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ECONOMIC DEVELOPMENT AGENCY
OF THE CITY OF SAN BERNARDINO
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REOUEST FOR COMMISSION/COUNCIL ACTION
FROM: Barbara Lindseth
Administrative Services Director
SUBJECT:
ANNUAL STATEMENT OF
INVESTMENT POLICY
DATE: November 23, 2000
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Synopsis of Previous Commission/Council/Committee Action(s):
On December 20, 1999, the Community Development Commission adopted the Agency's Annual Statement of
Investment Policy for the year 2000.
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Recommended Motion{sl:
(Communitv Develooment Commission)
MOTION:
RESOLUTION OF THE COMMUNITY DEVELOPMENT COMMISSION OF THE CITY
OF SAN BERNARDINO, CALIFORNIA, ADOPTING THE ECONOMIC DEVELOPMENT
AGENCY'S ANNUAL STATEMENT OF INVESTMENT POLICY FOR THE YEAR 2001.
Contact Person(s): Barbara Lindseth
Phone:
663-1044
Project Area(s):
All
Warde,): All
Supporting Data Attached:1ID Staff Report 0 Resolution(s) 0 Agreement(s)/Contract(s) 0 Map(s) 0 Ltr/Memo
FUNDING REQUIREMENTS: Amount: None
Source: NA
Budget Authority: NA
SIGNATURE:
..?J1. -/
1, < Iv" H ~____/,c ~L/f;
Barbara Lindseth . .
Admin Services Director
Commission/Council Notes:
GVO:BL:Agenda CDC Investment Policy
COMMISSION MEETING AGENDA
MEETING DATE: 12/4/00
Agenda Item Number: ~g
ECONOMIC DEVELOPMENT AGENCY
STAFF REPORT
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Annual Statement of Investment Policv
Background
Government Code Section 53646 requires that the Community Development Commission
("Commission") annually adopt a Statement ofInvestment Policy for the Economic Development
Agency. On December 20, 1999, the Commission adopted the Agency's Annual Statement of
Investment Policy for the year 2000.
Current Issue
The Agency's annual "Statement ofInvestment Policy" ("Policy") is attached for the year 200 I.
After review and comments by the Agency's auditors, Conrad and Associates, the Policy
presented for adoption is substantially the same Policy as adopted by the Commission for the
years 1989 through 2000, and it is essentially the same Policy adopted by the City of San
Bernardino. The Policy is used as a guideline for the efficient placement and monitoring of
investments of idle cash. The Policy outlines the types of investments the Agency may purchase,
which are identical to the types allowed under the City's Policy, while stressing the importance of
maximizing the yield earned on all investments and minimizing the risks. The criteria for selecting
investments, and the order of priority, are: (i) safety; (ii) liquidity; and, (iii) yield.
The Agency current invests with the State of California Local Agency Investment Fund (LAIF)
pool, and with Wells Fargo Bank investment services. The Wells Fargo Bank investments are
required as security for the Agency's Wells Fargo Bank Line ofCredi!. Funds held by the Bond
Trustee are invested in accordance with approved bond documents.
Recommendation
That the Commission adopt the Agency's Annual Statement ofInvestment Policy for the year
2001.
~J
Gary
Execu
GVO:BL:Agenda CDC Investment Policy
COMMISSION MEETING AGENDA
MEETING DATE: 12/4/00
Agenda Item Number:
P..ai
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~@W>)f
RESOLUTION NO.
-'"
RESOLUTION OF THE COMMUNITY DEVELOPMENT COMMISSION
OF THE CITY OF SAN BERNARDINO, CALIFORNIA, ADOPTING THE
ECONOMIC DEVELOPMENT AGENCY'S ANNUAL STATEMENT OF
INVESTMENT POLICY FOR THE YEAR 2001.
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WHEREAS, on December 20, 1999, the Community Development
Commission ("Commission") adopted the City of San Bernardino Economic
Development Agency's Annual Statement ofInvestment Policy for the year 2000;
and
WHEREAS, the Commission now deems it desirable to adopt the City of
San Bernardino Economic Development Agency's Annual Statement of
Investment Policy for the year 2001_
NOW, THEREFORE, BE IT RESOLVED BY THE COMMUNITY
DEVELOPMENT COMMISSION OF THE CITY OF SAN BERNARDINO,
AS FOLLOWS:
Section L The Commission hereby adopts the City of San Bernardino
Economic Development Agency's Annual Statement ofInvestment Policy for the
year 200 I, as attached hereto.
Section 2. This Resolution shall take effect upon the date of its adoption.
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RESOLUTION OF THE COMMUNITY DEVELOPMENT COMMISSION
OF THE CITY OF SAN BERNARDINO, CALIFORNIA, ADOPTING THE
ECONOMIC DEVELOPMENT AGENCY'S ANNUAL STATEMENT OF
INVESTMENT POLICY FOR THE YEAR 2001.
1 HEREBY CERTIFY that the foregoing Resolution was duly adopted by
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the Conununity Development Conunission of the City of San Bernardino at a
meeting thereof, held on the
day of
,2000
by the following vote, to wit:
The foregoing Resolution is hereby approved this _day of
,2000.
Judith Valles, Chairperson
Conununity Development
Conunission of the City of
San Bernardino
ent:
By:
(3(Q)~'lf
ECONOMIC DEVELOPMENT AGENCY
City of San Bernardino
""
"2001 Statement ofInvestment Policy"
I. Purpose
This Statement ofInvestment Policy (the "Policy") is intended to provide
guidelines for the prudent investment of the Economic Development
Agency's (the "Agency") idle cash, and to outline the policies for maximizing
the efficiency of the Agency's cash management system. The ultimate goal is
to enhance the economic status of the Agency while protecting its pooled cash
and all other funds under the span of control of the Agency.
When investing proceeds from the issuance of bonds and held by the bond
trustee/fiscal agent, the Agency is not limited to the allowable investments
identified in this Policy. Bond Proceeds shall be invested in accordance with
the requirements and restrictions as outlined in the bond documents.
California Government Code requires that the Agency's Investment Policy be
updated on an annual basis.
II. Objective
The Agency's cash management system is designed to accurately monitor and
forecast expenditures and revenues, thus enabling the Agency to invest funds
to the fullest extent possible. The Agency attempts to obtain the highest yield
possible as long as investments meet the criteria established for safety and
liquidity.
III. Policy
The Agency adheres to the guidelines provided by the "prudent man rule",
which obligates a fiduciary to ensure that:
"...an investment shall be made with the exercise of that degree of judgment
and care, under circumstances then prevailing, which persons of prudence,
discretion and intelligence exercise in the management oftheir own affairs,
not for speculation but for investment considering the probable safety of their
capital as well as the probable income to be derived."
A. Safety:
Safety and the minimization of risks associated with investments refer to
attempts to reduce the potential loss of principal, interest, or a combination
of the two. The first level of control is in California State (the "State")
Law, which restricts municipalities to certain investment instruments. The
second level of risk control is the investment in instruments, which appear
on examination to be the most credit worthy. The third level of control is
in the reduction of market risk by investing in sufficient instruments that
have maturities coinciding with dates of disbursement. The Agency only
invests in those instruments that are considered very safe.
B, Liquidity
Liquidity is the ability to easily sell investment instruments at any time
with the minimal risk of losing some portion of principal or interest.
Liquidity is an extremely important quality as the Agency may have an
expected need for funds to be disbursed.
Most investments are highly liquid, with the exception of collateralized or
insured term certificates of deposit issued banks and savings and loans.
Certificate maturities are selected to anticipate cash needs, thereby
eliminating the need for forced liquidation.
C. Yield
Yield is the potential dollar earnings an investment can provide, or "rate of
return". The Agency attempts to obtain the highest yield possible when
selecting an investment, provided that the criteria stated in the Policy for
safety and liquidity are met and the inyestment guidelines and strategy are
adhered to.
D, Public Trust
All participants in the investment process shall act as custodians of the
public trust. Investment officials shall recognize that the investment
portfolio is subject to public review and evaluations. The overall program
shall be designed and managed with a degree of professionalism that is
worthy of the public trust. In a diversified portfolio it must be recognized
that occasional measured losses are inevitable, and must be considered
within the context of the overall portfolios' investment return, provided
that adequate diversification has been implemented.
E. Bank and Securities Dealers
In selected financial institutions for the deposit or investment of Agency
funds, staff shall consider the credit worthiness of the institutions. Staff
shall continue to monitor financial institutions' credit characteristics and
fmancial history throughout the period in which Agency funds are
deposited or invested.
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IV. Investments
Authorized investment instruments shall include:
Securities of the United States Government and obligations of its agencies;
registered treasury notes, bonds, or legal obligations of the State of California;
certificates of deposit placed with commercial banks and savings and loans;
bankers acceptances; repurchase agreements (to be co llateralized at 102%);
commercial paper; negotiable certificates of deposit; Local Agency
Investment Fund (LAlF) demand deposits; passbook savings account demand
deposits; interest bearing demand deposits; and, money-market accounts of
acceptable instruments.
Government and agency securities are the highest quality investments
available in terms of safety and liquidity. Certificates of deposit, savings
accounts, repurchase agreements and bankers acceptances are insured or
collateralized. Only commercial paper with both A-I Moody's and P-I
Standard and Poor's ratings are purchased.
The Agency operates its investment program with many federal, state and
self-imposed constraints. This Policy prohibits the purchasing of or dealing in
stocks, futures, options, derivatives, security loan agreements, and federal
agency securities that take the form of inverse floaters, range notes, mortgage-
hacked interest-only strips, or any floating-rate investment without a floor.
To maximize investment income, the Agency uses all available economically
feasible investment tools. Economic conditions and various money markets
are monitored in order to assess the prohable course of interest rates.
The Final basic premise underlying the Agency's investment philosophy is to
ensure the safety of existing funds and ensure consistent availability of same.
V. Maturities and Portfolio Percentages
Investments will be chosen with appropriate maturities so that funds will be
available to meet the Agency's cash flow requirements. No investment will
be made with a maturity date over three (3) years. An exception to the three
(3) year maturity limit is investments of funds held by the Bond Trustee
whereby it is prudent to match the portfolio of the bond funds with the
maturity schedule of the bond issue.
It is the Agency's full intent, at the time of purchase, to hold all investments
until maturity to ensure the return of all invested principal dollars.
A. United States Treasury bills, bonds and notes or those for which the full
faith and credit ofthe United States are pledged for payment of principal
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and interest have no percentage limitation of the portfolio for investment
purposes, but are limited to the three (3) year maturity.
B. Obligations issued by the Government National Mortgage Association
(GNMA), the Federal Farm Credit System (FFCB), the Federal Home
Loan Bank Board (FHLB), the Student Loan Marketing Association
(SLMA), and the Federal Home Loan Mortgage Association (FHLMC)
have no percentage limitation ofthe portfolio, although the three (3) year
maturity is applicable.
C. Bills of exchange or time drafts drawn on and accepted by commercial
hanks, otherwise known as banker's acceptances may not exceed 270 days
to maturity or 30% of the cost ofthe portfolio.
D. Commercial paper ranked P- I by Moody's Investor Service or A-I + by
Standard and Poor's, and issued by domestic corporations having assets in
excess of$500,000,000 and having an AA or better rating on their long
term debentures as provided by Moody's or Standard and Poor's, may not
exceed 180 days to maturity nor represent more than 10% of the
outstanding paper of the issuing corporation. Purchases of commercial
paper may not exceed 15% of the cost of the value of the portfolio.
E. Negotiable certificates of deposit issued by nationally or State chartered
banks or State or Federal savings institutions may not exceed 30% of the
total portfolio, and the maturity limit of three (3) years is applicable.
F. Repurchase agreements may not exceed maturity of90 days and shall not
exceed 10% ofthe total portfolio. The market value ofthe securities used
as collateral for the repurchase agreements shall not be allowed to fall
below 102% of the value of the repurchase agreements.
G. Local Agency Investment Fund (LAlF), which is a State of California
managed investment poo~ may be used to the maximum permitted by
California State law.
H. Time deposits, non-negotiable and collateralized in accordance with the
California Government Code, may be purchased through hanks or savings
and loan associations with no more than 2% of the total investment
portfolio.
I. Various daily cash funds, including short-term money market accounts
administered for or by trustees, paying agents and custodial hanks
contracted by the Agency, may be purchased as allowed under State of
California Government Code. Only funds holding United States Treasury
or Government Agency obligations may be utilized. No more than 20% of
the total portfolio may be invested in this manner.
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VI. Collateral Requirements
Collateral is required for investments in certificates of deposit and
repurchased agreements. In order to reduce market risk, the collateral level
will be at least 102% of market value or principal and accrued interest.
In order to conform with the provisions of the Federal Bankruptcy Code,
which provides for liquidations 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
direct obligations or, or are fully guaranteed as to principal and interest by, the
United States or any agency of the United States.
VII. Reporting
The Agency shall submit regular investment reports to the legislative body.
Under Section 53646 of the California Government Code the required
elements of the report shall include:
a. Type of investment
b. Institution- issuer of investment
c. Cost of investment
d. Par value of investment
e. Market value of investment
f. Source of market information
g. Date of maturity
h. Statement of compliance ofthe portfolio as to the investment policy
I. Statement as to the ability to meet its expenditure requirement for the
next six (6) months
VIII. Internal Controls
A system of internal control shall be established and documented. The
controls shall be designed to prevent losses of public funds arising from fraud,
employee error, misrepresentation the third parties, unanticipated changes in
[mancial markets, or imprudent actions by employees of the Agency.
Controls deemed most important include: control of collusion, separation of
duties, separating transaction authority from accounting and record keeping,
custodial safekeeping, clear delegation of authority, specific limitations
regarding securities losses remedial action, written confIrmation of telephone
transactions, minimizing the number of authorized investment officials,
documentation of transactions and strategies, and code of ethics.
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