HomeMy WebLinkAboutFin RA Investment Policy 2009CITY OF � Agenda Item No: 3
Meeting Date: June 15, 2009
SAN RAFAEL REDEVELOPMENT AGENCY
SAN RAFAEL REDEVELOPMENT AGENCY AGENDA REPORT
Department: Finance ("
Prepared by: Cindyigser, Executive Director Approval
Finance Director
SUBJECT: A RESOLUTION OF THE SAN RAFAEL REDEVELOPMENT
AGENCY APPROVING THE UPDATE TO THE AGENCY'S
INVESTMENT POLICY.
RECOMMENDATION: Adopt Resolution as presented.
BACKGROUND:
The investment crisis that occurred in Orange County over ten years ago prompted elected
leaders in Sacramento to revise the investment codes for all California government agencies.
Among the changes enacted in 1996 was the requirement of each jurisdiction to adopt an
annual investment policy. In December 2003, the City's policy was modified slightly to bring
the City and Agency into compliance with State Government Code Section 53600 et al. The
purpose of this report is to provide the Board an opportunity to review the Agency's current
cash management practices, and to accept the recommended Policy.
Since January 2005, the City of San Rafael contracted with MBIA to administer a portion of the
San Rafael's cash resources. Part of the services provided by MBIA is a complete review of
the City's investment policy. We worked along side MBIA professionals to prepare an
investment policy that provides continuity of past practices, as well as integration of necessary
changes. The Agency exercises the same conservative investment approach as the City of
San Rafael.
ANALYSIS:
From a practical perspective, the Agency's Investment Policy remains fairly conservative.
Historically, we have not invested our idle cash in the types of instruments that prompted
financial disasters like the Orange County bankruptcy. The "SLY" principles remain the
priorities for cash management: Safety, Liquidity and Yield. All investment decisions are made
based upon making certain a return of our investment principal is achieved and that all
instruments are procured by routinely examining cash flow needs and requirements.
The Investment Policy for 2009 has a minor change from the 2008 Investment Policy. Page 6
of the investment policy (Exhibit A) includes a paragraph to include a provision using a broker
FOR CITY CLERK ONLY
File No.:
Council Meeting:
Disposition:
SAN RAFAEL REDEVELOPMENT AGENCY AGENDA REPORT / Page: 2
or dealer no under MBIA's direction. All recommendations are within the scope of investment
laws under the applicable California Government Code Sections. In addition to the Policy, I
have included a schedule of internal control functions. Although this is administrative in
nature, it is important to show the Board the segregation of duties. Controls over cash
management are a serious and critical component to effective investment administration.
Should the Policy be approved, it will be distributed to all of the Agency's brokers who will be
asked to document receiving, reading and abiding by the Agency's Investment Policy.
Changes regarding information from brokers and dealers will also be updated as part of the
Policy update.
FISCAL IMPACT:
No direct fiscal impact occurs by accepting the revised Policy
OPTIONS:
The Agency Board can choose to adopt the resolution and accept the Policy as presented, or
propose changes at their discretion. Acceptance of a Policy is necessary to comply with the
State Government Code. Approval of this resolution and policy fulfills our legal obligation.
Board action is reviewed as part of the annual auditing process.
ACTION REQUIRED:
Staff recommends the Board accept the report and adopt the Resolution as presented.
ATTACHMENT
WAManagement Services- WorkFile\Finance- WorkFile\Council Material\Staff ReportM2009\Agency\ra Investment Policy
2009.doc
SAN RAFAEL REDEVELOPMENT AGENCY
RESOLUTION NO.
A RESOLUTION OF THE SAN RAFAEL REDEVELOPMENT AGENCY
APPROVING THE UPDATE TO THE AGENCY'S INVESTMENT POLICY.
MOVED BY
SECONDED BY:
WHEREAS, the San Rafael Redevelopment Agency Board of Directors takes seriously its
stewardship of the Agency's public resources and Agency's current cash management practices;
and
WHEREAS, the State Government Code Section 53646(a)(2) requires consideration or
approval of the investment policy annually; and
WHEREAS, all funds are invested in accordance with the investment policy and applicable
sections of the California Government Code; and
WHEREAS, the investment policy is intended to provide a long-term strategy for prudent
care of the Agency's cash;
NOW, THEREFORE, BE IT RESOLVED that the San Rafael Redevelopment Agency Board of
Directors hereby adopt the updated Investment Policy that is attached hereto as Exhibit A.
I, ESTHER C. BEIRNE, Agency Secretary of the San Rafael Redevelopment Agency,
hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a
regular meeting of the San Rafael Redevelopment Agency of said City held on Monday, the
15"'day of June, 2009, by the following vote, to wit:
AYES: MEMBERS:
NOES: MEMBERS:
ABSENT: MEMBERS:
ESTHER C. BEIRNE, Agency Secretary
Exhibit A
San Rafael Redevelopment Agency
Investment Policy
APPROVED June 15, 2009
The San Rafael Redevelopment Agency Board of Directors (the "Agency") has adopted this
Investment Policy in order to establish the investment scope, objectives, delegation of
authority, standards of prudence, reporting requirements, internal controls, eligible
investments and transactions, diversification requirements, risk tolerance, and safekeeping
and custodial procedures for the investment of the San Rafael Redevelopment Agency. All
such funds will be invested in accordance with this Investment Policy and with applicable
sections of the California Government Code. This Investment Policy was endorsed and
adopted by the Agency Board on the approved date noted above. It replaces any previous
investment policy or investment procedures of the Agency.
SCOPE
It is intended that this Investment Policy cover all short-term operating funds and investment
activities of the San Rafael Redevelopment Agency. These funds are accounted for in the
annual audit report, and may include:
• General Fund
• Special Revenue Funds
• Debt Service Funds
• Capital Projects Funds
• Fiduciary Funds
Additional funds that may be created from time to time shall be administered in accordance
with the provisions of this Investment Policy.
All cash shall be pooled for investment purposes. The investment income derived from the
pooled investment account shall be allocated to the contributing funds based upon the
proportion of the respective average balances relative to the total pooled balance in the
investment portfolio. Investment income shall be distributed to the individual funds not less
than annually.
OBJECTIVES
The principal investment objectives of the Agency are:
1. Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market value rate of return.
4. Diversification to avoid incurring unreasonable market risks.
5. Compliance with the Agency's Municipal Code and with all applicable California statutes
and Federal regulations.
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
DELEGATION OF AUTHORITY
The management responsibility for the Agency's investment program is delegated annually
by the Agency Board to the City Treasurer pursuant to California Government Code Section
53607. The Treasurer may delegate the authority to conduct investment transactions and
to manage the operation of the investment portfolio to other specifically authorized staff
members. The Treasurer shall maintain a list of persons authorized to transact securities
business for the Agency. No person may engage in an investment transaction except as
expressly provided under the terms of this Investment Policy.
The Executive Director and the Treasurer jointly shall develop written administrative
procedures and internal controls, consistent with this Investment Policy, for the operation of
the Agency's investment program. Such procedures shall be designed to prevent losses of
public funds arising from fraud, employee error, misrepresentation by third parties, or
imprudent actions by employees of the Agency.
The Agency may engage the support services of outside investment advisors in regard to its
investment program, so long as it can be clearly demonstrated that these services produce
a net financial advantage or necessary financial protection of the Agency's financial
resources.
PRUDENCE
The standard of prudence to be used for managing the Agency's investments shall be
California Government Code Section 53600.3, the prudent investor standard which states,
"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."
The Agency's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The Agency recognizes that no
investment is totally riskless and that the investment activities of the Agency are a matter of
public record. Accordingly, the Agency recognizes that occasional measured losses may be
desirable in a diversified portfolio and shall be considered within the context of the overall
portfolio's return, provided that adequate diversification has been implemented and that the
sale of a security is in the best long-term interest of the Agency.
The Treasurer and authorized investment personnel acting in accordance with written
procedures and exercising due diligence shall be relieved of personal responsibility for an
individual security's credit risk or market price changes, provided that the deviations from
expectations are reported in a timely fashion to the Executive Director and appropriate
action is taken to control adverse developments.
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the investment
program or that could impair or create the appearance of an impairment of their ability to
make impartial investment decisions. Employees and investment officials shall disclose to
the Executive Director any business interests they have in financial institutions that conduct
business with the Agency and they shall subordinate their personal investment transactions
to those of the Agency. In addition, the Executive Director and the Treasurer shall file a
Statement of Economic Interests each year pursuant to California Government Code
Section 87203 and regulations of the Fair Political Practices Commission.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the Agency shall be made in accordance with California
Government Code Sections 16429.1, 53600-53609 and 53630-53686, except that pursuant
to California Government Code Section 5903(e), proceeds of bonds and any moneys set
aside or pledged to secure payment of the bonds may be invested in securities or
obligations described in the ordinance, resolution, indenture, agreement, or other instrument
providing for the issuance of the bonds. Any revisions or extensions of these code sections
will be assumed to be part of this Investment Policy immediately upon being enacted.
However, in the event that amendments to these sections conflict with this Investment
Policy and past Agency investment practices, the Agency may delay adherence to the new
requirements when it is deemed in the best interest of the Agency to do so. In such
instances, after consultation with the Agency's attorney, the Executive Director and the
Treasurer will present a recommended course of action to the Agency Boardl for approval.
The Agency has further restricted the eligible types of securities and transactions as follows:
United States Treasury bills, notes and bonds with a final maturity not exceeding five
years from the date of purchase.
2. Federal Agency debentures and mortgage-backed securities with a final maturity not
exceeding five years from the date of purchase issued by the Government National
Mortgage Association (GNMA).
3. Federal Instrumentality (government sponsored enterprise) debentures, discount notes,
callable and step-up securities, with a final maturity not exceeding five years from the
date of purchase, issued by the following only: Federal Home Loan Banks (FHLB),
Federal National Mortgage Association (FNMA), Federal Farm Credit Banks (FFCB) and
Federal Home Loan Mortgage Corporation (FHLMC). Federal Instrumentality securities
shall be rated at least AAA or the equivalent by a nationally recognized statistical -rating
organization (NRSRO) at the time of purchase.
4. Repurchase Agreements with a final termination date not exceeding one year
collateralized by U.S. Treasury obligations, Federal Agency securities, or Federal
Instrumentality securities listed in items 1, 2 and 3 above with the maturity of the
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
collateral not exceeding five years. For the purpose of this section, the term collateral
shall mean purchased securities under the terms of the Agency's approved Master
Repurchase Agreement. The purchased securities shall have a minimum market value
including accrued interest of 102% of the dollar value of the funds borrowed. Collateral
shall be held in the Agency's custodian bank, as safekeeping agent, and the market
value of the collateral securities shall be marked -to -the -market daily.
Repurchase Agreements shall be entered into only with broker/dealers who are
recognized as Primary Dealers by the Federal Reserve Bank of New York or have a
primary dealer within their holding company structure. Primary Dealers approved as
Repurchase Agreement counterparties shall have a short-term credit rating of at least A-
1 or the equivalent and a long-term credit rating of at least A or the equivalent.
Repurchase agreement counterparties shall execute an Agency approved Master
Repurchase Agreement with the Agency. The Treasurer shall maintain a copy of the
Agency's approved Master Repurchase Agreement along with a list of the
broker/dealers who have executed same.
Prime Commercial Paper with a maturity not exceeding 270 days from the date of
purchase with the highest ranking or of the highest letter and number rating as provided
for by a NRSRO. The entity that issues the commercial paper shall meet all of the
following conditions in either sub -paragraph A. or sub -paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of five hundred million
dollars ($500,000,000) and (3) Have debt other than commercial paper, if
any, that is rated "A" or higher by a NRSRO.
B. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have program wide
credit enhancements, including, but not limited to, over collateralization,
letters of credit or surety bond and (3) have commercial paper that is rated
"A-1" or higher, or the equivalent, by a NRSRO.
Purchases of eligible commercial paper may not represent more than 10% of the
outstanding commercial paper of any single corporate issuer. No more than 10% of the
Agency's total portfolio or $1,000,000 whichever is less, shall be invested in the
commercial paper of any one issuer, and the aggregate investment in commercial paper
shall not exceed 25% of the Agency's total portfolio.
6. Eligible Bankers Acceptances issued by FDIC insured commercial banks, rated at least
A-1 or the equivalent by a NRSRO with maturities not exceeding 180 days from the date
of purchase. If issuers have senior debt outstanding, it shall be rated at least A or the
equivalent by a NRSRO. No more than $2,000,000 shall be invested in bankers
acceptances of any one commercial bank, and the aggregate investment in bankers
acceptances shall not exceed 40% of the Agency's total portfolio.
7. Medium Term Notes issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States or any state and
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
operating within the United States, with a final maturity not exceeding five years from the
date of purchase, and rated at least A or the equivalent by a NRSRO. No more than
$1,000,000 shall be invested in medium term notes of any one issuer, and the
aggregate investment in medium term notes shall not exceed 30% of the Agency's total
portfolio.
8. Negotiable Certificates of Deposit with a maturity not exceeding five years from the date
of purchase, in state or nationally chartered banks or savings and loans that are insured
by the FDIC, subject to the limitations of California Government Code Section 53638.
If issuers have senior debt outstanding, it shall be rated at least AA or the equivalent by
a NRSRO at the time of purchase. The aggregate amount invested in negotiable
certificates of deposit shall not exceed 30% of the Agency's total portfolio.
9. Non-negotiable Certificates of Deposit and savings deposits with a maturity not
exceeding 180 days, in state or nationally chartered banks or savings and loans with a
California branch office that are insured by the FDIC. Time Certificates of Deposit
exceeding the FDIC insured amount shall be secured pursuant to California Government
Code Section 53652.
10. State of California's Local Agency Investment Fund (LAIF), pursuant to California
Government Code Section 16429.1.
11. Money Market Funds registered under the Investment Company Act of 1940 that (1) are
"no-load" (meaning no commission or fee shall be charged on purchases or sales of
shares); (2) have a constant daily net asset value per share of $1.00; (3) invest only in
the securities and obligations authorized in this Investment Policy and (4) have a rating
of at least AAA or the equivalent by at least two NRSROs. The aggregate investment in
money market funds shall not exceed 10% of the Agency's total portfolio.
It is the intent of the Agency that the foregoing list of authorized securities and transactions
is strictly interpreted. Any deviation from this list must be preapproved by resolution of the
Agency Board.
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities. The Agency will not invest in securities maturing
more than five years from the date of purchase, unless the Agency Board has by resolution
granted authority to make such an investment at least three months prior to the date of
investment.
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
SELECTION OF BROKER/DEALERS
The Treasurer shall maintain a list of broker/dealers authorized for investment purposes,
and it shall be the policy of the Agency to purchase securities only from those authorized
firms. To be eligible, a firm must be licensed by the State of California as a broker/dealer
as defined in Section 25004 of the California Corporations Code, and:
1. be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a
primary dealer within its holding company structure, or
2. report voluntarily to the Federal Reserve Bank of New York, or
3. qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (Uniform Net
Capital Rule).
Each authorized broker/dealer shall be required to submit and annually update an Agency
approved Broker/Dealer Information Request form which includes the firm's most recent
financial statements. The Treasurer shall maintain a list of the broker/dealers that have
been approved by the Agency, along with each firm's most recent broker/dealer Information
Request form.
In the event that an external investment advisor is not used in the process of recommending
a particular transaction in the Agency's portfolio, authorized broker/dealers will attest in
writing that they have received a copy of this policy.
The Agency may purchase commercial paper from direct issuers even though they are not
on the approved broker/dealer list as long as they meet the criteria outlined in Item 5 of the
Authorized Securities and Transactions section of this Investment Policy.
COMPETITIVE TRANSACTIONS
Each investment transaction shall be competitively transacted with authorized
broker/dealers. At least three broker/dealers shall be contacted for each transaction and
their bid and offering prices shall be recorded.
If the Agency is offered a security for which there is no other readily available competitive
offering, the Treasurer will document quotations for comparable or alternative securities.
SELECTION OF BANKS
The Treasurer shall maintain a list of banks that are approved to provide banking services
for the Agency. To be eligible for authorization, a bank must be a member of the FDIC and
shall qualify as a depository of public funds in the State of California as defined in California
Government Code Section 53630.5.
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
SAFEKEEPING AND CUSTODY
The Treasurer shall select one or more banks to provide safekeeping and custodial services
for the Agency, in accordance with the provisions of Section 53608 of the California
Government Code. A Safekeeping Agreement approved by the Agency shall be executed
with each custodian bank prior to utilizing that bank's safekeeping services. Custodian
banks will be selected on the basis of their ability to provide services for the Agency's
account and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled
on a delivery versus payment basis. All securities shall be perfected in the name of the
Agency. Sufficient evidence to title shall be consistent with modern investment, banking
and commercial practices.
All investment securities, except non-negotiable Certificates of Deposit, Money Market
Funds and LAIF, purchased by the Agency will be delivered by either book entry or physical
delivery and will be held in third -party safekeeping by an Agency approved custodian bank,
its correspondent bank or its Depository Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the Agency shall be held in the Federal
Reserve system in a customer account for the custodian bank which will name the Agency
as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant account and
the custodian bank shall provide evidence that the securities are held for the Agency as
"customer."
All non -book entry (physical delivery) securities shall be held by the custodian bank or its
correspondent bank and the custodian bank shall provide evidence that the securities are
held by the bank for the Agency as "customer."
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout
budgetary and economic cycles, taking into account prevailing market conditions, risk
constraints for eligible securities, and cash flow requirements. The performance of the
Agency's investments shall be compared to the average yield on the U.S. Treasury security
that most closely corresponds to the portfolio's actual weighted average effective maturity.
When comparing the performance of the Agency's portfolio, its rate of return will be
computed net of all fees and expenses.
REPORTING
On a monthly basis, the Treasurer shall submit to the Board a report of the investment
earnings and performance results of the Agency's investment portfolio. The report shall
include the following information:
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San Rafael Redevelopment Agency
Investment Policy
June 15, 2009
1. Investment type, issuer, date of purchase, purchase price, date of maturity, par value,
current rate of interest and dollar amount invested in all securities, and investments and
monies held by the Agency;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
4. Overall portfolio yield based on historical cost;
5. Weighted average final maturity and weighted average effective maturity;
6. A statement of compliance with this Investment Policy or an explanation for not -
compliance;
7. A description of any of the Agency's funds, investments or programs that are under the
management of contracted parties, including lending programs and
8. A statement of the ability to meet expenditure requirements for six months, as well as an
explanation of why money will not be available if that is the case.
POLICY REVIEW
This Investment Policy shall be adopted by resolution of the Agency Board annually. It shall
be reviewed at least annually to ensure its consistency with the overall objectives of
preservation of principal, liquidity, yield and diversification and its relevance to current law
and economic trends. Any amendments to this Investment Policy shall be forwarded to the
Agency Board for approval.
WAManagement Services- WorkFile\Finance- WorkFile\Cash Management and Treasury\Investments\POLICY\CY 2008
VersioMAgency Policy Approved 2008.doc
Page 8
SAN RAFAEL REDEVELOPMENT AGENCY
INTERNAL CONTROL GUIDELINES AND PROCEDURES
INVESTMENT FUNCTION RESPONSIBILITIES
Revised 6/9.009
Investment
Primary
Secondary
function
Responsibility
responsibility
Formal Investment Policy:
Prepared/Updated By
Finance Director
Accounting Supervisor
Submitted to/Approval
Agency Board
N/A
Investment transaction approval
Finance Director
Accounting Supervisor
Verification of investment (i.e. broker
Accountant 1/II
Accounting Supervisor
confirm matched to investment
records)
Preparation of written notification to
Accountant 1/11
Administrative Assistant III
custodial agent for transactions sales,
calls and purchases
Execution of investment transactions
Accounting Supervisor
Finance Director
Recording of investment transactions
Accountant 1/II
Accounting Supervisor
in investment records, including
reconciliation to safekeeping and
custodial records
Recording of investment transactions
Accountant 1/II
Accounting Supervisor
in accounting records
Reconciliation of investment records
Accountant I/11
Accounting Supervisor
to accounting records
Review of financial institution's
Finance Director
Accounting Supervisor
financial condition, including brokers
and dealers
Review of custodial safekeeping
Finance Director
Accounting Supervisor
services for investment securities
Periodic review of collateral as
Finance Director
Accounting Supervisor
defined in investment policy
Periodic review of investment
Finance Director
Accounting Supervisor
portfolio - comparison to goals,
policies and objectives
Monthly investment report:
Schedules and supporting docs
Accountant 1/II
Accounting Supervisor
Staff Report preparation and
Finance Director
Accounting Supervisor
distribution
Updates to cash management internal
Finance Director
Accounting Supervisor
controls and investment procedures
WAManagement Services- WorkFile\Finance- WorkFile\Cash Management and Treasury\lnvestments\POLICY\CY 2009
Version\Agency Investment functions 2009 update.doc
