Loading...
HomeMy WebLinkAboutR24 EDAECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO FROM: Barbara J. Lindseth SUBJECT: ANNUAL INVESTMENT POLICY Director, Administrative Services DATE: October 5, 1998 O1 1 101 )% L Synopsis of Previous Commission /Council /Committee Action(s): On December 15, 1997, the Community Development Commission adopted the Agency's Annual Statement of Investment Policy for the year 1998. On December 10, 1998, the Redevelopment Committee recommended adoption of the Agency's 1999 Annual Statement of Investment Policy. Recommended Motion(s): (Community Development Commission) MOTION: That the Community Development Commission approve and adopt the Economic Development Agency's Annual Statement of Investment Policy for the year 1999. Contact Person(s): Barbara Lindseth Project Area(s) All Phone: 5081 Ward(s): 1 - 7 Supporting Data Attached: lE Staff Report ❑ Resolution(s) x❑ Agreement(s) /Policy ❑ Map(s) ❑ Letter /Memo FUNDING REQUIREMENTS Amount: $ N/A Source: Budget Authority: SIGNATURE: zz// n s e , Executi Director cnomic Developmen Agency N/A N/A Barbara J. Lindseth, Director Administrative Services - - - - - - - - - - - - - - - - - - - - - - - - - - - --- - -- -n- - N -1 - - - - --- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Commission /Council Notes: - -------------------------- REW:lag:12- 21- 03.cdc COMMISSION MEETING AGENDA Meeting Date: 12/21/1,9918 Agenda Item Number:{ ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Annual Investment Policy BACKGROUND Government Code Section 53646 requires that the Community Development Commission annually approve a Statement of Investment Policy for the Economic Development Agency. Attached, is the Agency's "Statement of Investment Policy" for the year 1999. The proposed policy is substantially the same policy adopted by the Commission for the years 1989 through 1998, and is essential the same policy adopted by the City of San Bernardino. This policy is used as a guideline for the efficient placement and monitoring of investments of cash by outlining the types or investments the Agency may purchase (identical to the types invested in by the City of San Bernardino), 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. RECOMMENDATION That the Community Development Commission adopt the Agency's Annual Statement of Investment Policy for the year 1999. nary "n usuci, r.xecu Economic Development -------------------------------------------------------------------------------------------------------------------------------------------- REW:lag:12- 21- 03.cdc COMMISSION MEETING AGENDA Meeting Date: 12/21/1998 Agenda Item Number: R10 ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO 111999 Statement of Investment Policy" I. Purpose This Statement of Investment Policy is intended to provide guidelines for the prudent investment of the Agency's 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. 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 guidance 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 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." A) Safety: Safety and the minimizing of risks associated with investments refers to attempts to reduce the potential loss of principal, interest, or a combination of the two. The first level of control is in 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. ECONOMIC DEVELOPMENT AGENCY Statement of Investment Policy Page — 2 — 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 unexpected need for funds to be disbursed. Most investments are highly liquid, with the exception of collateralized or insured term certificates of deposit issued by 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 Investment Policy for safety and liquidity are met and the investment 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 selecting 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 financial history throughout the period in which Agency funds are deposited or invested. ECONOMIC DEVELOPMENT AGENCY Statement of Investment Policy Page - 3 - IV. Investments Authorized investment instruments 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 collateralized at 102%); commercial paper; negotiable certificates of deposit; Local Agency Investments Fund 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 -1 Moody's and P -1 Standard and Poor's ratings are purchased. The Agency operates its investment program with many federal, state and self - imposed constraints. It does not buy stock, or deal in futures, options, derivatives, or security loan agreements. 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 probable 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 over three (3) years. One exception to the three (3) year maturity limit is with the investment by the Trustee of bond reserve funds, whereby, it is prudent to match the segregated investment portfolio of the bond reserve fund with the maturity schedule of an individual 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 of the Unites States are pledged for payment of principal and interest have no percentage limitation of the portfolio for investment purposes, but are limited to the three (3) year maturity. ECONOMIC DEVELOPMENT AGENCY Statement of Investment Policy Page - 4 - 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 of the portfolio, although the three (3) year maturity is applicable. C) Bills of exchange or time drafts drawn on and accepted by commercial banks, otherwise known as banker's acceptances may not exceed 270 days to maturity or 30% of the cost of the portfolio. D) Commercial paper ranked P -1 by Moody's Investor Services or A -l+ by Standard & Poor's, and issued by domestic corporations having assets in excess of $500,000,000 and having an AA or better rating on its long term debentures as provided by Moody's or Standard & 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 of 90 days and shall not exceed 10% of the total portfolio. The market value of the 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 (LAIF) which is a State of California managed investment pool may be used up 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 banks or savings and loan associations with no more than 25% 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 banks 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 investment in this manner. ECONOMIC DEVELOPMENT AGENCY Statement of Investment Policy Page — 5 — VI. Collateral Requirements Collateral is required for investments in certificates of deposit, 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 direct obligations of, 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 a monthly investment report to the legislative body. Required elements of the monthly report shall include: a) Type of investment b) Institution c) Date of maturity d) Amount of deposit or cost of security e) Current market value of securities with maturity in excess of twelve (12) months f) Rate of interest 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 of third parties, unanticipated changes changes in financial 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 recordkeeping, custodial safekeeping, clear delegation of authority, specific limitations regarding securities losses and remedial action, written confirmation of telephone transactions, minimizing the number of authorized Investment Officials, documentation of transactions and strategies, and code of ethics.