potential broker /dealer's will complete the City's credit worthiness questionnaire and certification information form. In addition to the questionnaire, bidders must also provide current audited financial statements, proof of National Association of Security Dealers certification, proof of California registration and verification that the firm has read and understands the City's investment policy. Completion of the questionnaire is only part of the City's certification process and does not guarantee approval. 8. AUTHORIZED AND SUITABLE INVESTMENTS The City Treasurer is empowered by California Government Code Section 53601 to invest in the following types of securities subject to the limitations set out in that section and this policy. A. General Investment Instruments: (1) State of California pooled "Local Agency Investment Fund" in accordance with the regulations governing that Fund; (2) Insured deposits: Deposits not exceeding $100,000, shall be permitted only in those financial institutions that are active members of the Federal Deposit Insurance Corporation (FDIC). The "Sweep" account for the overnight investment of idle funds shall be subject to this policy; (3) U.S. Treasury Bills and Notes: provided that the stated final maturity of such security does not exceed five (5) years from the date of purchase. Securities issued by agencies shall be limited to a maximum of 40% of the total portfolio; and (4) U.S. Government Federal Agency Issues: Mortgage backed securities with a fixed coupon, provided that the stated final maturity of such security does not exceed five Resolution No. 2002 -2026 Page 5 (5) years from the date of purchase. Securities issued by agencies shall be limited to a maximum of 40% of the total portfolio and 20% in securities issued by one federal agency. B. Collateralized Investment Instruments: (1) Time Certificates of Deposit, major Banks or Savings & Loans: Deposits should not exceed one -year maturity and shall be collateralized as specified in Section 9 of this policy and shall not exceed 30% of the portfolio. C. Bank Guaranteed Investment Instruments: (1) Banker's Acceptances, Foreign/Domestic, with a minimum rating of "Al" by Standard & Poors or "Pl" by Moody's (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 20% of the total portfolio; (2) Commercial Paper: Short-term instruments with fixed coupons, fixed maturity and no call provisions issued by corporations organized and operating within the United States, with an "A1 /P1" (prime) rating or better. Purchases may not exceed 180 days maturity or 15% of the portfolio. 9. COLLATERALIZATION Certificates of deposit shall be fully insured up to $100,000 by the Federal Deposit Insurance Corporation or the Federal Savings & Loan Insurance Corporation, as appropriate. Investments in time certificates of deposit in excess of $100,000 shall be collateralized as required by law. 10. UNAUTHORIZED INVESTMENTS /INVESTMENT ACTIVITIES Investments not authorized in Section 8 of this policy are disallowed. California Government Code §53601.6 disallows the following: inverse floaters, rage notes, or interest -only strips that are derived from a pool of mortgages. Futures, options, or any leveraged purchases, reverse - repurchases, and speculations on interest rates are specifically not allowed by this policy. 11. INVESTMENT STRATEGY 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 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. To further provide for liquidity, investments will be made only in readily marketable securities actively traded in the secondary market. Investments by trustees are required to conform to bond indenture agreements and do not follow this policy. Resolution No. 2002 -2026 Page 6 12. DIVERSIFICATION To the extent feasible the portfolio will be diversified to avoid market risk. With the exception of U.S. Treasury /Federal agency securities and authorized pools, no more than five percent (5 %) of the portfolio shall be placed with a single issuer. 13. MAXIMUM MATURITIES To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. To protect public funds from market price losses, investment maturities will be laddered. At least fifty percent (50 %) of the portfolio shall mature within one year from the date of purchase. No more than twenty -five percent (25 %) of the entire portfolio may have a maturity date between three (3) and five (5) years from the purchase date. Investments with a maturity greater than five (5) years will not be made. The average portfolio investment maturity shall be three (3) years or less. A dollar - weighted average will be used in computing the average maturity of the portfolio. 14. PAYMENT, DELIVERY, SAFEKEEPING AND CUSTODY All security transactions entered into by the City shall be conducted on a delivery- versus- payment basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by safekeeping receipts. 15. 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. 16. PERFORMANCE STANDARDS The investment portfolio will be designed to obtain a market average rate of return during budgetary and economic cycles, taking into account the City's investment risk constraints and cash flow needs. 17. INVESTMENT POLICY ADOPTION California Government Code § 53646(a) requires the City Treasurer to render to the City Council a statement of investment policy no less frequently than once a year for adoption. The city's investment policy and any modifications thereto shall be considered at a public meeting. Adoption shall be made by resolution of the City Council. Resolution No. 2002 -2026 Page 7 INVESTMENT POLICY GLOSSARY ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (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. This financial instrument is short-term, not more than 270 days. Not more than 30% of the City's portfolio may be placed with any one bank. BID: The price offered for securities. BOND INDENTURE: Written agreement specifying 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 responsibilities. 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. BUY AND HOLD: Management strategy in which the intent is to hold each security until maturity. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity and interest rate evidenced by a certificate. There is a penalty for early withdrawal. CD's in large denominations are typically negotiable. COLLATERAL: 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. 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. 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 securities are recorded in the Resolution No. 2002 -2026 Page 8 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: Short-term, unsecured promissory note of industrial corporations, utilities and bank holding company. The notes are in bearer form starting at $100,000. State law limits the City to investments in United States corporations having assets in excess of five hundred million dollars with a "A" or higher rating. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for their own account. DEBENTURE: A bond secured 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: 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. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. 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 Resolution No. 2002 -2026 Page 9 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 about 5,700 commercial banks that are members of the system. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings and loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis -a -vis member commercial banks. LEVERAGE: Investing with borrowed money with the exception that the interest earned on the investment will exceed the interest paid on the borrowed money. 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 aggregate of all funds from political subdivisions of the State of California that are placed in the custody of the State Treasurer for investment and reinvestment. This is voluntary investment program offering agencies the opportunity to participate in a major portfolio which daily invests hundreds of millions 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 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. 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): Although technically a deposit, it is a short-term note, which earns the depositor a competitive rate of return. Negotiable certificates Resolution No. 2002 -2026 Page 10 of deposit were developed so large deposits could be made at a competitive interest rate with some liquidity. NOMINEE: Registered owner of a stock or bond if difference 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 Asked 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. POOLED INVESTMENTS: Resources grouped for advantage of the participants. PORTFOLIO: Collection of securities held by an investor. A portfolio is considered "laddered" when with securities in each maturity range (e.g. monthly) over a specified period of time (e.g. five years). PRIMARY DEALER: A group of government security dealers that submit daily reports of market activity and positions and monthly financial statement 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. 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 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 seeding a reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES: A financial institution that has been approved by the Public Deposit Protection Commission to hold public deposits. These financial institutions do not claim exemption from the payment of any sales, compensating use or ad valorem taxes under State laws, and which has segregated, for the benefit of the Commission, eligible collateral having a value of not less than its maximum liability. Resolution No. 2002 -2026 Page 11 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. 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. 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), Federal Home Loan Bank (FHLB) and the Student Loan Marketing Association (SLMA). SWEEP ACCOUNT: Short-term income account into which all available cash balances from the non - interest bearing checking accounts. Transfers are automatic 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 client and buys and sells securities when instructed. Custody service includes securities safekeeping, and collection of dividends and interest. The bank acts only as a transfer agent and makes no buy or sell 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, five or ten years. The notes pay a fixed rate of interest every six months. Resolution No. 2002 -2026 Page 12 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. 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. 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. Resolution No. 2002 -2026 Page 13 STATE OF CALIFORNIA ) COUNTY OF VENTURA ) ss. CITY OF MOORPARK ) I, Deborah S. Traffenstedt, City Clerk of the City of Moorpark, California, do hereby certify under penalty of perjury that the foregoing Resolution No. 2002 -2026 was adopted by the City Council of the City of Moorpark at a regular meeting held on the 6th day of November, 2002, and that the same was adopted by the following vote: AYES: Councilmembers Harper, Mikos, Millhouse, Wozniak and Mayor Hunter NOES: None ABSENT: None ABSTAIN: None WITNESS my hand and the official seal of said City this 19th day of December, 2002. Deborah S. Traffens , City Clerk (seal)