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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: David Kennedy, City Treasurer
Subject: 2000 Investment Policy
Dept: Treasurer
Date: August 28, 2000
Synopsis of Previous Council action:
Resolution #1999-190 adopted 8/4/99.
Resolution #98-225 adopted 7/21198.
Resolution #97-218 adopted 7/21197.
Resolution #96-148 adopted 6/6/96.
Resolution #95-153 adopted 5/17/95.
Resolution #94-32 adopted 2/22/94.
Recommended motion:
Adopt Resolution
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Signature
Contact penon: David Kennedv. Ci\y Treasurer
Phone:
ext. 5221
Supporting data attaehed:
Ward:
FUNDING REQUIREMENTS:
Amount:
Source: IAcct No.)
I Accl DemDtion)
Finance:
Council Notes:
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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
STAFF REPORT
Subject:
Resolution of the Mayor and Common Council of the City of San Bernardino acknowledging
the receipt and filing of the Annual Statement of Investment Policy for the Year 2000.
Background:
The City Treasurer annually files a Statement ofInvestment Policy with the Mayor and Common
Council. Under the authority granted in the City Charter, the City Treasurer is responsible for
investing unexpended cash in the City Treasury.
City of San Bernardino funds are invested in keeping with the goals of safety, liquidity and yield.
The primary goal of the investment policy is preservation of principal. The City's portfolio shall
be designed and managed in a manner responsive to the public trust, and consistent with state
and local laws.
Portfolio management requires continual analysis. As a result, the balance between the various
investments and maturities may change in order to give the City of San Bernardino the optimum
combination of necessary liquidity and optimal yield based on cash flow projections.
The standard to be used by investment officials shall be that of a "prudent person" and shall be
applied in the context of managing all aspects of the overall portfolio. Investments shall be made
with judgement and care, considering the probable safety of the City's capital, as well as the
probable income to be derived.
The City Treasurer shall review and render monthly reports to the City Administrator and City
Council which shall include the face amount of each investment, the classification of the
investment, the name of the institution or entity, the rate of interest, the maturity date, the current
market value and accrued interest due for all securities. The report shall also detail all
repurchase agreements and reverse repurchase positions and associated liabilities.
There are no changes from the 1999 Annual Statement ofInvestment Policy.
Financial Impact:
None
Recommendation:
Adopt resolution.
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RESOLUTION NO.
RESOLUTION OF THE MAYOR AND COMMOM COUNCIL OF THE CITY OF
SAN BERNARDINO ACKNOWLEDGING THE RECEIPT AND FILING OF THE ANNUAL
STATEMENT OF INVESTMENT POLICY FOR THE YEAR 2000.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON
COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS:
SECTION 1. Recitals.
The City Treasurer of the City of San Bernardino declares the annual Statement of
Investment Policy is as set forth in Exhibit "A", attached hereto and incorporated herein by this
reference as though fully set forth at length.
SECTION 2. Imolementation.
An annual Statement of Investment Policy for the City of San Bernardino has been filed
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by the City Treasurer for the calendar year 2000.
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1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF
SAN BERNARDINO ACKNOWLEDGING THE RECEIPT AND FILING OF THE ANNUAL
2 STATEMENT OF INVESTMENT POLiCY FOR THE YEAR 1999.
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I HEREBY CERTIFY that the foregoing resolution was duly adopted by the Mayor and
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5 Common Council of the City of San Bernardino at an
meeting thereof, held on the
6 day of
7 COUNCIL MEMBERS
, 2000, by the following vote to wit:
AYES NAYS
ABSTAIN
ABSENT
22 AMES F. PENMAN
23 ity Attorney
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EXHIBIT A
CITY OF SAN BERNARDINO
INVESTMENT POLICY
POLICY
In accordance with the Charter of the City of San Bernardino and under authority granted by the City
Council, the City Treasurer is responsible for investing the unexpended cash in the City Treasury.
The investment of the funds of the City of San Bernardino is directed to the goals of safety, liquidity and
yield. The authority governing investments for municipal governments is set forth in the California
Government Code, Sections 53601 through 53659.
The primary objective of the investment policy of the City of San Bernardino is SAFETY OF
PRINCIPAL, Investments shall be placed in those securities as outlined by type and maturity sector in
this document. Effective cash flow management and resulting cash investment practices are recognized as
essential to good fiscal management and control. The City's portfolio shall be designed and managed in a
manner responsive to the public trust and consistent with state and local law. Portfolio management
requires continual analysis and as a result the balance between the various investments and maturities may
change in order to give the City of San Bernardino the optimum combination of necessary liquidity and
optimal yield based on cash flow projections.
SCOPE
The Investment policy applies to all financial assets of the City of San Bernardino as accounted for in the
Comprebensive Annual Financial Report (CAFR). Policy statements outlined in this document focus on
the City of San Bernardino's pooled funds, but will also apply to all other funds under the City Treasurer's
span of control unless specifically exempted by statue or ordinance.
One exception does exist regarding the investment of bond reserve funds. If, in the opinion of the City
Treasurer, matching the segregated investment portfolio of the bond reserve fund with the maturity
schedule of an individual bond issue is prudent given current economic analysis, the investment policy
authorizes extending beyond the five year maturity limitation as outlined in this document.
PRUDENCE
The standard to be used by investment officials shall be that of a "prudent person" and shall be applied in
the context of managing all aspects of the overall portfolio. Investments shall be made with judgment and
care, under circumstances then prevailing, which persons of prudence, direction and intelligence would
exercise in the management of their own affairs, not for speculation, but for investment, considering the
probable safety of their capital as well as the probable income to be derived.
It is the City's full intent, at the time of purchase, to hold all investments until maturity to ensure the return
of all invested principal dollars.
However, it is rea1ized that marlcet prices of securities will vary depending on economic and interest rate
conditions at any point in time. It is further recognized, that in a well diversified investment portfolio,
occasional measured losses are inevitable due to economic, bond market or individual security credit
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analysis. These ocx:asionallosses must be CODSidcred within the context of the overall investment program
objectives lIIId the resultant 10Dg-tenn rate of return.
The City Treasurer and other individuals assigned to manage the investment portfolio, acting within the
intent lIIId scope of the investment policy lIIId other writta1 procedures lIIId exercising due diligence, sball
be relieved of personal responsibility lIIId liability for an individual security's credit risk or market price
changes, provided deviations from expectations are reported in a timely manner and appropriate action is
taken to control adverse developments.
OBJECTIVES
Safety of Principal
Safety of principal is the foremost objective of the City of San Bernardino. Each investment transaction
sball seek to ensure that capital losses are avoided, whether from securities defiwlt, broker~er defiwlt or
erosion of market value. The City sbalI seek to preserve principal by mitigating the two types of risk,
credit risk and market risk.
Credit risl>, defined as the risk of loss due to fililure of the issuer ofa security, sball be mitigated by
investiug in investment grade securities lIIId by diversifying the investment portfolio so that the
fililure of anyone issuer does not unduly harm the City's capital base lIIId cash flow.
Market risk, defined as market value fluctuations due to overall chauges in the general level of
interest rates, sball be mitigated by limitiug the average maturity of the City's investment portfolio
to three years, the maximum maturity of any one security to five years, structurlug the portfolio
based on historic and current cash flow analysis eliminating the need to sell securities prior to
maturity, lIIId avoiding the purchase of 10118 term securities for the sole putpOSC of short term
speculation.
Liquidity
Historical cash flow trends are compared to current cash flow requirements on an ongoing basis in an effort
to ensure that the City's investment portfolio will remain sufficiently liquid to enable the City to meet all
reasonably anticipated operating requirements.
MATURITY MATRIX
Maturities of investments will be selected based on liquidity requirements to minimize interest rate risk lIIId
maximize earnings. Current lIIId expected yield curve analysis will be monitored lIIId the portfolio will be
invested accordingly. The weighted average maturity of the pooled portfolio should not exceed two and one
balf years and the following percentages of the portfolio should be invested in the following maturity
sectors:
Maturitv Ranl!e
SUl!l!ested Percental!e
1 day to 7 days
7 days to 180 days
180 days to 360 days
1 year to 2 years
10 to 50%
10 to 50%
10 to 50%
10 to 50%
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2 years to 3 years
3 years to 4 years
4 years to 5 years
Over 5 years
o to 40%
o to 40%
o to 40%
Council Authorization required
PERFORMANCE EVALUATION
Investment perfonnance is continually monitored lIIId evaluated by the City Treasurer. Investment
perfonnance statistics lIIId activity reports are generated on a montbIy basis for presentation to the City
Administrator lIIId City Council.
DELEGATION OF AUTHORITY
The Charter of the City of San Bernardino lIIId the authority granted by City Council assigned the
responsibility of investing unexpended cash to the City Treasurer. Daily management responsibility of the
investment program has been delegated to the Deputy Treasurer, who shall establish procedures for the
operation consistent with this investment policy. In the City Treasurer's lIIId Deputy Treasurer's absence,
the Administrative Operations Supervisor is authorized to initiate investment transactions.
ETffiCS AND CONFLICTS OF INTEREST
Officers lIIId employees involved in the investment process shall refrain from personal business activity that
conflicts with proper execution of the investment program, or impairs their ability to make impartial
investment decisions. Additionally the City Treasurer is required to annually file applicable financial
disclosures as required by the Fair Political Practices Commission (FPPC).
SAFEKEEPING AND SECURITIES
To protect against fraud or embezzlement or losses caused by co1lapse of an individual securities dealer, all
securities owned by the City shall be held in safekeeping by a third party bank trust department, acting as
agent for the City under the terms of a custody agreement or PSA agreement (repurchase agreement
collateral). All trades executed by a dealer will settle delivery Vs payment (DVP) through the City's
safekeeping agent.
Securities held in custody for the City shall be independently audited on an annual basis to verifY
investment holdings.
All exceptions to this safekeeping policy must be approved by the City Treasurer in written form lIIId
included in monthly reporting to City Council.
REPORTING
Tbe City Treasurer shall review lIIId render monthly reports to the City Administrator and City Council
which shall include the face amount of each investment, the classification of the investment, the name of the
institution or entity, the rate of interest, the maturity date, the current market value lIIId accrued interest due
for all securities. Tbe report shall also detail all repurchase agreements lIIId reverse repurchase positions
and associated liabilities.
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QUALIFIED BROKER/DEALERS
The City sbaII transact business only with banks, savings and IOIIIIS, and with broker/dealers. The
broker/dealers should be primluy dealers regularly reporting to the New Yode Federal Reserve Bank.
Exceptions will be made only upon written authorizatioo by the City Treasurer. Investmeut staff sbaII
investigate dealers which wish to do business with the City to cIetermine if they are adequately capitalized,
and make marlcets in the securities appropriate to the City's needs.
The City Treasurer shall annually send a copy of the cunent investment policy to all broker/dealers
approved to do business with the City. Confirmation of receipt of this policy sbaII be COI1Sidered evidence
that the dealer understands the City's investment policies and intends to sell the City only appropriate
investments authorized by this investment policy.
COLLATERAL REQillREMENTS
Collateral is required for investments in certificates of deposit, repurchase agreements and reverse
repurchase agreements. In order to reduce market risk, the collateral level will be at least 102% of market
value of principal and accrued interest.
In order to conform with the provisions of the Federal Bankruptcy Code which provides for liquidation of
securities held as collateral, the only securities acceptable as collateral shall be certificates of deposit,
commercial paper, eligible banker's acceptances, medium term notes or securities that are the direct
obligations ot; or are fully guaranteed as to principal and interest by, the United States or any agency of the
United States.
AUTHORIZED INVESTMENTS
Investment of City funds is governed by the California Government Code SectiOllS 53600 et seq. Within the
context of the limitatiOllS, the following investments are authorized, as further limited herein:
I. United States Treasul)' Bills, Bonds, and Notes or those for which the full fuith and credit of the United
States are pledged for payment of principal and interest. There is no percentage limitation of the
portfolio which can be invested in this categol)', although a five year maturity limitation is applicable.
2. ObligatiOllS issued by the Government National Mortgage Association (GNMA), the Federal Farm
Credit System (FFCB), the Federal Home Loan Bank Board (FHLB), the Federal National Mortgage
Association (FNMA), the Student Loan Marlceting Association (SLMA), and the Federal Horne Loan
Mortgage Associatioo (FHLMC). There is no percentage limitation of the portfolio which can be
invested in this categOl)', although a five year maturity limitation is applicable.
3. LocaI Agency Investment Fund (LAIF) which is a State of California managed investment pool may be
used up to the maximum permitted by California State Law.
Investments detailed in items 4 through II are further restricted to percentage of the cost value of the
portfolio in any one issuer name to a maximum of 15%. The totaI value invested in anyone issuer sbaII not
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exceed 5% of the issuers net worth. Again, a five year maximum maturity limitation is applicable unless
further restricted by this poliey.
4. Bills of exchange or time drafts drawn on and accepted by commercial banks, otherwise known as
bankers acceptances. Banker's acceptances purchased may not exceed 270 days to maturity or 40% of
the cost value of the portfolio.
5. Commercial paper ranked PI by Moody's Investor Services or Al+ by Standard &. Poors, and issued
by domestic corporations having assets in excess of $500,000,000 and having an AA or better rating
on its' long tenn debentures as provided by Moody's or Standard &. Poors. Purchases of eligible
commercial paper may not exceed 180 days to maturity nor represent more than 10% of the
outstantlil1g paper of the issuing corporation. Purchases of commercial paper may not exceed 15% of
the cost value of the portfolio.
6. Negotiable Certificates of deposit issued by nationally or state chartered banks or state or federal
savings institutions. Purchases of negotiable certificates of deposit may not exceed 30% of total
portfolio. A maturity limitation of five years is applicable.
7. Repurchase agreements which specify terms and conditions may be transacted with banks and broker
dealers. The maturity of the repurchase agreements shall not exceed 90 days. The market value of the
securities used as collateral for the repurchase agreements shall be monitored by the investment staff
and shall not be allowed to fiill below 102% of the value of the repurchase agreement. A PSA Master
Repurchase Agreement is required between the City of San Bernardino and the broker dealer or
financial institution for all repurchase agreements transacted.
8. Reverse repurchase agreements which specifies terms and conditions may be transacted with broker
dealers and financial institutions but can not exceed 20% of the portfolio value on the date entered into.
The City may enter into reverse repurchase agreements only to fund short term liquidity needs. The
term of reverse repurchase agreements may not exceed 90 days.
9. Time deposits, non-negotiable and collateralized in accordance with the California Government Code,
may be purchased through banks or savings and loan associations. Since time deposits are not liquid,
no more than 25% of the investment portfolio may be invested in this investment type.
10. Medium Term Corporate Notes, with a maximum maturity of five years may be purchased. Securities
eligible for investment shall be rated AA or better by Moody's or Standard &. Poor's rating services.
Purchase of medium term notes may not exceed 30% of the market value of the portfolio and no more
than 15% of the market value of the portfolio may be invested in notes issued by one corporation.
Commercial paper holdings should also be included when calculating the 15% limitation.
11. Various daily cash funds including short term money market accounts administered for or by trustees,
paying agents and custodian banks contracted by the city of San Bernardino may be purchased as
allowed under State ofCalifomia government Code. Only funds holding U.S. Treasury or Government
agency obligations can be utilized.
Ineligible investments are those that are not described herein, including but not limited to, common stocks
and long term (over five years in maturity) notes and bonds are prohibited from use in this portfolio. It is
noted that special circumstances arise that necessitate the purchase of securities bCyond the five year
limitation. On such occasions, requests must be approved by city council prior to purchase.
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The following summary of maximum percentage limits, by instrument, are established for the City's total
pooled funds portfolio:
Investment Tvoe
Percentalze
Repurchase Agreements
Local Agency Investment Fund
US Treasury BondsINotes/Bills
US Government Agency Obligatious
US Government Agency Callable
Bankers' Acc:cptances
Commercial Paper
Negotiable Certificates of Deposit
Time Certificates of Deposit
Medium Term Corporate Notes
Cash funds and Money MId Accts.
Reverse Repurchase Agreements
Passbook savings acct demand deposits
o to 100"10
$20,000,000 per acct.
Otoloo%
o to 100%
o to 75%
o to 40%
o to 15%
o to 30%
o to 25%
o to 30%
o to 20%
o to 20%
o to 20%
DERIVATIVE INVESTMENTS
Derivatives are investments whose value is "derived" from a benchmark or index. That benchmaric can be
almost any financial measure from interest rates to commodity and stock prices. When appropriate, limited
use of derivative investments tied solely to interest rate structures are allowable. However, any investment
of this type must receive prior approval from the City Treasurer. Securities or investments classified as
derivatives must be issued by an agency or entity authorized by this investment policy.
LEGISLATIVE CHANGES
Any State of California legislative action, that further restricts allowable maturities, investment type or
percentage allocations, will be incorporated into the City of San Bernardino's Investment Policy and
supersede any and all previously applicable language.
INTEREST EARNINGS
All moneys earned and collected from investments authorized in this policy sha11 be allocated monthly to
various fund accounts based on the cash balance in each fund as a percentage of the entire pooled portfolio.
LIMITING MARKET VALUE EROSION
The longer the maturity of securities, the greater their market price volatility. Therefore, it is the geoeral
policy of the City to limit the potential effects from erosion in market values by adhering to the following
guidelines:
All immediate and anticipated liquidity requirements will be addressed prior to purchasing all
investments.
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Maturity dates for loag-tenn inveslmeDts will coincide with significaDt cash flow requirements
where possible, to assist with short term cash requiremeots at maturity.
AJIloag-tenn securities will be purcbased with the iDtent to hold all investments to maturity UDder
then pm'lliling economic cmditions. However, economic or marlcct cmditions may cbangc,
making it in the City's best interest to sell or trade a security prior to maturity.
PORTFOLIO MANAGEMENT ACTIVITY
The investment program sbaII seek to augment returns consistent with the iDtent of this policy, ideotified
risk limitations and prudent investment principals. This objective will be achieved by use of the following
strategies:
Active Portfolio Mana"""'ent Through active fund and cash flow management taking advantage of
current economic and interest rate trends, the portfolio yield may be enha""ed with limited and
measurable increases in risk by ~P.rltli11g the weighted maturity of the totaI portfolio.
Portfolio MlIh.ritv Manaaement When structuring the maturity composition of the portfolio, the
City shall evaluate current and expected interest rate yields and necessary cash flow requirements.
It is recognized that in normal marlcct conditions longer maturities produce higher yields.
However, the securities with longer maturities also experience greater price fluctuations when the
level of interest rates change.
Security Swaos The City may take advantage of security swap opportunities to improve the
overall portfolio yield. A swap which improves the portfolio yield may be selected even if the
transactions result in an accounting loss. Documentation for swaps will be included in the City's
permanent investment file documents.
POLICY REVIEW
The City of San Bernardino investment policy sbaII be adopted by resolution of the City council on an
annuaI basis. This investment policy sbaII be reviewed at least ann"ally to ensure its consistency with the
overall objectives of preservation of principal, liquidity and yield, and its relevance to current law and
financial and economic trends. Any amendments to the policy shall be forwarded to City Council for
approval. .
** FOR OFFICE USE ONLY - NOT A PUBLIC DOCUMENT **
RESOLUTION AGENDA ITEM TRACKING FORM
Meeting Date (Date Adopted): It) - z- ---0::; Item # '2. L Resolution #
Vote: Ayes)- '1 Nays B- Abstain .g.-
Change to motion to amend original documents:
ZOoo-Zqs
Absent e
Reso. # On Attachments:
./
Contract term:
NullNoid After: -
Date Sent to Mayor: \ O-A.-oO Date Returned from Mayor:
Date of Clerk's Signature: \O-.S^-CO Reso. Log Updated:
iCJ -6, -<x:.l
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Date of Mayor's Signature: 10A-oo
Seal Impressed: ...--
Date Memo Sent to Department for Signature:
See Attached: -Date Returned:
-
See Attached: - Date Returned:
See Attached: -
See Attached: -
-
Date Letter Sent to Outside Party for Signature:
60 Day Reminder Letter Sent on 30th day:
90 Day Reminder Letter Sent on 45th day:
Note on Resolution of Attachment stored separately:-==-
Direct City Clerk (circle I): PUBLISH, POST, RECORD W /COUNTY Date:
See Attached:
Yes~ No By
Yes No ./ By
Yes No ,/ By
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Yes No ,/ By
Yes No J By
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Request for Council Action & Staff Report Attached:
Updated Prior Resolutions (Other Than Below):
Updated CITY Personnel Folders (6413, 6429, 6433, 10584, 10585, 12634):
Updated CDC Personnel Folders (5557):
Updated Traffic Folders (3985, 8234, 655, 92-389):
Copies Distributed to:
City Attorney ,/'
Parks & Rec.
Code Compliance Dev. Services
Police Public Services Water
EDA
Finance
Others:--riZ1m1~
MIS
Notes:
BEFORE FILING. REVIEW FORM TO ENSURE ANY NOTATIONS MADE HERE ARE TRANSFERRED TO THE
YEARLY RESOLUTION CHRONOLOGICAL LOG FOR FUTURE REFERENCE (Contract Term, etc.)
Ready to File: ~
Date: 10- kOO