HomeMy WebLinkAboutRedevelopment Agency - 270 RESOLUTION NO. 270
A RESOLUTION OF THE REDEVELOPMENT AGENCY
OF THE CITY OF HUNTINGTON BEACH
APPROVING THE ANNUAL FISCAL YEAR 1995/1996
INVESTMENT POLICY
WHEREAS, the City Council of the City of Huntington Beach is required
to approve an annual statement of investment policy, and the Redevelopment
Agency of the City of Huntington Beach, by virtue of Resolution No. 1 applies
City policies, rules and regulations wherever practicable; and
The duly elected City Treasurer has recommended approval of the City of
Huntington Beach Investment Policy, attached hereto and incorporated herein by
this reference; and
The duly appointed Investment Advisory Board has reviewed the City
Treasurer's recommended policy and also recommends approval thereof; and
The policy is consistent with California Government Code §53600, et
seq., attached hereto and incorporated herein by this reference.
NOW, THEREFORE, the Redevelopment Agency of the City of
Huntington Beach hereby approves and adopts the attached City of Huntington
Beach Investment Policy for Fiscal Year 1995/1996 so long as applied in a
manner consistent with state and local law as amended from time to time.
PASSED AND ADOPTED by the Redevelopment Agency of the City of
Huntington Beach at a regular meeting thereof held on the 16th day of
Qc Qb= 1995.
Chairman
ATTEST: APPROVED AS TO FORM:
�;f 4��
Agency Secretary GAG f Agency Counsel
REVIEWED AND APPROVED: INITIATED AND APPROVED:
hief Admi istrative Officer City Treasurer
5/fy9596
CITY OF HUNTINGTON BEACH INVESTMENT POLICY
1.0 Purpose:
This policy is intended to provide guidelines for the prudent investment of the city's cash
balances, and outline the policies to assist maximizing the efficiency of the city's cash
management system.
2.0 Policy:
The investment practices and policies of the City of Huntington Beach are based upon
state law and prudent money management. The primary goals of these practices are:
A. To assure compliance with all Federal, State, and local laws governing the
investment of moneys under the control of the City Treasurer.
B. To protect the principal moneys entrusted to this office.
C. To generate the maximum amount of investment income within the
parameters of prudent risk management.
3.0 Scone:
This investment policy applies to all financial assets of the City of Huntington Beach.
These funds are accounted for in the city's Comprehensive Annual Financial Report
and include:
3.1 Funds
The City Treasurer is responsible for investing the unexpended cash in the City Treasury,
except for the employee's retirement funds, which are administered separately and those
funds which are managed separately by trustees appointed under indenture agreements.
The City Treasurer will strive to maintain the level of investment of these idle funds as
close as possible to 100%.
These funds are described in the city's annual financial report and include:
3.1.1 General Fund
3.1.2 Special Revenue Funds
3.1.3 Capital Project Funds
3.1.4 Enterprise Funds
3.1.5 Trust and Agency Funds
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3.1.6 Any new fund created by the legislative body, unless
specifically exempted
This investment policy applies to all transactions involving the financial assets and related
activity of the foregoing funds.
4.0 Prudence:
The standard of prudence to be used by the City Treasurer shall be the "prudent person"
standard. This shall be applied in the context of managing an overall portfolio.
The"Prudent Person Rule" provides, pursuant to Probate Code Section 16040:
When investing, reinvesting,purchasing,acquiring,exchanging,
selling and managing trust property,the trustee shall act with the
care, skill, prudence, and diligence under the circumstances then
prevailing, including but not limited to the general economic
conditions and the anticipated needs of the trust and its
beneficiaries,that a prudent person acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise
of like character and with like aims to accomplish the purposes of
the trust as determined from the trust instrument. In the course of
administering the trust pursuant to this standard, individual
investments shall be considered as part of an overall investment
strategy.
4.1 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 to the City Council in a timely fashion and appropriate action is
taken to control adverse developments.
5.0 Obiective•
Consistent with this aim, investments are made under the terms and conditions of
California Government Code Section 53600, et seq. Criteria for selecting investments and
the absolute order of priority are:
5.1 Safety: Safety of principal is the foremost objective of the investment program.
Investments of the City of Huntington Beach 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.
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5.2 Liquidity: The City of Huntington Beach's investment portfolio will remain sufficiently
liquid to enable. the City of Huntington Beach to meet all operating requirements which
might be reasonably anticipated. Liquidity is essential to the safety of principal.
5.3 Return on Investments: The City of Huntington Beach'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 Huntington Beach's investment risk
constraints and the cash flow characteristics of the portfolio.
6.0 Investment Advisory Board:
By City Charter, the City Treasurer is the custodian of all public funds of the City of
Huntington Beach. The City Council may appoint Huntington Beach residents,
professional, and non professional people, to serve on an Investment Advisory Board for
the purpose of advising the City Treasurer on an investment program and at least
quarterly, review the investment portfolio for compliance with the adopted investment
policy. Exceptions: Items to the Investment Policy that require City Council approval
will first be reviewed by the Investment Advisory Board.
7.0 Delegation of Authority:
Within the City Treasurer's office, the responsibility for the day to day investment of the
City funds is delegated to the Senior Deputy City Treasurer in the absence of the City
Treasurer. The City Treasurer shall be responsible for all transactions undertaken and
shall establish a system of controls to regulate the activities of subordinate officials.
8.0 Ethics and Conflicts of Interest:
In addition to state and local statutes relating to conflicts of interest, all persons 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 Council any material financial interests in financial institutions that conduct
business within this jurisdiction, and they shall further disclose any large personal
financial/investment positions that could be related to the performance of the City of
Huntington Beach, particularly with regard to the time of purchases and sales.
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9.0 Authorized Financial Dealers and Institutions:
To provide for the optimum yield in the investment of city funds, the city's investment
procedures shall encourage competitive bidding on transactions from approved
brokers/dealers.' In order to be approved by the city, the dealer must be a "primary"
dealer or regional dealer that qualifies under Securities and Exchange Commission Rule
15C3-1 (Uniform Net Capitol Rule). The institution must have an office in California.
The dealer must be experienced in institutional trading practices and familiar with the
California Government Code as related to investments appropriate for the city; and, other
criteria as may be established in the investment procedures. All broker/dealers who desire
to become qualified bidders for investment transactions must annually submit a
"Broker/Dealer Application" and related documents relative to eligibility.
10.0 Authorized & Suitable Investments: Investments not specifically listed below are
deemed inappropriate and prohibited:
Direct Investments Investments made directly by the City Treasurer in the name of
the City of Huntington Beach.
A. BANKERS ACCEPTANCES, maximum 25% of portfolio (up to 40% with
Council approval). Maximum term 180 days (270 days with Council
approval).
These are time drafts drawn on a bank by an exporter or importer to obtain funds to pay
for specific merchandise. By its acceptance, the bank becomes primarily liable for the
payment of the draft at its maturity. An acceptance is a high-grade negotiable
instrument. Acceptances are purchased in various denominations for 30, 60, or 90 days,
but no longer than 270 days. The interest is calculated on a 360-day discount basis
similar to treasury bills Local agencies may not invest more than 40%of their surplus
money in bankers acceptance.
B. NEGOTIABLE CERTIFICATES OF DEPOSIT, maximum 30% of portfolio.
Maximum term three (3)years, (Up to five (5)years with Council approval).
Unsecured obligations of the financial institution, bank or savings and loan, bought at
par value with the promise to pay face value plus accrued interest at maturity. They are
high-grade negotiable instruments, paying a higher interest rate than regular certificates
' So long as the requirements of California Government Code Section 53601.5 are adhered to.
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of deposit. The primary market issuance is in multiples of$1,000,000, the secondary
market usually trades in denominations of $500,000, although smaller lots are
occasionally available.
C. COMMERCIAL PAPER, maximum 15% of portfolio. Maximum term 180
days; plus additional 15% of portfolio if the dollar-weighted average
maturity of the entire amount does not exceed 31 days.
Short-term unsecured promissory note issued by a corporation to raise working capital.
These negotiable instruments are purchased at a discount to par value or at par value
with interest bearing. Commercial paper is issued by corporations such as General
Motors Acceptance Corporation,IBM,BankAmerica,etc.
Local agencies are permitted by State law to invest in commercial paper of "prime"
quality of the highest ranking or of the highest letter and numerical ratings as provided
by Moody's Investor's Service, Inc., or Standard and Poor's Corporation. Purchases of
eligible commercial paper may not exceed 180 days maturity nor exceed 30% of the
local agency's surplus funds.
D. BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY
WITHIN THE STATE OF CALIFORNIA.
Bonds,notes,warrants, issued by the local agency, including bonds payable solely out of
the revenues from a revenue producing property owned, controlled, or operated by the
local agency or by a department,board,agency,or authority of the local agency.
E. OBLIGATIONS OF THE UNITED STATES TREASURY. 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.
F. FEDERAL AGENCIES
Debt instruments issued by agencies of the Federal government. Though not general
obligations of the U.S. Treasury, such securities are sponsored by the government and,
therefore, have high safety ratings. The following are authorized:
• Federal Intermediate Credit Bank(FICB'S)
Loans to lending institutions used to finance the short-term and intermediate needs of
farmers, such as seasonal production. They are usually issued monthly in minimum
denominations of$3,000 with a 9-month maturity. Interest is payable at maturity and is
calculated on a 360-day, 30-day month basis.
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• Federal Land Bank (FLB'S)
Long-term mortgage credit provided to farmers by Federal Land Banks. These bonds
are issued at irregular times for various maturities ranging from a few months to ten
years. The minimum denomination is $1,000. They carry semi-annual coupons.
Interest is calculated on a 360-day, 30-day month basis.
• Federal Home Loan Bank (FHLB'S)
Issued by the Federal Home Loan Bank System to help finance the housing industry.
The notes and bonds provide liquidity and home mortgage credit to savings and loan
associations, mutual savings banks, cooperative banks, insurance companies, and
mortgage-lending institutions. They are issued irregularly for various maturities. The
minimum denomination is$5,000. The notes are issued with maturities of less than one
year and interest is paid at maturity. The bonds are issued with various maturities and
carry semi-annual coupons. Interest is calculated on a 360-day, 30-day month basis.
• Federal National Mortgage Association(FNMA'S)
To assist the home mortgage market by purchasing mortgages insured by the Federal
Housing Administration and the Farmers Home Administration, as well as those
guaranteed by the Veterans Administration. They are issued about four times a year for
maturities ranging from a few months to eight years. They are issued in minimum
denominations of$10,000. They carry semi-annual coupons. Interest is computed on a
360 day, 30-day month basis. FNMA is a publicly held corporation listed on the
NYSE.
• Small Business Administration (SBA'S)
Securities/Loans guaranteed by Federal government to provide financial assistance
through direct loans and loan guarantees to small businesses.
• Government National Mortgage Association(GNMA'S)
Securities guaranteed by GNMA and issued by mortgage bankers, commercial banks,
savings and loan associations,and other institutions. Security holder is protected by full
faith and credit of the U.S. Government. Ginnie Mae buys FHA and VA mortgages and
auctions them to private lenders which pool these mortgages and sell pass-through
certificates. Each month,principal and interest payments from the pool pass through to
investors.
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• Tennessee Valley Authorities (TVA'S)
A U.S. Corporation created in the 1930's, to electrify the Tennessee Valley area;
currently a major utility headquartered in Knoxville, Tennessee. TVA's securities are
highly liquid and are widely accepted.
• Student Loan Association Notes (Sallie Mae's)
A. U.S. Corporation and instrumentality of the U.S. government. Through its
borrowings, funds are targeted for loans to students in higher education institutions.
SLMA's securities are highly liquid and are widely accepted.
G. REPURCHASE AGREEMENT
Short-term agreement between a seller and a buyer (investor) of U.S. Government
securities, whereby the seller agrees to repurchase the securities at an agreed upon price
and, at a stated time. The city may utilize repurchase agreements.on a daily basis. The
bank or dealer sells securities to the city, agreeing to buy them back the next day. Thus,
the city utilizes a temporary surplus of cash to enhance interest earnings.
H. REVERSE-REPURCHASE AGREEMENTS
A reverse-repurchase is exactly what the name implies. Reverse-repurchase agreements are the sale of
securities by the city under an agreement to "repurchase" the securities on or before a specified date and
for a specified amount. This investment shall be utilized to provide short term liquidity, but only with
specific council approval on each transaction.
I. MEDIUM-TERM CORPORATE NOTES, maximum 20% of portfolio (30%
with Council approval).
Unsecured promissory notes issued by a corporation organized and operating in the
United States. These are negotiable instruments and are traded in the secondary market.
Medium term corporate notes can be defined as extended maturity commercial paper.
Local agencies are restricted by the Government Code to investments in corporations
rated in the top three note categories by a nationally-recognized rating service. Further
restrictions are a maximum term of five years to maturity and total investments in
medium term corporate notes may not exceed 30%of the local agency's surplus funds.
Refer to Section 11.0 regarding Government Code Provisions.
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J. TIME DEPOSITS-CERTIFICATES OF DEPOSIT (non-negotiable
certificates of deposit.)
Time deposits of a bank or savings and loan. They are purchased in various
denominations with maturities ranging from 30 to 360 days. The interest is calculated
on a 360-day, actual day month basis and is payable monthly. Refer to Section 11.0
regarding Government Code Provisions.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA
Registered state warrants or treasury notes or bonds of this state, including bonds
payable solely out of the revenues from a revenue-producing property owner,
controlled,or operated by the state or by a department,board,agency,or authority
of the state.
Indirect Investments - Funds deposited into authorized accounts which are
managed by other agencies according to published guidelines.
L. MUTUAL FUNDS, maximum 15% of portfolio. (Requires City Council
approval for each transaction)
Local agencies are authorized to invest in shares of beneficial interest issued by diversified
management companies that invest in securities and obligations otherwise eligible for local
agency investment. In addition,to be eligible as an investment the company must: (1) attain the
highest ranking or rating provided by not less than two of the three largest national rating
services; and (2) have an investment advisor registered with the SEC who has at least five years
experience with investing public type investments with a portfolio of at least five hundred
million. Finally,the purchase price of the shares may not include commission and only a certain
stated percentage of the City's money may be invested.
M. THE LOCAL AGENCY INVESTMENT FUND (LAIF)
Is a special fund of the California State Treasury through which any local government
may pool investments. The city may invest up to $20,000,000 per agency in this fund.
Currently the city has established two (2) agency funds: The City of Huntington Beach
City Fund, and the City of Huntington Beach Redevelopment Agency Funds.
Investments in LAIF are highly liquid and may be converted to cash within 24 hours.
Investment with LAIF are secured by the full faith and credit of the State of California.
N. THE ORANGE COUNTY LOCAL AGENCY INVESTMENT POOL
(OCIP) Is a special fund of the County of Orange through which any local city or
agency may, with approval of their governing body and the County Treasurer, deposit
excess funds in the County Treasury for reinvestment by the Treasurer. Investments
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with OCIP are made in accordance with Government Code Section 53635.2 As of
November 29, 1994, the City Treasurer suspended any additional deposits into OCIP.
The suspension will remain until new policies, procedures, and pending legislation are
in effect and approved by City Council.
Portfolio Adjustments - Should an investment percentage-of-portfolio limitation be
exceeded due to an incident such as fluctuation in portfolio size, the affected securities
may be held to maturity to avoid losses. When no loss is indicated, the Treasurer shall
consider reconstructing the portfolio basing his decision on the expected length of time the
portfolio will be unbalanced. If this occurs, the City Council shall be notified.
11.0 Collateralization:
Under provisions of the California Government Code, California banks, and savings and
loan associations are required to secure the city's deposits by pledging government
securities with a value of 110 % of principal and accrued interest. California law also
allows financial institutions to secure city deposits by pledging first trust deed mortgage
notes having a value of 150% of city's total deposits. Collateral will always be held by an
independent third party. A clearly marked evidence of ownership (safekeeping receipt)
must be supplied to the city and retained.
The City Treasurer, at his discretion, may waive the collateral requirement for deposits
which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation. The right of collateral substitution
is granted.
12.0 Safekeeping and Custody:
All city investments shall have the City of Huntington Beach as its registered owner, and
all interest and principal payments and withdrawals shall indicate the City of Huntington
Beach as the payee.
All securities shall be safe kept with the city itself or with a qualified financial institution,
contracted by the city as a third party. All agreements and statements will be annually
reviewed by external auditors. All securities shall be acquired by the safekeeping
institution on a "Delivery-Vs-Payment" (DVP) basis. The DVP basis does not apply to
2 So long as the requirements of California Government Code Section 53601.5 are adhered to.
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Repurchase Agreements. Due to the "overnight" nature of the daily repurchase
agreement, it would be impossible to utilize DVP without incurring additional costs and
unreasonable demands of the bank. However, collateral is provided for the city's
investment security by having the bank set aside collateral (in the city's name) at the
Federal Reserve Bank in Los Angeles. This is provided for in the Master Repurchase
Agreement that must be signed by both parties.
13.0 Diversification:
The city's investment portfolio will be diversified to avoid incurring unreasonable and
avoidable risks associated with concentrating investments in specific security types,
maturity segment, or in individual financial institutions. The City will utilize Moody's
Securities, Sheshunoff Bank in savings and loan ratings, or other such services to
determine financially sound institutions to do business with.
Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall be
mitigated by investing in only very safe securities and by diversifying the investment
portfolio so that the failure of any one issuer would not unduly harm the city's cash flow.
Market risk, defined as the risk of market value fluctuations due to overall changes in the
general level of interest rates, shall be mitigated by structuring the portfolio so that
securities mature at the same time that major cash outflows occur, thus eliminating the
need to sell securities prior to their maturity. It is explicitly recognized herein, however,
that in a diversified portfolio, occasional measured losses are inevitable and must be
considered within the context of overall investment return.
The city's investment portfolio will remain sufficiently liquid to enable the city to meet all
operating requirements which might be reasonably anticipated.
14.0 Maximum Maturities:
To the extent possible, the City of Huntington Beach will attempt to match its investments
with anticipated cash flow requirements. Unless matched to a specific cash flow, the city
will not directly invest in securities maturing more than five (5) years from the date of
purchase, unless, the legislative body has granted express authority to make that
investment either specifically, or as a part of an investment program approved by the City
Council.
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15.0 Internal Control:
The external auditors shall annually review the investments and the investment policy.
This review will provide internal control by assuring compliance with policies and
procedures. Additionally, account reconciliation and verification of general ledger
balances relating to the purchasing or maturing of investments shall be performed by the
Finance Department. To provide further protection of city funds, written procedures
prohibit the wiring of any city funds without the authorization of at least two of the three
designated city officials:
1. City Treasurer
2. Senior Deputy City Treasurer
3. Director of Finance
16.0 Performance Standards:
This investment policy shall be reviewed at least annually by the Investment Advisory
Board and the City Council to ensure its consistency with the overall objective of
preservation of principal, liquidity, and return, and its relevance to current law and
financial and economic trends. All financial assets of all other funds shall be administered
in accordance with the provisions of this policy.
The moneys entrusted to the City Treasurer will be an actively managed portfolio. This is,
the City Treasurer and staff will observe, review, and react to changing conditions that
affect the portfolio.
16.1 Market Yield (Benchmark):
The investment portfolio shall be managed to attain a market-average rate of return
throughout budgetary and economic cycles, taking into account the city's investment risk
constraints and cash flow. Market average will be determined by year-end average rates
of return from a combination of indices: Local Agency Investment Fund (LAIF), and 1-
year Treasuries.
While the city will not make investments for the purpose of trading or speculation as the dominant
criterion, the City Treasurer shall seek to enhance total portfolio return by means of ongoing
portfolio management. The prohibition of highly speculative investments precludes pursuit of
gain or profit through unusual risk and precludes investments primarily directed at gains or profits
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from conjectural fluctuations in market prices. The City Treasurer will not directly pursue any
investments that are leveraged or deemed derivative in nature. However, as long as the original
investments can be justified by their ordinary earning power, trading in response to changes in
market value is a requirement of on going portfolio management.
17.0 Reporting:
The City Treasurer shall submit a monthly investment report to the City Council, City
Administrator, and City Finance Director and the Investment Advisory Board. This report
will include the following elements:
17.1 Type of investment
17.2. Institution
17.3 Purchase Date
17.4 Date of maturity
71.5 Amount of deposit or cost of the investment
17.6 Face value of the investment
17.7 Current market value of securities
17.8 Rate of interest
17.9 Interest earnings
17.10 Statement relating the report to the Statement of Investment Policy
17.11 Statement availability of funds to meet the next 30 days' obligations
This monthly report shall be placed on the City Council Agenda for Council and public
review.
18.0 Investment Policy Adoption:
By virtue of a resolution of the City Council of the City of Huntington Beach, the Council
shall acknowledge the receipt and filing of this annual statement of investment policy for
the respective fiscal year.
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Res. No. 2 70
STATE OF CALIFORNIA )
COUNTY OF ORANGE )
CITY OF HUNTINGTON BEACH )
I, CONNIE BROCKWAY, Clerk of the Redevelopment Agency of
the City of Huntington Beach, California, DO HEREBY CERTIFY that the
foregoing resolution was duly adopted by the Redevelopment Agency of the City
of Huntington Beach at a meeting of said Redevelopment Agency held on the 16th
day of October, 1995, and that it was so adopted by the following vote:
AYES: Members:
Harman, Bauer, Sullivan, Leipzig, Dettloff, Green, Garofalo
NOES: Members:
None
ABSENT: Members:
None
Clerk of the Redevelopment Agency
of the City of Huntington Beach, Ca.
G/reso1uti/resbkpg2