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HomeMy WebLinkAboutFin SA Investment Policy 2014Agenda Itema Meeting Date: June 16, 2014 Department: FINANCE Prepared by: Van Bach, City Manager Approval? Accountint! Manager -a 8 iou XQ 10 0 Tt T &TIT " � ... 11 1 11 q i ; 40 11� i � ;� 1111111111 11 1 1 1 11 1 q 1 1 1 1 111;q BACKGROUND: The investment crisis that occurred in Orange County nearly twenty years ago prompted several revisions to the investment codes that govern all California public agencies. Among the changes enacted in 1996 was the requirement that each jurisdiction adopt an investment policy that is reviewed annually. Since that time, the requirement has been made policy optional; however, the State encourages agencies to bring investment policies to their respective boards and councils. The San Rafael Successor Agency's policy includes such an annual review by City Council and an accompanying resolution approving the policy. The purpose of this report is to provide the City Council with an opportunity to review the Successor Agency's current cash and investment management policies and changes recommended by staff, and to formally approve the policy, thus ensuring that the investment policy governing the Successor Agency is in sync with that of the City. RNALYSIS: Safety, Liquidity and Yield - are the order of priority for the Successor Agency's cash and investment management. The Agency pursues a fair market return on its investments 0 after considering its cash flow requirements and current investment portfolio structure. Presently, The San Rafael Successor Agency's funds that are not used for current operations are invested exclusively in the Local Agency Investment Fund (LAIF), a State-run investment pool dedicated to providing a liquid investment program for California's local governments and special districts. Staff expects that, in order to maintain liquidity and flexibility, this investment approach will continue into the foreseeable future. It appears unlikely that the Successor Agency will have funds available for longer-term investments. In the event that there is a need to invest funds longer term (e.g., bond proceeds scheduled to be used in the future), staff recommends that the Successor Agency follow the same investment FOR CITY CLERK ONLY C) F i Ie No. CouncH Meebing.- Zt&4-Aet4�e Dilsposiitiio policy as that adopted by the City. The policy attached to the Resolution is the same as that submitted to the City Council for consideration at its meeting of June 16, 2014. FISCAL IMPACT: There is no direct fiscal impact from accepting the policy as proposed, ACTION REQUIRIED: Staff recommends the City Council accept the report and adopt the Resolution as presented. ATTACHMENT A RESOLUTION OF THE SAN RAFAEL SUCCESSOR AGENCY TO UPDATE THE AGENCY'S INVESTMENT POLICY 111111111 1111 ipq� 1111 1 WHEREAS, the investment policy is intended to provide a long-term strategy for prudeno care of the Successor Agency's cash; !III �i ;ii inpo, t 1 • Mum ESTHER C. BEIRNE, Clerk of the City Council, acting as Governing Board of the Successor Agency, hereby certify that the foregoing resolution was duly and regularly introduced 2nd adopted at a regular meeting of the City Council, acting as Governing Board of the lira elm 11110111111M I I l iliiiq� I I I I IIIIIIIi I III IIII p A IIJ AYES: MEMBERS: Bushey, Colin, McCullough & Chairman Phillips N iiiiii llllllllllllii a Pzs-t�K 4e. gwa..e < 0 ESTHER C. BEIRNE, City Clerk Exhibit A Investment Policy For The Rafael Successor Age San ncy The San Rafael Successor Agency ("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 ihe investment of the Agency. All such funds will be invested in accordance with this Policy and with applicable sections of the California Government Code. This Policy was endorsed and approved by the Agency on the date noted above. It replaces any previous investment policy or investment procedures of the Agency. It is intended that this Policy cover all short-term operating funds and investment activities of the 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 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. *1 11001R] The Agency's funds shall be invested in compliance with all applicable City Municipal Codes, California State statutes, and Federal regulations, and in a manner designed to accomplish the following objectives, which are listed in priority order: 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. ri_ The San Rafael Successor Agenc Investment Policy June 16, 2014 1 1 [0] ZI k M The management responsibility for the Agency's investment program is delegated annually by 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 Policy. The City Manager and the Treasurer jointly shall develop written administrative procedure and internal controls, consistent with this Policy, for the operation of the Agency.. investment program. Such procedures shall be designed to prevent losses of public fund arising from fraud, employee error, misrepresentation by third parties, or imprudent action by employees of the Agency. I The Agency may engage the support services of outside investment advisors in regard to it investment program, so long as it can be clearly demonstrated that these services produc 0 a net financial advantage or necessary financial protection of the Agency's financi resources. I The standard of prudence to be used for managing the Agency's investments shall bQ. 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. 17 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 without risk 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 writte procedures and exercising due diligence shall be relieved of personal responsibility for a individual security's credit risk or market price changes, provided that the deviations fro expectations are reported in a timely fashion to the City Manager and appropriate action 1 taken to control adverse developments. I 9 =0 The San Rafael Successor Agenc Investment Policy June 16, 2014 1 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 deons. Employees and investment officials shall disclose to the City Manager 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 City Manager 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. 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 Policy immediately upon being enacted. However, in the event that amendments to these sections conflict with this Policy and 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 City's attorney, the City Manager and the Treasurer will present a recommended course of action to the City Council of the City of San Rafael acting as Successor Agency for approval. illillill'ill 111111ill 1111111 llllip� Jill i 11111 1. United States Treasua bills, notes and bonds with a final maturity not exceeding five years from the date of trade settlement. 2. Eederal Agencv debentures and mortgage-backed securities with a final maturity n exceeding five years from the date of trade settlement. 1 3. -Federal Instrume (government sponsored enterprise) debentures, discount notes, callable and step-up securities, with a final maturity not exceeding five years from the date of trade settlement. 4. 'Medium -Term Notes issued by corporations organized and operating within the Unite States or by depository institutions licensed by the United States or any state an operating within the United States, with a final maturity not exceeding five years from th date of trade settlement, and rated at least A or the equivalent by a NRSRO. No mor than 5% of the portfolio shall be invested in medium-term notes of any one issuer, an the aggregate investment in medium-term notes shall not exceed 30% of the Agency' total portfolio. I M The San Rafael Successor Agenc Investment Policy June 16, 2014 5. Negotiable Certificates of Deposits (CDs) of commercial banks rated at least A-1, or the equivalent, with maturities not exceeding five years from the date of trade settlement. In addition, the Agency may not invest in the CD of a state or federal credit union where any person with investment decision making authority at the Agency also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. No more than 5% of the portfolio may be invested in the CDs of any one issuer, and the aggregate investment in CDs shall not exceed 30% of the portfolio. ii. Non-negotiable Certificates of D and savings deposits with a maturity not exceeding five years from the date of trade settlement, in FDIC insured state or nationally chartered banks or savings banks that qualify as a depository of public funds in the State of California as defined in California Government Code Section 53630.5. No more than 5% of the portfolio may be invested in the CDs of any one issuer, and the aggregate investment in CDs shall not exceed 30% of the portfolio. Deposits in excess of the insured amount shall be secured pursuant to California Government Code Section 53651 and 53652. The Agency shall comply with and act to secure compliance with the security (collateral ization) system specified in the Government Code Section 53649 and 56652. 7. Deposits may be placed using a private sector entity that assists in the placement of deposits per section 53601.8 and 53635.8 in the Government Code. No more than 5% of the portfolio may be invested through any one private sector entity that assists in the placement of such deposits and the aggregate investment in CDs shall not exceed 30 % of the portfolio. 8. Special Assessment District Obligations issued by the former San Rafa Redevelopment Agency as Limited Obligation Improvement Bonds related to speci assessment districts and special tax districts. Investment in such obligations require I the approval of the Agency and maturities may extend to 30 years from the date of trad settlement. 9. Frime Commercial Pa er 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 $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 speci purpose corporation, trust, or limited liability company, (2) have program-wid credit enhancements, including, but not limited to, over collateral izatio letters of credit or surety bond and (3) have commercial paper that is rate "A-1 " or higher, or the equivalent, by a NRSRO. Wim The San Rafael Successor Agenc Investment Policy June 16, 2014 1 Purchases of eligible commercial paper may not represent more than 10% of the outstanding commercial paper of any single corporate issuer. No more than 5% of the City's total portfolio, shall be invested in the commercial paper of any one issuer, and the aggregate investment in commercial paper shall not exceed 25% of the City's total portfolio. lo..Eligible Banker's Acceptances issued by FDIC insured commercial banks, rated at least 1-1 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 banker's acceptances of any one commercial bank, and the aggregate investment in banker's acceptances shall not exceed 40% of the Agency's total portfolio. 1 l..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 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. 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. 12. State of California's Local Agency Investment Fund (LAIF), pursuant to California Government Code Section 16429. 1. 13. Mone Market Funds registered under the Investment Company Act of 1940 that (1) are tt 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 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 City Council. A =* The San Rafael Successor Agency Investment Policy June 16, 2014 To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabes. The Agency will not invest in securities maturing more than five years from the date of purchase, unless the City Council, acting as Governing Board of the Successor Agency has by resolution granted authority to make such an investment at least three months prior to the date of investment. I � 0 1 :4 01 0111:1A IRA 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 Is 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 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 Ne Capital Rule). Each authorized broker/dealer shall be required to submit and annually update an Agenc, approved Broker/Dealer Information Request form which includes the firm's most recen financial statements. The Treasurer shall maintain a list of the broker/dealers that hav( been approved by the Agency, along with each firm's most recent broker/dealer Informatiot Request form. In the event that an external investment advisor is not used in the process of recommending I particular transaction in the Agency's portfolio, authorized broker/dealers shall 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 Securitiesand Transactions section of this Policy. 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. 9M The San Rafael Successor Agenc Investment Policy June 16, 2014 1 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. 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 purchased by the Agency will be delivered by book entry and will be held in third -party safekeeping by an Agency approved custodian bank, or its Depository Trust Company (DTC) participant account. The Agency's custodian shall be required to furnish the Agency a list of holdings on at least a monthly basis and safekeeping receipts or customer confirmations shall be issued for each transaction. oil i01 Ok 11i 1111 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. The San Rafael Successor Agenc Investment Policy June 16, 2014 1 1:14 On a quarterly basis, the Treasurer shall submit to the City Council, acting as Governin!' Board of the Successor Agency a report of the investment earnings and performanc results of the Agency's investment portfolio. The report shall include the followin information: 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 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. This Investment Policy shall be reviewed and approved by the City Council, acting a Governing Board of the Successor Agency annually to ensure its consistency with th overall objectives of principal, liquidity, yield and diversification and its relevance to curre law and economic trends. Any amendments to this Investment Policy shall be forwarded to. the Agency for approval. gAlErow MO w I � ® A a a a lk A 10 1 UP 70:017, i"M rel&9wrayffa INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OF A CONTRACT, AGREEMENT, ORDINANCE OR RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY. it SRSA / SRCC AGENDA ITEM NO. —SRSA DATE OF MEETING: June 16, 2014 FROM: Van Bach DEPARTMENT: Finance 11ATE: June 16, 2014 TITLE OF DOCUMENT: Resolution to Approve the Investment Policy for The San Rafael Successor Agency Department Head (signature) (LOWER HALF OF FORM FOR APPROVALS ONLY) APPROVED AS COUNCIL AGENCY AGENDA ITEM: 1114�vl e 11 w" nature) ZNNONM APPROVED AS TO FORM: City Attorney (signature}i