CITY OF CORONADO
STATEMENT OF INVESTMENT POLICY
Effective September 3, 2019
1. Purpose
This statement provides guidelines for the prudent investment of the temporary idle cash of the City of Coronado (hereafter referred to as City), and outlines the policies for maximizing the efficiency of the City's cash management system. The goal is to enhance the economic status of the City while protecting its pooled cash.
2. Scope
This investment policy applies to all financial assets of the City. For purposes of this policy, the City of Coronado includes the Community Development Successor Agency, and the Coronado Financing Authority which are component units of and are controlled by the City Council, share the same administrative services of the City, and are “related entities” of the City. These funds are accounted for in the City's Comprehensive Annual Financial Report and include:
General Fund
Special Revenue Funds
Capital Project Funds
Permanent Funds
Enterprise Funds
Trust and Agency Funds
The investment of bond proceeds held with trustees is directed by the City, but is governed by the restrictions on permitted investments in the applicable bond indenture, or similar agreements.
The City retirement plans are with the California Public Employees’ Retirement System, and the City has no authority or oversight over the investments in any of these plans. The City participates in a multi-employer trust in accordance with Section 115 of the Internal Revenue Code. The trust was prepared as an irrevocable exclusive benefit trust to fund pension and retiree health care benefits (Other Post-Employment Benefits-OPEB). Assets held in this trust are administered by Public Agency Retirement Services (PARS). Further, the City administers deferred compensation and health savings plans through the ICMA-Retirement Corporation (ICMA-RC). Assets held in this plan are held in trust for the participants, and are not assets managed by the City. The City does not have any authority over the investments held in this trust.
3. Policy
The City's cash management system is designed to accurately monitor and forecast expenditures and revenues, and allows the City to invest funds to the fullest extent possible. The City attempts to obtain the highest possible yield while meeting the criteria established for safety and liquidity.
It is the policy of the City of Coronado, a general law city, to invest public funds in a manner which will provide maximum security with the highest investment return while meeting the daily cash flow demands of the City.
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4. Standard of Prudence
Investments shall be made with judgment and care. The standard of prudence to be used by investment officials shall be the "prudent investor" standard (Govt. Code Section 53600.3) and shall be applied in the context of managing an overall portfolio. All governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds 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 agency that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Investment officers, acting in accordance with written procedures and the Investment Policy, and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
5. Objectives
The primary objectives, in priority order, of the City's investment activities shall be:
5.1. Safety: Safety of principal is the foremost objective of the investment program.
Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
5.2. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated.
5.3. Return on investment: The City's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City's investment risk constraints and the cash flow characteristics of the portfolio.
6. Delegation of Authority
Authority to manage the City's investment program is derived from California Government Code Section 53607. Management responsibility for the investment program is hereby delegated to the City Treasurer, who will maintain written procedures for the operation of the investment program.
Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this Policy and the procedures established by the Treasurer.
7. Ethics and Conflicts of Interest
The investment responsibility carries with it the added duties of ensuring that investments placed are done so without the appearance of improper influence. The Administrative Services personnel involved in the investment function shall adhere to the state's Code of Economic Interest and to the following:
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7.1. All persons authorized to place or approve investments shall not personally or through a close relative maintain any accounts, interest, or private dealings with any firm through which the City places investments, with the exception of regular savings, checking and money market accounts, or other similar transactions that are offered on a non-negotiable basis to the general public. Such accounts shall be disclosed annually to the City Clerk in conjunction with annual disclosure statements of economic interest.
7.2. All persons authorized to place or approve investments shall report to the City Clerk kinship relations with principal employees of firms with which the City places investments.
7.3. Return on Investment: The investment portfolio of the City of Coronado shall be designed to attain a market average rate of return during budgetary and economic cycles, taking into account the City's investment risk constraint and the cash flow characteristics of the portfolio. All brokers or investment advisors dealing with the City will be required to disclose any fees paid or received in connection with the purchase of said securities. The City strives to maintain a 100% investment level of idle funds, less required reserve, through daily and projected cash flow determinations. Cash management of idle funds is the responsibility of the Administrative Services Department.
7.4. Maintaining the Public Trust: All participants in the investment process shall seek to act responsibly as custodians of the public trust. Investment officials shall avoid any transaction that might impair public confidence in the City of Coronado's ability to govern effectively.
8. Authorized Financial Dealers and Institutions
The Treasurer will maintain a list of financial institutions authorized to provide direct investment services. In addition, a list will also be maintained of approved security broker/dealers selected by credit worthiness, who maintain an office in the State of California. These may include "primary" dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by State laws.
All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions directly with the City must supply the Treasurer with the following: proof of Financial Industry Regulatory Authority (FINRA) certification; trading resolution; proof of State of California registration; personal resume; certification of having read the City's investment policy; and depository contracts. An annual review of the financial condition and registrations of qualified bidders will be conducted by the Treasurer.
An audited financial statement shall be reviewed annually for each financial institution and broker/dealer with which the City invests.
Before engaging in investment transactions with a broker/dealer, the City Treasurer shall have received from said firm a signed letter. This letter shall attest that the individual responsible for the City’s account with that firm has reviewed the City of Coronado Investment Policy and that the firm understands the policy and intends to present investment recommendations and transactions to the City that are appropriate under the terms and conditions of the Investment Policy.
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9. Authorized and Suitable Investments
The City of Coronado is empowered by California Government Code Section 53601 et seq. to generally invest in the following types of securities1
:
9.1 United States Treasury Bills, Bonds, Notes, and Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for payment of principal and interest.
9.2 Federal Agency or United States Government-sponsored Enterprise Obligations, Participations, or other Instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises.
9.3 Registered Treasury Notes, Warrants, or Bonds of the State of California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state.
9.4 Registered Treasury Notes or Bonds of any of the other 49 states in addition to California, 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, in addition to California.
9.5 Bonds, notes, warrants, or other evidences of indebtedness of a 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.
9.6 Negotiable Certificates of Deposit (NCDs) issued by a nationally or state chartered bank, a state or federal savings and loan association, or by a federally- or state-licensed branch of a foreign bank, provided that the senior debt obligations of the issuing institution are rated A or its equivalent, or better (without regard to any gradations within such categories by numerical qualifier or otherwise) by a nationally recognized statistical-rating organization (NRSRO). NCDs shall not collectively exceed 30% of the market value of the portfolio.
9.7 Time Deposits. The City may invest in non-negotiable time deposits collateralized in accordance with California Government Code Section 53630 et seq., in those banks and savings and loans associations that meet the State’s requirements for investment in a Time Certificate of Deposit.
The maximum term for deposits shall be five years. The City, at its discretion, may waive the collateralization requirements for any portion that is covered by federal insurance. The City shall have a signed agreement with the depository per Government Code Section 53649.
9.8 Medium-Term Notes. 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 U.S. or any state and operating within the U.S. Medium-term corporate notes shall be rated A or better (without regard to any gradations within such categories by numerical qualifier or otherwise) by a NRSRO. The aggregate total of all purchased medium-term notes may not exceed 30% of the cost value of the investment portfolio. No more than 5% of cost value of the portfolio may be invested in notes issued by any one corporation.
1 Section 53601 provides additional guidance for the authorized investment of the City’s money and should be referred to for specific restrictions on these, and any other, permitted investments.
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9.9 Commercial Paper. Commercial paper of “prime” quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical-rating organization. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph 1 or paragraph 2:
1. The entity meets the following criteria: (i) is organized and operating in the United States as a general corporation; (ii) has total assets in excess of five hundred million dollars ($500,000,000); (iii) has debt other than commercial paper, if any, that is rated “A” or higher by at least two nationally recognized statistical-rating organizations.
2. The entity meets the following criteria: (i) is organized within the United States as a special purpose corporation, trust, or limited liability company; (ii) has program-wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond; (iii) has commercial paper that is rated “A-1” or higher, or the equivalent, by at least two nationally recognized statistical-rating organizations.
Eligible commercial paper shall have a maximum maturity of 270 days or less. The aggregate total of all commercial paper may not exceed 15% of the cost value of the investment portfolio. The City may purchase no more than 10% of the outstanding commercial paper of any single issuer.
9.10 Bankers’ Acceptances issued by domestic or foreign banks, which are eligible for purchase by the Federal Reserve System, the short-term paper of which is rated in the highest letter and number rating category by one or more nationally recognized statistical rating organizations (NRSRO). Bankers’ acceptances purchased may not exceed 180 days to maturity. No more than 40% of the market value of the portfolio may be invested in bankers’ acceptances and no more than 30% of the market value of the portfolio may be invested in bankers’ acceptances issued by any one bank.
9.11 Repurchase Agreements used solely as short-term investments not to exceed 30 days.
The City may enter into Repurchase Agreements only with primary dealers of the Federal Reserve Bank of New York. The City shall have properly executed a PSA agreement with each counter party with which it enters into repurchase agreements. The following collateral restrictions will be observed: only U.S. Treasury securities or Federal Agency securities are acceptable collateral. All securities underlying repurchase agreements must be delivered to the City's custodian bank versus payment or be handled under a properly executed tri-party repurchase agreement. The total market value of all collateral for each repurchase agreement must equal or exceed 102 percent of the total dollar value of the money invested by the City for the term of the investment. For any repurchase agreement with a term of more than one day, the value of the underlying securities must be reviewed on an ongoing basis according to market conditions. Market value must be calculated each time there is a substitution of collateral. The City or its trustee shall have a perfected first security interest under the Uniform Commercial Code in all securities subject to repurchase agreement. No more than 30% of the portfolio may be invested in repurchase agreements. Reverse repurchase agreements will not be allowed.
9.12 Local Agency Investment Fund (LAIF). The City may invest in the Local Agency Investment Fund established by the State Treasurer for the benefit of local agencies up to the maximum amount permitted.
9.13 County of San Diego Treasury (County Pool). The City may invest in the County of San Diego Investment Pool up to the maximum amount permitted.
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9.14 Local Government Investment Pool (LGIP). Shares of beneficial interest issued by a joint powers authority. Purchases are limited to those pools that seek to maintain a constant net asset value.
9.15 Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). To be eligible for investment pursuant to this subdivision, these companies shall (1) have (a) attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations or (b) an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years’ experience managing money market mutual funds and with assets under management in excess of $500,000,000; and (2) invest solely in securities issued by the U.S. Treasury and agencies of the federal government, and repurchase agreements collateralized with U.S. Treasury and federal agency obligations. No more than 20% of the investment portfolio shall be invested in money market funds. Additionally, no more than 10% of the City’s funds may be invested in shares of beneficial interest of any one mutual fund.
Credit criteria and maximum percentages are calculated based on market value at the time the security is purchased.
Prohibited Investments: Under the provisions of Government Code Sections 53601.6, the City of Coronado shall not invest any funds covered by this Investment Policy in inverse floaters, range notes, interest-only strips derived from mortgage pools, or any investment that may result in a zero interest accrual if held to maturity.
10. Safekeeping and Custody
All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a delivery-versus-payment (DVP) basis. Securities will be held by a third-party custodian designated by the Treasurer and evidenced by safekeeping receipts. The only exception to the foregoing shall be depository accounts and securities purchases made with: (i) local government investment pools; (ii) time certificates of deposit; and (iii) money market mutual funds, since the purchased securities are not deliverable. Evidence of each these investments will be held by the Treasurer.
11. Diversification
The City will diversify its investments by security type and institution. With the exception of U. S.
Treasury securities and authorized pools, no more than 33% of the market value of the City's total investment portfolio will be invested in a single security, U.S. Government agency, or with a single financial institution.
12. Maximum Maturities
To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. With the exception of securities received as part of the Frances G. Harpst bequest, the City will not invest in securities maturing more than five years from the date of purchase unless matched to a specific cash flow and approved by the City Council, either specifically or as part of an investment no less than three months prior to the investment. The City will not invest in securities with maturities of greater than five years for the Frances G. Harpst bequest unless the securities are U.S. Treasury, Government Sponsored Enterprises (Federal Agencies) or state or local government obligations.
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13. Internal Control
The 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.
14. Reporting
The Treasurer is charged with the responsibility of preparing a quarterly report to the City Council.
This report will include quarterly performance, a list of the current investments, and transactions which occurred during each month of the quarter. Reporting shall be on the basis of both cost and market.
The Policy recognizes that reporting on a market basis will periodically cause market gains or losses to be reported. In most instances, such gains or losses will not be realized since individual securities with specific maturities are purchased based upon projected cash flows and normally will not be liquidated prior to maturity.
15. Investment Policy Review
Any changes to this investment policy shall be reviewed and approved annually by the City Council.
When the City has funds on deposit with the State or County Pool or other local government investment pools, the Treasurer shall review annually the written investment policy of such pools.
Documentation shall also be reviewed annually that such investment pools are operated in conformance with their investment policies.
16. Other Constraints
The City shall make its investments in conformance with California Government Code Section 53601 et seq. (see Section 8) and other self-imposed constraints. The City shall not purchase stocks, speculate, deal in futures or options, or buy on the margin. In addition, the City will not purchase inverse floaters, range notes, interest-only strips or any security having an interest rate derived from an index, commodity price or other variable; i.e., securities commonly known as derivatives.
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