HomeMy WebLinkAbout10. Adopt FY 2022-23 Investment Policy for Public Funds of the City of Downey & Related EntitiesItem No.
FROM: OFFICE OF THE CITY MANAGER
BY: ANIL H. GANDHY, DIRECTOR OF FINANCE
DATE: JULY 26, 2022
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That the City Council adopt the attached Investment Policy for public funds of the City of
Downey and its related entities.
DISCUSSION
The purpose of this Investment Policy ("Policy") is to establish overall guidelines for the
management and investment of the City of Downey's public funds.
It is the policy of the City to invest public funds in a manner to meet the City objectives, in orde
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 t
provisions of California Government Code Sections 53600 et seq.
The City's Investment Policy, as presented, complies with California Government Code
requirements and has also been reviewed by the City's investment advisor, Higgins Capital.
The Policy shall be adopted by the City Council on an annual basis. This policy shall be
reviewed annually to ensure its consistency with respect to the overall objectives of safety,
liquidity and yield, and its relevance to current laws and financial trends.
Fiscal Responsibility
FISCAL
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City of Downey Investment Policy
Contents
TABLEOF CONTENTS...........................................................................................................2
POLICY...................................................................................................................................3
SCOPE....................................................................................................................................3
PRUDENCE............................................................................................................................4
OBJECTIVE.............................................................................................................................4
DELEGATION OF AUTHORITY..............................................................................................5
ETHICS AND CONFLICTS OF INTEREST..............................................................................5
AUTHORIZED FINANCIAL INSTITUTIONS AND BROKER/DEALERS...................................5
AUTHORIZED AND SUITABLE INVESTMENTS.....................................................................6
MASTER REPURCHASE AGREEMENT.................................................................................9
REVIEWOF PORTFOLIO.......................................................................................................9
LEGISLATIVE CHANGES.......................................................................................................9
INTEREST EARNINGS...........................................................................................................9
INVESTMENT POOLS/MUTUAL FUNDS................................................................................9
COLLATE RALIZATION.........................................................................................................10
SAFEKEEPING AND CUSTODY OF SECURITIES...............................................................10
DIVERSIFICATION................................................................................................................11
MAXIMUM MATURITIES.......................................................................................................11
INTERNAL CONTROL...........................................................................................................11
PERFORMANCE STANDARDS............................................................................................12
REPORTING.........................................................................................................................12
INVESTMENT POLICY ADOPTION......................................................................................12
APPENDIX
Glossaryof Terms........................................................................................................13
Prepared Anil H. Gandhy, Finance Director
City of Downey InvestmentELhcZ
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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.
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).
specifically exempted. Investments made on a pooled basis may include investments of
the City of Downey and its component units and agencies.
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balances from all funds to maximize investment earnings and to increase efficiencies with
regard to investment pricing, safekeeping and administration. Investment income will b(!-
allocated to the various funds based on their respective participation in accordance with
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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:
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Special Revenue Funds
P I re I pared by: An I i 1 1 H. Gandhy, Finance Director 31
City of Investment Policv
• Debt Service Funds
• Capital Projects Funds
• Enterprise Funds
• Internal Services Funds
• Agency Funds
• Any new fund created by the City Council unless specifically exempted
Investments shall be made with judgment and care under prevailing circumstances in
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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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 deviationsfrom expectations are
reported in a timely fashion and appropriate action is taken to control adverse
developments.
The primary objectives, in priority order, of the Cityof Downey's investment activities shall
be:
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Safety of principal is the foremost objective of the investment program. InvestmeN
#f the City of Downey shall be undertaken in a manner that seeks to ensure t
preservation of capital in the overall portfolio. To attain this objective, diversificati
is required in order that potential losses on individual securities do not exceed t
income generated from the remainder of the portfolio. I
Prepared by: Anil H. Gandhy, Finance Director 4
City of Downev Investment PohSX
•' 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.
The City • r• investment portfolio shall •- designed with the objective •
• a rate • return throughout budgetary and economic cycles, commensurate
with the City of Downey's investment risk constraints and the cash flow characteristics
• the portfolio.
Authority to manage the City • Downey's investment program is granted • the City
• • 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 • controls to regulate the activities •'f
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 •li this policy and the
procedures established •' the Finance Director.
Officers and employees involved in the investment process shall refrain from personal
business activity that could • with proper execution • the investment program, •:
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 •' ^• to the
performance •' the City.
The City shall transact with primary dealers or regional dealers that qualify under
Securities • • Commission Rule 15C3-1 (uniform net capital rule). A
Prepared by: Anil H. Gandhy, Finance Director 5
determination should be made to ensure that the approved broker/dealer(s) and
individual(s) covering the City are reputable and trustworthy based on credibility and
reliability in the local agency investment space. 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.
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 Downey's investment policies and intends to offer the City of Downey only appropriate
investments authorized by this investment policy.
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:
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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 t#
principal and interest by federal agencies or United States government -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
Prepared by: Anil H. Gandhy, Finance Director 6
• r• Investment Pohcv
oi 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
• of the portfolio. • more than 5% of the total assets of the portfolio may •
'• in any one issuer's commercial paper. A local agency, other than a county
or a city and a county, may invest no more than 10 percent of its total investment
assets in the commercial paper and the medium -term notes of any single issuer.
Time deposits, non-negotiable and collateralized in accordance with the California
Government Code, may be purchased through banks or other financial institutions.
-•• in excess of the -•- deposit insurance limit are required to be
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 ••` a state • federal credit union, •,I • a -•` licensed • state -
licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may
• --• i'•a • the value • the portfolio. A maturity limitation • 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 Treasury 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 • agreements with specifies terms and conditions may
transacted with broker/dealers and financial institutions but cannot exceed 20% of
portfolio value the date entered into. The City may enter into reverse repurchase
agreements • to fund short-term liquidity needs. The term • reverse repurchase. -
agreements may not exceed 90 days.
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
Prepared • Anil H. Gandhy, Finance Director 7
City of Downey_ Investment Polio
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. A maturity
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Ineligible investments are those that are not described herein, including but not limit
to Common stocks and long term (over five years in maturity) notes and bonds a
generally prohibited from use in this portfolio. On occasion, special
circumstances arise that necessitate the purchase of securities beyond the five -ye
limitation, which require City Council prior to purchase. Such approval must be issu
no less than three months prior to the purchase of any security exceeding the fiv
year maturity limit. See below authorization for the City of Downey.
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
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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
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Various daily cash funds administered for or by trustees, paying agents arfel
custodian banks contracted by the City of Downey may be purchased as allow
under State of California Government Code. Only funds holding U.S. Treasuryl
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:
Investment Type Percentage
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Prepared by: Anil H. Gandhy, Finance Director 8
of DowneX Investment PohcX
US Government Agency Obligations 0 to 100%
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Medium Term Corporate Notes
Negotiable Certificates of Deposit
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0 to 50%
0 to 40%
0 to 30%
0 to 30%
0 to 100%
0 to 20%
0 to 25%
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If repurchase agreements are legal or authorized, a Master Repurchase Agreeme
must be signed with the bank or dealer. I
The securities held by the City must be in compliance with Section 6, Authorized and
Suitable Investments subsequent to the date of purchase. The Finance Director shall all
least quarterly review the portfolio and identify those securities that do not comply.
Finance Director shall establish procedures to report to council major and critica'
incidences of noncompliance identified through the review of the portfolio.
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.
INTEREST EARNINGS
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
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Prepared by: Anil H. Gandhy, Finance Director 9
City of
Investment
A thorough investigation of the pool/fund is required prior to investing, and on a continu-"
basis. Best efforts will be made to acquire the following information: I
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3. A description of how the securities are safeguarded (including the settleme
processes), and how often the securities are priced, and the program audited.
4. A description of who may invest in the program, how often, what size deposit and
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5. A schedule for receiving statements and portfolio listings.
6. Are reserves, retained earnings, etc. uzed by the pool/fund?
7. A fee schedule, and when and how is it assessed.
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Collateral ization will be required on two types of investments: certificates of deposit an
repurchase (and reverse repurchase) agreements. In order to anticipate market change
and provide a level of security for all funds, the collateral ization level will be 110% ( 'I
market value of principal and accrued interest. The City chooses to limit collateral to UZ
Treasury securities. Collateral will always be held by an independent third party wit
whom the entity has a current custodial agreement. A clearly marked evidence
ownership (safekeeping receipt) must be pplied to the City retained. The right
collateral substitution is granted. I
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To protect against fraud or embezzlement, or losses caused by collapse of an individu
securities dealer, all securities owned by the City of Downey shall be held in safekeepin
by a third party. All investment securities may be maintained by a banking institution
a broker/dealer firm for safekeeping as long as the securities are held in the City's nam]
Prepared by: Anil H. Gandby, Finance Director 10
City of Downey Investment Pohg
Third -party safekeeping arrangements will be approved by the Finance Director and will
be corroborated by a written custodial agreement. All securities 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
?.nnual basis to verify investment holdings. I
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. VT_,'#W,1ae
exception of U.S. Treasury securities and authorized pools, no more than 5% of the City
of Downey's total investment funds portfolio will be invested in a single security type or
with a single financial institution.
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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 Treasury securities 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 made to coincide as nearly as
practicable with the expected use of the funds, is based on the bond legal document, and
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Internal policies and procedures have been developed and documented to assure that
appropriate controls are in place to document and confirm all transactions.
An independent annual review by the City of Downey's external auditor shall be conducted
in conjunction with the City of Downey's annual audit. This review will assure
Prepared by: Anil H. Gandhy, Finance Director 11
City of Downey Investment Poky
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The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economy cycles, commensurate with the investment risk
constraints and cash flow needs. The city's investment strategy is passive (buy and hold);
however, the city will take advantage of market conditions when reviewing maturity ladders
and cash flow needs. Given this strategy, the basis used by the Finance Director is a
reasonable market yield based on the weighted average maturity of the portfolio and the
comparable US Treasury.
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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 (submitted within 30 days following quarter end) 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
• Statement on availability of funds to meet its obligations within the next six
The City of Downey's investment policy shall be adopted by resolution of the City ffJ
Downey's City Council. The policy shall be reviewed annually by the City Council an
any modifications made thereto must be approved by the City of owney's City Cuncl
Do
Prepared by: Anil H. Gandhy, Finance Director 12
City of D• •
Preparedby: Anil H. Gandhy, FinanceD
City of Downa Investment Policy
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Bond - A financial obligation for which the issuer promises to • the bondholder a
specified stream of future cash flows, including periodic interest payments and a
principal `•.'
Book Value - The value at which a debt security is shown on the holder's balance
sheet. i•• value is acquisition • less amortization • •I • accretion •'
discount.
Comprehensive Annual Financial Report (CAFR) - The official annual financial
report for the City. It includes five combined statements and basic financial
statements • each individual fund and account group prepared in conformity with
Generally Accepted Accounting Principles (GAAP).
Coupon - The annual rate • interest that a bond's issuer fI• to pay the
bondholder on the bond's face value.
Custody - A banking service that provides safekeeping for the individual securities
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. I
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.
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Market Value - The price at which a security is trading and could presumably be
purchased •I sold.
Maturity - The date •• which the principal or `• value • an investment
becomes due and payable.
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.p• by: Anil H. Gandhy, Finance Director 14
City of Downey Investment Pohcy
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 t*
buy back from the buyer (City) the securities at an agreed upon price after a stated
period of time.
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
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.
Prepared by: Anil H. Gandhy, Finance Director 15