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HomeMy WebLinkAbout2019-001 INVESTMENT POLICY FOR FY2018/19Resolution No. 2019-1 RESOLUTION NO. 2019-1 RESOLUTION OF THE MAYOR AND CITY COUNCIL OF THE CITY OF SAN BERNARDINO, CALIFORNIA, APPROVING AN INVESTMENT POLICY FOR FY 2018/19 WHEREAS, the City of San Bernardino has an existing investment policy consistent with state law and sound financial management practices; and WBEREAS, the state law requires that the managing board of any municipality within the state review and reapprove the investment policy on an annual basis; and WHEREAS, the functions associated with the former office of the Elected City Treasurer have been transferred to the City's Director of Finance per the mandate of the new City Charter approved in November 2016; and WHEREAS, The effective date of the transfer of responsibilities was July 1, 2017 as the City was implementing the various sections of the new Charter as opportunities became prudent to do so; and WHEREAS the Director of Finance has reviewed the 2016/17 investment policy adopted July 6, 2016, and is recommending minor changes to modernize, which are included in the proposed policy attached hereto as Exhibit "A ;" WHEREAS, such policy is presented to the Mayor and City Council for its review and approval for Fiscal Year 2018/19 consistent with state law. BE IT RESOLVED BY THE MAYOR AND CITY COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS: SECTION 1. The above recitals are true and correct and are incorporated herein by this reference. SECTION 2. The Mayor and City Council hereby adopts the "Investment Policy for Fiscal Year 2018/19," attached hereto as Exhibit "A" and incorporated herein and made a part of this Resolution. SECTION 3. Effective Date. This Resolution shall become effective immediately. APPROVED and ADOPTED by the City unTT d signed by the Mayor and attested by the City Clerk this 2nd day of Jams 2019. r j r Jobn Valdivia, Mayor City of San Bernardino Resolution No. 2019-1 Attest: Georgeann Ha na, MMC, City Clerk Approved as to form: j a A , -;-,P- Gary D. Saenz, City Attorney Resolution No. 2019-1 CERTIFICATION STATE OF CALIFORNIA) COUNTY OF SAN BERNARDINO) ss CITY OF SAN BERNARDINO) I, Georgeann Hanna, MMC, City Clerk, hereby certify that the attached is a true copy of Resolution No. 2019-1 adopted at a regular meeting held at the 2nd day of January 2019 by the following vote: Council Members: AYES SANCHEZ y IBARRA X VACANT SHORETT NICKEL x RICHARD MULVIHILL X NAYS ABSTAIN ABSENT WITNESS my hand and official seal of the City of San Bernardino this 2nd day of Jams 2019. Georgea ii Hanna, MMC, City Clerk Exhibit A City of San Bernardino Investment Policy Effective July 2018 to June 30, 2019 Adopted January 2, 2019 I. PURPOSE To establish guidelines for the prudent investment of public funds in a manner that will protect City funds, meet daily cash flow expenditures, and comply with all federal, state, and local laws and ordinances governing the investment of public funds. II. POLICY It shall be the policy of the City of San Bernardino to annually review and adopt an Investment Policy by resolution of the City Council. This Policy applies to all financial assets and funds held by the City of San Bernardino and the Successor Agency to the San Bernardino Redevelopment Agency. All Funds reflected in the City's Annual Financial Report are subject to this policy, including any new funds that are created, unless specifically exempted by the City Council. Any modifications to the Policy must be approved by the City Council. III. PROCEDURES The Director of Finance shall annually review the City's Investment Policy, and incorporate any changes in state law, recommendations from the City's Investment Advisor, recommendations from the various national and state organizations of municipal finance officers, or other changes recommended by City staff. The revised Investment Policy shall be presented to the Finance Committee and the City Council for review and approval. (A) Responsibilities No person may engage in investment activities except as provided under the terms of this Policy and the procedures established by the Director of Finance. Exhibit A 1. Responsibilities of the City Council The City Council shall annually consider and adopt a written Investment Policy. As provided in this Policy, the Council shall receive quarterly Investment Reports. 2. Responsibilities of the Director of Finance The Finance Director is appointed by and serves at the pleasure of the City Manager and is subject to his/her direction and supervision. The Finance Director is charged with responsibility for the conduct of all Finance Department operations. The City Charter places the "City Treasurer' responsibilities amongst the duties of the Director of Finance. That individual is charged with responsibility for carrying out all investment actions. He/she may delegate the day-to-day investment activities to their designee(s) but not the responsibility for the overall investment program. If authorized by the City Council, the Director of Finance may also utilize the services of an external investment advisor to assist with the investment program. The Director of Finance, through supporting staff members, is responsible to manage all public funds and securities belonging to or under the control of the City and the Successor Agency, including the deposit and investment of those funds in accordance with principles of sound treasury management and applicable laws and ordinances. Appropriate internal controls designed to ensure that assets of the City are protected from loss, theft, or misuse, including but not limited to separation of duties and multiple approvers for transactions, shall be maintained at all times in order to safeguard the City's assets. 3. Responsibilities of the City's Investment Advisor (if applicable) Should the City determine that it is appropriate to engage a firm to manage the City's investment portfolio, the Investment Advisor shall invest the City's funds in investments that are in compliance with this policy and provide accurate and timely reports of its investment activities to City staff. The Investment Advisor shall never take possession of the City's funds or assets. 4. Responsibilities of the City's Auditing Firm The City's auditing firm's responsibilities shall include, but are not limited to, the examination and analysis of fiscal procedures and the Exhibit A examination, checking, and verification of accounts, revenues, and expenditures. A review of the City's investment program is a part of this responsibility. (B) Prudent Person Rule The City of San Bernardino makes its cash investments under the prudent person rule (Probate Code Section 16040, et seq), which states, in essence, that in investing and managing property, a trustee shall act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims to accomplish the purposes of the trust as determined in the Investment Policy. This affords the City a broad spectrum of investment opportunities as long as an investment is deemed prudent as is allowable under the current laws of the State of California. The Director of Finance and other individuals assigned to manage the investment portfolio, acting in accordance with state law and the intent and scope of the Investment Policy and other written procedures and exercising due diligence, shall be relieved of personal responsibility and 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. (C) Ethics and Conflicts of Interest Officers and 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 Director of Finance, other employees designated in the City's conflict of interest code, and the City's Investment Advisor (if applicable), are required to annually file applicable financial disclosures as required by the Fair Political Practices Commission (FPPC) and are subject to California law relative to conflicts of interest. (D) Level of Investment The City strives to maintain the level of investment of all investable cash as near to 100 percent as possible through current and projected cash flow management. The Director of Finance shall maintain a system to monitor and forecast revenues and expenditures so that City funds can be invested to the fullest extent possible while providing sufficient liquidity to meet the City's reasonably anticipated cash flow requirements. Maturities of investments will be selected to provide necessary liquidity, manage interest rate risk, and optimize earnings. Because of inherent difficulties in Exhibit A accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds. (E) Investment Criteria The City seeks safety and liquidity in all of its investments followed by yield. Safety, liquidity, and yield are defined as follows: 1. Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. 2. Liquidity. The investment portfolio shall remain sufficiently liquid to meet operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. 3. Yield. The investment portfolio shall be designed with the objective of attaining a market rate of return, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. (F) Allowable Investments Sections 53601 & 53635 of the California Government Code govern allowable investments. The City shall not invest in any investment authorized by the Government Code, but not explicitly listed in this Policy without the prior approval of the City Council. In the event that an apparent discrepancy is found between this Policy and the Government Code, the more restrictive parameters will take precedence. If collateral is required for a particular investment type, it will be provided in compliance with California Government Code requirements. Furthermore, the City will not invest in inverse floaters, range notes, mortgage-derived, interest-only strips, or any security that could result in zero interest accrual if held to maturity. Prior to investing in any pooled investment program (e.g., LAIF, money market funds), the Director of Finance will review the program's documentation (e.g., investment policy, policies for participation, fees) to determine the appropriateness of the pool for City funds. Whenever the City has funds invested in a pooled investment program, the Director of Finance should periodically review the pool's investment holdings. The City shall diversify the investments within the portfolio to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions, or maturities. To promote Exhibit A diversification, no more than 5% of the portfolio may be invested in the securities of any one issuer, regardless of security type; excluding U.S. Treasuries, federal agencies, supranationals, and pooled investments such as LAIF, money market funds, or local government investment pools. The weighted average duration of the investment portfolio shall not exceed 3.0 years. For those investment types for which this Policy does not specify a maturity limit, no individual investment shall exceed a maturity of five years from the date of purchase unless the City Council has granted express authority to make that investment either specifically or as a part of an investment program approved by the City Council no less than three months prior to the investment. The following types of investments are authorized by this Policy: 1. U.S. Treasury Instruments. United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. There is no limitation as to the percentage of the City's portfolio that may be invested in this category. 2. State of California's Local Agency Investment Fund (LAIF). A State of California-managed investment pool. The maximum amount invested in this category may not exceed the limit set by LAIF for operating accounts. 3. Local Government Investment Pools ("LGIP"). Shares of beneficial interest issued by joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in Government Code (e.g. Cal Trust). The City will limit investments to LGIPs that seek to maintain a stable net asset value. There is no limitation as to the percentage of the City's portfolio that may be invested in this category. 4. Municipal Debt. Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. Exhibit A Bonds, notes, warrants, or other evidences of indebtedness of a local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. Purchases are limited to securities rated in a rating category of "A" (long-term) or "A-1" (short-term) or their equivalents or better by an NRSRO. A maximum of 30% the City's portfolio may be invested in this category. 5. Federal Agency Securities. Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. There is no limitation as to the percentage of the City's portfolio that may be invested in this category. 6. Negotiable Certificates of Deposit. Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings association or a federal association, a state or federal credit union, or by a federally licensed or state-licensed branch of a foreign bank. Purchases are limited to securities rated in a rating category of "A" (long-term) or "A-1" (short-term) or their equivalents or better by an NRSRO. A maximum of 30% the City's portfolio may be invested in this category. 7. Commercial Paper. Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical rating organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or (2): (1) The entity meets the following criteria: (A) Is organized and operating in the United States as a general corporation; (B) Has total assets in excess of five hundred million dollars ($500,000,000), and (C) Has debt other than commercial paper, if any, that is rated in a rating category of "A" or its equivalent or better by an NRSRO. (2) The entity meets the following criteria: (A) Is organized within the United States as a special purpose corporation, trust, or limited liability company, (B) Has program-wide credit enhancements including, but not limited to, Exhibit A overcollateralization, letters of credit, or a surety bond, and (C) Has commercial paper that is rated "A-1" or better, or the equivalent, by an NRSRO. Purchases are limited to securities that have a maximum maturity of 270 days. A maximum of 25% the City's portfolio may be invested in this category. 8. Medium-Term Notes. Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Purchases are limited to securities rated in a rating category of "A" or its equivalent or better by an NRSRO. A maximum of 30% the City's portfolio may be invested in this category. 9. Money Market Funds ("MMF"). Purchases are restricted to Government Money Market Funds. Furthermore, these Money Market Funds must have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two NRSROs, or (B) Retained an investment advisor with not less than five years' experience and registered or exempt from registration with the SEC, with assets under management in excess of five hundred million dollars ($500,000,000). A maximum of 20% of the City's portfolio may be invested in this category. 10. Supranational Obligations. United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated in a rating category of "AA" or its equivalent or better by a Nationally Recognized Statistical Rating Organization ("NRSRO"). A maximum of 10% the City's portfolio may be invested in this category. State law limits the percentage to 30% of the portfolio. 11. Asset-Backed Securities. A mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay- through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed Exhibit A bond of a maximum of five years' maturity. Securities eligible for investment under this subdivision shall be issued by an issuer rated in a rating category of "A" or its equivalent or better for the issuer's debt as provided by an NRSRO and rated in a rating category of "AA" or its equivalent or better by an NRSRO. A maximum of 20% the City's portfolio may be invested in this category. State law limits the percentage to 20% of the portfolio. (G) Performance Standards The investment portfolio shall be managed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. The City will employ an active management approach that allows for the sale of securities prior to their scheduled maturity dates for purposes of improving the portfolio's credit quality, liquidity, or return in response to changing market conditions or City circumstances. This Policy recognizes that in a diversified portfolio occasional measured losses are inevitable and must be considered within the context of the overall portfolio's structure and expected investment return, with the proviso that adequate diversification and credit analysis have been implemented. An appropriate performance benchmark shall be established against which portfolio performance shall be compared on a regular basis. The selected performance benchmark shall be representative of the City's overall investment objectives and liquidity requirements. (H) Investment Reporting and Portfolio Review A quarterly Investment Report shall be prepared and submitted to the City Council, which shall include a complete description of the portfolio, type of investments, issuers, and other relevant information. The Director of Finance shall review the portfolio on a quarterly basis to verify that the securities in the portfolio are in compliance with this Policy and shall report any issues of material non-compliance in the next quarterly Investment Report. Percentage holding limits and diversification requirements listed in this Policy apply at the time a security is purchased. If a percentage holding limit or diversification requirement is exceeded due to a subsequent change in the portfolio, it is not a compliance violation, but no additional securities may be purchased in that category or for that Exhibit A issuer until the holdings are back under the Policy limits. Credit ratings, where shown, specify the minimum credit rating category required at purchase. In the event a security held by the City is subject to a credit rating change that brings it below the minimum credit ratings specified in this Policy, the Director of Finance will notify the City Council of the change in the next quarterly Investment Report. The course of action to be followed will then be decided on a case-by-case basis, considering such factors as the reason for the change, prognosis for recovery or further rating downgrades, and the market price of the security. If a security is determined to be out of compliance with this Policy due to a subsequent change in this Policy or the Government Code, it may be held to maturity unless there is a requirement that the security be sold. (I) Debt Proceeds Debt proceeds and bond reserve funds are to be invested in accordance with their respective bond indenture. If the indenture is silent as to the permitted investments, the bond proceeds will be invested in the securities permitted by this Policy. Notwithstanding the other provisions of this Policy, the percentage limitations listed elsewhere in this Policy do not apply to bond proceeds and bond proceeds may be invested beyond five years if the maturities of such investments do not exceed the expected use of the funds, the investments are deemed prudent in the opinion of the Director of Finance, and the investments are not prohibited by the applicable bond documents. Tax and Revenue Anticipation Notes or other temporary financing proceeds shall not be invested for a term that exceeds the term of the debt. (J) Safekeeping To protect against potential losses by collapse of individual securities dealers, all deliverable securities owned by the City, including collateral on repurchase agreements, 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 executed by the bank and by the City. All deliverable securities will be received and delivered using standard delivery-versus-payment procedures. (K) Qualified Financial Institutions and Broker/Dealers Investments not purchased directly from the issuer, shall be purchased either from an institution licensed by the state as a broker/dealer or from a member of a federally regulated securities exchange, from a national or state-chartered bank, from a savings association or federal association, or from a brokerage firm designated as a primary government dealer by the Federal Reserve Bank. If the City is utilizing a financial dealer or institution to execute transactions, the Director of Finance shall maintain a Exhibit A list of the firms that have been approved for investment purposes. A copy of this Policy shall be sent annually to all firms with which the City executes investments. Additionally, all financial institutions and broker/dealers who desire to become qualified bidders of investment transactions must provide the Director of Finance with the following: • Audited Financial Statements • Proof of State Registration • Copy of most recently filed Financial Industry Regulated Authority (FINRA) documentation • Certification of having read the Investment Policy and depository contracts of the City of San Bernardino The Director of Finance may from time to time, review the existing list of either qualified broker/dealers or qualified bidders for investment transactions. At the discretion of the Director of Finance, and with the due diligence noted above, add or delete either broker/dealers or qualified bidders.