HomeMy WebLinkAboutFiscal Year 2003/2004 - City Treasurer - Investment Policy - r✓rrtier s.
-CITY OF HUNTINGTON BEACH
MEETING DATE: December 15, 2003 DEPARTMENT ID NUMBER: CT 04-05
Council/Agency Meeting Held: �3
Deferred/Continued to:
Approved ❑ Conditionally Approved ❑ Denied P�-Ty Cit ler Signat e
Council Meeting Date: December 15, 2003 Department ID Number: CT 04-05
CITY OF HUNTINGTON BEACH
REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION _T
o C
o
SUBMITTED TO: HONORABLE MAYOR/CHAIRMAN AND CITY COUNCIL Q
MEMBERS/REDEVELOPMENT AGENCY MEMBERS �
SUBMITTED BY: SHARI L. FREIDENRICH, City Treasur�
PREPARED BY: SHARI L. FREI DEN RICH, City Treasurw _
�
SUBJECT: APPROVE AND ADOPT THE 2003/2004 INVESTMENT POLICY' aa�3g1
Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,
Attachment(s) .
Statement of Issue: Pursuant to California Government Code, the Treasurer of the local
agency shall render an annual statement of investment policy to the legislative body for
acceptance. The City Treasurer, with the assistance of the Investment Advisory Board, has
prepared an updated investment policy.
Funding Source: Not applicable.
City Council Recommended Action: Motion to:
1. Approve and adopt the attached Resolution of the City Council of the City of Huntington
Beach, approving the 2003/2004 Investment Policy. QQS. c.00
Redevelopment Agency Recommended Action: Motion to:
1. Approve and adopt the attached Resolution of the Redevelopment Agency of the City of
Huntington Beach, approving the 2003/2004 Investment Policy. No, -2
Alternative Action(s): Do not approve attached Resolution and Investment Policy and
advise staff how to proceed.
C 3b
RCACT 05 Investment Policy for 03-04 12/1/2003 4:30 PM
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CITY OF HUNTINGTON BEACH
STATEMENT OF INVESTMENT POLICY
FISCAL YEAR 2003 /2004
TABLE OF CONTENTS
SECTION
1.0 Purpose.....................................................................................................................2
2.0 Policy........................................................................................................................2
3.0 Scope.........................................................................................................................2
4.0 Prudence..................................................................................................................3
5.0 Objective..................................................................................................................3
6.0 Investment Advisory Board...................................................................................4
7.0 Delegation of Authority..........................................................................................4
8.0 Ethics and Conflicts of Interest.............................................................................4
9.0 Authorized Financial Dealers & Institutions.......................................................5
10.0 Authorized & Suitable Investments..............:.......................................................6
11.0 Portfolio Adjustment..............................................................................................8
12.0 Collateralization......................:...............................................................................8
13.0 Safekeeping and Custody.......................................................................................8
14.0 Diversification .........................................................................................................9
15.0 Maximum Maturities..............................................................................................9
16.0 Internal Control....................................................................................................10
17.0 Performance Standards........................................................................................10
18.0 Reporting...............................................................................................................I I
19.0 Investment Policy Adoption.................................................................................12
Glossary.................................................................................................................13
Appendix A—Investment Guidelines................. ..................................i
0304 investment policy 1
CITY OF HUNTINGTON BEACH
Statement of 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 while meeting the daily cash flow demands of the city.
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 public funds under the control of the City Treasurer.
B. To protect the principal moneys entrusted to this office.
C. Achieve a reasonable rate of return within the parameters of prudent risk
management while minimizing the potential for capital losses arising from market
changes or issuer default.
3.0 Scope:
.This investment policy applies to all financial assets as indicated in 3.1 below 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
for all funds, 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 this cash 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
0304 investment policy 2
3.1.5 Trust and Agency Funds
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
investor " standard. This shall be applied in the context of managing an overall
portfolio.
The "Prudent Investor Rule" provides, pursuant to California Government Code
Section 53600.3, that investments shall be made with judgment and care—under
circumstances then prevailing—which persons of prudence, discretion and intelligence
exercise in the management of their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as the probable income to be
derived.
4.1 The City Treasurer and the 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, diversification is
required in order that potential losses on individual securities do not exceed the income
generated from the remainder of the portfolio.
0304 investment policy 3
5.2 Liquidity:
The City of Huntington's 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 and to maintain compliance with any indenture agreement, as
applicable. 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 market-average rate of return throughout budgetary and economic cycles
(market interest rates), within the City of Huntington Beach's investment policy's 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 the City's investment program and at least
quarterly, review the investment portfolio for compliance with the adopted investment
policy. Exceptions: Items in 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 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 officers are required to
file annual disclosure statements as required for "public officials who manage public
investments" (as defined and required by the Political Reform Act and related
0304 investment policy 4
regulations, being Government Code Sections 81000 and the Fair Political Practices
Commission (FFPC)).
9.0 Authorized Financial Dealers and Institutions:
The City Treasurer will maintain a list of the financial institutions and broker/dealers
authorized to provide investment and depository services and will perform an annual
review of the financial condition and registrations of qualified bidders and require annual
audited financial statements to be on file for each company. The City will utilize
Moody's Securities, Sheshunoff bank and savings and loan ratings, or other such services
to determine financially sound institutions with which to do business. The City shall
annually send a copy of the current investment policy to all financial institutions and
broker/dealers approved to do business with the City.
As far as possible, all money belonging to, or in the custody of, a local agency, including
money paid to the City Treasurer or other official to pay the principal, interest, or
penalties of bonds, shall be deposited for safekeeping in state or national banks, savings
associations, federal associations,- credit unions, or federally insured industrial loan
companies in this state selected by the City Treasurer; or may be invested in the
investments set forth in Section 10.0. To be eligible to receive local agency money, a
bank, savings association, federal association, or federally insured industrial loan
company shall have received an overall rating of not less than "satisfactory" in its most
recent evaluation by the appropriate federal financial supervisory agency of its record of
meeting the credit needs of California's communities, including low- and moderate-
income neighborhoods.
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
150-1 (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 and
financial institutions who desire to become qualified bidders for investment transactions
0304 investment policy 5
must submit a "Broker/Dealer Application" and related documents relative to eligibility
including a current audited annual financial statement, U4 form for the broker, proof of
state registration, proof of National Association of Securities Dealers certification and a
certification of having read and understood the City's investment policy and agreeing to
comply with the policy. The City Treasurer shall determine if they are adequately
capitalized (i.e. minimum capital requirements of $10,000,000 and five years of
operation).
10.0 Authorized & Suitable Investments: The City is authorized by California
Government Code Section 53600, et. seq. to invest specific types of securities. Investments
not specifically listed below are deemed inappropriate and prohibited:
A. BANKERS ACCEPTANCES, maximum 25% of portfolio (up to 40% with
Council approval). Maximum term 180 days.
Banks must have a short term rating of at least Al/PI and a long-term rating of A or higher as
provided by Moody's Investors Service or Standard and Poor's Corp. No more than 30 percent of
the agency's money may be invested in the bankers acceptances of any one commercial bank
pursuant to this section.
B. NEGOTIABLE CERTIFICATES OF DEPOSIT, maximum 30% of portfolio.
Maximum term three (3) years, (Up to five (5) years with Council approval).
Banks must have a short term rating of AI/PI.and a long term rating of at least a single A from a
nationally recognized authority on ratings.
C. COMMERCIAL PAPER, maximum 25% of portfolio. Maximum term 270
days.
Commercial paper of prime quality of the highest ranking or of the highest letter and number
rating as provided for by Moody's Investor Services, Standard & Poor's and Fitch Financial
Services. The issuing corporation must be organized and operating within the United States, with
total assets in excess of$500 million and shall issue debt, other than commercial paper, that is
rated"A" or higher by Moody's, S&P and Fitch. Split ratings(i.e. A2/P1)are not allowable. No
more than 10 percent of the outstanding commercial paper of any single corporate issue may be
purchased.
D. BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY
WITHIN THE STATE OF CALIFORNIA.
Bonds must have an"A"rating or better
0304 investment policy 6
REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION
MEETING DATE: December 15, 2003 DEPARTMENT ID NUMBER: CT 04-05
Analysis: The City Treasurer is required to annually obtain approval of the City's
Investment Policy prior to the last day of the first quarter of each fiscal year (December 31,
2003). The attached Investment Policy has been reviewed by the City's Investment Advisory
Board and approved by the City Attorney to be in compliance with Government Code Section
53601.
Environmental Status: Not applicable.
Attachment(s):
City Clerk's
Page Number No. Description
Resolution of the City Council of the City of Huntington Beach
approving the 2003/2004 Investment Policy No. a003-9/
2 Resolution of the Redevelopment Agency of the City of Huntington
Beach approving the 2003/2004 Investment.Policy No. �
3. Exhibit A:
2003/2004 Statement of Investment Policy
4. 2003/2004 Investment Policy Power Point Presentation
RCACT 05 Investment Policy for 03-04 -3- 12/8/2003 8:26 AM
Resolution of the City Council of the City of
Huntington Beach approving the 2003/2004
Investment Policy No. �o3-a1
Attachment 1
c\
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF HUNTINGTON BEACH APPROVING THE
STATEMENT OF INVESTMENT POLICY FOR 2003/2004
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 Statement of Investment Policy, attached hereto as Exhibit "A" 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.
NOW, THEREFORE, the City Council of the City of Huntington Beach hereby approves
and adopts the attached City of Huntington Beach Statement of Investment Policy for Fiscal
Year 2003/2004 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 15thday of December , 200 3
ATTEST:
ity Clerk Mayor
REVIEWED AND APPROVED: APP OVED AS TO FORM:
City Adfinistrator City ttorney 2,103
INITIATED AND APPROVED:
Q-Lc4ty Teas ew
GAR ESOLUTI\2003\invest policy.doc
Res. No. 2003-91'
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 an regular meeting thereof held on the 15th
day of December, 2003 by the following vote:
AYES: Sullivan, Coerper, Hardy, Green, Boardman, Cook, Houchen
NOES: None
ABSENT: None
ABSTAIN: None
City CO P177 and ex-officio C k of the
City Council of the City of
Huntington Beach, California
Resolution of the Redevelopment Agency of
the City of Huntington Beach approving the
2003/2004 Investment Policy No.
Attachment 2
RESOLUTION NO.
A RESOLUTION OF THE REDEVEOPMENT AGENCY OF THE
CITY OF HUNTINGTON BEACH APPROVING THE
STATEMENT OF INVESTMENT POLICY FOR 2003/2004
WHEREAS, the Redevelopment Agency 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 Statement of Investment Policy, attached hereto as Exhibit "A" 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.
NOW, THEREFORE, the Redevelopment Agency of the City of Huntington Beach
hereby approves and adopts the attached City of Huntington Beach Statement of Investment
Policy for Fiscal Year 2003/2004 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 15th day of December
200 3
ATTEST: .-----•.�
Agency Clerk Chairperson
REVIEWED AND APPROVED: APPROVED AS TO FORM:
Executffi Director J��Age�ncyAt�tomy J.(' 12I2Ipj
INITIATED AND APPROVED:
reasurer
G:`,RESOLUTI\2003\Invest Policy-Aeency.doc
Res. No. 347
.STATE OF CALIFORNIA. )
COUNTY OF ORANGE ) ss
CITY OF HUNTINGTON BEACH )
1, 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 regular
meeting of said Redevelopment Agency held on the 15th day of
December 2003 and that it was so adopted by the following vote:
AYES: Sullivan, Coerper, Hardy Green, Boardman, Cook, Houchen
NOES: None
ABSENT: None
ABSTAIN: None
Clerk of the.Redevelopment gency
of the City of Huntington Beach, CA
Exhibit A:
2003/2004 Statement of Investment Policy
Attachment 3
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. There is
no limit on the percentage of the portfolio that can be invested in this category. .
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 or related to the government
and, therefore, have high safety ratings. The following are authorized Federal Intermediate Credit
Bank (FICB's), Federal Land Bank (FLB's), Federal Home Loan Bank (FHLB's), Federal
National Mortgage Association (FNMA's), Federal Home Loan Mortgage Corporation
(FHLMC's), Government National Mortgage Association (GNMA's), Tennessee Valley
Authorities (TVA's), Student Loan Association Notes (SLMA's) and Small Business
Administration (SBA's). There is no limit on the percentage of the portfolio that can be invested
in this category.
G. REPURCHASE AGREEMENT, maximum term 3 months.
Investments in repurchase agreements may be made, on any investment authorized in this section,
when the term of the agreement does not exceed 3 months.
A Master Repurchase Agreement must be signed with the bank or broker/dealer who is selling the
securities to the City.
H. REVERSE-REPURCHASE AGREEMENTS (Requires City Council
approval for each transaction)
Reverse repurchase agreements or securities lending agreements may be utilized only when all of
the following conditions are met:
(A) The security to be sold on reverse repurchase agreement or securities lending agreement has
been owned and fully paid for by the local-agency for a minimum of 30 days prior to sale.
(B) The total of all reverse repurchase agreements and securities lending agreements on
investments owned by the local agency does not exceed 20 percent of the base value of the
portfolio.
(C) The agreement does not exceed a term of 92 days, unless the agreement includes a written
codicil guaranteeing a minimum earning or spread for the entire. period between the sale of a
security using a reverse repurchase agreement or securities lending agreement and the final
maturity date of the same security.
(D) Funds obtained or funds within the pool of an equivalent amount to that obtained from
selling a security to a counterparty by way of a reverse repurchase agreement or securities lending
agreement, shall not be used to purchase another security with a maturity longer than 92 days from
the initial settlement date of the reverse repurchase agreement or securities lending agreement,
0304 investment policy 7
unless the reverse repurchase agreement or securities lending agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period between the sale of a security
using a reverse repurchase agreement or securities lending agreement and the final maturity date
of the same security.
,y
Investments in reverse repurchase agreements, securities lending agreements, or similar
investments in which the local agency sells securities prior to purchase with a simultaneous
agreement to repurchase the security shall only be made. with primary dealers of the Federal
Reserve Bank of New York or with a nationally or state-chartered bank that has or has had a
significant banking relationship with a local agency.
(A) For purposes of this chapter, "significant banking relationship" means any of the following
activities of a bank:
(i) Involvement in the creation, sale, purchase, or retirement of a local agency's bonds, warrants,
notes, or other evidence of indebtedness.
(ii)Financing of a local agency's activities.
(iii)Acceptance of a local agency's securities or funds as deposits.
I. MEDIUM-TERM CORPORATE NOTES, maximum 20% of portfolio (30%
with Council approval), with a maximum remaining maturity
of five years or less.
Notes eligible for investment shall be "A" rated or its equivalent or better as determined by a
nationally recognized rating service.
J. TIME DEPOSITS-CERTIFICATES OF DEPOSIT (non-negotiable
certificates of deposit.) (maximum of 3 years)
Deposits must be made with banks or savings & loan that have a short term rating of Al/P1 or a
long tern rating of at least a single A from a generally recognized authority on ratings.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA
Obligations must be"A"rated or better from a nationally recognized authority on ratings.
L. MONEY MARKET FUNDS, maximum 15% of portfolio. (Requires City
Council approval for each transaction)
No more than 10 percent of the agency's surplus funds may be invested in shares of beneficial
interest of any one Money Market fund. Local agencies may invest in "shares of beneficial
interest" issued by diversified management companies which invest only in direct obligations in
US Treasury bills, notes and bonds, and repurchase agreements with a weighted average of 60
days or less. They must have the highest rating from two national rating agencies, must maintain a
daily principal per share value of$1.00 per share and distribute interest monthly, and must have a
minimum of$500 million in assets under management. The purchase price of the shares may not
include commission.
0304 investment policy 8
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 $40,000,000 in this fund. Currently, the city has
established two(2) agency funds through which the Treasurer may invest the unexpended 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.
10.1 Investment Pools:
The City Treasurer or designee shall be required to investigate all local government
investment pools and money market mutual funds prior to investing and performing at
least a quarterly review thereafter while the City is invested in the pool or the money
market fund. LAIF is authorized under provisions in Section 16429.1 of the California
Government Code as an allowable investment for local agencies even though some of the
individual investments of the pool are not allowed as a direct investment by a local
agency.
11.0 Portfolio Adjustments:
Should any investment listed in section 10.0 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 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 market value of securities that
underlay a repurchase agreement shall be valued at 102 percent or greater of the funds
borrowed against those securities and the value shall be adjusted no less than quarterly.
Since the market value of the underlying securities is subject to daily market fluctuations,
0304 investment policy 9
the investments in repurchase agreements shall be in compliance if the value of the
underlying securities is brought back up to 102 percent no later than the next business
day. The City Treasurer, at his/her discretion, may waive the collateral requirement for
deposits that 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 subject to review annually by external auditors in conjunction with
their audit. In the event that the City has a financial institution hold the securities, a
separate custodial agreement shall be required. All securities shall be acquired by the
safekeeping institution on a "Delivery-Vs-Payment" (DVP) basis. For Repurchase
Agreements, the purchase may be delivered by book entry, physical delivery or by third-
party custodial agreement consistent with the Government Code. The`transfer of
securities to the counterparty bank's customer book entry account may be used for book
entry delivery.
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. With the exception of U.S.
Treasury securities and authorized pools, no more than 60% of the total investment
portfolio will be invested in a single security type or with a single financial institution. In
addition, no more than 10% of the investment portfolio shall be in securities of any one
issuer except for U.S. Treasuries and US Government Agency issues.
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall
be mitigated by investing in those securities with an "A" or above rating and
approved in the investment policy and by diversifying the investment portfolio so that
the failure of any one issuer would not unduly harm the city's cash flow.
0304 investment policy 10
B. 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 make
that investment either specifically, or as a part of an investment program approved by the
City Council. The City of Huntington Beach shall not permit more than 30% of its
investment portfolio to be invested in securities with maturities over three years.
16.0 Internal Control:
The City Treasurer shall establish a system of internal controls designed to prevent loss
of public funds due to fraud, employee error, misrepresentation by third parties, or
unanticipated market changes. No investment personnel may engage in an investment
transaction except as provided for under the terms of this policy and the procedure
established by the City Treasurer.
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 testing. Additionally,
account reconciliation and verification of general ledger balances relating to the
purchasing or maturing of investments and allocation of investments to fund balances
shall be performed by the Finance Department and approved by the City 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 four designated city officials:
0304 investment policy 11
1. City Treasurer
2. Deputy City Treasurer
3. Finance Officer
4. Director of Administrative Services
17.0 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 a passively managed portfolio.
However, the City Treasurer will make best efforts to 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. Investment return becomes a consideration only after the basic
requirements of investment safety and liquidity have been met. Because the investment
portfolio is designed to operate on a `hold-to-maturity' premise (or passive investment
style) and because of the safety, liquidity, and yield priorities, the performance
benchmark that will be used by the Treasurer to determine whether market yields are
being achieved shall be the average of the monthly LAIF rate and the 12-month rolling
average 2-Year Constant Maturity Treasury (CMT) rate. 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 and
cash 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 original investments can be justified by their ordinary earning
0304 investment policy 12
power, trading in response to changes in market value can be used as part of ongoing
portfolio management.
18.0 Reporting:
The City Treasurer shall submit a monthly investment report and a quarterly report to the
City Council, City Administrator, and Finance Officer and the Investment Advisory
Board within 30 days following the end of the quarter. This report will include the
following elements:
18.1 Type of investment
18.2. Institution/Issuer
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 and source of valuation
18.8 Rate of interest
18.9 Interest earnings
18.10 Statement relating the report to its compliance with the Statement of Investment
Policy or the manner in which the portfolio is not in compliance
18.11 Statement on availability of funds to meet the next six month's obligations
18.12 Monthly and Year to date Budget 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 Investment Balances & Interest Yields
18.16 Monthly transactions
This monthly/quarterly report shall be placed on the City Council Agenda for Council
and public review. In addition, a commentary on capital markets and economic
conditions may be included with the report.
The City Treasurer shall submit, pursuant to Section 53646 of the Government Code, a
copy of the quarterly investment report to the California Debt and Investment Advisory
Commission (CDIAC) for both the second and fourth calendar quarters within sixty days
following the end of the quarter. In addition, the City Treasurer shall annually submit to
0304 investment policy 13
CDIAC a copy of the adopted investment policy within sixty days following the end of
the quarter that the policy was amended.
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.
0304 investment policy 14
GLOSSARY
AGENCIES: Federal agency securities.
ASKED: The price at which securities are offered. (The price at which a firm will sell a
security to an investor.)
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or
trust company. The accepting institution guarantees payment of the bill, as well as the
issuer. The drafts are drawn on a bank by an exporter or importer to obtain funds to pay
for specific merchandise. An acceptance is a high grade negotiable instrument.
BASIS POINT: One one-hundredth of a percent (i.e. 0.01%)
BID: The price offered by a buyer of securities. (When you are selling securities, you
ask for a bid.)
BROKER: A broker brings buyers and sellers together for a commission. He does not
take a position.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity
evidenced by a certificate. Large-denomination CD's are typically negotiable.
COLLATERAL: Securities, evidence of deposit or other property, which a borrower
pledges to secure repayment of a loan. Also refers to securities pledged by a bank to
secure deposits of public monies.
COMMERCIAL PAPER: 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.
0304 investment policy 15
COUPON: a). The annual rate of interest that a bond's issuer promises to pay the
bondholder on the bond's face value. b) A certificate attached to a bond evidencing
interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions,
buying and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities:
delivery versus payment and delivery versus receipt. Delivery versus payment is delivery
of securities with an exchange of money for the securities. Delivery versus receipt is
delivery of securities with an exchange of a signed receipt for the securities.
_DISCOUNT: The difference between the cost price of a security and its maturity when
quoted at lower than face value. A security selling below original offering price shortly
after sale also is considered to be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money market instruments that are
issued at a discount and redeemed at maturity for full face value (e.g. US Treasury Bills).
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to
supply credit to various classes of institutions (e.g. S&L's, Small business firms,
students, farmers, farm cooperatives, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A Federal agency
that insures bank deposits, currently up to $100,000 per deposit.
0304 investment policy 16
r^
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This
rate is currently pegged by the Federal Reserve though open-market operations.
FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to
savings and loan associations. The Federal Home Loan Banks play a role analogous to
that played by the Federal Reserve Banks vis-a-vis member commercial banks.
FEDERAL HOME LOAN MORTGAGE CORPORATION: Created to promote the
development of a nationwide secondary market in mortgages. It does this by purchasing
residential mortgages from financial institutions insured by an agency of the federal
government and selling its interest in them through mortgage backed securities. The
interest and principal payments from the mortgages pass through to the investors either
monthly, semiannually or annually.
FEDERAL INTERMEDIATE CREDIT BANK(FICB): Loans to lending institutions
used to finance the short term and intermediate needs of farmers, such as seasonal
production.
FEDERAL LAND BANK (FLB): 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.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like
GNMA was chartered under the Federal National Mortgage Association Act in 1938.
FNMA is a Federal corporation working under the auspices of the Department of
Housing and Urban Development (HUD). It is the largest single provider of residential
mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private
stockholder-owned corporation. The corporation's purchases include a variety of
adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's
0304 investment policy 17
securities are highly liquid and are widely accepted. FNMA assumes and guarantees that
all security holders will receive timely payment of principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members
of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents.
The President of the New York Federal Reserve Bank is a permanent member, while the
other presidents serve on a rotating basis. The committee periodically meets to set
Federal Reserve guidelines regarding purchases and sales of Government Securities in
the open market as a means of influencing the volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by
congress and consisting of a seven-member Board of Governors in Washington ,D.C.; 12
regional banks and about 5700 commercial banks are member of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR
GINNIE MAE): Securities influencing the volume of bank credit guaranteed`by GNMA
and issued by mortgage bankers, commercial banks, savings and loan association's and
other institutions. Security holder is protected by full faith and credit of the US
Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages.
The term "pass-through" is often used to describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash
without a substantial loss of value. In the money market, a security is said to be liquid if
the spread between bid and asked prices is narrow and reasonable size can be done at
those quotes.
LOCAL GOVERNMENT INVESTMENT (LGIP): the aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment
and reinvestment.
0304 investment policy is
MARKET VALUE: The price at which a security is trading and could presumable be
purchased or sold.
MARKET REPURCHASE AGREEMENT: A written contract covering all future
transactions between the parties to repurchase-reverse agreements that establish each
parry's rights in the transactions. A master agreement will often specify, among other
things, the right of the buyer-lender to liquidate the underlying securities in the event of
default by the seller-borrower.
MATURITY: The date upon which the principal or stated value of an investment
becomes due and payable.
NEGOTIABLE CERTIFICATES OF DEPOSIT: 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.
OFFER: The price asked by a seller of securities. (When you are buying securities, you
ask for an offer.) See "Asked" and "Bid".
OPEN MARKET OPERATIONS: Purchases and sales of government and certain
other securities in the open market by the New York Federal Reserve Bank as directed by
the FOMC in order to influence the volume of money and credit in the economy.
Purchases inject reserves into the bank system and stimulate growth of money and credit:
Sales have the opposite effect. Open market operations are the Federal Reserve's most
important and most flexible monetary policy tool.
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers who submit daily
reports of market activity and positions and monthly financial statements to the federal
0304 investment policy 19
Reserve Bank of New York and are subject to its informal oversight. Primary dealers
include Securities and Exchange Commission (SEC)-registered securities broker/dealers,
banks and a few unregulated firms.
PRUDENT PERSON RULE: An investment standard. In some states, the law requires
that a fiduciary, such as a trustee, may invest money only in a list of securities selected by
the custody state—the so-called "legal list". In other states, the trustee may invest in a
security if it is one that would be bought by a prudent person of discretion and
intelligence who is seeking a reasonable income and preservation of capital.
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, the
current income return.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed date. The
security "buyer" in effect lends the "seller" money for the period of the agreement, and
the terms of the agreement are structured to compensate him for this. Dealers use RP
extensively to finance their position. Exception: When the Fed is said to be doing RP, it
is lending money that is, increasing bank reserves.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby
securities and valuables of all types and descriptions are held in the bank's vaults for
protection.
STUDENT LOAN ASSOCIATION NOTES (SALLIE MAE): A US Corporation and
instrumentality of the US 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.
0304 investment policy 20
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities
which are guaranteed by Federal government to provide financial assistance through
direct loans and loan guarantees to small businesses. Cash flows from these instruments
may not be in equal installments because of prepayments.
SECONDARY MARKET: A market made for the purchase and sale of outstanding
issues following the initial distribution.
SECURITIES & EXCHANGE .COMMISSION: Agency created by Congress to
protect investors in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See "Uniform Net Capital Rule".
TENNESSEE VALLEY AUTHORITIES (TVA): A US 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..
TREASURY BILLS: A non-interest bearing discount security issued by the US
Treasury to finance the national debt. Most bills are issued to mature in three months, six
months, or one year.
TREASURY BOND: Long-term US Treasury securities having initial maturities of
more than 10 years.
TREASURY NOTES: Intermediate-term coupon bearing US Treasury having initial
maturities of from one year to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission
requirement that member firms as well as nonmember broker/dealers in securities
maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net
capital rule and net capital ratio. Indebtedness covers all money owed to a firm,
0304 investment policy 21
including margin loans and commitments to purchase securities, one reason new public
issues are spread among members of underwriting syndicates. Liquid capital includes
cash and assets easily converted into cash.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
(a) Income Yield is obtained by dividing the current dollar income by the current market
price for the security. (b) Net Yield or Yield to Maturity is the current income yield
minus any premium above par or plus any discount from par in purchase price, with the
adjustment spread over the period from the date of purchase to the date of maturity of the
bond.
0304 investment policy 22
2003/2004 Investment Policy
PowerPoint Presentation
Attachment 4
G:TreasiRCA/RCA2002-03iRCA attachments Inv Policy 03-04
Treasurer's Report - Shari L. Freidenrich, CPA, CCMT
INVESTMENT POLICY
2003/2004
P ;
� 4
Shari L . Freidenrich , CPA, CCMT
December 15, 2003 Slide 1
Treasurer's Report - Shari L. Freidenrich, CPA, CCMT
Investment Policy 03/04
• Approved by 1AB on Oct. 22 , 2003
• Annually updated/approved
• Added that non-compliance with
policy would be noted in report
Slide 2
RCA ROUTING SHEET
INITIATING CITY TREASURER
DEPARTMENT:
SUBJECT: Investment Policy
COUNCIL MEETING DATE: December 15, 2003
-RCA ATTACHMENTS< STATUS,,;
Ordinance (w/exhibits & legislative draft if applicable) Not Applicable
Resolution (w/exhibits & legislative draft if applicable) Attached
Tract Map, Location Map and/or other Exhibits Not Applicable
Contract/Agreement (w/exhibits if applicable)
(Signed in full by the City Attome Not Applicable
Subleases, Third Party Agreements, etc.
(Approved as to form by City Attome Not Applicable
Certificates of Insurance (Approved by the City Attome Not Applicable
Financial Impact Statement (Unbudget, over $5,000) Not Applicable
Bonds (If applicable) Not Applicable
Staff Report (If applicable) Not Applicable
Commission, Board or Committee Report (If applicable) Not Applicable
Findings/Conditions for Approval and/or Denial Not Applicable
-
EXPLANATION FOR'MISSING ATTACHMENTS
REVIEWED RETU NED-- FORWARDED
Administrative Staff
Assistant City Administrator Initial
City Administrator Initial G1�
City Clerk
EXPLANATION,FO,R RETURN O,F ITEM -...
_(Belowa—
Use Only)
REQUEST FOR COUNCIL/REDEVELOPMENT AGENCY ACTION
MEETING DATE: December 15, 2003 DEPARTMENT ID NUMBER: CT 04-05
Analysis: The City Treasurer is required to annually obtain approval of the City's
Investment licy prior to the last day of the first quarter of each fiscal yea,V(December 31,
2003). The att ched Investment Policy has been reviewed by the City's In estment Advisory
Board and appro ed by the City Attorney to be in compliance with Goverment Code Section
53601.
Environmental Statu - Not applicable.
Attachment(s):
NumberCity Clerk's
Page Description
Resolution of the City C ncil of the City of Huntington Beach
approving th 2003/2004 1 vestment Policy No.
2 Resolution of t e Re evelopment Agency of the City of Huntington
Beach approving 003/2004 Investment Policy No. 3�F1
3. Exhibit A:
2003/2004 Sta ment o Investment Policy
RCACT 05 Investment Policy for 03-04 12/1/2003 4:30 PM