Agenda Item No.
CITY OF YUCAIPA
AGENDA REPORT
TO: Honorable Mayor and City Council
FROM: Chris Mann, City Manager / Tre er('/n/I
Phil White, Director of Finance 12.1
FOR: City Council Meeting of August 14, 2023
SUBJECT: Annual Investment Policy Update
RECOMMENDATION:
That the City Council:
1. Adopt Resolution No. 2023-40 — Annual Investment Policy Update; and
2. Delegate its investment authority to the City Treasurer for a one-year period.
DISCUSSION:
California Government Code Section 53646 states that a local agency may annually render to their legislative body a statement of investment policy. California Government Code Section 53607 authorizes the City Council to delegate its investment authority to the City Treasurer for a one- year period, renewable annually, as per Section V of the Policy. The Local Agency Investment Guidelines published by the California Debt and Investment Advisory Commission (CDIAC) also states that agencies should review their investment policy annually. The City Council last adopted an update to the Policy on August 8, 2022.
The changes being recommended in this annual update ar
Government Code related to the Investment of Surplus
Attachment 2, the "redlined" version of the Policy.
FISCAL IMPACT:
None
Attachments-
1. Resolution No. 2023-40
a. Exhibit A - Investment Policy
2. Investment Policy ("Redlined")
e
related to amendments made to the
Funds. All changes can be seen in
ATTACHMENT 1
RESOLUTION NO.2023-40
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
YUCAIPA, CALIFORNIA, ADOPTING THE ANNUAL INVESTMENT
POLICY UPDATE
WHEREAS, it is recommended to update the City's Investment Policy in order to continue to effectively invest funds in accordance with the principles of sound treasury management and applicable laws; and
WHEREAS, the City desires to adopt the updated Investment Policy, as set forth in Exhibit A (the "Policy"), to replace and supersede the previous Policy adopted with Resolution 2022-46.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF YUCAIPA HEREBY FINDS, DETERMINES, ORDERS, AND RESOLVES AS FOLLOWS:
Section 1. Resolution No. 2022-46 is hereby rescinded.
Section 2. The City of Yucaipa hereby adopts the updated Investment Policy.
Section 3. The City staff is hereby authorized and directed to proceed with any and all actions deemed necessary or advisable, following the adopted policy guidelines pursuant to this Resolution, in connection with the future investments of funds.
PASSED, APPROVED, and ADOPTED this 14th day of August 2023.
Justin Beaver, Mayor
ATTEST:
Ana V. Sauseda, CMC
Director of General Services/City Clerk
INVESTMENT POLICY
OF THE CITY OF YUCAIPA
(revised August 2023)
I. Policy Statement
The purpose of this Statement of Investment Policy is to provide governing guidelines for prudent cash management and investment of public funds until such time as the funds are needed to pay the obligations of the City.
II. Scope
This Investment Policy applies to all financial assets of the City except the investment of bond proceeds, which are governed by the appropriate bond documents, and any pension or other post - employment benefit funds held in a trust, which are governed by Sections 53609 and 53620 et seq. of the California Government Code, respectively. The funds to which this policy applies are accounted for in the City's Annual Comprehensive Financial Report and include:
1) Governmental Funds (General Fund, Special Revenue Funds, Capital Projects Funds) 2) Proprietary Funds (Internal Service Funds)
3) Fiduciary Funds
III. Prudence
The Treasurer shall govern investment activities pursuant to the "prudent investor standard" as defined in California Government Code §53600.3, not for speculation, but for investment, considering the probable safety of the City's capital as well as the probable income to be derived, and as applied to the investment portfolio as a whole. The investment principle stated here is that:
"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 City, 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 City." IV. Investment Objectives
The ultimate objective of the Treasurer's investment program is to achieve a reasonable rate of return on the portfolio consistent with short-term interest rates, after having given primary consideration to safety and preservation of capital and liquidity sufficient to meet daily cash flow needs. As specified in California Government Code § 53600.5, the priority of objectives in making investments is:
1) Safety and preservation of capital. The investments shall be undertaken in a manner that seeks to safeguard and ensure preservation of the principal of funds in the portfolio.
2) Liquidity. The investment portfolio will remain sufficiently liquid to enable the City to meet its cash flow requirements.
3) Return on Investment. The investment portfolio shall be designed with the objective of attaining a market rate of return on its investments consistent with the constraints imposed by its safety objective and cash flow requirements.
V. Delegation of Authority
The City Council's management and oversight responsibility for the investment program is delegated to the Treasurer who shall monitor and review all investments for consistency with this Investment Policy. No person may engage in an investment transaction except as provided under the limits of this Investment Policy.
The Treasurer's authority for making investments has been granted by the City Council Resolution #95-07 dated January 9, 1995, as required by Section 53607 of the California Government Code and the City Council annually shall consider and make a determination as to renewal of such delegation to the Treasurer of investment authority. Further statutory authority for the investment functions and responsibilities of the City Council that have been delegated to the Treasurer may be found in Sections 53601 et seq. and 53630 et seq. of the Government Code.
The City may contract for the use of investment manager services subject to all other provisions of this Investment Policy, provided that the Treasurer (so long as the City Council's delegation of investment authority to the Treasurer is in full force and effect) exercises prudence in the selection of the investment manager, imposes suitable safeguards to prevent abuse in the exercise of discretion by the investment manager, and remains responsible for any investment decisions made by the investment manager. The Treasurer shall maintain investment instructions for internal and external management of investments consistent with Government Code requirements.
VI. Legal Restrictions Pertaining to Investments
The law establishes certain restrictions on the types of securities and deposit classifications that are to be used in making investments of public funds. In certain instances, the law defines the maximum maturity, credit rating, and other criteria intended to minimize risk. The statutes containing the types of securities and deposits permissible for investment purposes may be found primarily in Sections 16429.1, 53601 and 53635 of the Government Code.
While the law defines the parameters for making investments, it does not define the risk. The Treasurer reserves the right to further restrict the investments permissible by law and to use its own discretion, in light of prevailing market conditions, the economy, and other factors, to limit the degree of risk at any moment in time. Except for specific policy restrictions, which follow, those investments presently authorized by the City Council are described in Section IX and summarized in Schedule I.
VII. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials
shall disclose to the City Council any material financial interests in financial institutions that conduct business within their jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City.
VIII. Authorized Financial Dealers and Institutions
In accordance with Government Code Section 53601.5, purchases of investments, other than investments purchased directly from the issuer, shall be made from an institution licensed by the state as a broker -dealer (as defined in Section 25004 of the Corporations Code), a member of a federally regulated securities exchange, a national or state -chartered bank, a savings association or federal 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.
If the City has engaged the services of a registered investment advisory firm, the firm is authorized to conduct investment transactions on the City's behalf with their own list of approved broker/dealers and financial institutions that comply with the requirements described in the foregoing paragraph. The investment advisor's approved list must be made available to the City.
For any investment transactions conducted by the Treasurer, the Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained for approved or security broker/dealers selected by credit worthiness that are authorized to provide investment services in the State of California.
Custody of investment securities shall be made in compliance with Section X of this Investment Policy. No public deposit shall be made except in a qualified public depository as established by state laws and in the manner prescribed therein, including but not limited to collateralization of the deposits as specified in Government Code Sections 53649 and 53656.
IX. Authorized and Suitable Investments
The City is empowered by Government Code Sections 53601 et seq. and 16429.1 to invest in the following instruments, and the City Council hereby authorizes the Treasurer to invest in the following securities. Unless stated differently, the maximum maturity is five years from date of purchase. Bond reserves and other cash for which there is a restriction on the expenditure of the principal may be invested in securities maturing in a period greater than five years. On such occasions, requests must be approved by City Council prior to purchase.
All investments shall be purchased with the intent of holding them until their final maturity.
The City's investment strategy will not prohibit the City from selling a security prior to its maturity and recording a gain or loss in order to improve the quality, liquidity, or return of the portfolio in response to market conditions or the City's needs.
All investment transactions shall be made after first having given consideration to risk and the credit worthiness of the issuer of the security, liquidity, and yields. All things being equal, investments shall be made with the issuer offering highest, competitive yield.
All investments shall be made on a competitive basis.
A copy of each investment transaction shall be given daily to the City's Finance Division and the monthly reports required by Section 53607 (so long as the City Council's delegation of investment authority to the Treasurer is in full force and effect) and quarterly reports as recommended by Section 53646 of the Government Code shall be filed with the City Council, as further specified in Section XII of this Investment Policy.
All investment transactions shall be immediately documented recorded and entered into the Treasurer's financial and accounting systems for purposes of accountability and control.
All concentration limits and minimum credit rating requirements shall apply at the time of purchase. In the event a security held by the City is subject to a rating change that brings it below the minimum credit ratings specified in this Policy, the City shall require investment advisors engaged in the investment of City funds to notify City staff of the downgrade and provide a plan of action to address the downgrade as to whether to sell or retain such securities in the portfolio based on its current maturity, the economic outlook for the issuer, and other relevant factors. If a decision is made to hold a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported.
Where this Policy addresses specific portfolio percentage limitations by category, compliance will be measured as of the date of purchase as stated in the California Government Code §53601:
"Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase." Any investment held at the time prior to a revision of the Policy which does not meet the new policy guidelines may be held until maturity, and the Policy shall not apply to the prior investment currently held. At the time of the investment's maturity or liquidation, such funds shall be reinvested only as provided in the current adopted policy.
No more than 5% of the City's investment portfolio may be invested in the securities of any one issuer regardless of security type excluding U.S. Treasuries, federal agencies or U.S. Government - sponsored enterprises, and pooled investments such as LAIF, LGIPs, and money market funds.
A) United States Treasury Bills, Bonds, Notes, and Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no limitation as to the percentage of the portfolio that can be invested in this category. The maximum maturity is five years or less from date of purchase.
B) 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. There is no limitation as to the percentage of the portfolio that can be invested in this category. The maximum maturity is five years or less from date of purchase. The City shall not purchase obligations from the Small Business Administration.
C) Registered Treasury Notes or Bonds of the State of California, 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, provided that these securities are rated in a rating category of "AA" or its equivalent or better by a Nationally Recognized Statistical Rating Organization ("NRSRO").
No more than a combined 30% of the portfolio may be invested in categories C, D, and E.
The maximum maturity is five years or less from date of purchase.
D) Registered Treasury Notes or Bonds of any of the other 49 United 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 United States, in addition to California, provided that these securities are rated in a rating category of "AA" or its equivalent or better by a NRSRO.
No more than a combined 30% of the portfolio may be invested in categories C, D, and E.
The maximum maturity is five years or less from date of purchase.
E) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within the State of California, 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, provided that these securities are rated in a rating category of "AA" or its equivalent or better by a by a NRSRO. The maximum maturity is five years or less from date of purchase.
No more than a combined 30% of the portfolio may be invested in categories C, D, and E.
F) Bankers' Acceptances issued by domestic or foreign commercial banks, which are eligible for purchase by the Federal Reserve System, the short-term paper of which is rated "A-1" or better, or the equivalent, by an NRSRO. Bankers' acceptances purchased may not exceed 180 days to maturity.
No more than 40% of the portfolio may be invested in bankers' acceptances.
G) Commercial Paper rated in the highest letter and number rating category by one or more NRSROs. Commercial paper rated below the highest letter and number rating by one or more NRSROs is not eligible for purchase for the City's portfolio. The corporation that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2)
(1) The entity meets the following criteria: (a) is organized and operating within the United States, as a general corporation, (b) has total assets in excess of five hundred million dollars ($500,000,000), and (c) has debt, other than commercial paper, if any, that is rated in a rating category of "A" or its equivalent or better by a NRSRO. (2) The entity meets the following criteria: (a) is organized within the United States as a special purpose corporation, trust or limited liability company, (b) has program -wide credit enhancements including, but not limited to over collateralization, letters of credit, or surety bond, and (c) has commercial paper that is rated "A-1" or higher, or the equivalent by a NRSRO.
Eligible commercial paper shall have a maximum maturity of 270 days or less.
No more than 25% of City's portfolio may be invested in eligible commercial paper.
H) Negotiable Certificates of Deposit (NCDs) issued by a nationally or state chartered bank or a state or federal savings and loan association or by a federally -licensed or state -licensed branch of a foreign bank; provided that the NCD investment is fully insured by the FDIC (currently $250,000 limit) .
No more than 30% of the portfolio may be invested in NCDs.
I) Medium -term Notes. Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years to be measured from the settlement date to final maturity, 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.
The City may invest in medium term corporate notes rated in a rating category of "A" or its equivalent or better by an NRSRO.
A maximum of 30% of the City's portfolio may be invested in this category. ,I) Repurchase Agreements used solely as short-term investments not to exceed 7 days.
The City may enter into Repurchase Agreements only with primary dealers of the Federal Reserve Bank of New York. The City may invest in repurchase agreements with primary dealers with which the City has entered into a master contract that specifies terms and conditions of repurchase agreements.
The following collateral restrictions will be observed: Only U.S. Treasury securities or Federal Agency or U.S. Government -sponsored enterprise securities, as described in categories A and B, will be acceptable collateral. All securities underlying Repurchase Agreements must be delivered to the City's custodian bank by book entry, physical delivery, or by a third party custodial agreement. The market value of the underlying securities must be valued at 102% or greater of the funds borrowed against those securities. The transfer of underlying securities to the counterparty bank's customer book -entry account may be used for book -entry delivery.
The City or its trustee shall have a perfected first security interest under the Uniform Commercial Code in all securities subject to Repurchase Agreement.
No more than 30% of the portfolio may be invested in repurchase agreements.
Reverse repurchase agreements will not be allowed.
K) Local Agency Investment Fund (LAIF). The City may invest in the Local Agency Investment Fund established by the State Treasurer for the benefit of local agencies up to the maximum amount permitted.
L) Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). To be eligible for investment pursuant to this subdivision these companies shall either: (1) have attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs or (2) have an investment advisor registered or exempt from registration
with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds and with assets under management in excess of $500,000,000.
No more than 20% of the portfolio may be invested in money market funds. The City shall not purchase money market funds with shares whose net asset value floats.
M) Time Deposits. The City may invest in non-negotiable time deposits collateralized in accordance with the California Government Code (including but not limited to Government Code Sections 53649 and 53656), in those banks and savings and loans associations which are qualified public depositories under California Government Code Section 53630 et seq. and meet the requirement in category H for investment in negotiable certificates of deposit.
The issuer financial institution should have been in existence for at least five years. The Treasurer may waive the first $250,000 of collateral security for such deposits if the deposit is insured pursuant to federal law. The City shall not purchase Eurodollar time deposits.
N) Local Government Investment Pools ("LGIP"). Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in Government Code. The City will limit investments to LGIPs that seek to maintain a stable net asset value. Whenever the City has any funds invested in a LGIP, the Treasurer shall maintain on file a copy of the LGIP's current information statement and periodically review the LGIP's investments. A maximum of 50% of the City's portfolio may be invested in this category. To be eligible for investment pursuant to this subdivision, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (1) the adviser is registered or exempt from registration with the Securities and Exchange Commission; (2) the adviser has not less than five years of experience investing in the securities and obligations authorized in Government Code Section 53601 subsections (a) to (q), inclusive; and (3) the adviser has assets under management in excess of five hundred million dollars ($500,000,000).
X. Safekeeping and Custody
All deliverable security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a delivery -versus -payment (DVP) basis. Pursuant to Government Code Section 53608, the City Council delegates its authority to deposit investment securities for safekeeping to the Treasurer. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. As specified in Government Code Section 53608, an authorized third party custodian may be a federal or state savings and loan association, a federal or state savings bank, a trust company or a state or national bank located within this state, the Federal Reserve Bank of San Francisco or any branch thereof within this state, any Federal Reserve bank, or any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System.
XI. Internal Control
The Treasurer shall establish an annual process of independent review by an external auditor.
This review will provide internal control by assuring compliance with policies and procedures.
XII. Reporting
The Treasurer shall submit to the City Council a quarterly investment report within 45 days after the end of the applicable quarter. The report shall include a complete description of the portfolio, the type of investments, the issuers, maturity dates, par values and the current market values of each investment, including funds managed for the City by third party contracted managers. The report must also include a certification that (1) all investment actions executed since the last report have been made in full compliance with the Investment Policy and (2) the City will meet its expenditure obligations for the next six months, or an explanation if either of the certifications cannot be made.
The Treasurer shall maintain a complete and timely record of all investment transactions. If investment management authority has been delegated by the City Council to the Treasurer pursuant to Government Code Section 53607, the Treasurer shall render a monthly report of investment transactions to the City Council.
XIII. Special Debt Financing
From time to time, the City Council may authorize the issuance of debt in accordance with State and Federal laws. Given the special requirement of such debt -repayment schedules, arbitrage rebate requirements, the council may choose to place the investment of these funds with the City's fiscal agent. In such instances, the policy, objectives and investment restrictions shall be established by the Council by separate action and monies shall not be included in the portfolio managed by the Treasurer.
TREASURER CITY OF YUCAIPA
STATEMENT OF INVESTMENT POLICY
Schedule I
The following list is a summary of permitted investments as described in the City's Investment Policy statement. If any discrepancies exist, the Policy statement shall prevail.
No more than 5% of the City's investment portfolio may be invested in the securities of any one issuer regardless of security type excluding U.S. Treasuries, federal agencies or U.S. Government -sponsored enterprises, and pooled investments such as LAIF, LGIPs, and money market funds. ��n
Concen Qualityr"T Maturity
U.S. Treasury obligations
100%
n/a
5 years
Federal Agency or U.S.
Government -sponsored
100%
n/a
5 years
enterprise obligations
Bankers' Acceptances
40% total
A-1
180 days
Commercial Paper
25%
Al or equivalent
270 days
Issuer's senior debt
Negotiable Certificates of
obligations must be
Deposit
o
30%
A-1 (short term) or
5 years
A (long term) or
equivalent
Repurchase Agreements
30%
102% collateral
7 days
Reverse Repurchase
Not Allowed
Not Allowed
Not Allowed
Agreements
Time CDs
100%
Collateralized
5 years
State Municipal
30%
AA
5 years
obligations(1)
CA Local Agency Debt(1)
30%
AA
5 years
Corporate Medium Term
30%
A or equivalent
5 years
Notes
AAA or equivalent
Money Market Funds
20%
by 2 NRSROs or
n/a
qualifying registered
investment advisor
Maximum
LAIF
permitted by
n/a
n/a
State Treasurer
Qualifying
LGIPs
50%
registered
n/a
investment advisor
(1) No more than a combined 30% of the portfolio may be invested in State municipal obligations and CA Local Agency Debt.
ATTACHMENT 2
INVESTMENT POLICY
OF THE CITY OF YUCAIPA
(revised August 20232)
Policy Statement
Attachment 2
The purpose of this Statement of Investment Policy is to provide governing guidelines for prudent cash management and investment of public funds until such time as the funds are needed to pay the obligations of the City.
11. Scope
This Investment Policy applies to all financial assets of the City except the investment of bond proceeds, which are governed by the appropriate bond documents, and any pension or other post - employment benefit funds held in a trust, which are governed by Sections 53609 and 53620 et seq. of the California Government Code, respectively. The funds to which this policy applies are accounted for in the City's COffiffe;;erSiVe-Annual Comprehensive Financial Report and include:
1) Governmental Funds (General Fund, Special Revenue Funds, Capital Projects Funds) 2) e...,eial Re.,enue r..,..a l'roprietary Funds (Internal Service Funds) -5)1)__Fu.,aQs ofSUCeeSSOFAgefle n,eYucaipa Redevelopment ^« .ge*cyiduciary Funds III. Prudence
The Treasurer shall govern investment activities pursuant to the "prudent investor standard" as defined in California Government Code §53600.3, not for speculation, but for investment, considering the probable safety of the City's capital as well as the probable income to be derived, and as applied to the investment portfolio as a whole. The investment principle stated here is that:
"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 City, 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 City." IV- Investment Objectives
The ultimate objective of the Treasurer's investment program is to achieve a reasonable rate of return on the portfolio consistent with short-term interest rates, after having given primary consideration to safety and preservation of capital and liquidity sufficient to meet daily cash flow needs. As specified in California Government Code § 53600.5, the priority of objectives in making investments is:
1) Safety and preservation of capital. The investments shall be undertaken in a manner that seeks to safeguard and ensure preservation of the principal of funds in the portfolio.
Attachment 2
2) Liquidity. The investment portfolio will remain sufficiently liquid to enable the City to meet its cash flow requirements.
3) Return on Investment. The investment portfolio shall be designed with the objective of attaining a market rate of return on its investments consistent with the constraints imposed by its safety objective and cash flow requirements.
V. Delegation of Authority
The City Council's management and oversight responsibility for the investment program is delegated to the Treasurer who shall monitor and review all investments for consistency with this Investment Policy. No person may engage in an investment transaction except as provided under the limits of this Investment Policy.
The Treasurer's authority for making investments has been granted by the City Council Resolution #95-07 dated January 9, 1995, as required by Section 53607 of the California Government Code and the City Council annually shall consider and make a determination as to renewal of such delegation to the Treasurer of investment authority. Further statutory authority for the investment functions and responsibilities of the City Council that have been delegated to the Treasurer may be found in Sections 53601 et seq. and 53630 et seq. of the Government Code.
The City may contract for the use of investment manager services subject to all other provisions of this Investment Policy, provided that the Treasurer (so long as the City Council's delegation of investment authority to the Treasurer is in full force and effect) exercises prudence in the selection of the investment manager, imposes suitable safeguards to prevent abuse in the exercise of discretion by the investment manager, and remains responsible for any investment decisions made by the investment manager. The Treasurer shall maintain investment instructions for internal and external management of investments consistent with Government Code requirements.
VI. Legal Restrictions Pertaining to Investments
The law establishes certain restrictions on the types of securities and deposit classifications that are to be used in making investments of public funds. In certain instances, the law defines the maximum maturity, credit rating, and other criteria intended to minimize risk. The statutes containing the types of securities and deposits permissible for investment purposes may be found primarily in Sections 16429.1, 53601 and 53635 of the Government Code.
While the law defines the parameters for making investments, it does not define the risk. The Treasurer reserves the right to further restrict the investments permissible by law and to use its own discretion, in light of prevailing market conditions, the economy, and other factors, to limit the degree of risk at any moment in time. Except for specific policy restrictions, which follow, those investments presently authorized by the City Council are described in Section IX and summarized in Schedule I.
VII. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could
Attachment 2
impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Council any material financial interests in financial institutions that conduct business within their jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City.
VII1. Authorized Financial Dealers and Institutions
In accordance with Government Code Section 53601.5, purchases of investments, other than investments purchased directly from the issuer, shall be made from an institution licensed by the state as a broker -dealer (as defined in Section 25004 of the Corporations Code), a member of a federally regulated securities exchange, a national or state -chartered bank, a savings association or federal 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.
If the City has engaged the services of a registered investment advisory firm, the firm is authorized to conduct investment transactions on the City's behalf with their own list of approved broker/dealers and financial institutions that comply with the requirements described in the foregoing paragraph. The investment advisor's approved list must be made available to the City.
For any investment transactions conducted by the Treasurer, the Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained for approved or security broker/dealers selected by credit worthiness that are authorized to provide investment services in the State of California.
Custody of investment securities shall be made in compliance with Section X of this Investment Policy. No public deposit shall be made except in a qualified public depository as established by state laws and in the manner prescribed therein, including but not limited to collateral ization of the deposits as specified in Government Code Sections 53649 and 53656.
IX. Authorized and Suitable Investments
The City is empowered by Government Code Sections 53601 el seq. and 16429.1 to invest in the following instruments, and the City Council hereby authorizes the Treasurer to invest in the following securities. Unless stated differently, the maximum maturity is five years from date of purchase. Bond reserves and other cash for which there is a restriction on the expenditure of the principal may be invested in securities maturing in a period greater than five years. On such occasions, requests must be approved by City Council prior to purchase.
All investments shall be purchased with the intent of holding them until their final maturity.
The City's investment strategy will not prohibit the City from selling a security prior to its maturity and recording a gain or loss in order to improve the quality, liquidity, or return of the portfolio in response to market conditions or the City's needs.
All investment transactions shall be made after first having given consideration to risk and the credit worthiness of the issuer of the security, liquidity, and yields. All things being equal, investments shall be made with the issuer offering highest, competitive yield.
All investments shall be made on a competitive basis.
Attachment 2
A copy of each investment transaction shall be given daily to the City's Finance Division and the monthly reports required by Section 53607 (so long as the City Council's delegation of investment authority to the Treasurer is in full force and effect) and quarterly reports as recommended by Section 53646 of the Government Code shall be filed with the City Council, as further specified in Section XII of this Investment Policy.
All investment transactions shall be immediately documented recorded and entered into the Treasurer's financial and accounting systems for purposes of accountability and control.
All concentration limits and minimum credit rating requirements shall apply at the time of purchase. In the event a security held by the City is subject to a rating change that brings it below the minimum credit ratings specified in this Policy, the City shall require investment advisors engaged in the investment of City funds to notify City staff of the downgrade and provide a plan of action to address the downgrade as to whether to sell or retain such securities in the portfolio based on its current maturity, the economic outlook for the issuer, and other relevant factors. If a decision is made to hold a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported.
Where this Policy addresses specific portfolio percentage limitations by category, compliance will be measured as of the date of purchase as stated in the California Government Code §53601:
"Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase." Any investment held at the time prior to a revision of the Policy which does not meet the new policy guidelines may be held until maturity, and the Policy shall not apply to the prior investment currently held. At the time of the investment's maturity or liquidation, such funds shall be reinvested only as provided in the current adopted policy.
No more than 5% of the City's investment portfolio may be invested in the securities of any one issuer regardless of security type excluding U.S. Treasuries, federal agencies or U.S. Government - sponsored enterprises, and pooled investments such as LAIF, LGIPs, and money market funds.
A) United States Treasury Bills, Bonds, Notes, and Certificates of Indebtedness, or those for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no limitation as to the percentage of the portfolio that can be invested in this category. The maximum maturity is five years or less from date of purchase.
B) 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. There is no limitation as to the percentage of the portfolio that can be invested in this category. The maximum maturity is five years or less from date of purchase. The City shall not purchase obligations from the Small Business Administration.
C) Registered Treasury Notes or Bonds of the State of California, 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, provided that these securities are rated in a rating category of "AA" or its equivalent or better by a Nationally Recognized Statistical Rating Organization ("NRSRO").
Attachment 2
No more than a combined 30% of the portfolio may be invested in categories C, D, and E.
The maximum maturity is five years or less from date of purchase.
D) Registered Treasury Notes or Bonds of any of the other 49 United 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 United States, in addition to California, provided that these securities are rated in a rating category of "AA" or its equivalent or better by a NRSRO.
No more than a combined 30% of the portfolio may be invested in categories C, D, and E.
The maximum maturity is five years or less from date of purchase.
E) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within the State of California, 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, provided that these securities are rated in a rating category of "AA" or its equivalent or better by a by a NRSRO. The maximum maturity is five years or less from date of purchase.
No more than a combined 30% of the portfolio may be invested in categories C, D, and E.
F) Bankers' Acceptances issued by domestic or foreign commercial banks, which are eligible for purchase by the Federal Reserve System, the short-term paper of which is rated "A-l" or better, or the equivalent, by an NRSRO. Bankers' acceptances purchased may not exceed 180 days to maturity.
No more than 40% of the portfolio may be invested in bankers' acceptances.
G) Commercial Paper rated in the highest letter and number rating category by one or more NRSROs. Commercial paper rated below the highest letter and number rating by one or more NRSROs is not eligible for purchase for the City's portfolio. The corporation that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2)
(1) The entity meets the following criteria: (a) is organized and operating within the United States, as a general corporation, (b) has total assets in excess of five hundred million dollars (S500,000,000), and (c) has debt, other than commercial paper, if any, that is rated in a rating category of "A" or its equivalent or better by a NRSRO. (2) The entity meets the following criteria: (a) is organized within the United States as a special purpose corporation, trust or limited liability company, (b) has program -wide credit enhancements including, but not limited to over collateral ization, letters of credit, or surety bond, and (c) has commercial paper that is rated "A-1" or higher, or the equivalent by a NRSRO.
Eligible commercial paper shall have a maximum maturity of 270 days or less.
No more than 25% of City's portfolio may be invested in eligible commercial paper
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H) Negotiable Certificates of Deposit (NCDs) issued by a nationally or state chartered bank or a state or federal savings and loan association or by a federally -licensed or state -licensed branch of a foreign bank, provided that the NCD investment is fully insured by the FDIC (currently $250,000 limit) .
No more than 30% of the portfolio may be invested in NCDs.
I) Medium -term Notes. Medium -term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years Jo be measured from the settlement date to final maturityer-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.
The City may invest in medium term corporate notes rated in a rating category of "A" or its equivalent or better by an NRSRO.
A maximum of 30% of the City's portfolio may be invested in this category.
J) Repurchase Agreements used solely as short-term investments not to exceed 7 days.
The City may enter into Repurchase Agreements only with primary dealers of the Federal Reserve Bank of New York. The City may invest in repurchase agreements with primary dealers with which the City has entered into a master contract that specifies terms and conditions of repurchase agreements.
The following collateral restrictions will be observed: Only U.S. Treasury securities or Federal Agency or U.S. Government -sponsored enterprise securities, as described in categories A and B, will be acceptable collateral. All securities underlying Repurchase Agreements must be delivered to the City's custodian bank by book entry, physical delivery, or by a third party custodial agreement. The market value of the underlying securities must be valued at 102% or greater of the funds borrowed against those securities. The transfer of underlying securities to the counterparty bank's customer book -entry account may be used for book -entry delivery.
The City or its trustee shall have a perfected first security interest under the Uniform Commercial Code in all securities subject to Repurchase Agreement.
No more than 30% of the portfolio may he invested in repurchase agreements.
Reverse repurchase agreements will not be allowed.
K) Local Agency Investment Fund (LAIF). The City may invest in the Local Agency Investment Fund established by the State Treasurer for the benefit of local agencies up to the maximum amount permitted.
L) Money Market Funds. Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). To be eligible for investment pursuant to this subdivision these companies shall either: (1) have attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs or (2) have an investment advisor registered or exempt from registration
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with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds and with assets under management in excess of $500,000,000.
No more than 20% of the portfolio may be invested in money market funds. The City shall not purchase money market funds with shares whose net asset value floats.
M) Time Deposits. The City may invest in non-negotiable time deposits collateralized in accordance with the California Government Code (including but not limited to Government Code Sections 53649 and 53656), in those banks and savings and loans associations which are qualified public depositories under California Government Code Section 53630 et seq. and meet the requirement in category H for investment in negotiable certificates of deposit.
The issuer financial institution should have been in existence for at least five years. The Treasurer may waive the first $250,000 of collateral security for such deposits if the deposit is insured pursuant to federal law. The City shall not purchase Eurodollar time deposits.
N) Local Government Investment Pools ("LGIP"). Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in Government Code. The City will limit investments to LGIPs that seek to maintain a stable net asset value. Whenever the City has any funds invested in a LGIP, the Treasurer shall maintain on file a copy of the LGIP's current information statement and periodically review the LGIP's investments. A maximum of 50% of the City's portfolio may be invested in this category. To be eligible for investment pursuant to this subdivision, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (I) the adviser is registered or exempt from registration with the Securities and Exchange Commission; (2) the adviser has not less than five years of experience investing in the securities and obligations authorized in Government Code Section 53601 subsections (a) to (q), inclusive; and (3) the adviser has assets under management in excess of five hundred million dollars ($500,000,000).
X. Safekeeping and Custody
All deliverable security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a delivery -versus -payment (DVP) basis. Pursuant to Government Code Section 53608, the City Council delegates its authority to deposit investment securities for safekeeping to the Treasurer. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. As specified in Government Code Section 53608, an authorized third party custodian may be a federal or state savings and loan association, a federal or state savings bank, a trust company or a state or national bank located within this state, the Federal Reserve Bank of San Francisco or any branch thereof within this state, any Federal Reserve bank, or any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System.
XL Internal Control
The Treasurer shall establish an annual process of independent review by an external auditor.
This review will provide internal control by assuring compliance with policies and procedures.
XII. Reporting
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The Treasurer shall submit to the City Council a quarterly investment report within 3045 days after the end of tine applicable quarter. The report shall include a complete description of the portfolio, the type of investments, the issuers, maturity dates, par values and the current market values of each investment, including funds managed for the City by third party contracted managers. The report must also include a certification that (1) all investment actions executed since the last report have been made in full compliance with the Investment Policy and (2) the City will meet its expenditure obligations for the next six months, or an explanation if either of the certifications cannot be made.
The Treasurer shall maintain a complete and timely record of all investment transactions. If investment management authority has been delegated by the City Council to the Treasurer pursuant to Government Code Section 53607, the Treasurer shall render a monthly report of investment transactions to the City Council.
Mill. Special Debt Financing
From time to time, the City Council may authorize the issuance of debt in accordance with State and Federal laws. Given the special requirement of such debt -repayment schedules, arbitrage rebate requirements, the council may choose to place the investment of these funds with the City's fiscal agent. In such instances, the policy, objectives and investment restrictions shall be established by the Council by separate action and monies shall not be included in the portfolio managed by the Treasurer.
Attachment 2
TREASURER CITY OF YUCAIPA
STATEMENT OF INVESTMENT POLICY
Schedule I
The following list is a summary of permitted investments as described in the City's Investment Policy statement. If any discrepancies exist, the Policy statement shall prevail.
No more than 5% of the City's investment portfolio may be invested in the securities of any one issuer regardless of security type excluding U.S. Treasuries, federal agencies or U.S. Government -sponsored enterprises, and pooled investments such as LAIF, LGIPs, and money market funds. - - - Formatted: Font: (Default) Times New Roman
U.S. Treasury_obligations
100%
n/a
5 years_ _ _
- - 4
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federal Agency or U.S._ _ _
_ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _
- - - - - - - - - - -
- -- - -
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Govemment-sponsored-
/o 100
n/a
5 years _
_- _ -
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nterpnse_Obllgati- - - _ _ _ _
_
- _ _ - - _ _ _
_ _ _ -t��
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-Bankers'-Acceptances - - - _
- _ _ _40% total _ -
- _ _ _ _ _A_I_ _ - - _
_ _ _ 180 days -
_ _
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Commercial Paper- - _ _ _ _
-------
_ _ _ _ - 25% - - - _
_ - A 1 or equivalent______270
days _ _ _
_ _- _ -
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Issuer's senior debt
,Negotiable Certificates of
-
- - - - - 30°l0- - - -
obligations must be
- A--1 (short term)vr - -
- - -5 years- - -
- -
- --
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Deposit
A (long term) or
equivalent
ate archase Agreements
3. 0_%_
10_2_%_ _co_ll_at_er_a_l _ _ _
_ _ _ 7 days
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_Reverse Repurchase
Not Allowed
Not- - -
- - Not Allowed
l
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Agreements
Time CDs
-----------
100 /o
--------------------------
Collateralized _
_ _ _ _ 5 years_ _ _ _
_ __ _ -Mftmiatted:
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§State Municipal _ _ _ _ _ -
-----30%----------AA-----------5years-------
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`oblig_ations(1) _ _ _ _ _ _
_ _ - _ - _
_ _ - _ - - - _
_- _ -
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CA Local Agency Debt(I) _
------
30%- _
_ - _ AA- _ _ _ _ _ _
_ _ _ _ 5 years_ - _ _
._ -- _- - -:
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Corporate Medium Term
-------------30%---
-- ttor-equivalent-------5
ye— ars-------
_ -
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Notes
AAA or equivalent
Money Market Funds _ _ - -
°
_ _ _ _ _ 20 /°
- - -
by 2 NRSROs or
-qualifying-registered- -
n/a _
- - - - - - - - - -
_ -- _ -
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investment advisor
Maximum
LAIF_ _ _
permitted by _
- - _ _ _ _ n/a_ _ _ - _ _ _ -
- - _ n/a. - _ _ _ _
- -- - -
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State Treasurer
_
Qualifying
G_ I_P_s _ _ _ _ _ _ _ _ _ _ - -
- - - - -50% _ _ _
_ _ _ _ registered_
n/a_ _ _ _ _
_ _- - -
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investment advisor
(1) No more than a combined 30% of the portfolio may be invested in State municipal obligations and CA Local Agency Debt.