City Council
Redevelopment Successor
Agency Report
City Council Meeting: February 28, 2023
Agenda Item: 5.I
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To: Redevelopment Successor Agency, Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Annual Investment Policy Update
Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines.
2. Review and approve the City’s revised Investment Policy.
3. Extend the delegation of investment authority to the Director of Finance, as City Treasurer, from March 1, 2023 through February 28, 2024.
Staff also recommends that the Successor Agency Governing Board:
1. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exception) of the California Environmental Quality Act (CEQA) Guidelines.
2. Review and approve the City Investment Policy for Successor Agency Investments.
3. Extend investment authority to the Treasurer of the Successor Agency, from March 1, 2023 through February 28, 2024.
Summary
Per State law, the treasurer or chief fiscal officer of a local agency may annually render an investment policy to its governing body for consideration at a public meeting. While not required, staff believes that it is important to follow best practices and provide transparency by submitting the City’s Investment Policy (Attachments A and B) to Council annually for consideration and approval at a public meeting. The Santa Monica City Charter designates the Director of Finance (as the City Treasurer) as the custodian of all public funds. Additionally, State law requires that the Council delegate investment 2 of 4
authority to the City Treasurer for a one-year period, renewable annually. The current delegation of authority carries through February 28, 2023.
Discussion
City investments are made only in those instruments specifically authorized by California State laws, primarily Sections 53601, 16429.1, and 53684 et seq. of the Government Code. Within these legal guidelines, the three primary objectives of the City’s Investment Policy and investment practices, in priority order are:
• Safety – Safety of principal is the foremost objective of the City’s investment program. City investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio by diversifying its investments among a variety of securities offering independent returns.
• Liquidity – City investments are kept sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated by structuring the portfolio so that securities mature concurrently with anticipated cash needs to the extent possible. Investments are primarily made in securities with active secondary or resale markets. Additionally, an adequate liquidity buffer is maintained for extraordinary circumstances.
• Rate of Return – The City’s investment portfolio is designed with the objective of attaining a benchmark rate of return throughout budgetary and economic cycles taking into account safety and liquidity requirements. The benchmark may vary from time to time depending on the economic and budgetary conditions present.
The City continues to abide by the highest professional standards in the management of public funds. While the investment strategy is flexible and can change based on market and economic conditions, the legal and policy guidelines governing these investment decisions remain relatively static. The City’s Investment Policy also includes socially responsible investment principles. In addition to following the 3 of 4
guidelines previously set by Council, the City considers Economic, Social, and Governance (ESG) ratings and performance as well as certain social impact factors when making investment decisions.
On March 8, 2022, Council directed staff to divest City funds from Russian assets.
The City’s general investment portfolio has no direct investments in Russian companies and holds no sovereign Russian debt. As of November 30, 2022, the portfolio does include approximately $79.5 million (book value) in bonds from corporations that had business relationships in Russia or may have investment holdings in Russia. Most have announced a termination, suspension, or limitation of business activity in Russia. Additional detail is included in the April 6, 2022 Information Item included as an attachment to this report. Sale of all bonds of companies that had been doing business in Russia would result in a loss of approximately $6.2 million (based on 11/30/2022 market values), which would cause fiscal harm to the City. The City’s Russian divestment actions as outlined in the April 6, 2022 Information Item will remain in place.
On an on-going basis, staff reviews public agency investment best practices and regulatory or legal changes to ensure City compliance. There were three minor legislative changes related to investment of public funds adopted by the State in 2022 per SB 1489, none of which have a material impact on City investment practices.
The first change clarified that a public agency investment’s term or remaining maturity is to be measured from the settlement date to final maturity. The City already follows this practice. In addition, SB 1489 amended State law to prohibit the purchase of a security with a forward settlement date exceeding 45 days from the time of investment. Again, the City already follows this practice. Finally, the bill also increased the timeline for the treasurer or chief fiscal officer to present a quarterly investment report to the chief executive officer, the internal auditor, and the legislative body of the local agency by 15 days, from 30 to 45 days following the end of the quarter. Per the City Charter, staff provides a monthly information item that serves as the investment report.
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The other changes to this year’s policy are minor clarifying wording changes and correction of typos.
Environmental Review
The updated investment policy is categorically exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines. The policy is covered by the common sense exemption which states that CEQA does not apply, “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.” Therefore, it can be seen with certainty that actions would not result in adverse physical impacts on the environment, and as such, is categorically exempt from CEQA.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended actions. Staff provides monthly reports to the City Council and the City Manager describing the present status of City investments and monies held by the City, as well as summarizing all investment transactions for the month. Interest earnings from the City’s pooled investment portfolio are allocated to the various City funds based upon each fund’s share of total City cash and investments. Projected investment earnings for each fund are included in the FY 2022-23 Revised Budget.
Prepared By: David Carr, Assistant City Treasurer
Approved Forwarded to Council
Attachments:
A. Information Item Russian Divestment
B. Annual Update on City Investment Policy-Final REVISED 2022 C. Annual Update on City Investment Policy-Final REVISED 2023