City of Corona
Staff Report
400 S. Vicentia Ave.
Corona, CA 92882
File #: 22-0439
REQUEST FOR CITY COUNCIL ACTION
DATE: 06/15/2022
TO: Honorable Mayor and City Council Members
FROM: Finance Department
SUBJECT:
Resolutions approving the City of Corona's Investment Policy and the City of Corona’s Pension Stabilization Trust Investment Policy.
EXECUTIVE SUMMARY:
The City’s Investment Policy requires annual review and adoption by Resolution. The Treasurer manages the City’s portfolio consisting of short and long-term investments to ensure compliance with the City’s Investment Policy. The Investment Policy is evaluated annually on substantive issues such as authorized investments, guidelines for managing the portfolio, applicable benchmarks, and performance standards. The City Treasurer, together with the City’s investment advisor, Chandler Asset Management, has reviewed the Investment Policy and recommended no changes. The Treasury Committee concurs with the recommendation. In January 2022, the City Council approved the Pension Stabilization Trust. One critical component to the Pension Stabilization Trust is a separate investment policy for those funds. Presented for the City Council’s consideration is the City of Corona’s Pension Stabilization Trust Investment Policy.
RECOMMENDED ACTION:
That the City Council:
a. Adopt Resolution No. 2022-045, approving the City of Corona’s Investment Policy. b. Adopt Resolution No. 2022-064, approving the City of Corona’s Pension Stabilization Trust Investment Policy.
BACKGROUND & HISTORY:
Investment Policy
California Government Code Sections 53600 through 53659 defines the types of investments that municipal governments can include in their portfolio, limits on the level of these investments, and the oversight required for the portfolio. The City’s Investment Policy establishes strategies, practices, and City of Corona Page 1 of 4 Printed on 6/9/2022
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File #: 22-0439
procedures which are used in the administration of the City’s portfolio to ensure compliance with the laws and regulations governing the City’s investments.
The City of Corona's Investment Policy is intended to provide guidelines for the prudent investment of the City's temporarily inactive cash and outlines the policies for maximizing the efficiency of the City's cash management system. The goal of the City's Investment Policy is to meet the short- and long-term cash flow demands in a manner that will provide for the safety of principal and sufficient liquidity while providing a suitable investment return.
The City of Corona’s Investment Policy was assigned as Administrative Policy No. 01200-602 and is evaluated and adopted annually. The Policy was last updated and adopted on July 7th, 2021.
Pension Stabilization Trust Investment Policy
The Pension Stabilization Trust Agreement was approved by the City Council in January 2022. The initial contribution to the Pension Stabilization Trust (“Trust”) was approved for $30 million. A critical component to the Trust is a separate investment policy for those funds, in compliance with California Government Code Section 53216. Chandler Asset Management, the City’s investment advisor, prepared a draft of the policy and asset allocations, which was reviewed by the City’s Treasury Committee and is presented for the City Council’s consideration.
The City of Corona’s Pension Stabilization Trust Investment Policy was assigned as Administrative Policy No. 01200-606. This is the City Council’s first review of the policy. After the initial approval, the policy will be evaluated and adopted annually.
ANALYSIS:
Investment Policy
The City of Corona, as with all local governments in California, maintains an investment portfolio to hold its inactive cash. The City’s investments allow funds to earn a return while they are in a queue to be expended on City’s projects and services, pursuant to the City’s adopted budget. The current balance of the City’s investment portfolio is approximately $388.5 million. Through the City’s contracted investment advisor, Chandler Asset Management, the City invests in a variety of instruments that provide a reliable yield over a duration of maturity between 3 months to 5 years to ensure that cash is available to meet the City’s needs. Chandler Asset Management makes these investments according to the City’s Investment Policy, with the oversight of the Treasury Committee, which is comprised of the City Manager, City Treasurer, Assistant City Manager, and Finance Director. The Investment Policy is a formal statement of objectives and constraints for the City’s investment approach.
The City of Corona’s Investment Policy is reviewed annually by the City Treasurer, Finance Department, and Chandler Asset Management, and adopted by the City Council pursuant to State law. Chandler Asset Management suggested no changes to the City’s Investment Policy this year, as there were no changes to the codes governing investments in 2022. The Treasury Committee concurs with Chandler Asset Management and recommends no modifications to the City’s Investment Policy for this year’s annual review.
City of Corona Page 2 of 4 Printed on 6/9/2022
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California Government Code 53600 et. seq. sets legal parameters around the degree of risk any municipal treasury can take in its investments. These parameters ensure that public investments are sufficiently diversified, of high quality, and have terms of length that enable the treasury to maintain liquidity and protect against longer-term shifts in the market. Historically, the City of Corona’s Investment Policy has been more conservative than the California Government Code in terms of the requirement of credit rating and limiting the percentage of funds that are invested into variable-rate assets. This approach has yielded returns that are higher than the industry benchmark yet remain safe and liquid enough to meet the City’s financial needs. Investment strategies are utilized to adjust the balance between cash and investments continuously to improve the overall return on investment.
As of March 31, 2022, the average market yield of the City’s portfolio was 2.45%, which was 0.15% above the benchmark Bank of America Merrill Lynch 1-5 year US Treasury/Agency Index. The Treasury Committee believes that the current Investment Policy is prudent and will continue to meet or exceed this benchmark, thereby, ensuring that funds remain available to support the City’s cash flow needs to deliver City services expected by the public.
Monthly investment reports are filed with the City Council and posted on the City’s website for the public, to provide a clear picture of the status and performance of the current investments.
Pension Stabilization Trust Investment Policy
In January 2022, the City Council approved the establishment of the Pension Stabilization Trust by means of the Pension Stabilization Trust Agreement. Funds placed in a Pension Stabilization Trust (also known as Section 115 Trust) are irrevocably committed for pension related costs. Advantages of the Trust include the following:
1. Assets in the trust can offset potential future unfunded pension liabilities.
2. Greater investment flexibility and risk diversification compared to other city investments results in a potentially higher rate of return on monies set aside for future pension obligations.
3. Assets can be used to stabilize rates and to offset unexpected contribution rate increases or be used as a rainy-day fund when revenues are impaired based on economic or other conditions.
4. Potential to improve the City’s credit rating.
5. City has complete control over the trust assets and flexibility to access the assets at any time, as long as the assets are used to pay pension obligations An integral part of the Trust is the development of an investment policy for the separate funds. The Trust Investment Policy is intended to assist the Trust’s fiduciaries by ensuring they follow a prudent process and make investment-related decisions in a prudent manner. Government Code Section 53216 defines the types of pension trusts and the investment options available to a pension trust.
Per Section 53216.6, the assets of the pension trust are trust funds and shall be held for the exclusive purposes of providing benefits to participants in the pension or retirement system and their beneficiaries as well as defraying reasonable expenses of administering the systems. Investments shall be diversified so as to minimize the risk of loss and to maximize the return, unless under circumstances it is clearly prudent not to do so. The objectives of the Trust Investment Policy are long-term growth of assets, preservation of capital, and liquidity.
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Chandler Asset Management prepared a draft of the policy and asset allocations, in compliance with Government Code Section 53216, which was reviewed by the City’s Treasury Committee and is presented for the City Council’s consideration. The Trust Investment Policy defines investment guidelines and asset allocations. The Trust Investment Policy also includes information on the permitted securities and market sectors as well as prohibited transactions. The investment reports for the Trust will be reported and reviewed on a quarterly basis with the Treasury Committee. This information will coincide with the quarterly reports for the rest of the City’s investments. The quarterly reports will be filed with the City Council and posted on the City’s website for public review, which will provide a clear picture of the status and performance of the current investments.
Similar to the City’s Investment Policy, the Trust Investment Policy will be reviewed and approved annually. Government Code Section 53216.4 also requires an annual report detailing the expenses of operating the trust, including any compensation paid, fees paid, operating ratios, and net profit and loss statements, including the acquisition cost, book value, and market value of the total assets as of the date of the report. The timing of the annual report will be discussed at the first meeting of the Pension Stabilization Trustees in October 2022.
FINANCIAL IMPACT:
The Investment Policy and Pension Stabilization Trust Investment Policy are presented for review and approval. There is no fiscal impact from the approval of the recommended actions.
ENVIRONMENTAL ANALYSIS:
This action is exempt pursuant to Section 15061(b)(3) of the Guidelines for California Environmental Quality Act (CEQA), which states that a project is exempt from CEQA if the activity is covered by the commonsense exemption that CEQA applies only to projects that have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the action is not subject to CEQA. This action merely adopts the resolutions approving the City’s Investment Policy and Pension Stabilization Trust Investment Policy for Fiscal Year 2023, and there is no possibility that adopting the resolutions approving the policies will have a significant effect on the environment.
PREPARED BY: CHRISTINE THOMPSON, ACCOUNTING MANAGER
REVIEWED BY: KIM SITTON, FINANCE DIRECTOR
Attachments:
1. Exhibit 1 - Resolution No. 2022-045 Approving City of Corona Investment Policy
2. Exhibit 2 - Administrative Policy 01200.602- Investment Policy
3. Exhibit 3 - City of Corona Investment Policy - Redline
4. Exhibit 4 - Resolution No. 2022-064 Approving City of Corona Pension Stabilization Trust Investment Policy
5. Exhibit 5 - Administrative Policy 01200.606 - Pension Stabilization Trust Investment Policy City of Corona Page 4 of 4 Printed on 6/9/2022
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