CITY OF COTATI
POLICY FOR INVESTMENTS
I. POLICY
It is the policy of the City of Cotati to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the City of Cotati arid conforming to all state and local statues governing the investment of public funds.
The City of Cotati shall strive to maintain the level of investment of all idle funds as near 100 percent as possible, through daily and projected cash flow determinations. Idle cash management and investment transactions are the responsibility of the Administrative Services Director or his/her designee.
II. SCOPE
The City of Cotati pools all cash for investment purposes and this policy is applicable to all current City funds or any new funds created. These funds include: the General Fund, capital projects funds, special revenue funds, enterprise funds, fiduciary funds.
Exceptions to pooling of investments are bond fund reserves. Bond fund reserves have conditions imposed by bond indentures which require a segregation of funds. Bond fund reserves accrue investment earnings directly to the reserved funds as required by the bond prospectus. For bond fund reserves, the investment policy is stipulated by the bond indenture.
III. PRUDENCE
Under all circumstances, the "prudent person rule" shall apply. Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment considering the probable safety of their capital as well as the probable investment earnings to be derived.
The City Manager, the Administrative Services Director and other individuals assigned to manage the investment portfolio, acting within the intent and scope of the investment policy and other written procedures 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 manner and appropriate action is taken to control adverse developments.
IV. OBJECTIVES
1. Safety of Principal
Safety of principal is the foremost objective of the City's investment policy. Each investment transaction shall seek to ensure that capital losses are avoided, whether from securities default, broker-dealer default, or erosion of market value. The City shall seek to preserve principal by mitigating credit risk and market risk.
Credit risk, defined as the risk of loss due to failure of the issuer of a security, shall be mitigated by investing in high investment grade securities and by diversifying the investment portfolio so that the failure of any one issuer would not unduly harm the City's cash flow.
Market risk, defined as market value fluctuations due to overall changes in the general level of interest rates, shall be mitigated by: (1) limiting the average maturity of the City's investment portfolio to three years, (2) limiting the maximum maturity of any one security to five years, and (3) structuring the portfolio based on historic and current cash flow analysis. This policy eliminates the need to sell securities prior to maturity and avoids the purchase of securities for the sole purpose of short:-term speculation. It is recognized, however, that in a diversified investment portfolio, occasional measured losses are inevitable and must be considered within the context of the overall investment return and current economic circumstances.
2. Liquidity
The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements reasonably anticipated. Historical and current cash flow needs are analyzed continually.
3. Return on Investment
The City's investment portfolio shall be designed to attain a market-average rate of return through economic cycles.
4. Social and Political Considerations
In addition, the City recognizes that it has an equal obligation to be aware of the social and political impacts of its investments, and subsequently to act responsibly in making its financial· decisions.
The City shall not knowingly make any investments in any institution, company, corporation, subsidiary or affiliate that practices or supports directly or indirectly through its actions discrimination on the basis of race, religion, color, creed, national or ethnic origin, age, sex, sexual preference or physical disability.
The City shall strive to make investments that benefit the local area and are consistent with the City's plans and policies. Priority shall be given to investments that promote community economic development, for example, by doing business with local banks provided that the criteria for safety, liquidity and yield are met.
V. DELEGATION OF AUTHORITY
The City Council, by Resolution, assigned the responsibility of investing idle funds to the Administrative Services Director. The Administrative Services Director, or his/her designee, shall have day to day responsibility of the investment program and shall establish procedures for routine operations consistent with this investment policy. In accordance with California Government Code Section 53646, the treasurer or chief fiscal officer of a local agency may file reports on the status of their investment portfolios with their respective legislative body, internal auditor, and chief executive officer. These reports generally are intended to provide the legislative body the ability to meet its fiduciary obligations as a trustee and to increase the disclosure of the agency’s investment activities to those outside the agency. As such the Administrative Services Director shall provide the required investment reports to the City Manager on a requested basis as well as directly to the City Council on a periodic basis.
VI. ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain from personal business activity that conflicts with proper execution of the investment program, or that impairs their ability to make impartial investment decisions. Employees and investment officials shall disclose any material financial interest that could be related to the performance of the City's investment portfolio.
VII. SAFEKEEPING OF SECURITIES
The City's account with its broker-dealer is insured for $500,000 by the Security Investor Protection Corporation (SIPC), and for an additional $9.5 million under a policy maintained by the broker-dealer. This policy picks up where SIPC coverage ends, protecting the City account from loss due to failure of the broker-dealer. The policy provides up to $9.5 million in coverage per customer.
VIII. Permitted Investments
The City is authorized by State law to invest in the following types of securities. The following tables include the maximum maturities for and maximum percentage or dollar amounts that may be invested in specific investment types:
Investment Type Maximum % or $ Maximum
Maturity
Minimum
Required Rating
Bank/Time Deposits None 5 years N/A
U.S. Treasuries None 5 years N/A
U.S. Agencies 75% (25% for one issuer) 5 years N/A
Money Market Funds 20% (10% with one mutual fund) N/A N/A Bankers Acceptances 30% (5% with one bank) 180 days A1/P1 Commercial Paper 25% (5% with one firm)270 days A1/P1
Negotiable CDs 30% (5% with one bank) 5 years A < 1 year LAIF Per State Statute N/A N/A
CAMP/Caltrust None N/A N/A
CDs Non-Negotiable/ CDARS 30% (5% with one bank) 3 years N/A Municipal Obligations 5% with one agency 5 years A
Medium Term Notes 30% 5 years A
Supranational 2% 5 years AAA
It is the intent that investments shall be managed in such a way that any market price losses resulting from interest-rate volatility would be offset by coupon income and current income received from the overall portfolio over market cycles. To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements.
IX. Permitted Investments, Continued
Pursuant to Government Code Section 53601 et seq. the City may only invest in the following security types (See the Glossary section for a detailed description of each of these investment types):
1) U.S. Government Treasury Bills and Notes
2) U.S. Government Sponsored Enterprise Debt (GSE’s) (known as Agencies) 3) Certificates of Deposit (non-negotiable) (CDs) – The City is authorized to use of private CD placement services by local agencies. This investment policy allows for the use of a placement service called the Certificate of Deposit Account Registry Service (CDARS), which acts as the master custodian for the placement of CDs. Through the use of this placement service, local banks that work with CDARS place one investment by the City and divide the deposit into individual CDs not to exceed $250,000, so that each individual CD is fully insured by the FDIC. 4) Bankers Acceptances (BA) – with an A1/P1 rating as provided for by a nationally recognized statistical-rating organization (NRSRO)
5) Commercial Paper - Prime commercial paper with an A1/P1 rating as provided for by a NRSRO.
Purchases must be limited to corporations organized and operating within the United States, and as a practical matter generally only those corporations operating within the State of California, having total assets in excess of $500 million, and having an "A" or higher rating for the issuer's debentures, other than commercial paper (as-provided by Moody's or Standard and Poor's rating services). In addition, purchases may not represent more than ten percent (10%) of the outstanding paper of an issuing corporation.
6) State of California Local Agency Investment Fund (LAIF) 7) CalTrust / California Asset Management Program (CAMP) 8) Domestic money market mutual funds – These must be registered with the Federal Securities and Exchange Commission (SEC), have over $500 million in total assets, be rated in the highest rating category by two nationally recognized rating services and only invest in:
i) U.S. Government or federal agency securities and repurchase agreements, ii) Tax exempt obligations or other investment instruments specifically included in the local investment policy
9) Negotiable Certificates of Deposit - Must be issued by a nationally or state chartered bank or savings and loan association, or by a state licensed branch of a foreign bank. 10) Medium Term Corporate Notes - Notes issued by corporations organized and operating within the U.S. or by depository institutions licensed by the United States or any state and operating within the U.S. Must be rated “”A” or better by a NRSRO.
If a corporate note owned by the City is downgraded by either Moody’s or S&P to a level below the quality required by this Investment Policy, it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such a corporate note in the portfolio.
i) If a security is downgraded two grades below the level required by the City, the security shall be sold immediately.
ii) If a security is downgraded one grade below the level required by this policy and matures within 6 months, the security will be held to maturity. The Director of Administrative Services may determine to sell the security if it is determined that there is a probability of default prior to maturity. If a decision is made to retain the security in the portfolio, its presence in the portfolio will be monitored and reported to the City Council. 11) Municipal Obligations – Must be rated “A” or better by a nationally recognized rating agency, except for the City’s own bonds and bonds issued by the City’s former Redevelopment Agency and its Financing Authority, which may have any rating. Municipal Obligations include the following:
Registered state warrants or treasury notes or bonds of the State of California and bonds, notes, warrants, or other evidences of indebtedness of any local agency within California, including bonds payable solely out of the revenues from a revenue producing property owned, controlled, or operated by the state or local agency or by a department or agency of the state or local agency.
Registered treasury notes or bonds of any of the 49 U.S. States in addition to the State of 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 U.S. States, in addition to California. 12) Supranational - Must be rated “AAA” or better by a nationally recognized rating agency and is U.S. dollar denominated senior unsecured unsubordinated obligations issued by the International Bank for Reconstruction and Development, International Finance Corporation, or the InterAmerican Development Bank.
X. POLICY REVIEW
The City's investment policy shall be reviewed at least annually to ensure its consistency with the overall objectives and preservation of principal, liquidity and yield, and its relevance to current law and financial and economic trends. Any State of California legislative action that further restricts allowable maturities or percentage allocations will be incorporated into the City's investment policy and supersede any and all previous applicable language. Amendments to the policy shall be forwarded to the City Council for approval.