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TO:
FROM:
CITY Of~ MIRAG~
~ ~
STAFF REPORT
Mayor and City Council
Isaiah Hagerman, City Manager/City Treasurer
Kofi Antobam, Director of Administrative Services
SUBJECT: Annual Review of the Statement of Investment Policy
SPECIFIC REQUEST OR RECOMMENDATION
DATE: February 17, 2022
That the City Council adopt Resolution No. 2022-(Next-in -Order), Adopting Investment Policies Pertaining to the Investment of City Funds.
JUSTIFICATION OR INFORMATION
Each year a Subcommittee, which consists of two Council members, leads a review of the Statement of Investment Policy (Policy) which establishes the City's policies governing the investment of City funds . While we strive to earn the highest return that we can, more important considerations are the safety of the portfolio and maintaining sufficient liquidity to enable the City to meet its operating and capital requirements .
The FY 2021-22 Investment Policy Review Subcommittee, consisting of Mayor Weill and Councilman Kite, and staff performed a review of the Policy on February 7, 2022, and are recommending the addition of two investment types -Medium -Term Notes and Repurchase Agreements -to the authorized investments outlined in the Policy. The addition of these two investment types will provide more flexibility and add value to the City's portfolio. Updates were also made to the Government Agency Issues subsection under Section V of the Policy to clearly outline investments authorized under Government Code Sections 53601 (a) through (f) for clarity and compliance purposes. There are no other changes aside clerical updates to the Policy that are proposed at this time. A copy of the Policy is attached as Exhibit A to the Resolution.
Medium-Term Notes, as authorized in Government Code Section 53601(k), are defined 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. Purchases are limited to securities rated in a rating category of "A" or its equivalent or better by an NRSRO, and if rated, no lower than the minimum rating category by Standard & Poor's, Moody's, or Fitch . A maximum of 30% of the City's portfolio may be invested in this category. As of January 2022, the yield on the 1-5 years corporate and government rated A or better securities index was 1.37%.
AGENDA ITEM#
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DATE: February 17, 2022 Page 2 of 2
Annual Review of the Statement of Investment Policy
JUSTIFICATION OR INFORMATION CONTINUED:
As authorized in Government Code Section 53601 U), the City may invest in repurchase agreements. An executed Master Repurchase Agreement is required between the City and the broker dealer or financial Institution. The market value of securities that underlies a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Collateral is restricted to U.S.
Treasury and Federal Agency securities. A maximum of 30% of the City's portfolio may be invested in this category . The maximum maturity of any investment in this category shall not exceed one year.
ATTACHMENT(S):
1. Resolution Adopting the Statement of Investment Policy AGENDA ITEM#
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ATTACHMENT 1
RESOLUTION
(SEE ATTACHED)
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RESOLUTION NO. 2022-_
A RESOLUTION OF THE CITY COUNCIL FOR THE CITY OF RANCHO MIRAGE,
CALIFORNIA, ADOPTING INVESTMENT POLICIES PERTAINING TO THE
INVESTMENT OF CITY FUNDS
WHEREAS, on February 7, 1985, the City Council adopted Resolution No. 85-14 to establish investment policies pertaining to the investment of public funds which is commonly known as the Statement of Investment Policy for the City of Rancho Mirage ("Investment Policy"); and
WHEREAS, on an annual basis, the City Council reviews the Investment Policy and amends it if recommended by the Director of Administrative Services and if the City Council deems it necessary; and
WHEREAS, the Director of Administrative Services has recommended that the City Council review the Investment Policy and make any necessary amendments.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF RANCHO
MIRAGE, HEREBY RESOLVES AS FOLLOWS:
Section 1. Recitals.
That the Recitals set forth above are true and correct.
Section 2. Approval.
That the Investment Policy for the City of Rancho Mirage, attached as "Exhibit A" and incorporated herein by reference, is hereby approved.
Section 3. Severability.
That should any provision, section, paragraph, sentence or word of this Resolution be rendered or declared invalid by any final court action in a court of competent jurisdiction or by reason of any preemptive legislation, the remaining provisions, sections, paragraphs, sentences or words of this Resolution as hereby adopted shall remain in full force and effect.
Section 4. Repeal of Conflicting Provisions.
That all the provisions heretofore adopted by the City Council that are in conflict with the provisions of this Resolution are hereby repealed.
Section 5. Certification
That the City Clerk shall certify to the passage and adoption of this Resolution and enter it into the book of original resolutions.
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Section 6. Effective Date
That this Resolution shall take effect immediately upon its passage. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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PASSED AND ADOPTED this 17 th day of February 2022.
ATTEST:
Kristie Ramos, City Clerk
APPROVED AS TO FORM:
Steven B. Quintanilla,
City Attorney
CITY OF RANCHO MIRAGE
Ted Weill, Mayor
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EXHIBIT "A"
CITY OF RANCHO MIRAGE STATEMENT OF INVESTMENT POLICY
DATED FEBRUARY 2022
(SEE ATTACHED)
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City of Rancho Mirage
State of California
STATEMENT OF INVESTMENT POLICY
February 2022
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CITY OF RANCHO MIRAGE
STATEMENT OF INVESTMENT POLICY
Rancho Mirage City Council
Ted Weill, Mayor
Charles Townsend, Mayor Pro Tern
Iris Smotrich, Councilmember
Richard W. Kite, Councilmember
Steve Downs, Councilmember
Isaiah Hagerman, City Manager/City Treasurer
Prepared by the Finance Department
Kofi Antobam, Director of Administrative Services
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CITY OF RANCHO MIRAGE
STATEMENT OF INVESTMENT POLICY
TABLE OF CONTENTS
Page
I. Overview .................................................................................................................. 1 Investment Policy
Investment Objectives
Scope of Investment Policy
II. Investment Authority and Responsibilities .............................................................. 3 Authorized Investment Officers
Internal Control
Evaluation of Investment Officer Actions
Ethics and Conflicts of Interest
Applicable Rules
Investment Procedures
III. Capital Preservation and Risk .................................................................................. 4 Overview
· Portfolio Diversification Practices
IV. Eligible Financial Institutions .................................................................................. 5 Credit-Worthiness Standards and Portfolio
Diversification
Selection of Eligible Financial Institutions
Government Sponsored Investment Pools
Individual Placement of Investments
V. Authorized Investments ............................................................................................ 7 State of California Limitations
· City Limitations
VI. Investment Maturity ................................................................................................. 9 VII. Evaluation oflnvestment Performance .................................................................... 9 VIII. Investment Reporting ............................................................................................... 9 IX. Policy Review ......................................................................................................... 10 X. Glossary oflnvestment Terminology ..................................................................... 11
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SECTION I. OVERVIEW
INVESTMENT POLICY
It is the policy of the City of Rancho Mirage to invest public funds in accordance with the requirements of the California Government Code to meet the daily cash flow needs of the City and to achieve a market rate of return while minimizing the potential for losses arising from market changes or issuer default.
This Investment Policy is intended to provide guidelines for the prudent investment of the City's temporarily idle cash and to identify the City's policies regarding the investment process.
Investments of public funds shall be made in accordance with this Investment Policy.
For purposes of this Investment Policy, the term "City" is defined to be the City of Rancho Mirage and its component units consisting of the Rancho Mirage Library, Successor Agency to the former Rancho Mirage Redevelopment Agency, Rancho Mirage Joint Powers Financing Authority, Rancho Mirage Housing Authority, the Rancho Mirage Community Services District, and any other component unit with funds in the City investment pool.
Since the opportunity exists to enhance investment returns in a safe and prudent manner by pooling cash for investment purposes, only one portfolio for the City, as defined above, shall be maintained.
Although only one portfolio shall be maintained, the City's financial records shall reflect at all times the correct ownership of the portfolio by Fund of the City , Successor Agency, Housing Authority, Joint Powers Financing Authority , Community Services District and any other fund within the City's financial records.
All participants in the City's investment process shall seek to act responsibly as custodians of the public trust. Any investment transaction that might impair public confidence in the City's ability to manage its assets or to govern effectively shall be avoided.
The Finance Department shall annually send a copy of the current Statement of Investment Policy to the City's Investment Advisor and any brokers/dealers designated as eligible for the placement of investments directly by the City's.
INVESTMENT OBJECTIVES I
The City's primary investment objectives , in priority order and consistent with Government Code Section 53600.5 , are:
1. Safety of Principal -Safety of principal is the foremost objective of the City. Each investment transaction shall seek to avoid capital losses from financial institution default or broker-dealer default.
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2. Liquidity -Liquidity is the second most important objective of the investment program.
The investment portfolio shall remain sufficiently liquid to enable the City to meet all operating and capital requirements.
3. Yield -The City's portfolio shall be invested with the objective of attaining a market rate of return at all times.
SCOPE OF INVESTMENT POLICY
Investments of public funds of the City shall be made in accordance with this Investment Policy. Included in the scope of the City's Investment Policy are the following major guidelines and practices which are to be used in achieving the City's three primary investment objectives:
Investment Authority and Responsibilities (Section II)
Capital Preservation and Risk (Section III)
Eligible Financial Institutions (Section IV)
Authorized Investments (Section V)
Investment Maturity (Section VI)
Evaluation of Investment Performance (Section VII)
Investment Reporting (Section VIII)
This Investment Policy applies to all financial assets held directly by the City. These financial assets are accounted for in the City's Annual Comprehensive Financial Report which includes the following fund types:
General Fund
Special Revenue
Debt Service
Capital Projects
Custodial
This Investment Policy does not apply to the following types of investments:
Deferred Compensation Plan Assets. Investment decisions regarding these assets are made by the participants pursuant to the deferred compensation plans made available by the City.
Assets Held by Fiscal Agents. Assets held by fiscal agents are held pursuant to formal agreements such as the requirements of a bond issue or an agreement between the City and another government agency or other entity. The investment of assets held by fiscal agents shall occur pursuant to these formal requirements as permitted by Section 53601 (1) of the California Government Code. However, the investment of such assets is subject to the laws established by the State of California pertaining to investments by local agencies as well as the City's primary investment objectives . 2 2-13
SECTION II. INVESTMENT AUTHORITY AND RESPONSIBILITIES
AUTHORIZED INVESTMENT OFFICERS
The City Manager is designated as the City Treasurer. Although the City Manager serves as the City Treasurer, the ongoing management responsibility for the City's investment program has been delegated to the Finance Department. Unless otherwise specifically designated by the City Council, the only officials authorized to undertake investment transactions on behalf of the City are the City Manager, Director of Administrative Services, and Finance Manager. The City Treasurer along with discussion with the Director of Administrative Services may delegate investment decision making and execution authority to an investment advisor. The advisor will follow the Investment Policy and such other written instructions as are provided.
With the exception of investments in the State Treasurer's Local Agency Investment Fund (LAIF) and the California Asset Management Program (CAMP), the actual disbursement of funds for the purchase of individual investments shall require the approval of the City Manager or Director of Administrative Services. Investments in LAIF or CAMP require the approval of the Director of Administrative Services or Finance Manager. However, the official who initiates the investment transaction cannot approve the disbursement of funds.
INTERNAL CONTROL
The Finance Department is also responsible for ensuring compliance with the City's Investment Policy as well as for establishing systems of internal control designed to prevent losses due to fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets or imprudent actions by City officers and employees.
The Finance Department shall provide for an annual review by the City's independent auditor.
This review will provide internal control by assuring compliance with the City's investment policies and procedures.
EVALUATION OF INVESTMENT OFFICER ACTIONS
The actions of the City Council and designated City investment officers in the performance of their duties as managers of public funds shall be evaluated using the following "prudent investor" standard applied in the context of managing the overall portfolio:
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.
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ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process will refrain from personal business activities that could conflict with proper execution of the investment program , or which could impair their ability to make impartial decisions .
APPLICABLE RULES
As a charter city , Rancho Mirage invests available pooled idle cash resources in investments which are prudent and permitted under current legislation of the State of California. Investment practices of the City shall conform to the following rules and regulations:
California Government Code
Rancho Mirage Municipal Code
"Code of Ethics on Professional Conduct" of the California Municipal Treasurers' Association
INVESTMENT PROCEDURES
The Finance Department shall establish , and update as needed , written investment policy procedures for the operation of the investment program consistent with the Statement of Investment Policy . Procedures should include reference to step s to be taken in preparation for investing, authorized broker/dealers , selecting investment maturities and cash flow forecasting , investment safekeeping , wire transfer procedures , investing in the State Treasurer's Local Agency Investment Fund (LAIF), CAMP, banking services contracts , etc.
SECTION III. CAPITAL PRESERVATION AND RISK
OVERVIEW
Some level of risk is inherent in any investment transaction. Losses may be incurred due to issuer default, market price changes , or closing investments in non-marketable certificates of deposit prior to maturity due to unanticipated cash flow needs . Diversification of the City's portfolio by institution, investment type , and maturity term is the primary tool available to the City to minimize investment risk and capital losses.
PORTFOLIO DIVERSIFICATION PRACTICES
The following sections summarize the City's major portfolio diversification practices and guidelines in determining:
Eligible Financial Institutions (Section IV)
Authorized Investments (Section V)
Investment Maturity (Section VI)
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It should be noted that all limitations for financial institutions, authorized investments and investment maturity included in this Investment Policy are to be based on the portfolio at the time of placement. The actual composition of the City's investments may vary over time from the portfolio limitations due to overall portfolio changes that occur subsequent to the time of placement.
SECTION IV. ELIGIBLE FINANCIAL INSTITUTIONS
CREDIT-WORTHINESS STANDARDS AND PORTFOLIO DIVERSIFICATION The following general criteria relating to credit-worthiness and portfolio diversification will be used in selecting banks, savings and loans, and broker/dealers in the placement of City investments:
The Finance Department shall conduct an annual review of the financial capacity and credit-worthiness of all financial institutions that the City is currently using for the placement of investments.
The financial capacity and credit-worthiness of the financial institution shall be considered prior to the placement of City investments.
No more than 5% of the City 's portfolio , exclusive of investments in U.S. Treasuries , Federal Agencies , money market funds, and investment pools, shall be placed with any issuer regardless of security type.
Certificates of deposit (FDIC-insured or collateralized) placed by the City shall not constitute more than 5% of the total assets of the financial institution.
Insured or collateralized certificates of deposit shall only be placed with financial institutions that maintain a ratio of equity to total assets of at least 3%.
SELECTION OF ELIGIBLE FINANCIAL INSTITUTIONS
All financial institutions including broker/dealers which desire to become qualified bidders for the City's investment transactions must supply the Finance Department with the following:
Audited financial statements for the last three years and subsequent quarterly financial statements.
Completed broker/dealer or bank/savings and loan questionnaire including certification that the financial institution has reviewed the City's Statement of Investment Policy and applicable California Government Code sections , that it will exercise due diligence in monitoring the activities of its employees engaged in investment transactions with the City , and that it will ensure that its officers and employees who offer investments to the City are trained in the precautions appropriate for public sector investments.
Resumes of employees who will be engaged in investment transactions with the City . 5 2-16
The Finance Department shall review the information submitted and shall forward the results of its evaluation with a recommendation to the City Manager for final approval and designation of the financial institution as eligible for the placement of the City's investments.
If the City has an investment advisor, the investment advisor may use its own list of authorized broker/dealers to conduct transactions on behalf of the City.
GOVERNMENT SPONSORED INVESTMENT POOLS
The City may invest in the State Treasurer's Local Agency Investment Fund (LAIF). LAIF, established in 1976, is considered a "government sponsored investment pool" that enables local government agencies in California to invest money with the State Treasurer. Money invested in LAIF is pooled by the State Treasurer with State money.
The Finance Department shall annually obtain and review:
The State Treasurer's Investment Policy which establishes guidelines for the investment of State money and money invested in LAIF by local government agencies.
The State Auditor's annual report on the State Treasurer's Office Statement of Securities Accountability that is conducted in accordance with Government Code section 13299.1.
The City may invest in the California Asset Management Program (CAMP). · CAMP is a California Joint Powers Authority (JP A) established in 1989 to provide California public agencies with professional investment services. The JP A operates a "local government investment pool" that jointly invest funds of local governments. The CAMP Pool is a permitted investment for all local agencies under California Government Code Section 53601(p).
The Finance Department shall annually obtain and review:
The current copy of CAMP's Program guide, which describes the guidelines for funds invested in the program.
A copy of CAMP' s current annual report.
Investments in other government sponsored investment pools are not permitted.
INDIVIDUAL PLACEMENT AND CUSTODY OF INVESTMENTS
Individual placement of investments with eligible financial institutions shall be based on the following practices and procedures:
The purchase by the City of any investment other than those purchased directly from the issuer, will be purchased either from an institution licensed by the State as a broker- dealer, as defined in Section 25004 of the Corporations Code, which is a member of 6 2-17
the Financial Industry Regulatory Authority (FINRA), 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.
As discussed in more detail in Section V, unless collateralized by eligible securities as provided in Sections 53651 and 53652 of the Government Code , the maximum amount of certificates of deposit (including expected interest) to be placed with any single bank or savings and loan shall be the current limit of FDIC insurance .
With the exception of marketable securities that serve as collateral under a repurchase agreement, all marketable securities purchased shall be held by the City's third-party bank custodian on a delivery versus payment basis (DVP) pursuant to Government Code Section 53601. DVP requires that the City's third-party custodian receive the purchase price of the marketable securities in cash from the City. Upon delivery of the purchased marketable securities to the custodian by the broker/dealers, the custodian shall release the cash in the amount of the purchase price to the broker/dealers. This final process completes the purchase transaction and shall be evidenced by monthly reports furnished by the custodian.
The approval of the City Manager or Director of Administrative Services shall be required before marketable securities held by the City's third-party custodian are sold or transferred to another financial institution prior to maturity.
Investments shall be awarded based on competitive bids with a minimum of three quotes being obtained. Documentation relating to investment quotes shall be maintained by the Finance Department for six months.
SECTION V. AUTHORIZED INVESTMENTS
As provided in Sections 16429.1 , 53601 , 53601.1 , 53649 and 53684 of the Government Code, the State of California limits the investment vehicles available to local agencies. The City further limits authorized investments to those investment types summarized in the following paragraphs. Section 53601 , as now amended, provides that unless Section 53601 specifies a limitation on an investment's maturity, no investments with maturities exceeding five years shall be made unless the City Council has previously granted authority to do so.
Where this section specifies a percentage limitation for a particular security type , that percentage is applicable only on the date of purchase. Credit criteria listed in this section refers to the credit rating at the time the security is purchased. If an investment's credit rating falls below the minimum rating required at the time of purchase , the City Treasurer will perform a timely review and decide whether to sell or hold the investment.
State Treasurer's Local Agency Investment Fund (LAIF) -As authorized in Government Code Section 16429 .1 and by LAIF procedures, local government agencies are each authorized to invest up to statutory limits in this investment program administered by the California State Treasurer.
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California Asset Management Program (CAMP) -As authorized in Government Code Section 53601(p), the City may invest in the CAMP pool up to the statutory limit set for LAIF , as long as CAMP maintains an AAAm rating, or its equivalent.
Government Agency Issues -As authorized in Government Code Sections 53601(a) through (f), this category includes a wide variety of government securities which include the following:
United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.
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.
Municipal Debt to include:
o Registered state warrants or treasury notes or bonds of this state, 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.
o 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. o 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.
Purchases of municipal debt are limited to securities rated in a rating category of "A" (long-term) or "A-1" (short-term) or their equivalents or better by a Nationally Recognized Statistical Rating Organization ("NRSRO"), and if rated , no lower than the minimum rating category by Standard & Poor's, Moody's, or Fitch. A maximum of 30% of the City's portfolio may be invested in municipal debt.
Money Market Funds -As authorized in Government Code Sections 53601 (1), local agencies may invest in shares of beneficial interest issued by diversified management companies (mutual funds) in an amount not to exceed 20% of the agency's portfolio. There are a number of other qualifications and restrictions regarding allowable investments shares of beneficial interest issued by mutual funds. Only investments in First American Treasury Obligations Fund are permitted while it maintains a AAA rating.
Non-Negotiable Certificates of Deposit -As authorized in Government Code Section 53649 , Certificates of Deposit are fixed-term investments which are required to be collateralized from 105% to 150% depending on the specific security pledged as collateral in accordance with 8 2-19
Government Code Section 53652. The collateral pool is administered by the State, and is composed of a wide variety of government securities, including those indicated above, as well as promissory notes secured by first mortgages on improved residential property located in the State and letters of credit issued by the Federal Home Loan Bank of San Francisco. There are no portfolio limits on the amount or maturity for this investment vehicle.
Insured Cash Sweep (ICS) Account-As authorized in Government Code Section 53601.8, a local agency that has the authority under law to invest funds, at its discretion, may invest a portion of its surplus funds in deposits 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. ICS accounts are eligible for multi-million-dollar FDIC insurance that is backed by the full faith and credit of the United States government.
Medium-Term Notes-As authorized in Government Code Section 53601(k), Medium-term notes, defined 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. Purchases are limited to securities rated in a rating category of "A" or its equivalent or better by an NRSRO, and ifrated, no lower than the minimum rating category by Standard & Poor's, Moody's, or Fitch. A maximum of 30% of the City's portfolio may be invested in this category.
Repurchase Agreements-As authorized in Government Code Section 53601G), the City may invest in repurchase agreements. An executed Master Repurchase Agreement is required between the City and the broker dealer or financial Institution. The market value of securities that underlies a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly.
Collateral is restricted to U.S. Treasury and Federal Agency securities. A maximum of 30% of the City's portfolio may be invested in this category. The maximum maturity of any investment in this category shall not exceed one year.
PROHIBITED INVESTMENTS
California Government Code Section 53601.6 states that:
(a) A local agency shall not invest any funds pursuant to this article or pursuant to Article 2 (commencing with Section 53630) in inverse floaters, range notes, or mortgage-derived, interest-only strips.
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(b) (1) Except as provided in paragraph (2), a local agency shall not invest any funds pursuant to this article or pursuant to Article 2 ( commencing with Section 53630) in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C.
Sec. 80a-1 et seq.) that are authorized for investment pursuant to subdivision (1) of Section 53601.
(2) Notwithstanding the prohibition in paragraph (1), a local agency may invest in securities issued by, or backed by, the United States government that could result in zero-or negative- interest accrual if held to maturity, in the event of, and for the duration of, a period of negative market interest rates. A local agency may hold these instruments until their maturity dates.
SECTION VI. INVESTMENT MATURITY
In addition to the risks associated with the credit-worthiness of the financial institution and the security of the investment vehicle, the maturity period of investments is also a significant consideration in the management of the City's portfolio. In order to minimize the impact of market risk, it is intended that all investments will be held until maturity. In implementing this policy, the following guidelines will be used:
Projected cash flow requirements are the primary factor to be used in determining investment maturity terms. After cash flow needs have been met, yield considerations will be the next factor used in determining maturity terms, with the expectation that longer maturity periods will generally yield greater returns on investments.
Investments may be sold prior to maturity for cash flow or appreciation purposes.
However, no investment shall be made based solely on anticipated yields resulting from capital gains.
The City may not invest in a security whose maturity exceeds five years from the date of purchase unless City Council has provided approval for a specific purpose at least 90 days before the investment is made.
As noted in Section III. Capital Preservation and Risk , the selection of investment maturities is to be based on the portfolio at the time investments are purchased. The City Council has approved a maximum of 25% of the portfolio that may be invested for more than five years, but not to exceed ten years. Before additional investments are purchased with maturities beyond five years , the City's Budget Subcommittee must review the proposed investment.
The City's authorized investment officers shall attempt to maintain no less than a $3 million balance in the State Treasurer's Local Agency Investment Fund (LAIF) or the California Asset Management Program (CAMP).
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SECTION VII. EVALUATION OF INVESTMENT PERFORMANCE
As indicated previously, it is the City's policy to achieve a market rate of return on public funds while minimizing risks and preserving capital. In evaluating the performance of the City's portfolio in complying with this policy, the City shall establish an appropriate performance benchmark and compare the return of its portfolio to the return of the benchmark.
SECTION VIII. INVESTMENT REPORTING
The Finance Department shall prepare and the City Treasurer shall provide the City Council with a Quarterly Treasurer's Report providing the following information:
Type of investment
Issuer
Percentage yield on an annualized basis
Maturity date
Original cost, amortized cost, par value and current market value for each investment Source of market values for any securities managed by an outside party other than LAIF and other local agencies
Total cost, par value and market value of the portfolio Investment transactions
In accordance with Statement 3 of the Governmental Accounting Standards Board, the degree of credit risk for each investment shall be reported.
The Quarterly Investment Report shall include all investments held as of the end of the month and shall be issued within 30 days after the end of the quarterly reporting period.
SECTION IX. POLICY REVIEW
The Finance Department shall submit for approval an annual Statement of Investment Policy to the City Council by February 28 of each year and the City Council shall be notified within 30 days of any significant changes in Investment Policy between annual submittals.
This Investment Policy will be reviewed at least annually to ensure its consistency with:
The California Government Code sections that regulate the investment and reporting of public funds.
The overall objectives of preservation of principal, sufficient liquidity, and a market return.
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SECTION X. GLOSSARY OF INVESTMENT TERMINOLOGY
AMORTIZED COST: For investments purchased at a discount, amortized cost constitutes cost plus interest earned to date.
BANKERS' ACCEPTANCE: 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.
BID: The price offered for securities.
BROKER: A broker brings buyers and sellers together for a commission paid by the initiator of the transaction or by both sides .
CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP). CAMP is a California Joint Powers Authority ("JPA") established in 1989 to provide California public agencies with professional investment services. The CAMP Pool is a permitted investment for all local agencies under California Government Code Section 53601(p). CAMP is directed by a Board of Trustees , which is made up of experienced local government finance directors and treasurers.
COST: The purchase price of an investment.
COLLATERAL : Securities , evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
CERTIFICATE OF DEPOSIT: A time deposit with a specific maturity evidenced by a certificate. Large-denomination CDS are typically negotiable.
COMMERCIAL PAPER: An unsecured promissory note with a fixed maturity no longer than 270 days. The largest issuers include General Motors Acceptance Corporation (GMAC), General Electric Capital Corporation (GECC) and other major corporations.
DEALER: A dealer , as opposed to a broker, acts as a principal in all transactions , buying and selling for the dealer's own account.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities.
DISCOUNT: The difference between the cost price of a security and its value at maturity when quoted at lower than face value.
DISCOUNT SECURITIES: Securities that are issued at a discount to par (face value) and redeemed at maturity for full face value, e .g., U.S. Treasury bills , Federal Agency discounts notes , and commercial paper. Interest is received at maturity. 12 2-23
DIVERSIFICATION: Dividing investment funds among a variety of securities.
FEDERAL AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals , e.g., S & L's, small business firms, students, farmers , farm cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION: A federal agency that insures bank deposits , currently up to $250,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB): Government sponsored banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): A U.S. Corporation and instrumentality of the U.S. government. Through its purchases of conventional mortgages, it provides liquidity to the mortgage markets, much like FNMA. FHLMC's securities are highly liquid and widely accepted. FHLMC assumes and guarantees that all security holders will receive timely payment of principal and interest.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing & Urban Development.
It is the largest single provider ofresidential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans in addition to fixed-rate mortgages. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest.
FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA): A regulatory body created after the merger of the National Association of Securities Dealers (NASD) and the New York Stock Exchange's regulation committee. FINRA is responsible for governing business between brokers, dealers and the investing public.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae):
Securities guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loans associations and other institutions. Security holder is protected by full faith and credit of the U.S. Government.
INSURED CASH SWEEP (ICS) ACCOUNT -Deposit accounts 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. ICS accounts are authorized under Government Code Section 53601.8 and are FDIC insured backed by the full faith and credit of the United States government.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value.
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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.
MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase-reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller- borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.
MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded.
MORTGAGE-BACKED SECURITIES (MBS): These securities represent an ownership interest in mortgage loans made by financial institutions (savings and loans, commercial banks, or mortgage companies) to finance the borrower's purchase of a home or other real estate. MBS are created when these loans are packaged, or "pooled," by issuers or servicers for sale to investors. As the underlying mortgage loans are paid off by the homeowners , the investors receive payments of interest and principal.
PAR VALUE: The amount that will be realized upon maturity of an investment.
PORTFOLIO: Collection of securities held by the investor.
PRIMARY DEALER: A group of government securities dealers that submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight.
RA TE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price.
REPURCHASE AGREEMENT: 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 the buyer for this. Dealers use repurchase agreements extensively to finance their positions.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held for protection.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. 14 2-25
TREASURY BILL: A discount security issued by the U.S. Treasury to finance the national debt that matures from three months to one year.
TREASURY BONDS: Long-term U.S. Treasury securities having initial maturities of more than ten years.
TREASURY NOTES: Intermediate-term U.S. Treasury securities having initial maturities of from one to ten years.
YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) income yield is obtained by dividing the current dollar income by the current market price for the security. (b) net yield or yield to maturity is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the security. 15 2-26
Prior City Council Action Concerning Statement of Investment Policy:
Adopted by Resolution No. 2000-11, February 17, 2000
Amended by Resolution No. 2001-17, February 15, 2001
Amended by Resolution No. 2002-11, February 21, 2002
Adopted by Resolution No. 2003-17, March 6, 2003
Adopted by Resolution No. 2004-22 , February 19, 2004
Adopted by Resolution No. 2005-22, February 17, 2005
Adopted by Resolution No. 2006-07, February 16, 2006
Adopted by Resolution No. 2007-14, February 15, 2007
Adopted by Resolution No. 2008-10, February 21, 2008
Adopted by Resolution No. 2009-04, February 19, 2009
Adopted by Resolution No. 2010-06, February 18, 2010
Adopted by Resolution No. 2011-03, February 17, 2011
Adopted by Resolution No. 2012-03, February 2, 2012
Adopted by Resolution No. 2013-01, February 7, 2013
Adopted by Resolution No. 2014-01, February 6, 2014
Adopted by Resolution No. 2015-61, February 5, 2015
Adopted by Resolution No. 2016-04, February 18, 2016
Adopted by Resolution No. 2017-02, February 2, 2017
Adopted by Resolution No. 2019-07, February 21, 2019
Adopted by Resolution No. 2020-02, February 6, 2020
Adopted by Resolution No. 2021-04, February 4, 2021
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