HomeMy WebLinkAboutCity Council - 96-107 RESOLUTION NO. 96-107
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF HUNTINGTON BEACH
APPROVING THE ANNUAL FISCAL YEAR 1996/1997
INVESTMENT POLICY
WHEREAS, the City Council of the City of Huntington Beach is required to
approve an annual statement of investment policy; 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 Govemment Code §53600, et
seq., attached hereto and incorporated herein by this reference.
NOW, THEREFORE, the City Council of the City of Huntington Beach
hereby approves and adopts the attached City of Huntington Beach investment
Policy for Fiscal Year 1996/1997 so long as applied in a manner consistent with
state and local law as amended from time to time.
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at
a regular meeting thereof held on the 16th day of December , 1996.
Mayor
ATTEST: APPROVED AS TO FORM:
4• -
City Clerk City Lttorn?y,,
REVIEWED AND APPROVED: INITIATED AND APPROVED:
City Administrator reas r r
51fy9697 1
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 olk,%-
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 lativs 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 inanagement.
3.0 SrS ope.:
'Phis investment policy applies to all f namcial assets of the Oty of Huntington Beach.
These funds are accounted for in the 6(y's Comprehensive Annual Financial Report
and include:
3.1 Funds
The City Treasurer is responsible for investing the unexpended cash in the City Treasury
for all funds, except for the employee's retirement funds, which are administered
separately and those funds which are maniged separately by trustees appointed under
indenture agreements. The City Treasurer will strive to maintain the Ievel of investment
of 1bih casll 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
1
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
investat=' standard. This shall be applied in the context of managing an overall portfolio.
The "Prudent Investor Rule" provides, pursuant to Governinent Code Section 53600.3:
ov mina bodies Qf local ages cie or ns auth rized to make
inve tinent decisims on behalfthose ]Qcal agemiesi vestii
public fuds pursuantthis c1lanter are trustees
fiduciaries subject to the prudem investor standard. When
investing. reinvesting, purcbasina, acquiring.exchanging se�ng-
apd inaitagiii public funds. a trustee shall act%vith care,skill
rudence and diligence unde t cimuinstances then prevail' a
that a prudent son acting in a like catty and fainiliarity witlt
tlosp platters would use in the conduct of funds of like character
._and with like aims,to safeguard the principal and maintain the
liquidity needs of the agency. Within the limitations of this
section and considering individual investi—hams asi.art to au
overall strategy. a trustee is authorized to agquire bivestinems a
authorized bylaw,
4.1 The City Treasurer and the. Senior Deputy City Treasurer-as 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 Objective:
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,
2
diversification is required in order that potential losses on individual securities do not
exceed the income generated from the remainder of the portfolio.
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 in arket-average rate of return throughout
budgetary and economic cycles ,(market interest rates), within the City of Huntington
Beach's investment poli v' risk parameters and the cash flow needs of the City. See
also Section 17.0.
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 will be the City Treasurer and 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 f'onfljcts of Intrest:
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 officers shall disclose
to the City Clerk any material financial interests in financial institutions that conduct .
3
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.
9.0 Auth arized Financial Dealersand 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.t 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
1503-1 (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 -%vho
desire to become qualified bidders for investment transactions must annually submit a
"Broker/Dealer Application" and related documents relative to eligibility including a
...cullent audited annual finan ial statement. Th( City Treasurer vvill perfon-n an annual
review of the financial condition and a' t at' qualified bidders and will ai a
list of the authorized institutiQn5 and deafer_s.
10.0 Authorized & Suitable Investments., Investments not specifically listed below are
deemed inappropriate and prohibited-
10.1 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
So long as the requirements of California Government Code Section 53601.5 are adhered to.
4
invest more than 40% of their surplus money in bankers acceptance and the long- and short-term
ran ines of;hcw aju�t be of an A,or higher rating as provided by Moody's Investors Service or
Standard and Poor'-s C rrp
B. NEGOTIABLE CERTIFICATES OF DEPOSIT, maximum 30% of portfolio.
Maximum terra 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 of deposit. The
primary market issuance is in multiples of$1,000,000, the secondary market usually trades in
denominations of S500,000, although smaller lots are occasionally available.
C. COMMERCIAL PAPER, maximum 15% of portfolio. Maximum term 180
days; plus additional la% of portfolio if the dollar-weighted average
maturity of the entire amount does not exceed 31 days.
Short-terni 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
comrnercial paper of companies that are orryani ed,and operating, within the United States and
have total assets in excess of S500,000,000 and have an "A" or higher rating for the issuer-s debt
other-than commercial peer, as provided by Moody's Investor's Service, Inc., or Standard and
Poor's Corporation.
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:
5
X Federally Sponsored Agencies
A. Federal Intermediate Credit Bank(FICB'S)
Loans to lending institutions used to finance the short-term and intermediate needs of
fanners, such as seasonal production. They are usually issued monthly in minimum
denominations of S3,000 with a 9-month maturity. Interest is payable at maturity and is
calculated on a 360-day, 30-day month basis.
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 S1,000. They carry semi-annual coupons. Interest is
calculated on a 360-day,30-day month basis.
C. Federal Hone Loan Bank(FHLB'S)
Issued by the Federal Horne 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 S10,000. The notes are issued with maturities of less that;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.
D. Federal National Alortgage Association (FNMA's}
To assist the home rnorti.,aoe market by purchasing mortgages insured by the Federal
Housing Administration and the Farmers dome Administration, as well as those
guaranteed by the Veterans Administration. They are issued about four times a year for
maturities ranging from a feNv months to eight years. They are issued in minimum
denominations of S10,000. 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.
E. Federal Home LoanM t e Corporation
Created to promote the ftyelopment of a nationwide 5ec arket in mortgages, 1
does is by purchasing residentiRl rnQagaggs from financial institutions insured by a
agency of the federal_government and selling its interest in them through mortgage-
d securities. The interest and pinginal payments from the mortgages through
To the investors either month1v, semiannually ar annually-
6
Government National Mortgage Association (GNMA'S)
Securities guaranteed by GNN4A 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. Govemment. 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.
Federally, Related Institutions
A. 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.
B, 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.
F.3. Small BusinessAdministration (SBA'S)
The portion of these Securities/Loans which are guaranteed by Federal government to provide
financial assistance through direct loans and loan guarantees to small businesses.
G. REPURCHASE AGREEMENT, maximum term 3 months.
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 at the stated time. Thus, the city utilizes a temporary surplus
of cash to enhance interest earnings.
H. REVERSE-REPURCHASE AGREEMENTS (Requires City Council
approval for each transaction)
A reverse-repurchase is exactly "hat 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.
7
I. MEDIUAI-TERh1 CORPORATE NOTES, tnaximum 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. Dotes eligible for investment Shall
be "A" rated or its equivalent r better as determined by a nationally recognized rating service
Further restrictions are a maximum term of five years to maturity and total investments in medium
terns corporate notes may not exceed 30%of the local agency's surplus funds.
J. TIMED EP OS ITS-CERTIFICATES OF DEPOSIT (non-negotiable
certificates of deposit.) ( masimum__o__f_3 yearE)
Time deposits of a bank or savings and loan. They are purchased in various denominations with
maturities ranging from 6 to 36 months. The interest is calculated on a 360-day, actual day month
basis and is payable monthly. Refer to Section 12.0 regarding Government Code Collateralization
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.
A-, MUTUAL FUNDS, maximuin 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 othenvise eligible for local
agency investment. In addition, to be eligible as an investment the company must: (1) attain the
highest rankine,or rating provided by not less than tNvo 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.
B. THE LOCAL AGENCY INVESTMENT FUND (LAIF)
Is a special fund of the California State Treasury through which any local govenment may pool
investments. The city may invest up to $20,000,000 per agency in this fund. Currently, the city
has established ttivo (2) agency funds IhTo-uc,,b wbigb Ole Treasurer rnay inve5t the unexpended
S
2�s - f 0
cash for all funds: The City of Huntington Beach City Fund, and the Huntington Beach
Redevelopment Agency Funds. Investments in LAIF are highly liquid and may be converted to
cash within 24 hours.
11.0 Portfolio Adjustments:
Should any investment listed in section 10.1 & 10.2 exceed a percentage-of-portfolio
limitation 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/her decision on the expected length of
time the portfolio will be unbalanced. if this occurs, the City Council shall be notified.
12.0 Collateralization:
Under provisions of the California Goverrunent 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. Rel2urdasecolhatieral. will e at 102%
of market value of principal and accrued interest consistent with CA Code requirements.
The City Treasurer, at his/her discretion, may «,aive the collateral requirement for
deposits which are fully insured up to $100,000 by the Federal Deposit Insurance
Corporation. The right of collateral substitution is granted.
13.0 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. For
Eenurcime Agteedients. the purchase may be delivered by book-entrv. physical delivery
r by third Varty custodial agreement consistent with the Government CQde, The transfer
9
S c1 � _ { O�
of un er wing securities to the counterparty bank's customer book-ezita account may b
used for boQk&Li1Uive
14.0 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 and 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 eery 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.
15.0 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 snake
that investment either specifically, or as.a part of an investment program approved by the
City Council.
16.0 Internal Control:
The external auditors shall annually review the investments with respect to the
investment policy. This review will provide internal control by assuring compliance with
policies and procedures for the investments that are selected for tin-, Additionally,
10
account,_recoiacjliation and verificatiQii of general ledger balances relating -to--the
purchasingQr.maturing of investments_and allocation, of investments to _fund balances
shall be Performed by the Finance Department and approved by the Cif Treasurer. 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
17.0 PerformanceStandards:.
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
means that the City Treasurer will observe, review, and react to changing conditions that
affect the portfolio.
17.1 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 considered for benchmark purposes to
be the Local Agency Investment Fund (LAIF) rate of return,and the six month moQ
average of the 3 month Trea5urv. 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 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
11
original investments can be justified by their ordinary eaming power, trading in response
to changes in market value is a requirement of on going portfolio management.
18.0 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:
18.1 Type of investment
18.2. Institution/Issu
18.3 Purchase Date
18.4 Date of maturity
18.5 Amount of deposit or cost of the investment
18.6 Face value of the investment
18.7 Current market value of securities
18.8 Rate of interest
18.9 Interest earnings
18.10 Statement relating the report to the Statement of investment Policy
18.11 Statement can availability of funds to meet the next 30 days' obligations
18.12 Monthly and Year to date BnLet Amounts for Interest Income
18.13 Percentage of Portfolio by Investment Type
18.14 Days to Maturity for-all Investments
18.15 Comparative report on Monthly Investmenj Balances & Interest Yields
This monthly report shall be placed on the City Council Agenda for Council and public
review.
19.0 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.
12
Res. No. 96-107
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, CONNIE BROCKWAY, the duly elected, qualified City Clerk of the
City of Huntington Beach, and ex-officio Clerk of the City Council of said City, do
hereby certify that the whole number of members of the City Council of the City of
Huntington Beach is seven; that the foregoing resolution was passed and adopted by
the affirmative vote of at least a majority of all the members of said City Council at a
regular meeting thereof held on the 16th day of December, 1996 by the following
vote:
AYES: Harman, Julien, Dettloff, Bauer, Sullivan,
Green, Garofalo
NOES: None
ABSENT: None
4w;-1 &W-d�
City Clerk and ex-officio Clerk of the
City Council of the City of Huntington
Beach, California
Glreso1u1Vmbkpgl96-100