HomeMy WebLinkAbout22. Adopt FY 2019-20 Investment PolicyFROM: OFFICE OF THE CITY MANAGER
BY: ANIL H. GANDHY, DIRECTOR OF FINANCE
DATE:
AUGUST 13, 2019
SUBJECT: 2019 INVESTMENT POLICY
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That the City Council adopt the attached Investment Policy for public funds of the City of
lowney and its related entities.
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It is the policy of the City to invest public funds in a manner to meet the City objectives, in order
of priority, safety of invested funds, maintenance of sufficient liquidity to meet cash flow needs;
and attainment of a rate of return consistent with the first two objectives, while conforming to the
provisions of California Government Code Sections 53600 et seq.
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The Policy shall be adopted by the City Council on an annual basis. This policy shall be
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liquidity and yield, and its relevance to current laws and financial trends.
FISCAL IMPACT
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Contents
TABLE OFCONTENTS ........................................................................ -
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POLICY.....................................................................................................
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SCOPE..................................................................................................
. 3
PRUDENCE..........................................................................................
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OBJECTIVE..........................................................................................
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DELEGATION CJFAUTHORITY ..............................................................
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ETHICS AND CONFLICTS OFINTEREST ..................................... --'----------��
AUTHORIZED FINANCIAL INSTITUTIONS AND BROKER/DEALERS .........
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AUTHORIZED AND SUITABLE INVESTMENTS ....................................
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MASTER REPURCHASE AGREEMENT ..................................................
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LEGISLATIVE CHANGES .....................................................................
9
INTERESTEARNINGS .........................................................................
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COLLATE R/\UZ/\T|ON........................................................................ ---------.......
9
SAFEKEEPING AND CUSTODY (JF SECURITIES ...............................
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DIVERSIFICATION.............................................................................. -
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MAXIMUM MATURITIES .......................................................................
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INTERNAL CONTROL ............................................................................
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REP[]RT|NG------------------------------
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APPENDIXA ..... ~....... ...... _..... ......................... ........ ........ ........................... ..... ---- ... 12
Prepared by: Anil H. Gandhv, Finance Director
of Downey
It is the policy of the City of Downey to invest public funds in a manner which will
provide the highest investment return with the maximum security while meeting the
daily cash flow demands of the City of Downey and conforming to all state and City of
Downey's laws governing the investment of public funds.
The investment of the funds of the City of Downey is directed toward the goals of
safety, liquidity and yield. The State of California authority governing investments for
municipal governments is set forth in the California Government Code, Sections 53600.
This policy covers the investment activities of all contingency reserves and inactive
cash balances under the direct authority of the City.
This investment policy applies to all financial assets, investment activities and debt
issues of the City of Downey, City of Downey Public Facilities Financing Corporation,
City of Downey Water Facilities Corporation, Downey Housing Authority, and City of
Downey acting as Successor Agency to the Redevelopment Agency and as accounted
for in the Comprehensive Annual Financial Report (CAFR).
All monies entrusted to the Finance Director can be pooled in a diversified portfolio
unless specifically exempted. Investments made on a pooled basis may include
investments of the City of Downey and its component units and agencies.
Except for cash in restricted and special funds, the City will consolidate cash and
reserve balances from all funds to maximize investment earnings and to increase
efficiencies with regard to investment pricing, safekeeping and administration.
Investment income will be allocated to the various funds based on their respective
participation in accordance with generally accepted accounting principles.
Policy statements outlined in this document focus on the City of Downey's total
investment funds portfolio, but will also apply to all other funds under the City Finance
Director's span of control unless specifically exempted by resolution. This policy is
applicable, but not limited to all funds listed below:
• General Fund
• Special Revenue Funds
• Debt Service Funds
• Capital Projects Funds
Preparedby° H. Gan A . i .y , Finance Director 3
City of Downev Investment Policv
• Enterprise Funds
• Internal Services Funds
• Agency Funds
• Any new fund created by the City Council unless specifically exempted
All debt issue proceeds will be invested in accordance with the associated trust
indenture.
Investments shall be made with judgment and care -under circumstances then
prevailing which persons of prudence, discretion and intelligence exercise in MI.
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.
The standard of prudence to be used by investment officials shall be the "prudent
person" 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.
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The primary objectives, in priority order, of the City of Downey's investment activities
shall be:
Safety
Safety of principal is the foremost objective of the investment program. Investments
of the City of Downey shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. To attain this objective, diversification
is required in order that potential losses on individual securities do not exceed the
income generated from the remainder of the portfolio.
• Liquidity
The City of Downey's investment portfolio will remain sufficiently liquid to enable the
City of Downey to meet all operating requirements which might be reasonably
anticipated.
Prepared by: Anil H. Gandhy, Finance Director 4
Citv of Downev Investment Pohcv
• Return on Investments
The City of Downey's investment portfolio shall be designed with the objective of
attaining a rate of return throughout budgetary and economic cycles, commensurate
with the City of Downey's investment risk constraints and the cash flow
characteristics of the portfolio.
Authority to manage the City of Downey's investment program is granted by the City
Council on an annual basis and assigns the responsibility of management for the
investment program to the Finance Director who shall be responsible for all
transactions undertaken and shall establish a system of controls to regulate the
activities of subordinate investment personnel. The Finance Director may delegate daily
investment activity, such as carrying out the Finance Director's investment instructions,
confirming treasury transactions and other routine activities. No person may engage in
an investment transaction except as provided under the terms of this policy and the
procedures established by the Finance Director.
Officers and employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program, or
which could impair their ability to make impartial investment decisions. Employees and
investment officials shall disclose to the City Manager any material financial interests in
financial institutions that conduct business within their jurisdiction and they shall further
disclose any large personal financial/investment positions that could be related to the
performance of the City.
The City shall transact with primary dealers or regional dealers that qualify under
Securities and Exchange Commission Rule 1503-1 (uniform net capital rule). A
determination should be made to insure that the approved broker/dealer(s) and
individual(s) covering the City are reputable and trustworthy. In addition, the
broker/dealer(s) should have the ability to meet all of its financial obligations in dealing
with the City of Downey. The firm and individuals covering the City should be
knowledgeable and experienced in public agency investing and the investment products
involved. No public deposit shall be made except in a qualified public depository as
established the state laws.
.
Prepared by: Anil H. Gan y,Finance Director 5
Citv of DowneZ Investinent Policv
The Finance Director shall annually send a copy of the investment policy to financial
institutions and broker/dealers that conduct business with the City of Downey. Receipt
of this policy shall be considered confirmation that the broker/dealer understands the
City of Downey's investment policies and intends to offer the City of Downey only
appropriate investments authorized by this investment policy.
AUTHORIZED AND SUITABLE 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
authorized, as further limited hercin:
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.
Federal agency or United States govern ment-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 govern ment-sponsored
enterprises. There is no percentage limitation of the portfolio which can be invested in
this category; a five year maturity limitation is applicable.
Bankers' acceptances otherwise known as bills of exchange or time drafts that are
drawn on and accepted by a commercial bank. Purchases of bankers' acceptances
shall not exceed 180 days' maturity or 40 percent of the agency's moneys that may
be invested pursuant to this section. However, no more than 30 percent of the
agency's moneys may be invested in the bankers' acceptances of any one
commercial bank pursuant to this section.
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), shall not exceed 270 days to maturity and shall not exceed 25% of the
portfolio. No more than 5% of the total assets of the portfolio may be invested in any
0 Time deposits, non-negotiable and collateralized in accordance with the California
Government Code, may be purchased through banks or other financial institutions.
Deposits in excess of the federal deposit insurance limit are required to be
collateralized as specified under Government Code Section 53630 et seq.
Prepared by: Anil H. Gandhy, Finance Director 6
Investment Polic
• Negotiable Certificates of deposit issued by nationally or state chartered banks, a
savings or state association or a federal association (as defined by Section 5102 of
the Financial Code), a state or federal credit union, or by a federally licensed or state -
licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may
not exceed 30% of the value of the portfolio. A maturity limitation of five years is
applicable
• Repurchase agreements with specific terms and conditions may be transacted with
banks and broker/dealers. The maturity of the repurchase agreements shall not
exceed 90 days. The market value of the securities used as collateral for the
repurchase agreements shall be monitored by staff and shall not be allowed to fall
below 110% of the value of the repurchase agreement. A PSA Master Repurchase
Agreement is required between the City of Downey and the broker/dealer or financial
institution for all repurchase agreements transacted.
• Reverse repurchase agreements with specifies terms and conditions may be
transacted with broker/dealers and financial institutions but cannot exceed 20% of
the portfolio value the date entered into. The City may enter into reverse repurchase
agreements only to fund short-term liquidity needs. The term of reverse repurchase
agreements may not exceed 90 days.
• 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.
• 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. Notes
eligible for investment under this subdivision shall be rated in a rating category of "A"
or its equivalent or better by an NRSRO. Purchases of medium-term notes shall not
include other instruments authorized by this section and may not exceed 30 percent
of the agency's moneys that may be invested pursuant to this section.
• Ineligible investments are those that are not described herein, including but not
limited to Common stocks and long term (over five years in maturity) notes and
bonds are generally prohibited from use in this portfolio. On occasion, special
circumstances arise that necessitate the purchase of securities beyond the five year
limitation, which require City Council approval prior to purchase.
"
Prepared
, A H. G by. . °°an hy,Finance Director 7
City of Downey Investment Pohcv
Special circumstances arise that necessitates the purchase of securities beyond the
five (5) year limitation by three (3) to six (6) months to maximize return on investment. On
occasion, time is of the essence due to market deadlines for making such investment
purchases, making obtaining prior approval from City Council unpractical and resulting in the
loss of an investment opportunity.
Therefore, the Finance Director is authorized to make Suitable Investments as
described in this Investment Policy, not to exceed six (6) months beyond the five (5)
year limitation, provided such investment is also authorized under State law, with the
prior notification to and acknowledgement of the City Administrator; and in his
absence the City Finance Manager. Further notification will be given in the form of a
report to the City Council at the next regularly scheduled City Council Meeting
following the purchase of any securities beyond the five (5) year limitation, for City
Council acknowledgement and acceptance.
Various daily cash funds administered for or by trustees, paying agents and
custodian banks contracted by the City of Downey may be purchased as allowed
under State of California Government Code. Only funds holding U.S. Treasury or
The following summary of maximum percentage limits, by instrument, is established
for the City of Downey's total investment funds portfolio and all exceptions to the
Investment Type Percentage, to the extent permitted by law, must be approved by
the Finance Director in written form and included in monthly reporting to City Council:
US Treasury Bonds/Notes/Bills
0 to 100%
US Government Agency Obligations
0 to 100%
Repurchase Agreements
0 to 50%
Bankers' Acceptances
0 to 40%
Medium Term Corporate Notes
0 to 30%
Negotiable Certificates of Deposit
0 to 30%
Time Deposits 0 to 100%
r7r%= gr-Wrow,
Commercial Paper- 0 to 25%
f
Local Agency Investment Fund $65,000,000 per
account.
Prepared by: Anil H. an y, Finance Director 8
�1 ' of.....ow ey ...I ves..,,,..,.ent. Poky
If repurchase agreements are legal or authorized, a Master Repurchase Agreement
must be signed with the bank or dealer.
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
Downey's Investment Policy and supersede any and all previous applicable language.
All monies earned and collected from investments authorized in this policy shall be
allocated monthly based on the cash balance in each fund as a percentage of the entire
investment funds portfolio.
The securities held by the City must be in compliance with Section on Authorized and
Suitable Investments subsequent to the date of purchase, the Finance Director shall at
least quarterly review the portfolio and identify those securities that do not comply. The
Finance Director shall establish procedures to report to the council major and critical
incidences of noncompliance identified through the review of the portfolio.
COLLATERALIZATION
Collateralization will be required on two types of investments: certificates of deposit and
repurchase (and reverse repurchase) agreements. In order to anticipate market
changes and provide a level of security for all funds, the collateralization level will be
110% of market value of principal and accrued interest. The City chooses to limit
collateral to US treasuries. Collateral will always be held by an independent third party
with whom the entity has a current custodial agreement. A clearly marked evidence of
ownership (safekeeping receipt) must be supplied to the City and retained. The right of
collateral substitution is granted.
To protect against fraud or embezzlement, or losses caused by collapse of an
individual securities dealer, all securities owned by the City of Downey shall be held in
safekeeping by a third party. All investment securities may be maintained by a banking
institution or a broker/dealer firm for safekeeping as long as the securities are held in
the City's name.
Prepared by. Anil
H. Gandhy, Finance. , „..
Director 9
Citv of Downe Investment Poli
ird-party safekeeping arrangements will be approved by the Finance Director and will
be corroborated by a written Custodial agreement All spctirities held by the safekeeping
custodian on behalf of the City shall have the City of Downey as the registered owner,
and all interest and principal payments and withdrawals shall indicate the City of
Downey as the payee.
All bank deposits will be FDIC insured or deposited with institutions that comply with the
State collateral requirements for public funds.
Securities held in custody for the City of Downey shall be independently audited on an
annual basis to verify investment holdings.
All exceptions to this safekeeping policy must be approved by the Finance Director in
written form and included in monthly reporting to City Council.
The City of Downey will diversify its investments by security type and institution. With
the exception of U.S. Treasury securities and authorized pools, no more than 50% of
the City of Downey's total investment funds portfolio will be invested in a single security
type or with a single financial institution.
MAXIMUM MATURITIES
To the extent possible, the City of Downey will attempt to match its investments with
anticipated cash flow requirements. The City of Downey may collateralize its repurchase
agreements using longer -dated investments not to exceed five (5) years to maturity.
Unless matched to a specific cash flow, the City will not directly invest in securities
maturing more than 5 years from the date Of purchase. However, the City may
collateralize its repurchase agreements using longer -dated investments not to exceed
five (5) years to maturity. Reserve funds may be invested in securities exceeding five
(5) years if the maturity of such investments is rnade to coincide as nearly as
practicable with the expected use of the funds and with prior approval of the City
Council.
An independent annual review by the City of Downey's external auditor shall •-
• r -•
eonducted in conjunction with the City of Downey's annual audit. This review will assure
compliance with policies and procedures.
Prepared by: Anil H. Gandhy, Finance Director
City -of oey Investment Policy
The Finance Director shall provide the City Council monthly investment reports, which
provide a clear picture of the status of the current investment portfolio. The management
report may include comments on the fixed income markets and economic conditions,
discussions regarding restrictions on percentage of investment by categories, possible
changes in the portfolio structure going forward and thoughts on investment strategies.
Schedules in the quarterly report should include the following:
• A listing of individual securities held at the end of the reporting period by
authorized investment category.
• Acquisition date and final maturity of all investments listed.
• Coupon, discount or earnings rate.
• Par value, Book Value and Market Value.
• Percentage of the Portfolio represented by each investment category
G . 9 ,0
The City of Downey's investment policy shall be adopted by resolution of the City of
Downey's City Council. The policy shall be reviewed annually by the City Council and
any modifications made thereto must be approved by the City of Downey's City
Council.
Prepared by: Anil H. Gandhy, Finance Director 11
City of Downey Investment Policy
ETOJUA ZZ Fol VA W.
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Prepared by: Anil H. Gandhy, Finance Director 12
City of Downev Investment Policy
Glossary of Terms
Accrued Interest - Interest earned but not yet received.
Bond - A financial obligation for which the issuer promises to pay the bondholder a
specified stream of future cash flows, including periodic interest payments and a
principal repayment.
Book Value - The value at which a debt security is shown on the holder's balance
sheet. Book value is acquisition cost less amortization of premium or accretion of
discount.
Collateral - Securities, evidence of deposit or pledges to secure repayment of a
loan. Also refers to securities pledged by a bank to secure deposit of public moneys.
Comprehensive Annual Financial Report (CAFR) - The official annual financial
report for the City. It includes five combined statements and basic financial
statements for each individual fund and account group prepared in conformity with
Generally Accepted Accounting Principals (GAAP).
Coupon - The annual rate of interest that a bond's issuer promises to pay the
bondholder on the bond's face value.
Custody - A banking service that provides safekeeping for the individual securities in
a customer's investment portfolio under a written agreement which also calls for the
bank to collect and pay out income, to buy, sell, receive and deliver securities when
ordered to do so by the principal.
Discount - The difference between the cost of a security and its value at maturity
when quoted at lower than face value.
Diversification - Dividing investment funds among a variety of securities offering
independent returns and risk profiles.
Liquidity - Refers to the ability to rapidly convert an investment into cash.
Market Value - The price at which a security is trading and could presumably be
purchased or sold.
Maturity - The date upon which the principal or stated value of an investment
becomes due and payable.
Portfolio - Collection of securities held by an investor.
Primary Dealer - A group of government securities dealers that submit daily reports
Prepared by: Anil H. Gady, Finance Director 13
City of Downev
Investtnent Policy
of market activity and SP.Mrity positions held to the Federal Reserve Bank of-Rew
York and are subject to its informal oversight.
Rate of Return - The yield obtainable on a security based on its purchase price or
its current market price. This may be the amortized yield to maturity on a bond or the
current income return.
Repurchase Agreement (REPO) - A transaction where the seller (bank) agrees to
buy back from the buyer (City) the securities at an agreed upon price after a stated
period ot time.
Reverse Repurchase Agreement (REVERSE REPO) - A transaction where t"I
seller (City) agrees to buy back from the buyer (bank) the securities at an agre
upon price after a stated period of time. I
Treasury Bills - U.S. Treasury Bills which are short-term, direct obligations of the
U.S. Government issued with original maturities of 13 weeks, 26 weeks and 52
weeks; sold in minimum amounts of $10,000 in multiples of $5,000 above the
minimum. Issued in book entry form only. T-bills are sold on a discount basis.
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