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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: DAVID C. KENNEDY
CITY TREASURER
Dept: CITY TREASURER
Date: July 2; 2007
Subject: 2007/2008 Investment
Policy
MICC Meeting Date: August 6, 2007
Synopsis of Previous Council Action:
Resolution #2006-174 adopted June 19. 2006
Resolution #2005-156 adopted June 20, 2005
Resolution #2004-228 adopted July 22, 2004
Resolution #2003-194 adopted July 21,2003
Resolution #2002-278 adopted August 21, 2002
Recommended motion:
Adopt Resolution
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Signature
Contact person: David C. Kennedy, City Treasurer
Phone: ext. 5221
Supporting data attached:
Ward:
FUNDING REQUIREMENTS: Amount: NIA
Source: (Ace!. No.)
(Ace!. Description)
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 period July I, 2007
through June 30, 2008.
Background:
The City Treasurer annually files a Statement of Investment Policy with the Mayor and Common
Council. This agenda item requests acknowledgement of receipt and filing of the Annual
Investment Policy by the City Treasurer for the Fiscal Year 2007/2008.
This year's policy is identical to last year's with the exception of the following:
Page 8:The maximum percentage limit of the portfolio in the Cash Funds and Money
Market Accounts category has been increased from 20% to 30%. The City's cash
flow has become more seasonal, requiring a greater, readily available reserve in
order to cover the greater expenses incurred during the summer period and
occasional large bond payments.
Financial Impact:
None.
Recommendation:
Adopt Resolution.
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RESOLUTION NO.
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 PERIOD JULY 1,
2007 THROUGH JUNE 30, 2008.
BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE
CITY OF SAN BERNARDINO AS FOLLOWS:
SECTION 1.
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.
An annual Statement of Investment Policy for the City of San Bernardino has been filed
by the City Treasurer for the period 7/1/2007 through 6/30/2008.
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10 Council Members:
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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 PERIOD JULY 1,
2007 THROUGH JUNE 30, 2008.
I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor
8 and Common Council of the City of San Bernardino at a
meeting thereof,
, 2007, by the following vote, to wit:
AYES
ABSTAIN ABSENT
NAYS
ESTRADA
BAXTER
BRINKER
15 . DERRY
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KELLEY
JOHNSON
MCCAMMACK
City Clerk
The foregoing Resolution is hereby approved this
day of
2007.
Patrick 1. Morris, Mayor
City of San Bernardino
Approved as to
Form:
JAMES F. PENMAN,
City Attorney
"f '? II.. ~,
Exhibit A
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CITY OF SAN BERNARDINO
INVESTMENT POLICY
07/07-06/08
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Exhibit A
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INVESTMENT POLICY
2007/2008
1.0 Policy
It is the policy of the City of San Bernardino to invest public funds in a
manner which provides the highest investment return with the maximum
security safety, while meeting the daily cash flow demands of the City of
San Bernardino. Investments will be made in conformity to the
California Government Code, Sections 53601 through 53659 and
approved by the City Council of the City of San Bernardino.
2.0 Scope
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The investment policy applies to all financial assets of the City of San
Bernardino, as accounted for in the Comprehensive Annual Financial
Report and include:
Funds:
General Fund
Special Revenue Funds
Debt Service Funds
Capital Projects Funds
Enterprise Funds
Internal Service Funds
Agency Funds
3.0 Prudence
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Investments shall be made with judgment and care-under
circumstances then prevailing-which persons of prudence, discretion
and intelligence 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.
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Exhibit A
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3.1 The standard of prudence to be used by investment officials shall
be the "prudent person" and/or "prudent investor" standard
and shall be applied in the context of managing an overall
portfolio. Investment officers acting in accordance with written
procedures and the investment policy and exercising due
diligence shall be relieved of personal responsibility for an
individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely
fashion and appropriate action is taken to control adverse
developments.
3.2 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.
4.0 Objectives
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Pursuant to Government Code Sec. 53600.5 which states "When
investing, reinvesting, purchasing, acquiring, exchanging, selling, or
managing public funds, the primary objective of a trustee shall be to
safeguard the principal of the funds under its control. The secondary
objective shall be to meet the liquidity needs of the depositor. The
third objective shall be to achieve a return on the funds under its
control.
4.1 Safety: Safety of principal is the foremost objective of the City of
San Bernardino. Each investment transaction shall seek to ensure
that capital losses are avoided, whether from securities default,
broker-dealer default or erosion of market value. To attain this
objective, the City of San Bernardino will diversify its investments
by investing funds among a variety of securities offering
independent returns and financial institutions. Further, City shall
seek to preserve principal by mitigating these two types of risk-
credit risk and market risk.
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4.2 Liquidity: The City of San Bernardino's investment portfolio
will remain sufficiently liquid to enable the City of San Bernardino
to meet all operating requirements which might be reasonably
anticipated.
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Exhibit A
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5.0 Delegation of Authority
Authority to manage the City of San Bernardino's investment program is
derived from Resolution No. 91-212 of the City of San Bernardino
approved on June 4, 1991 and the Charter of the City of San Bernardino.
Such authority is given to the City Treasurer. Daily management
responsibility for the investment program is hereby delegated to the
Deputy City Treasurer who shall be responsible for all transactions
undertaken and shall establish a system of controls to regulate the
activities of subordinate officials, and their procedures in the absence of
the City Treasurer.
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5.1 Investment Procedures:
The City Treasurer shall establish written investment policy
procedures for the operation of the investment program consistent
with this policy. The procedures should include reference to
safekeeping, wire transfer agreements, banking service contracts,
and collateraV depository agreements. Such procedures shall
include explicit delegation of authority to persons responsible for
investment transactions. No person may engage in an investment
transaction except as provided under the terms of this policy and
the procedures established by the City Treasurer.
6.0 Ethics and Conflicts ofInterest:
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 City Treasurer is
required to annually file applicable financial disclosures as required by
the Fair Political Practices Commission (FPPC).
7.0 Authorized Financial Dealers and Institutions:
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The City Treasurer will maintain a list of financial institutions and
approved broker/dealers selected pursuant to Section 53601.5.,which
states that any investment 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
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Exhibit A
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exchange, from a national or state-chartered bank, from a federal or
state association or from a brokerage firm designated as a primary
government dealer by the Federal Reserve Bank. These may include
''primary'' dealers or regional dealers. No public deposit shall be made
except in a qualified public depository as established by state laws.
Additionally, all financial institutions and broker/dealers who desire to
become qualified bidders for investment transactions must supply the
treasurer with the following:
7.1 Audited financial statements
7.2 Proof of National Association of Security Dealers certification
7.3 Proof of state registration
7.4 Certification of having read entity's investment policy and
depository contracts
The Treasurer will conduct an annual review of the qualified bidders.
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8.0 Authorized & Suitable Investments:
The City of San Bernardino is empowered by statute to invest in the
following securities:
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8.1 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.
Portfolio percentage: 100%
8.2 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,
including callables. There is no percentage limitation of the
portfolio, which can be invested in this category, although a 5-year
maturity limitation is applicable.
8.3 Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances.
Purchases of banker's acceptances may not exceed 180 days to
maturity nor exceed 40% of the agency's surplus funds, which may
be invested pursuant to this section. However, no more than 30%
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Exhibit A
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of the agency's surplus funds may be invested in the banker's
acceptances of anyone commercial bank pursuant to this section.
8.4 Commercial paper of "prime" quality of the highest ranking or of
the highest letter and numerical rating as provided for by Moody's
Investors Service, Inc., or Standard and Poor's Corporation.
Purchases of eligible commercial paper may not exceed 25% of the
agency's surplus money. Purchases of eligible commercial paper
may not exceed 270 days to maturity.
8.5 Negotiable certificates of deposit issued by a nationally or state-
chartered bank or a savings association or federal association or a
state or federal credit union or by a state-licensed branch of a
foreign bank. Purchases of negotiable certificates of deposit may
not exceed 30% of the agency's surplus money, which may be
invested pursuant to this section. A maturity limitation of five
years is applicable.
8.6 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 cash surplus may be invested in
time deposits.
8.7 Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of 5
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. 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 surplus cash 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.
8.8 Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of
5 years maturity, having an "A" or higher rating for the issuer's
debt and rated in a rating category of "AA" or equivalent or better
by a nationally recognized rating service. Authorized securities
may not exceed 20% of the agency's surplus money.
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Exhibit A
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8.9 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 of California Government Code.
Only funds holding U. S. Treasury or government agency
obligations can be utilized.
9.0 Local Agency Investment Fund (LAIF):
State of California managed investment pool, may be used up to the
maximum permitted by California State Law.
10.0 Maximum Maturities:
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To the extent possible, the City of San Bernardino will attempt to
match its investments with anticipated cash flow requirements.
Unless matched to a specific cash flow, the City of San Bernardino
will not directly invest in securities maturing more than five years
from the date of purchase. Such an investment will only be made with
Council approval.
Reserve funds may be invested in securities exceeding five years if
the maturity of such investments is made to coincide as nearly as
practicable with the expected use of the funds.
10.1 The city will attempt to balance maturities, at the time of
investment, in accordance with the following guidelines:
Maturity Range
1 day to 364 days
1 year to 2 years
2 years to 3 years
3 years to 4 years
4 years to 5 years
Percentage of Surplus Cash
10 to 50%
o to 50%
o to 50%
o to 50%
o to 50%
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Exhibit A
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11.0 Diversification
The City of San Bernardino will diversify its investments by security
type and institution.
The following summary of maximum percentage limits, by instrument,
are established for the City of San Bernardino's total portfolio:
Investment Tvoe
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Local Agency Investment Fund
U.S. Treasury Bonds/NoteslBills
U. S. Government Agency Obligations
U. S. Government Agency Callables
Bankers' Acceptance
Commercial Paper
Negotiable Certificates of Deposit
Time Certificates of Deposit
Medium Term Corporate Notes
Cash funds and Money Market accounts
Passbook savings/demand deposits
Mortgage Pass Through Securities
12.0 Safekeeping and Custody:
$40,000,000
100%
100%
75%
40%
25%
30%
25%
30%
30%
20%
20%
All security transactions entered into by the City of San Bernardino
shall be conducted on a delivery-versus~payment (DVP) basis.
Securities will be held by a third party custodian designated by the
Treasurer and evidenced by safekeeping receipts.
13.0 Internal Controls:
The Treasurer shall establish an annual process of independent review
by an external auditor. This review will provide internal control by
assuring compliance with policies and procedures.
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Exhibit A
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14.0 Reporting
The Treasurer shall provide the Mayor, City Administrator, Finance
Director, City of San Bernardino Water Finance Director, City
Attorney, City Clerk, and City Council quarterly investment reports
which provide a clear picture of the status of the current investment
portfolio. Schedules in the monthly report should include the
following:
. A listing of individual securities held at the end of the
reporting period by authorized investment category.
. Average life and final maturity of all investments listed.
. Coupon, discount or earnings rate
. Par value, Amortized Book Value and Market Value
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. Percentage of the Portfolio represented by each investment
category
15.0 Investment Policy Adoption:
The City of San Bernardino's investment policy shall be adopted by
resolution of the City Council. The policy shall be reviewed annually
by the City Council and any modifications made thereto must be
approved by the City Council.
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Exhibit A
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16.0 Portfolio Management Activity:
The City of San Bernardino's investment program shall seek to
augment returns consistent with the intent of this Policy, identified
risk limitations and prudent investment principles.
17.0 Interest Earnings
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All moneys earned and collected from investments authorized in this
policy shall be allocated monthly to various fund accounts based on
the cash balance in each fund as a percentage of the entire pooled
portfolio.
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