REVIEWED VERIFIED BY Management Analyst Finance Director Prepared By Erin Backs STAFF REPORT Presented By Paul Espinoza DATE June 10 2009 TO THRU Honorable Mayor Chair and Cit ouncil Donald D Lamm City Manage Agency Board Members FROM Paul Espinoza Finance Director City Treasurer 1 SUBJECT 2009 Statement of Investment Policy 2 RECOMMENDED ACTION MOTION Agency Board approve the Staff recommends that the Mayor and City Council of Westminster Redevelopment Agency 2009 City Investment Policy Statement of 3 BACKGROUND AND DISCUSSION Government Code Section 53646 requires that annually the Treasurer will render to the City Council Agency Board the Statement of Investment Policy for approval at a public meeting The attached copy of the 2009 policy is a continuation of the existing policy and includes no changes or modifications Members of the Investment Committee have reviewed the Policy concurrence with the content and are in 4 FISCAL IMPACT None AGENDA ITEM NO 2 o MEETING DATE 06 10 09
Page 2 5 ATTACHMENTS 2009 Statement of Investment Policy AGENDA ITEM NO MEETING DATE 06 10 09
1 Purpose The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment process and to organize Related activities which comprise sound and formalize investment related activities cash management include accurate cash flow projections control of disbursements expedient collection of revenues and cost effective banking relations which coordinates investment opportunity with working capital requirements The ultimate goal is to enhance the economic status of the City of Westminster City Westminster Redevelopment Agency Agency while protecting its pooled cash resources II Scope This policy applies to the investment of short term operating funds Longer term funds including investments of employees investment retirement funds and proceeds from certain bond issues are covered by a separate policy 1 Pooling of Funds Except for cash in certain restricted and special funds the City Agency will consolidate cash balances from all funds to maximize investment earnings Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles III Standards of Care investment officials shall 1 Prudence The standard of prudence to be used by be the prudent investor standard California Government Code Section 53600 and shall be applied in the context of managing an overall portfolio The Investment Committee and other 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 credit risk or market price changes provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments 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 1 of 8
2 Ethics and Conflicts of Interest Officers and employees investment process shall refrain from personal business activity involved in the that could conflict with the proper execution and management of the investment program or that could impair their ability to make impartial decisions Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business They shall further disclose any personal financial of the investment positions that could be related to the performance investment portfolio Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City Agency 3 Delegation of Authority Authority to manage the City sagency investment program is derived from California Government Code Sections 53600 et seq The management and oversight responsibility for the investment program is hereby delegated to the Investment Committee Committee The Committee will consist of the City Manager Finance Director City Treasurer and the Financial Services Manager or other City Manager designee The Committee may engage the services of one or more external investment managers to assist in the management of the City sagency investment Such delegation and or portfolio all in accordance with this investment policy engagement by the Committee shall not remove or abridge investment responsibility the Committee s Investment Procedures The Committee shall review and approve of the written investment policy procedures for the operation investment program consistent with this policy The procedures should include reference to safekeeping repurchase agreements wire transfer agreements banking service contracts and collateral depository agreements Such procedures shall include explicit delegation of authority to persons responsible for investment transactions No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Committee IV Objectives The primary objectives in priority order of thecity sagency be investment activities shall 1 Safety Safety of principal is the foremost objective of the investment program Investments of the City Agency shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio The City Agency shall seek to preserve principal by mitigating the two types of risk credit risk and interest rate risk Investment decisions should not incur 2 of 8
unreasonable credit or interest rate risks in order to obtain current investment income a Credit Risk issuer or backer Defined as the risk of loss due to failure of the security b Interest Rate Risk Defined as the risk of market value fluctuations due to overall changes in the general level of interest rates 2 Li uidit The City sagency investment portfolio will remain sufficiently liquid to enable the City Agency to meet all operating requirements which might be reasonably anticipated 3 Return on Investments The City sagency investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles commensurate with the City sagency investment risk constraints and the cash flow characteristics of the portfolio V Safekeeping and Custody 1 Authorized Financial Dealers and Institutions For investments purchased by the City excluding investments handled by outside managers the Committee will maintain a list of financial institutions authorized to provide investment services In addition a list will also be maintained of approved security broker dealers selected by credit worthiness who are authorized to provide investment services in the State of California These may include primary dealers or regional dealers that qualify under Securities Exchange Commission Rule 15C3 uniform net capital rule No public deposit shall be made except in a qualified public depository as established by State law All financial institutions and broker dealers who desire to become qualified bidders for investment transactions must supply the Committee with the following Audited Financial Statements Proof of National Association of Security Dealers Certification Proof of State Registration Certification of having read the City sagency investment policy An annual review of the financial condition and registrations of qualified bidders will be conducted by the Committee 2 Internal Controls The Committee is responsible for establishing and to ensure that the assets of maintaining an internal control structure designed the City Agency are protected from loss theft or misuse The internal control structure shall be designed to provide reasonable assurance that these objectives are met The concept of reasonable assurance recognizes that 1 the cost of a control should not exceed the benefits likely to be derived and 2 3of8
the valuation of costs and benefits requires estimates and judgments by management Accordingly as part of the City s annual audit the City s external auditors review the City s internal controls for adequacy and segregation of duties to assure compliance with policies and procedures 3 Delivery vs Payment All trades where applicable will be executed by delivery vs payment DVP to ensure that securities are deposited in an eligible financial institution prior to the release of funds Securities third party custodian as evidenced by safekeeping receipts VI Permitted Investments will be held by a The City Agency is empowered to invest surplus funds pursuant of the Government Code of the State of California seq to Sections 53600 et Within the context of the authorized investments permitted therein the authorized investments of the City Agency are further limited herein to 1 Investment Types United States Treasury Bills Notes Bonds or Certificates of Indebtedness or those for which the full faith and credit of the United States are pledged for payment of principal and interest There is no limitation as to the percentage of the Fund that can be invested in this category as they are both safe and liquid Obligations issued by the Government National Mortgage Association GNMA the Federal Farm Credit Bank System FFCB the Federal Home Loan Bank Board FHLB the Federal Home Loan Mortgage Corporation FHLMC the Tennessee Valley Authority and those fully guaranteed as to principal and interest by the Federal National Mortgage Association FNMA and those insured by the Federal Housing Administration FHA Although there is no percentage limitation on these issues the prudent investor rule shall apply for a single agency name as US Government backing is implied rather than guaranteed Certificates of deposit collateralized in accordance with State and Federal laws and loan associations and this Investment Policy in those banks and savings permitted by State law Since Certificates of Deposit are not liquid than 5 of the market value of thecity sagency portfolio may time deposits issued by any one institution no more be invested in Repurchase agreements whose underlying collateral consists of the foregoing specified securities 4of8
Banker s Acceptances which are eligible for purchase by the Federal Reserve System the short term paper of which is rated in the highest category by Moody s Investors Services or by Standard Poor s corporation Demand deposits passbook savings collateralized in accordance with the State and Federal Laws and this Investment Policy in those banks and savings and loan associations that meet the requirements of State Law for public deposits Mutual Funds that meet the requirements of California Government Code Section 53601 k and that invest in the securities and obligations hereinabove authorized The Local Agency Investment Fund LAIF managed by the State Treasurer up to the maximum permitted by State law and or regulations Commercial Paper prime quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical rating organization NRSRO 2 Ineligible Investments Investments not described in Section VI above including but not limited to common stocks derivatives with the exception of structured notes financial futures and or financial options are prohibited 3 Collateralization In accordance with the provisions of California Government Code Sections 53652 53656 and 53657 all deposits of the City Agency including certificates of deposit and special time deposits in excess of the amount insured under the provisions of the Federal Deposit Insurance Act shall be secured by a pledge of eligible securities with an aggregate market value as required by said California Government Code Section 53652 VII Investment Parameters 1 Diversification The City Agency will diversify its investments by security type and institution Legal limits and constraints on individual security types are detailed on attached Table A for Permitted Investments 5of8
2 Maximum Maturities Within the limits of this Investment Policy and State Law to the extent possible the City Agency will attempt to match its investments with anticipated cash flow requirements Unless matched to a specific cash flow the City Agency will not directly invest in securities maturing more than five years from the date of purchase The City Agency will make every effort to keep the average days to maturity to less than three years VIII Reporting In accordance with California Government Code Section 53646 the Treasurer shall render to the City Council Agency Board of Directors a monthly report which shall include at a minimum the following information for each individual investment Type Issuer of investment Purchase date Maturity date Par value Current rate of interest Purchase price Current market value and the source of the valuation Overall portfolio yield Weighted average days to maturity based on cost The monthly report shall i state compliance of the portfolio to the statement of Investment Policy or manner in which the portfolio is not in compliance ii include a description of any of the City s funds investments or programs that are under the management of contracted parties including lending programs and iii include a statement denoting the ability of the City Agency to meet its expenditure requirements for the next six months or provide an explanation as to why sufficient money shall or may not be available Market value adjustments as required under Government Accounting Standards Board GASB Statement No 31 are treated as year end accounting adjustments to the financial records of the City and Redevelopment Agency Monthly investment reports will demonstrate market fluctuations and continue to compare purchase price versus market value status Accounting adjustments under GASB Statement No 31 which compare changes to beginning and ending par market value in each fiscal year are not included as part of monthly investment reports This monthly report shall be submitted to the City Council Agency 30 days following the end of the month Reporting 6of8 Board within to the California Debt and
Investment Advisory Commission CDIAC commenced in January 2001 Westminster will comply with CDIAC or any other oversight agency reporting requirements IX Investment policy adoption The Treasurer shall annually render to the City Council Agency which the Council Board shall consider at a public statement of investment policy meeting Board of Directors a The policy shall be reviewed annually by the Investment Committee to ensure its consistency with the global objective of preservation of investment principal sufficient liquidity rate of return and relevance to current laws and financial trends Any modifications to the policy must be approved the City Council Agency Board of Directors 7of8
in any 1 bank commercial bank v CITY OF WESTMINSTERNVESTMINSTER REDEVELOPMENT AGENCY Permitted Investments Table A U S Government Unlimited Unlimited 5 years Average days to maturity Obligations less than 3 years US Government Agencies Unlimited Unlimited 5 years Average days to maturity Instruments less than years Certificates of Deposit Unlimited Unlimited with 5 years be collateralized to 110 Must no more than of the CD value by other eligible 5 of portfolio securities or 150 by in one institution promissory notes secured by California Deeds Mortgages Negotiable Certificates of 30 15 5 years State and Federally chartered Deposit banks and savings institutions AK rating by one agency Repurchase Agreements Unlimited Unlimited 1 year X 102 Market value on Banker s Acceptances 40 of portfolio 15 of portfolio 180 days more than 30 underlying securities No more than2000 invested in any one Mutual Funds No more than No more than NA Funds invested as defined in 10 of the 10 of the Section 53601 a to I highest portfolio in any portfolio in any debt rating from 2 of top 3 one mutual fund one mutual fund national rating service OR investment advisor registered with SEC for at least 5 years and assets under management in excess of500 000 LAIF State Pool 40 000 40 000 NA Limited to 15 transactions per month per account per State Policy Commercial Paper No more than 25 10 of portfolio 270 days No more than 2000 of portfolio and no invested more than 10 of 1 issue in any single issuer Maximum term unless the City Council or Redevelopment Agency Board expressly authorizes longer maturities and within prescribed time frame for said approval Not set by Government Code but instead by LAIF Governing Board 8of8