City Council
Redevelopment Successor
Agency Report
City Council Meeting: February 13, 2024
Agenda Item: 5.H
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To: Redevelopment Successor Agency, Mayor and City Council From: Oscar Santiago, 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, 2024 through February 28, 2025.
Staff also recommends that the Redevelopment 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 Redevelopment Successor Agency Investments.
3. Extend investment authority to the Treasurer of the Redevelopment Successor Agency, from March 1, 2024 through February 28, 2025.
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 1 and 2) 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 5
authority to the City Treasurer for a one-year period, renewable annually. The current delegation of authority carries through February 28, 2024.
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 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. 3 of 5
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, 2023, the portfolio does include approximately $58.3 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 $3.4 million (based on 11/30/2023 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. Effective January 1, 2024, there were minor changes to the investment policy rules in the Government Code, but these changes will not have a material impact on City investment practices. Specifically, the Local Government Omnibus Act of 2023 (SB 882), amended Government Code section 53601 to clarify limitations imposed on public investment in a privately issued mortgage passthrough security, collateralized mortgage obligation, mortgage-backed or other paythrough bond, equipment lease-backed certificate, consumer receivable passthrough certificate, or consumer receivable-backed bond. Santa Monica does not invest in these securities so there is no impact to current investment procedures.
SB 882 also amended Government Code Section 27000.7 to eliminate one of the options for a person to demonstrate eligibility to be elected or appointed to the office of county treasurer, county tax collector, and county treasurer-tax collector. As this provision relates to counties there is no impact to Santa Monica.
The City can invest up to $75 million per account in the Local Agency Investment Fund (LAIF), a pooled state fund managed by the Office of the California State Treasurer. Previously, LAIF accounts were established for both the City and the 4 of 5
Successor Agency (SA), formerly the Redevelopment Agency (RDA). However, due to a low balance, the SA LAIF account will be closed in spring 2024 and remaining funds will be transferred to the SA bank account maintained at Union Bank.
Revisions to City’s Investment Policy
Staff recommends two revisions. The first improves the City’s opportunities with investments and the second updates the list to include only active Funds:
• Increase the maximum maturity for local agency bonds from 5 years to up to 15 years. This change provides the City with more investment flexibility, the opportunity for increased yields particularly on longer term investments, and little to no additional risk.
• Update to Attachment 1-A City of Santa Monica Funds for Cash Pooling to account for new and closed Funds.
Both revisions have been incorporated into Investment Policy attached to this report.
Environmental Review
The updated investment policy is exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines, 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. The policy is administrative in nature. Therefore, it can be seen with certainty that the agreement would not result in adverse physical impacts on the environment, and as such, is 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 5 of 5
upon each fund’s share of total City cash and investments. Projected investment earnings for each fund are included in the FY 2023-24 Revised Budget.
Prepared By: Stephanie Manglaras, Assistant City Treasurer Approved Forwarded to Council
Attachments:
A. Attachment 1 - Annual Update on City Investment Policy-REVISED 2024 B. Attachment 2 - Information Item Russian Divestment