City of Burbank
Annual Investment Policy 20232024
Adopted May 23, 2023April 9, 2024
City Council
Mayor Konstantine AnthonyNick Schultz
Vice Mayor Nick SchultzNikki Perez
Councilmember Nikki PerezKonstantine Anthony
Councilmember Tamala Takahashi
Councilmember Zizette Mullins
C
ity Manager City Treasurer
Justin Hess Krystle Ang Palmer
ATTACHMENT 2
City of Burbank 20243 Investment Policy – FINAL
ii
City of Burbank
Statement of Investment Policy
20243
Table of Contents
I. SCOPE ...........................................................................................................................................................1 II. PRUDENT INVESTMENT STANDARD .........................................................................................................2 III. OBJECTIVES..................................................................................................................................................2 IV. REPORTING ...................................................................................................................................................3 V. ETHICS AND CONFLICTS OF INTEREST ....................................................................................................4 VI. AUTHORIZED INVESTMENTS ......................................................................................................................4 VII. UNAUTHORIZED INVESTMENTS.................................................................................................................7 VIII. INVESTMENT POOLS/MUTUAL FUNDS ......................................................................................................7 IX. COLLATERALIZATION ..................................................................................................................................8 XI. PORTFOLIO MANAGEMENT ACTIVITY .......................................................................................................9 XII. SAFEKEEPING OF SECURITIES ............................................................................................................... 10 XIII. INVESTMENT CONTROLS ......................................................................................................................... 10 XIV. DELEGATION OF AUTHORITY .................................................................................................................. 10 XV. POLICY REVIEW ........................................................................................................................................ 11 XVI. INDEMNIFICATION OF INVESTMENT OFFICIALS ................................................................................... 11 XVII. ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) RESPONSIBILITIES ..................................... 11
Glossary of Investment Policy Terms ............................................................................................................. 12
EXHIBIT A: LIQUIDITY .................................................................................................................................... 16
EXHIBIT B: ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT CODE (AS OF JANUARY 1, 20243) APPLICABLE TO ALL
AGENCIES……………………………………………………………17
EXHIBIT C:LIST OF QUALIFIED BROKERS FROM WHICH THE CITY MAY PURCHASE INVESTMENTS 18
City of Burbank 20243 Investment Policy – FINAL
1 CITY OF BURBANK
STATEMENT OF INVESTMENT POLICY
20243
INTRODUCTION
This statement is intended to establish the policies for prudent investment of the City’s funds, and to provide guidelines for suitable investments.
It is the policy of the City of Burbank to invest public funds not required for immediate day -to-day operations in safe and liquid investments that conform to all state statutes governing the investment of public funds.
The investment policies and practices of the City of Burbank are based upon Federal, State and local law, and prudent money management. The primary goals of these policies are:
1. To assure compliance with all Federal, State and local laws governing the investment of monies under the control of the City Treasurer.
2. To maintain the principal value of assets entrusted to this office and provide adequate liquidity to meet operating expenditures.
3. Within constraints of safety and liquidity, the City’s investment funds will be managed in a prudent fashion, which will generate an appropriate rate of return based on market conditions and within the parameters of this Statement of Investment Policy and the guidelines for suitable investments.
I. SCOPE
In accordance with the City of Burbank Charter Section 13 and subsequent ordinance, the City Treasurer is authorized to invest the City’s funds in accordance with California Government Section 53600 et seq.
This policy applies to the investment of all funds, excluding the investment of debt funds and employees’ retirement funds, which are outside the scope of this policy. The investment of debt proceeds and retirement funds shall be governed by the relevant documents.
All monies entrusted to the City Treasurer can be pooled in a diversified portfolio unless specifically exempted. Investments made on a pooled basis may include investments of the City and its component units, which include the City of Burbank, the Parking Authority, the Youth Endowment Services Fund (YES), the Public Financing Authority, and the Housing Authority. The funds attributed to the Successor Agency for the Redevelopment Agency are being held in separate accounts and are not being pooled. The City’s Comprehensive Annual Financial Report identifies the fund types incorporated under the City’s investment pool as follows:
• General Fund
• Special Revenue Funds
• Capital Project Funds
• Enterprise Funds
• Internal Service Funds
• Fiduciary-Agency Funds
• Any new funds created by the City Council, unless specifically exempted
City of Burbank 20243 Investment Policy – FINAL
2 II. PRUDENT INVESTMENT STANDARD
Management of the City’s investments is governed by the Prudent Investor Standard as set forth in California Government Code Section 53600.3:
“…all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard.”
When investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, a trustee 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 City, that a prudent person in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and to meet the liquidity needs of the City. Within the limitations of this section and considering individual investments as part of an overall strategy, the City Treasurer is authorized to acquire investments as authorized by law.
All participants in the investment process shall act responsibly as custodians of the public trust. The Treasurer and City Staff shall recognize the investment portfolio is subject to public review and evaluation.
The overall program shall be designed and managed with a degree of professionalism that is wor thy of the public trust.
III. OBJECTIVES
A. Safety of Principal
Safety of Principal is the foremost objective in the management of City investment funds. The overriding objective with any investment security transaction is to ensure that there is no loss of principal, especially a loss resulting from the default of an issuer or security. In addition, security transactions will be conducted to ensure that City funds, or investments, are not at risk from broker - dealer default. At the same time it is understood that there may be fluctuations in the value of the City’s investments because of changes in interest rates. Nonetheless City funds will be managed in such a fashion that adverse changes in value due to interest rate or market changes are minimized. Overall, the City will seek to preserve principal by avoiding credit risk and minimizing market risk.
1. Credit Risk. Credit risk is defined as the risk of loss of some or all of the invested principal and/or interest because of the failure or default of an issuer or security. City funds shall be managed so that credit risk is minimized. One method of minimizing this type of risk is to adhere to California State Statutes and by diversifying the Pool so that the failure of any one issuer would not unduly impair the overall value of the City’s funds.
2. Market Risk. Market price volatility shall be controlled through maturity diversification, as well as ensuring that adequate liquidity is available to meet cash flow requirements, thereby precluding the need to sell instruments at a market loss.
B. Liquidity
The City’s funds represent an important source of cash for the City’s day-to-day operations. The investment of the City’s funds will be structured in such a way that they provide regular, periodic cash flow from maturing securities and coupon payments. In addition, it is also important that the investment of the City’s funds be undertaken so that a substantial portion of any securities purchased incorporates a high degree of secondary market liquidity. This is intended to be a “secondary” source of liquidity in the event there is an unusual need for cash. In such a situation, a security with good secondary liquidity can be sold immediately and with minimal loss, even under adverse circumstances. In managing City funds for cash flow needs, it is generally not the intention to liquidate a security prior to maturity in order to meet expected cash flow needs .
City of Burbank 20243 Investment Policy – FINAL
3 However, it is important that when exceptional conditions require, and there are unexpected cash flow demands, a security sale can be done quickly.
Current liquidity is defined here as all investments maturing within one year and real estate taxes due from the county in April and December. The liquidity needed monthly has been calculated as 8 weeks of annual appropriations less purchased power (see Exhibit A). The Treasurer’s investment advisory committees will monitor the liquidity at their semi-annual meetings.
To the extent possible, investments will be made so that maturities are compatible with cash flow requirements.
C. Maturity
Maturities of investments will be selected based on cash flow requirements. Current and expected yield curve analysis will be monitored, and the portfolio will be invested accordingly. Investments will have a maximum remaining maturity of only the limitations imposed by government statute or five (5) years from purchase, whichever is shorter. An investment’s term or remaining maturity shall be measured from the settlement date to final maturity. Investments shall not have a forward settlement date exceeding 45 days from the time of investment. The weighted average maturity (or duration) of the pooled portfolio shall reflect the liquidity needs and risk profile that the Treasurer deems appropriate. The Treasurer may state the current portfolio target maturity in the Investment Guidelines that accompany this Investment Policy.
D. Diversification
The City’s investment pool will be diversified to avoid incurring unreasonable and avoidable risks.
The investments will be diversified by security type, maturities of those investments, and institutions in which those investments are made.
E. Performance/Yield
Investment return or yield becomes a consideration only after the basic requirements of investment safety and liquidity have been met. The City’s pool shall be designed to attain a competitive yield or rate of return. Periodically the portfolio yield will be compared to the twelve-month moving average of the two-year Constant Maturity Treasury Index (CMT).
IV. REPORTING
A. Investment Advisory Committees
The City Treasurer shall have an independent investment advisory committee. The appointees to the Treasurer’s Oversight Review Committee (TORC) shall exhibit, through a combination of experience and education, sufficient knowledge of Investment Instruments as to provide contributory advice to the meetings of the TORC.
The TORC shall meet at least semi-annually to review the status of the investment pool and to discuss investment portfolio management strategy. The intended purpose of the TORC is to serve in an advisory capacity to the City Treasurer. Serving in this advisory capacity, the TORC will serve an oversight role to the function of City Treasurer portfolio management, ensuring that the investment decisions of the City Treasurer are made in compliance with established investment policy guidelines.
Also, the Fiscal & Treasurer’s Review Group (F&TRG), which consists of the Financial Services Director, Assistant City Manager, Chief Financial Officer, BWP and the two council liaisons to the Treasurer’s office, will also meet at least semi-annually to review the portfolio report that will be presented to City Council.
City of Burbank 20243 Investment Policy – FINAL
4 B. Monthly and Semi-Annual Reporting
The City Treasurer shall continue to submit a monthly report to the Mayor, the Council liaisons to the Treasurer’s office, the City Manager, the TORC, and the F&TRG.
This report will list each investment by type, description, rating, par value, issuing entity, coupon, maturity, book yield, market price, market yield, market value, book value, and any unrealized gain or loss. The report will also contain information about any changes in the credit standing of securities, issuers or guarantors of City funds. This requires the City Treasurer to monitor the credit standing of each security. For depository funds, the report will list each deposit by amount (par), the financial institution where funds are deposited, the maturity, the rate and the degree of collateralization.
For funds, including LAIF, the report will list the name of the fund, type of fund, the amount invested (par), the coupon and/or yield, the average maturity, rating and where appropriate, issuer/manager of the fund.
The report will contain totals or weighted averages where appropriate for each of the categories listed and any other data required by the City Council.
The City Treasurer shall make semi-annual presentations to the Treasurer’s Oversight Review Committee (TORC), the Fiscal & Treasurer’s Review Group (F&TRG), and to the City Council analyzing the portfolio and investment market trends.
V. ETHICS AND CONFLICTS OF INTEREST
All participants in the City’s investment process shall seek to act responsibly as custodians of the public trust. The City Treasurer, or when appropriate the Financial Services Director, if the City Treasurer is absent, shall avoid any transaction that might impair public confidence in the City’s ability to govern and manage the investment of public funds in an effective manner. The City Treasurer, or other official charged with the responsibility of making investment decisions, shall have no vested interest in any investment being made involving public funds of the City, and shall gain no financial benefit from such investment decisions. Employees and investment officials shall disclose to the City Manager any material financial interest that could be related to the performance of the City’s investment policy annually or as necessary.
VI. AUTHORIZED INVESTMENTS
The City shall not enter into any investment transaction that might impair public confidence in the Burbank City government. The City is governed by the California Government Code, Sections 53600 et seq. The maximums refer to the maximum allowable percentage of the City’s investment funds, which can be invested in each category. Generally, investments will stay well within these maximums.
A. United States Treasury Obligations Maximum of 100%
United States Treasury Bills, Notes and Bonds, or those for which have an explicit guarantee of the full faith and credit of the United States for payment of principal and interest. This investment is both safe and liquid. There is no percentage limitation of the pool that can be inv ested in this category, but there are maturity limitations.
B. U.S. Agencies and/or GSE Obligations Maximum of 90%
Government National Mortgage Association (GNMA), the Federal Farm Credit Bank System (FFCB), the Federal Home Loan Bank Board (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC), the Federal Agricultural Mortgage Corporation (FAMCA), and the Federal City of Burbank 20243 Investment Policy – FINAL
5 National Mortgage Association (FNMA) and those insured by the Federal Housing Administration (FHA). At present the credit standing of GSEs is an implied guarantee on the part of the U.S.
Treasury. This guarantee is second only to the explicit guarantee of the U.S. Treasury. The “prudent investor” rule shall apply for a single agency name, as part of the overall diversification objective in management of City funds.
C. Non-negotiable Certificates of Deposit Maximum of 40%
The City may invest in non-negotiable time deposits collateralized in accordance with the California Government Code, in those banks and savings institutions that meet the requirements for investment in certificates of deposit. All investments in time deposits must be properly collateralized in accordance with Section 53652 of the California Government Code. Under Section 53653 of the California Government Code, treasurers may waive collateralization requirements for that portion of deposits insured pursuant to federal law, such as Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance. The City Treasurer will periodically monitor, on a discretionary yet diligent basis, the operating performance of all financial institutions holding City time deposits, to ensure compliance to collateralization requirements.
D. Negotiable Certificates of Deposit Maximum of 30%
The City may invest in negotiable certificates of deposit issued by a nationally or state- chartered bank, a savings association or a federal association (as defined by Section 5202 of the California Financial Code), a state or federal credit union, or by a federally licensed or state licensed branch of a foreign bank. All certificates of deposit must be properly collateralized in accordance with Section 53652 of the California Government Code or fully insured by the FDIC or the NCUA Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
The Certificates of Deposit must comply with Government Code Section 53601(i). The City Treasurer will periodically monitor, on a discretionary yet diligent basis, the operating performance of all financial institutions that City funds are invested in.
E. Placement Service Certificates of Deposit Maximum of 30%
The City may place monies on deposit with a nationally or state chartered commercial bank, savings bank, savings and loan association, or credit union in California to invest funds, in compliance with Section 53601.8 of the California Government Code, who then engages a private sector entity to help place its local agency deposits with select depository institutions. The full amount of each deposit placed, as well as the interest that accrues on each such deposit, shall at all times be insured by the FDIC or the NCUA.
F. Local Agency Investment Fund Maximum of $75 million per account
The City may invest in the Local Agency Investment Fund (LAIF) established by the State Treasurer for the benefit of local agencies up to the maximum permitted by State law.
G. Medium-Term Notes Maximum of 30%
Medium-term notes with a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment shall be rated in a rating category of “A” or its equivalent or better by two of the three major nationally recognized rating services. No more than thirty percent of the pool may be invested in medium-term notes. No more than 5% of the pool may be invested in notes issued by one corporation. Purchases will not be allowed for those issuers who are currently under review by one of the major rating agencies for possible downgrade. Investments that are 144A shall not exceed 5% of the total portfolio.
H. Money Market and Money Market Mutual Funds Maximum of 20%
City of Burbank 20243 Investment Policy – FINAL
6 The money market funds must have an average weighted maturity of ninety days or less, and abide by SEC (Securities & Exchange Commission) regulations; funds must receive the highest ranking by two of the three largest nationally recognized rating agencies OR retain an investment advisor registered or exempt from registration with the SEC with not less than least five years’ experience managing money market funds in excess of $500 million. While similar to mutual funds, exchange-traded funds (ETFs) are not specifically addressed in Section 53601 nor contemplated under 53601(l); therefore, ETFs are not a permissible investment for local agencies.
I. State and Local Agency Obligations Maximum of 30%
These bonds, notes, warrants or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the local agency rated “A” or better (or its equivalent). In addition, the Fund is further authorized to purchase bonds and notes of any of the other 49 United States that are rated “AA” or better (or its equivalent) including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states. These shall be limited to 60 months maximum maturity. No more than 30% of the cost value of the portfolio at time of purchase is to be invested in municipal bonds. The total value invested in any one issuer shall not exceed 5% of the issuer’s net worth. Purchases of bonds from local agencies or states on negative credit watch by a major rating agency shall be prohibited.
J. Commercial Paper Maximum of 25%
Eligible commercial paper shall be of “prime” quality of the highest ranking or the highest letter and number rating as provided by a Nationally Recognized Statistical Rating Organization, shall not exceed 270 days maturity and shall not exceed 25% of the portfolio. No more than 5% of the total assets of the portfolio may be invested in any one issuer’s commercial paper.
K. Repurchase Agreements Maximum of 25%
The City may invest in repurchase agreements with banks and primary dealers with whom the City has entered into a master repurchase agreement that specifies terms and conditions of repurchase agreements. No more than 25% of the cost value of the portfolio may be invested in repurchase agreements at any time. The maturity of repurchase agreements shall not exceed 90 days.
The cost value of securities used as collateral for repurchase agreements shall be monitored daily by the Treasurer and will not be allowed to fall below the margin ratios specified in Section IX of this Policy.
L. Supranational Obligations Maximum of 15% Supranational obligations are defined as United States dollar denominated senior unsecured, unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter- American Development Bank (IADB), with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated “AA” or better by at least two Nationally Recognized Statistical Rating Organizations. There is a 15% limit on the percentage of the portfolio that can be invested in this category.
M. Joint Powers Authority Pool Maximum of 25% Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 of the California Government Code that invests in the securities and obligations authorized in subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (2) The adviser has not less than five years of experience City of Burbank 20243 Investment Policy – FINAL
7 investing in the securities and obligations authorized in subdivisions (a) to (q), inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). In the event of a change in the joint powers authority’s investment adviser, the City will reevaluate its investment.
Summary of Maximum Percentage Limitations of Investments by Investment Type
The following summary of maximum percentage limits, by instrument, is established for the City’s total pooled funds portfolio:
Investment Type Percentage
U.S. Treasury Bills, Notes and Bonds 0 to 100%
U.S. Government Agency Obligations 0 to 90%
Non-negotiable Certificates of Deposit 0 to 40%
Negotiable Certificates of Deposit 0 to 30%
Placement Service Certificates of Deposit 0 to 30%
Local Agency Investment Fund $75 million per account
Medium-Term Notes 0 to 30%
Money Market and Money Market Mutual Funds 0 to 20%
State and Local Agency Obligations 0 to 30%
Commercial Paper 0 to 25%
Repurchase Agreements 0 to 25%
Supranational Obligations
Joint Powers Authority Pool
0 to 15%
0 to 25%
“Accredited Investor” and “Qualified Institutional Buyer” Status
The City of Burbank is considered an “accredited investor” and “qualified institutional buyer” under the Securities and Exchange Commission’s (SEC) adopted amendments to its rules and in Rule 144A under the Securities Act of 1933.
Legislative Changes
Any State of California legislative action, that further restricts allowable maturities, investment type or percentage allocations, will be incorporated into the Investment Policy and supersede any and all previous applicable language (see Exhibit B, State of California Statutes applicable to Municipal Investments).
VII. UNAUTHORIZED INVESTMENTS
Ineligible Investments Prohibited
Ineligible Investments include securities not listed above, as well as inverse floaters, range notes, interest only strips derived from a pool of mortgages (collateralized mortgage obligations), and any security that could result in zero interest accrual if held to maturity, as specified in Section 53601.6.
VIII. INVESTMENT POOLS/MUTUAL FUNDS
A thorough investigation of any government sponsored pool and/or mutual fund is required prior to investing and on a continual basis. There shall be a questionnaire completed which will provide the following information:
A. A description of eligible investment securities, and a written statement of investment policy and objectives.
B. A description of how interest is calculated and distributed, and how gains and losses are treated.
City of Burbank 20243 Investment Policy – FINAL
8 C. A description of how the securities are safeguarded (including the settlement proc esses), and how often the securities are priced and the program audited.
D. A description of who may invest in the program, how often, and what size of deposits and withdrawals are allowed.
IX. COLLATERALIZATION
Collateral for Non-negotiable Certificates of Deposit and Negotiable Certificates of Deposit must comply with California Government Code Section 53652. In addition, if the Certificate of Deposit is not FDIC or NCUA insured or goes over the FDIC/NCUA $250,000 limit, collateral is required equal to 110 percent of principal. Collateral for Repurchase Agreements shall be 102 percent of market value of principal and accrued interest. Collateral can be either U.S. Treasury securities or Federal Agency securities. This will provide an additional level of security due to inevitable changes in market conditions.
Section 53649 of the California Government Code specifies that the City Treasurer is responsible for entering into deposit contracts with each depository. Investments held with Third Parties holding collateral for the investment shall be properly collateralized in accordance with collateralization requiremen ts of the California Government Code.
X. QUALIFIED DEALERS AND INSTITUTIONS
The City shall transact business with nationally or state chartered banks, federal or state savings and loan institutions, registered primary investment securities dealers and qualified regional dealers. The purchase by the City of any investment other than those purchased directly from the issuer, shall be purchased either from an institution licensed by the State as a broker-dealer, as defined in Section 25004 of the Corporations Code, who is a member of the National Association of Securities Dealers, or a member of a Federally regulated securities exchange, a National or State-Chartered Bank, a Federal or State Association (as defined by Section 5102 of the Financial Code), or a brokerage firm designated as a Primary Government Dealer by the Federal Reserve Bank.
To continue to maintain regional broker/dealers with quality services, expertise, and credit worthiness, the Treasurer may, on a selective basis, have both primary dealers and “qualified regional” dealers.
A “qualified regional” dealer must demonstrate the following requirements:
• The “qualified regional” firm must be able to demonstrate their services and/or expertise are not currently being provided by a primary broker/dealer and will specifically and immediately benefit the City.
• In addition to qualifying under the Securities and Exchange Commission Rule 15C3- 1, (uniform net capital rule), the regional dealer does not self-clear securities. The clearinghouse through which all transactions are cleared and settled has a minimum investment grade rating of A or better by S&P or Moody.
• The representatives chosen to work with the Treasurer are institutional brokers familiar with and experienced in the specific needs of California public funds. “Familiar” implies an institutional broker who spends the majority of their time and effort working with public funds.
All institutions which the City Treasurer wishes to do business with shall be investigated to determine if they are adequately capitalized, have pending legal action against the firm or the individual broker, make markets in the securities appropriate to the City’s needs, and agree to abide by the conditions set forth in the City of Burbank’s Investment Policy.
The City Treasurer shall annually send a copy of the current Investment Policy to all broker/dealers approved to do business with the City. Confirmation is required of broker dealers of receipt of this policy and shall be considered evidence that the dealer understands the City’s investment policies and intends to sell the City only appropriate investments authorized by this investment policy.
City of Burbank 20243 Investment Policy – FINAL
9 To further ensure that investments are purchased only through well established, financially sound institutions, the City Treasurer shall maintain a list of financial institutions and brokers approved for the conduct of investment transactions. All financing institutions and brokers who desire to become qualified bidders for investment transactions will be given a copy of the City’s Investment Policy, and in turn must supply the City Treasurer with the following:
• Current audited financial statements (within 120 days of Fiscal Year End) • Current FINRA report for both the firm and broker(s)
• Depository contracts, as appropriate
• A copy of the latest FDIC call report or the latest FHLBB report, as appropriate • Proof that commercial banks, savings banks, or savings and loan associations are state or federally chartered
• Proof that brokerage firms are members in good standing on a national securities exchange • Certification of receipt and review of the City’s Investment Policy and agreement to comply with the provisions outlined in the Investment Policy
Commercial banks, savings banks, and savings and loan associations must maintain a minimum net worth to asset ratio of three percent (total regulatory net worth divided by total assets), and must have had positive net earnings for the last reporting period.
A list of qualified brokers from which the City may purchase investments will be submitted annually by the City Treasurer for approval by the City Council as part of the annual review of investment str ategy (see Exhibit C).
In the event the Treasurer deems it necessary to add/modify a broker during the year between Investment Policy adoptions (for example, in the event an approved broker changes firms or the Treasurer finds it beneficial to expand coverage without waiting until the following year’s Investment Policy is adopted), the Treasurer may add/modify a broker by qualifying said broker and their firm by performing the required due diligence. Any mid-year broker changes would be communicated to the City Council for review prior to moving forward with opening the account; changes would be reflected in Exhibit C: List of Qualified Brokers from Which the City May Purchase Investments, of the next Investment Policy proposed/adopted.
XI. PORTFOLIO MANAGEMENT ACTIVITY
The investment program shall seek to augment returns consistent with the intent of this policy, identified risk limitations and prudent investment principals. These objectives will be achieved by use of the following strategies.
Active Portfolio Management – Through active fund and cash flow management taking advantage of current economic and interest rate trends, the pool yield may be enhanced with limited and measurable increases in risk by extending the weighted maturity of the total pool.
Portfolio Maturity Management – When structuring the maturity composition of the pool, the City Treasurer shall evaluate current and expected interest rate yields and necessary cash flow requirements.
It is recognized that in normal market conditions, longer maturities produce higher yields. However, the securities with longer maturities also experience greater price fluctuations when the level of interest rates change.
Rebalancing – From time to time, the City Treasurer may find it necessary to adjust the average maturity, or cash flow of the City’s investment funds. To this end, transactions may be considered which entail the sale of securities and the purchase of others. These transactions will be accomplished with no increase in either credit or market risk factors of the sold/purchased securities. A transaction that improves current and future investment yield may be selected even if a transaction results in an accounting loss. Documentation for rebalancing transactions will be included in the City’s investment file documents.
Competitive Bidding – To ensure that the purchase of City investments is obtained in the most cost effective and efficient manner, the City Treasurer will encourage competitive bidding for City investment transactions. On an annual basis, the City Treasurer will accept applications from qualified members of the investment broker-dealer community interested in bidding on City investment instruments. The City City of Burbank 20243 Investment Policy – FINAL
10 Treasurer shall establish, on an annual basis, a limited array of qualified broker -dealers to serve the City’s investment opportunities. Selection criteria for inclusion on the City’s annual list of broker-dealers will be based upon merit, expertise, and performance.
All investment transactions except “new issue securities” will be conducted on a competitive basis which can be executed through a bidding process involving at least three separate brokers/financial institutions or validated through the use of Bloomberg. A new issue security denotes a security that is originally brought to market.
Competitive bidding for security rebalancing transactions is also suggested; however, it is understood that certain time constraints and broker inventory limitations exist which would not accommodate the competitive bidding process. If a time or inventory constraining condition exists, the pricing of the swap should be verified to current market conditions and documented for auditing purposes.
The City Treasurer shall maintain an Investment Procedures Manual to ensure the accurate and timely processing, clearance, and settlement of all City Investments. This manual provides current details with respect to operational procedures associated with the placement and clearance of all City Investments. To ensure the accuracy and timeliness of this Investment Procedures Manual, the manual will be reviewed on an annual basis by the City’s independent auditors.
Credit Downgrade Provision
In the event any investment, including GSE issues, is placed on negative watch for a possible downgrade and/or downgraded, the City Treasurer shall immediately review the security(s) in question. The review shall consider whether a sale should take place based on such factors as expected rating, time to maturity, potential loss of principal, and the possible gain or loss should a sale take place, as well as the impact on the overall performance of the City’s invested funds. Information regarding rating changes with respect to any investment, including placement on negative outlook, negative watch and/or downgrade, will be included in the Treasurer’s Monthly Report.
XII. SAFEKEEPING OF SECURITIES
To protect against fraud, embezzlement, or potential losses caused by collapse of individual securities dealers, all securities owned by the City shall be held in safekeeping by a third party bank trust department, acting as agent for the City under the terms of a custody agreement or professional services agreement (repurchase agreement collateral). All trades executed by a dealer will settle delivery vs. payment (DVP) through the City’s safekeeping agent.
Upon purchase, sale, or maturity of investment securities, standing settlement instructions are provided to the servicing banks and broker/dealers involved in the transactions. Adherence to these standing settlement instructions ensures accurate and timely settlement of investment security transactions .
Standing settlement instructions are restricted in nature, ensuring investment settlements are with established institutions.
XIII. INVESTMENT CONTROLS
The City Treasurer will maintain a system of internal investment controls and segregations of responsibilities of investment functions in order to assure an adequate system of internal control over the investment function. Investment controls shall include the establishment of an annual process of independent review of investment transactions by an external auditor. This review will provide internal control by assuring compliance with investment policies and procedures, the results of which will be presented to the City Council at a regularly scheduled Council meeting.
XIV. DELEGATION OF AUTHORITY
City of Burbank 20243 Investment Policy – FINAL
11 The Charter of the City of Burbank and the authority granted by the City Council assign the responsibility of investing unexpended cash to the City Treasurer. In the absence of the City Treasurer, the authority to execute investment transactions will be restricted to the Financial Services Director, after notification to the City Council.
XV. POLICY REVIEW
This Investment Policy shall be reviewed annually by the Treasurer’s Oversight Review Committee (TORC) and the Fiscal & Treasurer’s Review Group (F&TRG) to ensure its consistency with the overall objectives of preservation of PRINCIPAL, LIQUIDITY AND YIELD, its relevance to current financial and economic trends, and ability to meet the cash flow operational needs of the City. As part of the City Council’s annual review of the City’s Statement of Investment Policy, and in accordance with the requirements of the California Government Code, the City Council will adopt the City’s Statement of Investment Policy, inclusive of amendments, on an annual basis.
XVI. INDEMNIFICATION OF INVESTMENT OFFICIALS
Any investment officer exercising his or her assigned authority with due diligence and prudence, and in accordance with the City’s Investment Policy, will not be held personally liable for any individual investment losses or for total portfolio losses.
XVII. ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) RESPONSIBILITIES
The City of Burbank recognizes its responsibility to positively impact society and that its portfolio is ultimately tied to the long-term sustainability of corporations and entities in which the City invests. While Safety, Liquidity, and Yield remain the City’s primary investment objectives, all else being equal and acting under statutory investment limitations, the City affirms its commitment to the consideration of ESG criteria in evaluating securities.
While the City’s portfolio is not formally classified as an ESG portfolio, the City encourages investments in entities that support the betterment of communities, while still fulfilling its fiduciary responsibilities under the prudent investor standard. Examples of considerations are as follows.
1. Encourage investments in entities that promote environmental stewardship, taking into account climate change, carbon emissions, pollution, biodiversity, deforestation, and food and water waste
2. Encourage investments in entities that value health and safety, including clean air and water, nutrition and human health, and protections for life, resources, and property
3. Encourage investments in entities that support fairness and treating people equally without discrimination related to sex, race, age, disability, color, religion, veteran status, genetic information, and other protected classes
4. Encourage investments in entities that provide customer satisfaction through high quality products, excellent service, value for money, and community relations initiatives
5. Encourage investments in entities that uphold good governance and respect for the law, through proper internal policies and controls, transparency, and protections for stakeholder rights
6. Encourage impact investing in the Burbank community through local banks and credit unions that can provide funds to homeowners and small businesses
7. No investments are to be made in bonds issued by foreign countries or foreign corporations that support terrorism and genocide
City of Burbank 20243 Investment Policy – FINAL
12 CITY OF BURBANK
Glossary of Investment Policy Terms
Accredited Investor: Under the SEC amendments, this refers to any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered.
Accrued Interest: Interest earned but not yet received.
Active Deposits: Funds which are immediately required for disbursement.
Agencies: Agencies of the Federal government set up to supply credit to various classes of institutions (EG S&Ls, small business firms, students, farmers, housing agencies, etc.). Examples include Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Federal Home Loan B ank (FHLB) and Federal Farm Credit Bank (FFCB).
Amortization: An accounting practice of gradually decreasing (increasing) an asset’s book value by spreading its depreciation (accretion) over a period of time.
Asked Price: The price a broker dealer offers to sell securities.
Bankers’ Acceptance (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.
Basis Point: 1/100
th of 1 percent of yield. If a yield increases from 8.25% to 8.50%, the difference is referred to as a 25 basis point increase.
Bear Market: A period of generally pessimistic attitudes and declining market prices.
Bid Price: The price a broker dealer offers to purchase securities.
Bond: A financial obligation for which the issuer promises to pay the bondholder a specified stream of future cash flows, including periodic interest payments and a principal repayment.
Book Value: The value at which a debt security is shown on the holder’s balance sheet. Book value is acquisition cost less amortization of premium or accretion of discount.
Broker or Municipal Securities Broker: A Person or Firm which acts as an intermediary by purchasing and selling securities (in the case of a "municipal securities broker," municipal securities) for others rather than for its own account. For purposes of the Securities Exchange Act of 1934 the term does not include a dealer bank.
The term is also colloquially used to refer to a municipal securities broker's broker.
Broker/Dealer: A general term for a securities firm which is engaged in both buying and selling securities on behalf of customers and also buying and selling on behalf of its own account. The term would not be used to refer to a dealer bank or a municipal securities broker's broker.
Bull Market: A period of generally optimistic attitudes and increasing market prices.
Callables: Securities that the issuer has the right to redeem prior to maturity.
City of Burbank 20243 Investment Policy – FINAL
13 Certificate of Deposit: A time deposit with a specific maturity evidenced by a Certificate. Large- denomination CDs are typically negotiable.
Collateral: Securities, evidence of deposit or pledges to secure repayment of a loan. A lso refers to securities pledged by a bank to secure deposit of public monies.
Comprehensive Annual Financial Report (CAFR): The official annual financial report for the City. It includes combined statements and basic financial statements for each individual fund and account group prepared in conformity with Generally Accepted Accounting Principles (GAAP).
Constant Maturity Treasury (CMT): An average yield of a specific Treasury maturity sector for a specific time frame. This is a market index for reference of past direction of interest rates for the given Treasury maturity range.
Coupon: The annual rate of interest that a bond’s issuer promises to pay the bond holder on the bond’s face value.
Credit Analysis: A critical review and appraisal of the economic and financial conditions or of the ability to meet debt obligations.
Credit Risk: Default Risk. The risk that an investor will not receive scheduled principal or interest payment. "Safety of Principal is foremost objective of Investment Program.
Current Yield: The interest paid on an investment expressed as a percentage of the current price of the security.
Delivery vs. Payment: Delivery of securities with a simultaneous exchange of money.
Demand Account: An account with a commercial bank from which check withdrawals may be made at any time.
Discount: The amount by which the par value of a security exceeds the price paid for the security .
Discount Security: A security which can be purchased for less than the par value.
Environmental, Social, and Governance (ESG): Refers to a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
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.
Governmental Accounting Standards Board: The independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments.
Liquidity Risk: The risk that funds will not be available for payments of liabilities without prematurely liquidating a security at a loss.
Local Agency Investment Fund (LAIF): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment.
Market Value: The amount a seller may expect to obtain in the open market.
City of Burbank 20243 Investment Policy – FINAL
14 Market Risk: The risk that the change in value of a security or portfolio due to a change in the level of interest rates will significantly change the market value of the security or portfolio.
Medium-Term Notes: All corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S.
Money Market: The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded.
Nationally Recognized Statistical Rating Organization (NRSRO): A rating organization designated by the SEC as being nationally recognized
Offer: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.)
Par: 100% of face value of a security.
Par Bond: A bond selling at its face value.
Placement Service Certificates of Deposit: Deposits placed at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of deposits.
Portfolio Duration: Indicator of the effect of an interest rate change on a bond price. The longer the duration, the greater the expected change in a portfolio's value when interest rates change .
Portfolio Yield: The percentage of interest earned on a portfolio of securities.
Premium: The amount by which the price paid for a security exceeds the security's par value.
Primary Dealer: A group of government securities dealers that serve as trading counterparties of the New York Fed in its implementation of monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed’s trading desk with market information and analysis helpful in the formulation and implementation of monetary policy. Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders.
Premium Security: A security that can be purchased at a price in excess of the par value .
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 list of securities selected by the custody state-- the so-called legal list. 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.
Qualified Institutional Buyer: With the SEC’s amendments of Rule 144A, this includes any institutional investors under the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer,” provided they satisfy the $100 million threshold.
Rebalancing: The process of realigning the proportions of assets in a portfolio as needed.
Reinvestment Risk: The risk that a fixed-income investor will be unable to reinvest income proceeds from a security holding at the same rate of return currently generated by the holding.
Repurchase Agreement (Repo): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security “buyer” in effect lends the “seller” money for the period of the agreement, and the terms of the agreement are structured to compensate them for this.
City of Burbank 20243 Investment Policy – FINAL
15 Supranational Obligations (Supranationals): Development banks that share the same goal of providing an improved standard of living in their member countries, but each having different mandates. There are three banks (supranationals) in which California local agencies can invest in their debt obligations: the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Inter -American Development Bank (IADB).
Swap: The sale of one issue and the simultaneous purchase of another for some perceived advantage.
Treasury Bills: U.S. Treasury Bills which are short-term, direct obligations of the U.S. Government issued with original maturities of 13 weeks, 26 weeks and 52 weeks; sold in minimum amounts of $10,000 in multiples of $5,000 above the minimum. Issued in book entry form only. T-bills are sold on a discount basis.
Uniform Net Capital Rule: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a minimum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.
U.S. Government Agencies: Instruments issued by various U.S. Government Agencies most of which are secured only by the credit worthiness of the particular agency.
Yield: The rate of annual income return on an investment, expressed as a percentage. It is obtained by dividing the current dollar income by the current market price of the security.
Yield Curve: The yield on bonds, notes or bills of the same type and credit risk at a specific date for maturities up to thirty years.
Yield to Maturity: The rate of income on an investment, minus any premium or plus any discount, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond, expressed as a percentage.
City of Burbank 20243 Investment Policy – FINAL
16 CITY OF BURBANK
INVESTMENT POLICY FOR 20243
EXHIBIT A: LIQUIDITY
The liquidity needed monthly for 20243 is $115 million.
This has been calculated as 8 weeks of annual appropriations less purchased power ( wholesale only):
Annual Appropriations $
792,529,462849,925,532
Less: Purchased Power (Wholesale Only) (49,000,000)
Net $
743,529,462800,925,532
LIQUIDITY – 8 Weeks of Annual Appropriations less Purchased Power $ 114,389,148123,219,313 (Rounded up to $12415 million)
City of Burbank 20243 Investment Policy – FINAL
17 i Sources: Sections 16340, 16429.1, 27133, 53601, 53601.6, 53601.8, 53630 et seq., 53635, 53635.8, and 57603 ii Section 53601 provides that the maximum term of any investment authorized under this section, unless otherwise stated, is five years.
However, the legislative body may grant express authority to make investments either specifically or as a part of an investment program approved by the legislative body that exceeds this five-year remaining maturity limit. Such approval must be issued no less than three months prior to the purchase of any security exceeding the five-year maturity limit. iii Includes agencies defined as a city, a district, or other local agency that do not pool money in deposits or investment with other local agencies, other than local agencies that have the same governing body. iv Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstanding commercial paper and medium-term notes of any single issuer.
v Issuing corporation must be organized and operating within the U.S., have assets in excess of $500 million, and debt other than commercial paper must be in a rating category of “A” or its equivalent or higher by a nationally recognized statistical rating organization, or the issuing corporation must be organized within the U.S. as a special purpose corporation, trust, or LLC, have program wide credit enhancements, and have commercial paper that is rated “A-1” or higher, or the equivalent, by a nationally recognized statistical rating agency.
vi No more than 30 percent of the agency’s money may be in negotiable certificates of deposit that are authorized under Section 53601(i) vii No more than 50 percent of the agency’s money may be invested in deposits, including certificates of deposit, through a placement service (excludes negotiable certificates of deposit authorized under Section 53601(i). On January 1, 2026, the maximum percentage of the portfolio reverts back to 30 percent. Investments made pursuant to 53635.8 remain subject to a maximum of 30 percent of the portfolio. viii “Medium-term notes” are defined in Section 53601 as “all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States.” ix No more than 10 percent invested in any one mutual fund. This limitation does not apply to money market mutual funds. x A mutual fund must receive the highest ranking by not less than two nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years’ experience investing in instruments authorized by Sections 53601 and 53635. xi A money market mutual fund must receive the highest ranking by not less than two nationally recognized statistical rating organizations or retain an investment advisor registered with the SEC or exempt from registration and who has not less than five years’ experience investing in money market instruments with assets under management in excess of $500 million.
CITY OF BURBANK
INVESTMENT POLICY FOR 20243
EXHIBIT B: ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT CODE (AS OF JANUARY 1, 20243)i APPLICABLE TO ALL LOCAL AGENCIES Investment Type
Maximum
Remaining
Maturityii
Maximum
Specified % of
Portfolio
Minimum
Quality
Requirements
Government
Code Sections
Local Agency Bonds 5 years None None 53601(a)
U.S. Treasury Obligations 5 years None None 53601(b)
State Obligations - CA and Others 5 years None None 53601(c) 53601(d)
CA Local Agency Obligations 5 years None None 53601(e)
U.S. Agency Obligations 5 years None None 53601(f)
Commercial Paper – Non-Pooled Fundsiii
(under $100,000,000 of investments) 270 days 25% of the agency’s moneyiv
Highest letter and number
rating by an NRSRO v 53601(h)(2)(C)
Negotiable Certificates of Deposit 5 years 30%vi None 53601(i) Placement Service Certificates of Deposit 5 years 50%vii None 53601.8 and 53635.8
Non-negotiable Certificates of Deposit 5 years None None 53630 et seq.
Repurchase Agreements 1 year None None 53601(j)
Medium-Term Notesviii 5 years 30% “A” rating category or its equivalent or better 53601(k)
Mutual Funds and Money Market Mutual
Funds N/A 20%ix Multiplex xi 53601(l) and
53601.6(b)
Collateralized Bank Deposits 5 years None None 53630 et seq. and 53601(n)
Local Agency Investment Fund (LAIF) N/A None None 16429.1 Supranational Obligations 5 years 30% “AA” rating category or its equivalent or betterxii 53601(q)
Joint Powers Authority Pool N/A None Multiplexiii 53601(p) City of Burbank 20243 Investment Policy – FINAL
18 CITY OF BURBANK
INVESTMENT POLICY FOR 20243
EXHIBIT C: LIST OF QUALIFIED BROKERS FROM WHICH THE CITY
MAY PURCHASE INVESTMENTS
Per Section X “Qualified Dealers and Institutions”
of the City’s Statement of Investment Policy
Susan Munson Cantor FitzgeraldAcademy Securities
Ken Murray Financial Northeastern Securities
Deb Higgins
Mike Avery
Higgins Capital
Insperex
Peter Li Great Pacific Securities
Kevin Webb Robert W. Baird
Rosa Schulte Raymond James
Doug Robinson
Bill Blackwill
Securities America, Inc.
Stifel
John DokeChris Pocino
Mark Kreymer
UBS Securities
UnionBanc Investment Services
Jaime Loftin Picunko Vining Sparks
Don Collins WedBush Morgan Securities
xii Only those obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), and Inter-American Development Bank (IADB), with a maximum remaining maturity of five years or less.
xiiI A joint powers authority pool must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years' experience investing in instruments authorized by Section 53601, subdivisions (a) to (o).