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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: David Kennedy, City Treasurer
Subject: 2001/2002 Investment Policy
Dept: Treasurer
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Date: February 21, 2001
Synopsis of Previous Council action:
Resolution #2000-295 adopted 10/2100.
Resolution #1999-190 adopted 8/4/99.
Resolution #98-225 adopted 7/21/98.
Resolution #97-218 adopted 7/21/97
Resolution #96-148 adopted 6/6/96.
Resolution #95-153 adopted 5/17/96.
Recommended motion:
Adopt Resolution
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Contact person: David Kennedy. City Treasurer
Phone:
ext. 5221
Supporting data attached:
Ward:
FUNDING REQUIREMENTS:
Amount:
Source: (Ace!. No.)
(Acct. Descriotion)
FInance:
Council Note.:
Agenda Item No. ell.}
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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
Staff Report
Subject:
INVESTMENT POLICY JANUARY 1,2001 THROUGH JUNE 30, 2002
Background:
The City Treasurer annually files a Statement of Investment Policy with the Mayor and Common
Council. The previous Investment Policy covered the calendar year 2000.
This agenda item requests acknowledgement of receipt and filing of the Annual Investment
Policy by the City Treasurer, covering the period January 1. 2001 through June 30.2002, thus
shifting the policy period from a calendar year to a fiscal year.
Additionally, the following changes have been made to the Investment Policy:
Maturity Matrix and wei!Jhted averaie maturity of the pooled portfolio
The first and second maturity ranges were combined into one range-I day to 180 days
with a suggested percentage of total portfolio from IS to 50% (see Page 2 of Exhibit A).
The weighted average maturity of the pooled portfolio as been changed from two and one
half years to three years.
Maximum Limit by Instrument
Local Agency Investment Fund
$30,000,000 per account
With these changes, we have addressed all issues that arose in the management letter. We expect
to be in full compliance in the future.
Financial Impact:
None
Recommendation:
Adopt Resolution
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RESOLUTION NO.
2 RESOLUTION OF THE MAYOR AND COMMOM COUNCIL OF THE CflY OF
SAN BERNARDINO ACKNOWLEDGING THE RECEIPT AND FILING OF THE ANNUAL
3 STATEMENT OF INVESTMENT POLICY FOR THE PERIOD JANUARY I, 2001
4 lHROUGH JUNE 30, 2002.
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NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON
COUNCIL OF THE CflY OF SAN BERNARDINO AS FOLLOWS:
SECTION 1. Recitals.
The City Treasurer of the City of San Bernardino declares the annual Statement of
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9 Investment Policy is as set forth in Exhibit "A", attached hereto and incorporated herein by this
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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 by
the City Treasurer for the period 1/1/200 I through 6/30/2002.
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25 By:
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1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE Cl1Y OF
SAN BERNARDINO ACKNOWLEDGING THE RECEIPT AND FILING OF THE ANNUAL
2 STATEMENT OF INVESTMENT POLICY FOR THE PERIOD JANUARY 1,2001
3 lHROUGH JUNE 30, 2002.
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I HEREBY CERTIFY that the foregoing resolution was duly adopted by the Mayor and
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Common Council of the City of San Bernardino at an
meeting thereof, held on the_
day of _, 200 I, by the following vote to wit:
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COUNCIL MEMBERS
ABSTAIN ABSENT
AYES
NAYS
ESTRADA
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MCGINNIS
SCHNETZ
SUAREZ
ANDERSON
MCCAMMACK
Cl1Y CLERK
The foregoing resolution is hereby approved this _ day of
,2001.
Judith Valles, Mayor
City of San Bernardino
Approved as to form
and legal content:
JAMES F. PENMAN
City Attorney
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EXmBIT 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 proj~ons.
SCOPE
The Investment policy applies to all financial assets of the City of San Bernardino as accounted for in the
Comprehensive 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 affirirs, 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.
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However, it is realized that market 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
analysis. These occasional losses must. be considered within the context of the overaIl investment program
objectives and the resultant long-term rate of return.
The City Treasurer and other individuals assigned to manage the investment portfolio, acting within the
intent and scope of the inves1ment policy and other written procedures and exercising due diligence, sball be
relieved of personal responsibi1ity 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.
OBJECTIVES
Safety of Principal
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. The City shall seek to preserve principal by mitigatiog the two types of risk,
credit risk and market risk.
Credit risk, defined as the risk ofloss due to failure of the issuer ofa security, shall be mitigated by
investing in inves1ment grade securities and by diversifYing the inves1ment portfolio so that the
failure of anyone issuer does not unduly harm the City's capital base and cash flow.
Market risk, defined as market value fluctuations due to overall changes in the general level of
interest rates, shall be mitigated by 1imiting the average maturity of the City's investment portfolio
to three years, the maximum maturity of anyone security to five years, structuring the portfolio
based on historic and current cash flow analysis eliminating the need to sell securities prior to
maturity, and avoiding the purchase of long term securities for the sole purpose of short term
speculation.
Liquidity
Historical cash flow trends are compared to curreot cash flow requirements on an ongoing basis in an effort
to ensure that the City's inves1ment portfolio will remain sufficieot1y 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 and
maximize earnings. Current and expected yield curve analysis will be monitored and the portfolio will be
invested accordingly. The weighted average maturity of the pooled portfolio should not exceed three years
and the following percentages of the portfolio should be invested in the following maturity sectors:
Maturitv RamIe
SUlll!Csted Percental!e
I day to 180 days
181 days to 364 days
15 to 50%
10 to 50%
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1 year to 2 years
2 years to 3 years
3 years to 4 years
4 years to 5 years
Over 5 years
10 to 50%
o to 40%
o to 40%
o to 40%
Council Authorization required
PERFORMANCE EVALUATION
Investment performance is continually monitored and evaluated by the City Treasurer. Investment
performance statistics and activity reports are generated on a monthly basis for presentation to the City
Administrator and City Council.
DELEGATION OF AUTHORITY
The Charter of the City of San Bernardino and 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 and Deputy Treasurer's absence,
the Administrative Operations Supervisor is authorized to initiate investment transactions.
ETIDCS 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 die 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 collapse 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 and
included in monthly reporting to City Council.
REPORTING
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.
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e QUALIFIED BROKER/DEALERS
The City shall transact business only with banks, savings and loaDS, and with broker/dealers. The
broker/dealers should be primary dealers regularly reporting to the New York Federal Reserve Bank.
Exceptions will be made only upon written authorization by the City Treasurer. Investment staff sba1l
investigate dealers who wish to do business with the City to determine if they are adequately capitalized,
and make markets in the securities appropriate to the City's needs.
The City Treasurer sba1l annually send a copy of the current investment policy to all broker/dealers
approved to do busmess with the City. Confinnation of receipt of this policy shall be considered 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 REQUIREMENTS
Collateral is required for investments in certificates of deposit, repurchase agreements and reverse
repurchase agreements. In order to reduce market risk, the coUaterallevel will be at least 102% ofmarket
value of principal and accrued interest.
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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 sba1l be certificates of deposit,
commercial paper, eligible banker's acceptances, medium term notes or securities that are the direct
obligations of, 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 Sections 53600 et seq. Within the
context of the limitations, the following investments are authorized, as further limited herein:
I. United States Treasury Bills, Bonds, and Notes or those for which the full faith 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 category, although a five-year maturity limitation is applicable.
2. Obligations 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 Marketing Association (SLMA), and the Federal Home Loan
Mortgage Association (FHLMC). There is no percentage limitation of the portfolio which can be
invested in this category, although a five- year maturity limitation is applicable.
3. Local 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.
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Investments detailed in items 4 through II are further restricted to perceulage of the cost value of the
portfolio in any one issuer name to a maximum of 15%. The total value invested in anyone issuer shall not
exceed 5% of the issuers net worth. Again, a five- year maximum maturity limitation is applicable unless
further restricted by this policy.
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 represeot more than 10% of the
outstanding 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 that specify terms and conditions may be transacted with banks and broker
dealers. The maturity of the repurchase agreements sball not exceed 90 days. The market value of the
securities used as collateral for the repurchase agreements sball be monitored by the investment staff
and shall not be allowed to fall below 102% of the value of the repurchase agreement. A PSA Master
Repurchase Agreement is requireil 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 tenn liquidity needs. The
tenn of reverse repurchase agreements may not exceed 90 days.
9. Time deposits, non-negotiable and colIateraIized in accordance with the California Government Code,
may be purcbased 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 Tenn 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 tenn 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 calcu1ating the 15% limitation.
II. Various daily cash funds including short tenn 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.
Ineligible investments are those that are not described herein, including but not limited to, common stocks
and long tenn (over five years in maturity) notes and bonds. It is noted that special circumstances arise
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that necessitate the purchase of securities beyond the five year limitation. On such occasions, requests
must be approved by city council prior to purchase.
The following summary of maximum percentage limits, by instrument, are established for the City's total
pooled funds portfolio:
Investment Tvoe
P~
Repurchase Agreements
Local Agency Investment Fund
US Treasury BondsINotes/Bills
US Government Agency Obligations
US Government Agency Callable
Bankers' Acceptances
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%
$30,000,000 per acct.
o to 100%
Oto 100%
o to 75%
o to 40%
Oto 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 benchmark 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 shall 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 prices volatility. Therefore, it is the general
policy of the City to limit the potential effects from erosion in marlcet 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 long-tenn investments will coincide with significant cash flow requirements
where possible, to assist with short tenn cash requirements at maturity.
A1llong-tenn securities will be purchased with the intent to hold all investments to maturity under
then prevailing economic conditions. However, economic or market conditions may change,
making it in the City's best interest to sell or trade a security prior to maturity.
PORTFOLIO MANAGEMENT ACTIVITY
The investment program shaIl seek to augment returns consistent with the intent of this policy, identified
risk limitations and prudent investment principals. This objective will be achieved by use of the following
strategies:
Active Portfolio Manaaement Through active fund and cash flow management taking advantage of
current economic and interest rate trends, the portfolio yield may be enhanced with limited and
measurable increases in risk by extending the weighted maturity of the total portfolio.
Portfolio Maturity Manal1P.lltel1t 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 market 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 SWlIDS 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 shall be adopted by resolution of the City council on an
annual basis. This investment policy shall be reviewed at least annually 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.
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** FOR OFFICE USE ONLY - NOT A PUBLIC DOCUMENT **
RESOLUTION AGENDA ITEM TRACKING FORM
Meeting Date (Date Adopted): 3-19-C)\ Item # '2--4 Resolution #
Vote: Ayes /_:\ 5-'") Nays.& Abstain e
Change to motion to amend original documents: -
7..DO \ - Sz.
Absent 4
Reso. # On Attachments: ..L
Contract term:
-
NullNoid After: -
Note on Resolution of Attachment stored separately: ~
Direct City Clerk to (circle I): PUBLISH, POST, RECORD W/COUNTY Date:
See Attached: -
Date Sent to Mayor: 3- 2.. k C \
Date of Mayor's Signature: ;S-Z-\ -0\
Date ofClerk/CDC Signature: ?'-z:2--o\
Reso. Log Updated: /
Seal Impressed: ../
Date M olLetter Sent for Signature:
60 Day Reminder Letter Sent on
90 Day Reminder Letter Sent on 45th day:
See Attached:
See Attached:
Date Returned:
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):
Ves ./' No By
Ves No /' By
Ves No ./ By
Ves No i/ By
Ves N07 By
Copies Distributed to:
City Attorney ,/"
Parks & Rec.
Code Compliance Dev. Services
Police Public Services
EDA
Finance
Others: ,!2.eA8."v pic
MIS
Water
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.l
Ready to Filc:~
Date: 3- 2Z.-O I