HomeMy WebLinkAboutRES NO 129-96 POLICY RESOLUTION NO. ~1- ~ 9 ' 9 6
A RESOLUTION OF THE COUNCIL OF THE CITY OF
BAKERSFIELD ADOPTING INVESTMENT POLICY.
WHEREAS, Section 53646 of the California Government Code was amended to
require the Treasurer or Chief Fiscal Officer to render an annual statement of Investment
Policy to the legislative body of the local agency; and
WHEREAS, the City of Bakersfield desires to adopt Investment Policy in
conformance with California Government Code.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF
BAKERSFIELD AS FOLLOWS:
The Council of the City of Bakersfield does hereby adopt the Investment Policy as
contained in Exhibit "A" attached hereto and made a part hereof.
........ 000 ........
I HEREBY CERTIFY that the foregoing Resolution was passed and adopted by the
Council of the City of Bakersfield at a regular meeting thereof held on NOV 2 0 1996
1996, by the following vote:
AYES: COUNCILMEMBER DeMOND, CAR, S~3N, SM?I, McDERMOTT, ROWt. ES, SULLIVAN, ~ALVAC~10
NOES; COUNCILI4E~FJER
ABS rAIN: COUNCILMEMBER KJ(J,
AB,,.~ENT; COUNCILMEMBER
ActingciTY CLERK and EX OFl~l~iO of the
Council of the City of Bakersfield
APPROVED: NOV ~ 0 1996
VICE-MAYOR of the
City of Bakersfield
APPROVED AS TO FORM:
JUDY K. SKOUSEN
CITY ATTORNEY
By:
Assistant City Attorney
City of Bakersfield
JKS\LCM\bsb
S:~OU NClL~RES~NVEST.POL
CITY OF BAKERSFIELD
Investment Policy
Page 1 of 4
SCOPE
This investment policy applies to the investment activities of the City of Bakersfield and related entities. Idle
cash in all funds is pooled for investment purposes except tax exempt bond proceeds, which are separated for
arbitrage record keeping as required by federal tax law, and the Firemen's Disability and Retirement Fund
which is administered separately under Municipal Code Section 2.92.
PURPOSE
This policy is intended to provide guidelines for the prudent investment of the City's temporary idle cash, and
outline the policies for maximizing the efficiency of the City's cash management system. The ultimate goal is
to enhance the economic status of the City while protecting the safety of its pooled cash.
POLICY
Investments shall be made in the context of the "prudent investor" rule:
Investments shall be made with judgement 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.
The city is further governed by California Government Code, Section 53600 et. Seq. and other imposed legal
restrictions. Within the context of these limitations, the following investments are authorized, as further limited
herein (Single asterisk * denotes term or percentage imposed by State statute. Double asterisk ** denotes term
or percentage utilized by City staff which is more restrictive than statute.):
United States Treasury Bills, Notes and Bonds are securities which have the full faith and credit of the
United States pledged for payment of principal and interest. Although there is no percentage limitation of the
dollar amount that can be invested in these categories, the "prudent investor" rule shall apply. Maturities are
limited to three** years from settlement date.
Treasury Bills (T-Bills) are short-term debt obligations of the United States government, issued weekly with
maturities up to one year. T-Bills are considered to have virtually no credit risk and to be the most liquid
short-term fixed income instrument. Prices on T-Bills are quoted on a discount basis. The difference between
the discount price and the full face value paid at maturity equals the total return.
Exhibit "A"
Page 2 of 4
Treasury Notes (T-Notes) are initially issued with two to ten year maturities. T-Notes like Bills have virtually
no credit risk and have liquidity through an active secondary market. T-Notes are issued at par ($1,000) with
a coupon or fixed rate of interest. The price or market value will fluctuate above or below par depending on
the coupon rate and whether interest rates are rising or falling. T-notes mature at par.
Treasury Bonds (T-Bonds) are initially issued with ten to thirty year maturities and have characteristics
similar to T-Notes.
Obligations issued by the United States Government Agencies such as the Federal Farm Credit Bank
System (FFCB), the Federal Home Loan Bank (FI-ILB), the Federal Home Loan Mortgage Corporation
(FHLMC) and the Federal National Mortgage Association (FNMA). Government agencies issue debt in the
form of discount notes, much like T-Bills, and notes and bonds similar to T-Notes and T-Bonds. While agency
debt is not a direct obligation of the U.S. government, it is rated AAA, the highest rating. At the time of
purchase no more than 10%** of the portfolio may be invested in any single agency name. Maturities are
limited to three** years from settlement date.
Bankers Acceptances (BA's) are time drafts or bills of exchange, issued from a letter of credit, and are used
to finance international trade. When the accepting bank stamps "accepted" on the draft the bank guarantees
payment of the draft at a specified future date and thereby creates an acceptance. BA's are issued with
maturities of 30 to 270 days and trade on a discount basis. BA's are considered extremely safe in that there
has never been a default on a BA. No more than 10%** of the portfolio may be invested in BA's issued by
any one bank. No more than 400/0* of the portfolio may be invested in this category. Eligible BA's are those
issued by banks with a short term debt rating of at least A-I ** by Standard and Poor's Corporation or P-1 **
by Moody's Investors Service.
Commercial Paper (CP) is a short-term promissory note issued by large, well-known and financially strong
corporations. CP is sold on a discount basis. The maximum maturity is 270 days with most issued in the 30-50
day maturity range. Eligible (CP) is "prime" quality ranked A-1 by Standard and Poor's or P-1 by Moody's
Investors Service and issued by a domestic corporation having assets in excess of $500 million and having an
A or higher rating on its long term debt as provided by Standard and Poor's or Moody' s. Purchases of eligible
commercial paper may not exceed 180* days to maturity. No more than 10%* of the portfolio may be invested
in commercial paper issued by any one corporation. No more than 15%* of the portfolio may be invested in
this category.
Page 3 of 4
Repurchase Agreements, commonly called Repos, are transactions in which a customer (City of Bakersfield)
deposits cash at a fixed rate of interest and receives securities as collateral. Normally the securities are U.S.
Treasury notes or bonds and are held by a Federal Reserve Bank. At maturity, the securities are returned and
the customer receives principal plus interest. Repos can be done with banks or dealers with which the City has
entered into a master repurchase contract that specifies terms and conditions of repurchase agreements. The
maturity of Repos shall not exceed 30** days. No more than 30%** of the portfolio may be invested in this
category.
Local Agency Investment Fund (LAIF) is a State of California managed investment pool for local agencies
within the State. Investments may be up to the maximum permitted by State Law or 30%** of the portfolio
whichever is less.
Time Certificates of Deposit (TCD's) are similar to a savings certificate that anyone can purchase at a bank
where there is a specified rate of interest and a specified maturity rate. In the public funds area TCD's are
collateralized in accordance with California Government Code and are non-negotiable. At the time of purchase
no more than 10%** of the portfolio may be in the TCD's of any one institution. Maturity is limited to three**
years. No more than 30%** of the portfolio may be invested in this category.
Public Agency Savings Account - Demand Deposits are similar to a savings account that anyone can open
at a bank. The interest rate is specified at the time of deposit. All funds can be withdrawn on demand. Like
public TCD's, public agency savings accounts are collateralized in accordance with California Government
Code. No more than 30%** of the portfolio may be invested in this category.
Mutual Funds are money market funds meeting criteria prescribed in Government Code 53601 and related
legislation. Investments in this category are limited to funds that invest in U.S. Government Securities and
maintain a net asset value of one (daily liquidity). The purchase price of shares shall not include any
commission that these companies may charge. No more than 15%* of the portfolio may be invested in this
category. Mutual Funds are used primarily for the investment of bond proceeds subject to arbitrage reporting.
Should an investment percentage and portfolio limitation be exceeded due to the unexpected fluctuation in
portfolio size, the affected securities may be held to avoid losses. When market values are such that no loss
is indicated, the City Treasurer shall consider restructuring the portfolio basing the decision in part on the
expected length of time the portfolio will be imbalanced.
Page 4 of 4
Ineligible investments are those that are not described herein, including but not limited to, negotiable
certificates of deposit, medium term corporate notes and reverse repurchase agreements.
Criteria for selecting investments and the order of priority are:
1. Safety. The safety and risk associated with an investment refers to the potential loss of principal,
interest or a combination of these amounts. The City only operates in those investments that are
considered very safe.
2. Liquidity_. This refers to the "ability to easily sell" at any moment in time with a minimal risk of losing
some portion of principal and interest. Liquidity is an important investment quality especially when the
need for unexpected funds occurs occasionally.
3. Yield. Yield is the potential dollar earnings an investment can provide, and sometimes is described
as the rate of return.
Oualified Institutions. The investment staff shall investigate institutions which desire to do business with the
City to determine if they are adequately capitalized, make markets in securities appropriate to the City's needs,
and are recommended by managers of portfolios similar to the City's. Whenever possible investments are
placed locally.
Safekeeping. Securities shall be delivered to the City by book entry, physical delivery or by third party
custodial agreement.
Investment Objective. The Cash Management system of the City of Bakersfield is designed to accurately
monitor and forecast expenditures and revenues, thus insuring the investment of monies to the fullest extent
possible, including the estimated float for the Active Account and Payroll Account. The City attempts to
obtain the highest interest yields possible as long as investments meet the criteria required for safety and
liquidity and do not exceed a term of three years and are within portfolio percentage limitations.
The City strives to maintain the level of investment of all funds as near 100% as possible through dally and
projected cash flow determinations. Cash management and investment transactions are the responsibility of
the City Treasurer. The City holds its Treasurer and his designees harmless for responsible investment
transactions undertaken in accordance with the Investment Policy, provided deviations from expectations are
reported in a timely manner. The basic premise underlying the City's investment philosophy is, and will
continue to be, to insure that the money is always safe and available when needed.
BD~.m
P:~BILL~DOC.INVSTPOL
NOV.6