HomeMy WebLinkAboutFin Investment Policy 2013Agenda Item No: 3.g
Meeting Date: June 3, 2013
SAN RAFAEL CITY COUNCIL AGENDA REPORT
Department: FINANCE
Prepared by: Van Bach, 03
Accounting Manager
City Manager Approval:
SUBJECT: ANNUAL REVIEW AND RESOLUTION TO APPROVE THE CITY'S
INVESTMENT POLICY
RECOMMENDATION: Adopt Resolution.
F7, I 14A Xel nell I z I
The investment crisis that occurred in Orange County nearly twenty 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. Since that time,
the requirement has been made optional; however the State encourages local agencies
to bring investment policies to their respective boards and councils. The City's policy
provides for such an annual review by Council and an accompanying resolution
approving the policy.
The purpose of this report is to provide the Council an opportunity to review the City's
current cash and investment management policies, and to accept the recommended
policy.
In January 2005, the City engaged Cutwater Asset Management (formerly MBIA) to
administer a portion of the San Rafael's cash resources. These services were
suspended in December 2011. With the exception of the Point San Pedro Road
Median Landscaping Assessment District Limited Obligation Bonds in the amount of
$1,750,000, all of the City's operating funds are currently invested 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 will evaluate the City' cash requirements for FY13-14, and determine whether
investments outside of LAIF will be pursued. One of the considerations is that the cost
of administering such transactions must be offset by our expected additional return
FOR CITY CLERK ONLY
File No.:
Council Meeting:
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Disposition: rc-5vLvTlc�J
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2
without compromising safety or liquidity.
ANALYSIS:
The City's Investment Policy remains conservative. Historically, the City has not
invested its idle cash in the types of instruments that have resulted in losses of
investment principal. The "SLY" principle — Safety, Liquidity and Yield - remain the order
of priority for cash and investment management. All investment decisions are made
based upon making certain a market return on investment principal is achieved and that
all investment instruments are procured after examining cash flow needs and
requirements.
There have been no relevant changes in the California Government Code, or in the
City's investment philosophy or strategy that require changes to the current Investment
Policy. Therefore, no changes are recommended for this annual review.
As long as funds are invested in LAIF, a quarterly report will be submitted to Council
with balances and investment earnings. In addition, staff will report any changes of
more than 15% of the City's investment portfolio within 30 days of such change.
FISCAL IMPACT:
There is no direct fiscal impact from accepting the policy as proposed.
ACTION REQUIRED:
Staff recommends that the Council adopt the resolution approving the investment policy
as presented.
ATTACHMENT
RESOLUTION NO 13541
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL TO
APPROVE THE CITY OF SAN RAFAEL INVESTMENT POLICY
WHEREAS, the City Council of the City of San Rafael takes seriously its stewardship of
the City's public resources and City's current cash management practices; and
WHEREAS, the City's Investment Policy 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 City's cash;
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of San Rafael
hereby adopts the updated Investment Policy that is attached hereto as Exhibit A.
1, ESTHER C. BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing
resolution was duly and regularly introduced and adopted at a regular meeting of the City Council
of said City held on Monday the 3rd day of June, 2013, by the following vote, to wit:
AYES: COUNCILMEMBERS: Colin, Connolly, Heller, McCullough & Mayor Phillips
NOES: COUNCILMEMBERS: None
ABSENT: COUNCILMEMBERS: None
"'je
ESTHER C. BEIRNE, City Clerk
City of ~an Rafael Investment Policy
CONSIDERED June 3.2O13
The City Council Ofthe City OfSan Rafael (the City) has adopted this Investment Policy (the
Policy) in Vnd8[ to establish the investment scope' objectives, delegation Of @LdhOrhv,
standards of prudenoe, reporting naquiremenbS, internal uontro|e, eligible investments and
trgnsa(tions, diversification nsquirementa, risk tolen3nce, and safekeeping and custodial
procedures for the iDVeSLDleDt of the funds of the City. All such funds will be iOV8Sied in
accordance with this Policy and with applicable sections of the California Government Code.
This Policy was endorsed and adopted by the City Council on the approved date noted
above. It replaces any previous investment policy or investment procedures of the City.
It is intended that this Policy cover all short-term operating funds and investment activities of
the City. These funds are accounted for in the annual audit report, and include:
0 General Fund
* Special Revenue Funds
° Debt Service Funds
* Capital Projects Fund8
* Enterprise Funds
* Internal Service Funds
* Fiduciary Funds
Additional funds that may be created from time totime shall be administered in accordance
with the provisions of this Policy.
All cash shall bepooled for investment purposes. The investment income derived from the
pooled investment account ohgU 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 |eSS
than annually.
OBJECTIVES
The City's funds shall be invested in compliance with all applicable City Municipal Codes,
California State statutes, and Federal regulations, and in 8 manner designed to 8CCO0p|iGh
the following objectives, which are listed in priority order:
1. Preservation Ofcapital and protectionofinvestment principal.
2. &48iDteO8Oc8 of sufficient liquidity to meet 8DbdD31ed cash flows.
3. Attainment of [D@rk8{ value rate of return.
4. Diversification tOavoid incurring unreasonable market risks.
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City ofSan Rafael
|DVeSt0e[t Policy
June 3.2O13
DELEGATION OF AUTHORITY
The management responsibility for the City's investment program is delegated annually by
the City Council to the Treasurer pursuant to California Government Code Section 53007.
The Treasurer may delegate the authority to conduct investment transactions and to
manage the operation of the investment portfolio to other specifically authorized oto#
members. The Treasurer shall maintain a list of persons authorized totransact securities
business for the City. No person may engage in an investment transaction except as
expressly provided under the terms ofthis Policy.
The City Manager and the Treasurer jointly shall develop written administrative procedures
and internal contro|g, consistent with this Po|ioy, for the operation of the City's investment
program. Such procedures shall be designed to prevent losses ofpublic funds arising from
freud, employee error, misrepresentation by third partiee, or imprudent actions by
employees ofthe City.
The City 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 City's financial resources.
The standard of prudence to be used for managing the City's investments aho| be
California Government Code Section 53800.3. the prudent investor standard which states,
"When investing, PeinveEtiDg, pUnCh@siDg, acquiring, exchanging, selling, Or managing
public funds, a trustee shall act with o@ne, shiU, prudenme, and diligence under the
circumstances then prev8i|iDg, including, but not limited to, the geOB[@| 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 inthe conduct Offunds 0f3like character and with
like aims, to safeguard the principal and maintain the liquidity needs of the agency."
The City's 0Ver@U investment p[Og[8rn shall be designed and managed with 8 degree Of
p[OfessiOO8|iSnl that is worthy of the public trust. The City [DCOgOizeS that no investment is
totally vvbh0u[ hSh and that the iDmeSLDleDt activities of the City are 8 matter of public record.
ACCOndiOg|y. the City recognizes that occasional measured |OSSeS may be desirable in a
diversified portfolio and shall be COOSide[8d within the context Of the OVe[8|| portfolio's
return, provided that adequate diversification has been implemented and that the sale of
security is iDthe best long-term interest Ofthe City.
The Treasurer and authorized iDVeStnlerd PenSOOOB| 8CLDg in 8CCOnd8nAe with written
pFOcBdU[eS and exercising due diligence Sh8U be relieved of personal responsibility for 8O
individual geCUhb/'S Credit risk Or 0@[kRt price ChaDgeS, provided that the deviations from
expectations are reported in a timely fashion to the City Manager and appropriate 8CtiDD is
taken tncontrol adverse developments.
City ofSan Rafael
Investment Policy
June 3.2O13
ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the investment process eheU refrain from
pe[SOnG| business activity that could conflict with proper 8XecudOO Of the investment
program or that could impair or create the appearance of an impairment of their ability to
rnehe impartial investment decisions. Employees and investment officials eho|| disclose to
the City Manager any business interests they have in financial institutions that conduct
business with the City and they shall subordinate their personal investment transactions to
those of the City. 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.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the City shall be made in accordance with California
Government Code Sections 18429.1. 53600-58609 and 53030-53808. 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 ofthe bonds. Any revisions orextensions ofthese code sections
will be assumed to be port of this Policy immediately upon being enacted. Hovvever, in the
event that amendments to these sections conflict with this Policy and past City investment
practices, the City may delay adherence tothe new requirements when itisdeemed in the
best interest of the City to do so. In such inetanceo. after consultation with the City's
attorney, the City Manager and the Treasurer will present a recommended course of action
tothe City Council for approval.
The City has further restricted the eligible types of securities and transactions as follows:
1. United States Treasury bi||S, notes and bonds with afino| maturity not exceeding five
years from the date of trade settlement.
2. Federal Agency debentures and mortgage-backed securities with gfina| maturity not
exceeding five years from the date of trade settlement issued by the Government
National Mortgage Association (GNMA).
1 Federal Instrumentality (government sponsored debentures, discount notes,
callable and step-up securities, with @fiD@| maturity not exceeding five years from the
date of trade SettleDleDt, issued by the fO||OvViOg only: Federal Home Loan Banks
(FHLB), Federal National K8Odg@ge ASS0Ci3boD (FNMA), Federal F3[Dl Credit Banks
(FF{|B) and Federal Home LO8D Mortgage Corporation /FHLK8C\. Federal
|O8t[UUleDt8|ity securities Sh@|| be rated at least AAA or the equivalent by @ O8bOD@||y
recognized statistical -rating organization (NRGRC)\8tthe time of purchase.
4. issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States Or any state and
City ofSan Rafael
Investment Policy
June 3.2O13
date of trade aetthament, and rated at least or the equivalent by o NR8RO. No more
than $1.000.000 Sh@U be invested in nlediUnl-tB[Ol notes of any one issuer. and the
aggregate invaainnerd in medium-term notes shall not exceed 30Y6 of the City's total
5. Negotiable Certificates of Deposit with ematurity not exceeding five years from the date
of trade settlement, in state or nationally chartered banks or savings and loans that are
insured by the F[}|C, subject to the limitations of California Government Code Section
53838. If issuers have senior debt outStanding, it shall be rated at least AA or the
equivalent byoNF<SR[>atthe time ofpurchase.
Non-negotiable Certificates of Deposit and savings deposits with a maturity not
exceeding 180 days from the date of trade oett|omart, 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 toCalifornia Government Code Section b3052.
In addbkon, per the conditions of California Government Code Section 53601.8 and
notwithstanding Section 53801. the City may invest in certificates of deposit at m
commercial benh, savings banh, savings and loan aeeooietion, or credit union that uses
aphvate sector entity hoassist inthe placement ofcertificates ofdeposit. The aggregate
amount invested in any type of certificate of deposit shall not exceed 3096 of the City's
total portfolio.
8. Special Assessment District Obligations issued by the City VfSan Rafael as Limited
Obligation Improvement Bonds related bzspecial assessment districts and special tax
districts. Investment insuch obligations requires the approval ofthe City Council and
maturities may extend to3Oyears from the date oftrade settlement.
7. Prime Commercial Pape 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 NRGRO. 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 iDthe United States as
general corporation, (2) have total assets in B«CeSS of five $500.000.000 and
/3\ Have debt other than CO00erCia| paper, if any, that is rated "A" or higher
byaNRSRO.
B. The entity shall M\ be organized within the United States as a sDeCk3
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 8 NRSR[).
Purchases of eligible CODlDlerCi8| paper may not represent more than 10% of the
OUtSi@DdiDg CO[nDlerciai paper Of any Single corporate iSSUe[ No more than 10Y6 of the
City ofSan Rafael
Investment Policy
June 3'2O13
paper ofany one issuer, and the aggregate investment in oomnnnenje| paper shall not
exceed 25%[fthe City's total portfolio.
8. issued byFDIC insured commercial banks, rated at least
A-1 or the equivalent by a NR8RC> with maturities not exceeding 180 days from the date
of purchase. If issuers have senior debt outstandinQ, it shall be rated at least or the
equivalent by a NR8RO. No more than $2.000.000 shall be invested in banker's
acceptances of any one oornnnerciG| bank, and the aggregate investment in banker's
acceptances shall not exceed 4O96ofthe City's total portfolio.
S. 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 mGtVhhv of the
collateral not exceeding five years. For the purpose of this aeotion, the term collateral
shall mean purchased securities under the terms of the City's approved Master
Repurchase Agreement. The purchased securities shall have a noininnurn market value
including accrued interest of 102Y6 of the dollar value of the funds borrowed. Collateral
shall be held in the City's custodian banh, as safekeeping agent, and the market value
ofthe collateral securities shall bemarked-to-the'marketdaily.
Repurchase Agreements ah8U be entered into only with broker/dealers who are
recognized as Primary Dealers by the Federal Reserve Bank ofNew York mrhave 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 a City approved Master
Repurchase Agreement with the City. The Treasurer shall maintain acopy ofthe City's
approved Master Repurchase Agreement along with a list of the broker/dealers who
have executed same.
10. pursuant to California
Government Code Section 16429.1.
11. Money Market Funds registered under the Investment Company Act Of1S4Othat (1)are
"no-load" (meaning DO CO00iSsioO or fee Sh8U be charged OD pU[Ch@SeS or sales Of
Sh@PeG\; (Z) have constant daily net asset value per share of $1.00; (3) invest only in
the securities and 0b|ig8dODS authorized in this Policy and (4) have 8 rating of at least
AAA or the equivalent by at least two NRGR(]s. The aggregate investment in money
market funds shall not exceed 1U%Ufthe City's total portfolio.
K is the intent of the City that the foregoing list of authorized securities and transactions is
SthCtk/ interpreted. Any deviation from this list rDUSt be pre8pp[OVed by FeSO|UbOn Of the
City of San Rafael
Investment Policy
June 3, 2013
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities. The City will not invest in securities maturing more
than five years from the date of purchase, unless the City Council has by resolution granted
authority to make such an investment at least three months prior to the date of investment.
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 City 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 a City
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 City, 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 City's portfolio, authorized broker/dealers shall attest in writing
that they have received and reviewed a copy of this policy.
The City 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 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 City 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
City ofSan Rafael
Investment Policy
June 3.2O13
SELECTION OF BANKS
The Treasurer shall maintain elist of banks that are approved to provide banking services
for the City. To be eligible for authorization, a bank must be a member of the FDIC and
shall qualify eoadepository ofpublic funds inthe State ofCalifornia aodefined inCalifornia
Government Code Section 5383O.5.
The Treasurer shall select one or more banks to provide safekeeping and custodial services
for the Chv, in accordance with the provisions of Section 53008 of the California
Government Code. A Safekeeping Agreement approved by the City shall be executed with
each custodian bank prior toutilizing that bank's safekeeping services. Custodian banks
will be selected on the basis of their ability to provide services for the City's account and the
competitive pricing oftheir safekeeping related services.
The purchase and sale ofsecurities and repurchase agreement transactions shall besettled
on a delivery versus payment basis. All securities shall be perfected in the name of the
City. Sufficient evidence to title shall be consistent with modern investmnent, banking and
cononnen:io| practices.
All investment securities purchased by the City will be delivered byeither book entry or
physical delivery and will be held inthird-party safekeeping by City approved custodian
bank, its correspondent bank orits Depository Trust Company (DTC) participant account.
The City's custodian shall be required to furnish the City a list of holdings on at least a
monthly basis and safekeeping receipts orcustomer confirmations aho|| be issued for each
transaction.
The investment portfolio Sh8U be designed to attain 8 [D8[het rate of [8[U[D throughout
budgetary and economic CVCAeG, h3NOg into account prevailing market conditions, risk
DOOStnGi[dS for eligible securities, and cash 8Ovv neqUire[DBD[S. The performance of the City's
investments shall be compared to the average yield on the U.S. Treasury security that most
C|QGe|y corresponds to the portfolio's 8CtU@| weighted average effective maturity. When
comparing the p9rf0[08OCe of the City's pU[tf0|iO. its [@t8 Of return will be computed net of
all fees and expenses.
City ofSan Rafael
Investment Policy
June 3.2O13
REPORTING
On o quarterly basis, the Treasurer shall submit to the Council a report of the investment
earnings and performance results of the City's investment portfolio. The report shall include
the following information:
1. Investment type, issuer, date of purchase, purchase phce, date of maturity, par value,
current rate of interest and dollar amount invested in all securities, and investments and
OOODieS held by the City;
2. Adescription ofthe funds, investments and programs;
3. Amarket value aeofthe date ofthe report (or the most recent valuation aatoassets not
valued monthly) and the source ofthe valuation;
4. {)venoU portfolio yield based on historical cost;
5. Weighted average final maturity and weighted average effective maturity;
O. A statement of compliance with this Policy or an explanation for not -compliance;
7. A description of any of the City's fundo, investments or programs that are under the
management ofcontracted parties, including lending programs; and
8. A statement of the ability to meet expenditure requirements for six montha, as well as an
explanation ofwhy money will not beavailable ifthat is the case.
The Treasurer shall submit to the Council areport of any changes affecting more than 15%
of the investment portfolio within 30 days of such change.
POLICY REVIEW
This Investment Policy shall be reviewed and approved bvCity Council annually hoensure
its consistency with the overall objectives of preservation of principal, |iquidh«, yield and
diversification and its relevance to current |avv and economic trends. Any additional
amendments to this Investment Policy shall be submitted to the City Council for approval.
CITY OF SAN RAFAEL
INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OFA CONTRACT, AGREEMENT,
ORDINANCE OR RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY.
SRRA/ SRCC AGENDA ITEM NO. 3.g
DATE OF MEETING: 6/3/13
FROM: Mark Moses and Van Bach
DEPARTMENT: Finance
DATE: 5/23/13
TITLE OF DOCUMENT: City of San Rafael Investment Policy
Department Head (signature)
(LOWER HALF OF FORM FOR APPROVALS ONLY)
APPROVED AS COUNCIL AGENCY
AGENDA ITEM:
d
City Manager (signature)
APPROVED AS TO FORM:
City Attorney (siqfiafure)—