CITY COUNCIL STAFF REPORT
Meeting Date: July 11, 2022
TO: THE HONORABLE MAYOR AND CITY COUNCILMEMBERS
SUBJECT: ADOPT RESOLUTION NO. ___-22 APPROVING THE CITY OF PLEASANT HILL INVESTMENT POLICY RETROACTIVE TO JULY 1,
2022 AND DELEGATING INVESTMENT AUTHORITY TO THE
ELECTED CITY TREASURER
SYNOPSIS
California state law requires the City Treasurer to render a statement of Investment Policy annually to the City Council at a public meeting and the City Council to annually delegate investment authority to the City Treasurer. The Budget Committee has reviewed the revised investment policy and recommended approval to City Council at its June 29th meeting. The City Treasurer recommends the Council adopt the proposed resolution approving the City of Pleasant Hill Investment Policy attached to the resolution retroactive to July 1, 2022 and delegating the investment authority to the elected City Treasurer.
DISCUSSION
Background
Government Code 53607 et seq. requires the City Treasurer to “render” annually to the legislative body of the local agency at a public meeting a statement of investment policy. The investment policy is intended as a guide with specific controls for safety, liquidity and, lastly, yields.
Analysis
In consultation with the City’s professional investment advisor (Chandler Asset Management), the City Treasurer and Finance Department reviewed the City’s investment policy to 1) confirm that it continues to comply with California Government Code and 2) continues to provide strong safeguards over the City’s investment program. While the City’s investment policy continues to be robust, it is recommended that the City add additional protections recognized as industry best practices and expand the list of authorized investments to increase diversification of funds. In summary, we are proposing the following changes:
Maturities: California Government Code generally allows local governments to invest in securities with maturities of five years or less. Likewise, the Government Code does not limit maturities longer than one year to a specific percentage. The prior year policy limits maturities longer than one year to one third of the portfolio which may impair the City’s ability to diversify maturities in the investment portfolio and may introduce undue market risk to the investments. For that reason, removing the 33% threshold is recommended, and replacing the language with explicit language referencing the five year limit. Qualified Dealers: California Government Code specifies several requirements that must be met by broker dealers and other financial institutions conducting business with the City. The requirements outlined by the current policy is incomplete. Therefore it is recommended the City update this language to better reflect California Government Code. It is also recommended the City include a requirement that all transactions, whenever applicable, shall be conducted on a competitive basis. Lastly, it is recommended that the City allow investment advisors working with the City to be responsible for selecting their own broker dealers.
Delivery, Safekeeping of Securities, and Custody: It is recommended the City include exceptions to the custody rules, primarily that time certificates of deposit, money market mutual fund shares, and shares of local government investment pools need not be held in a third party custodial arrangement, as all of these security types are non-deliverable. Collateralization: Pursuant to California Government Code, it is recommend including language specifying that all deposits and repurchase agreements shall be collateralized as required in Code.
Authorized Investments: California Government Code applies at time of purchase.
Pursuant to Code requirements, it is recommended the policy explicitly state that all concentration and credit requirements apply at time of purchase. Moreover, it is recommended the City include additional limits designed to increase safety of principal on the following security types currently allowed:
o U.S. Treasury Bills, Notes, and Bonds: five year maximum maturity o Federal Agency Obligations: 30% limit per issuer, five-year maximum maturity, 20% limit on federal agency callable securities.
o Medium-Term Notes: 30% concentration limit, 5% limit per issuer, five-year maximum maturity, minimum credit rating in the rating category of “A.” In order for the City to benefit from increased diversification, it is recommended the City include the following asset classes allowed in the policy as allowed by California Government Code:
o Municipal Securities—high credit quality securities issued by local governments o Bankers’ Acceptances—short-term money market instrument o Commercial Paper—short-term money market instrument
o Negotiable Certificates of Deposit—short- and long-term money market instruments used by banks and money market mutual funds o Collateralized Bank Deposits—City’s deposits collateralized as required by Code o Money Market Mutual Funds—mutual funds targeting the net asset value of each share to one dollar
o Supranational Obligations—high credit quality obligations of three specific organizations under the World Bank umbrella as allowed by Code o Passthrough Securities—securities representing pools of receivables that pay combined principal and interest payments to investors
Ineligible Investments: It is recommended the City list those investments prohibited by Code Section 53601.6, as well as prohibiting speculation, trading on margin, purchasing foreign currency denominated securities, and purchasing private placement securities unless the City is deemed a Qualified Institutional Buyer (QIB). Investment Pools/Mutual Funds: As policy, it is recommended the City require an investigation of any local government investment pool or mutual fund being considered for investment and include a list of questions that should be answered by any such investigation.
Risk Management and Diversification: It is recommended the City include language in the investment policy that addresses management of both market and credit risk. This includes procedures to be followed in the unlikely event of a credit downgrade below the minimum credit quality required.
FISCAL IMPACT
None
PUBLIC CONTACT
Public contact was made through posting of the City Council agenda on the City’s official notice bulletin board, at the Pleasant Hill Senior Center, and at the Pleasant Hill Police Department.
The agenda and staff report are posted on the City’s web page.
RECOMMENDED CITY COUNCIL ACTION
Adopt the attached resolution approving the City of Pleasant Hill Investment Policy with the recommended changes retroactive to July 1, 2022 and delegating the investment authority to the elected City Treasurer.
ALTERNATIVES TO RECOMMENDED ACTION
There is no alternative to delegating investment authority to the City Treasurer.
ATTACHMENT(S):
Proposed Resolution
City of Pleasant Hill Investment Policy – Redlined
City of Pleasant Hill Investment Policy – Clean
Prepared by: Andrew Kalinowski, Interim City Treasurer