HomeMy WebLinkAboutRES NO 81-00POLICY RESOLUTION NO. 8 I -0 0
A RESOLUTION OF THE COUNCIL OF THE
CITY OF BAKERSFIELD ADOPTING
INVESTMENT POLICY.
WHEREAS, Section 53646 of the California Government Code requires 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 an Investment Policy in
conformance with the 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 desires to adopt the Investment Policy as set
forth 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 onJUL I 9 20011 by
the following vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
COUNCILMEMBER CARSON, DEMOND, MAGGARD, COUCH,
COUNCILMEMBER ~] Ol~ 6
COUNCILMEMBER IX,J~
COUNCILMEMBER ~ O t~.~
SULLIVAN, SALVAGGIO
CiTY CLERK and Ex Officio CI{Rk of the
Council of the City of Bakersfield
APPROVED JUL 19 t000
BOB PRICE
MAYOR of Bakersfield
APPROVED AS TO FORM:
BART J. THILTGEN
City Attorney
By:
MIdHAEL G. ALLFORD /
Assistant City Attorney
CITY OF BAKERSFIELD
INVESTMENT POLICY
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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 statme. Double
asterisk ** denotes term or percentage utilized by City staffwhich is more restrictive than statute). AS
REQUIRED BY SECTION 53601, ANY INVESTMENT TERM LONGER THAN FIVE YEARS
REQUIRES EXPRESS AUTHORITY BY THE CITY COUNCIL TO MAKE THAT
INVESTMENT. THIS AUTHORITY MUST BE GRANTED NO LESS THAN THREE MONTHS
PRIOR TO MAKING THE INVESTMENT. INVESTMENTS WITH TERMS LONGER THAN
FIVE YEARS WILL BE LIMITED TO THE LESSER OF $10 MILLION OR 10% OF THE
PORTFOLIO AT THE TIME THE INVESTMENT 1S MADE.
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**] FIVE* years from settlement date.
Exhibit "A"
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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.
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 (FHLB), 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 20%** of the portfolio may be invested in any single agency name.
Maturities are limited to [three**] FIVE* years from settlement date.
Bankers Acceptance (BA) is a time draft or bill of exchange, issued from a letter of credit, and is 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 dale and thereby creates an acceptance. BA's are considered
extremely safe in that there has never been a default on a BA. BA's trade on a discount basis and may not
exceed 270* days to maturity. No more than 10%** of the portfolio may be invested in BA's issued by
any one bank. No more than 40%* 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-l** by Moody's Investors Service, Inc..
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
Corporation or P-1 by Moody's Investors Service, Inc. 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.
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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 90** 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 40%** 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 fixed rate of interest and a specified maturity date. 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 **] FIVE* years. No more than 40%** 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, but is subject to change. All funds
can be withdrawn on demand. Like public TCD's, public agency savings accounts are collateralized in
accordance with Caflfomia 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, Section 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 10%* of the portfolio may be
invested in the shares of any one mutual fund. No more than 20%* 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.
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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.
The prudent investment term for the City's temporarily idle cash vs. the Firemen's Disability and
Retirement Fund is markedly different. In order to meet fluctuating vendor payment amounts, City funds
must be more liquid (invested for shorter terms) than retirement funds where monthly payments to retirees
are a constant amount. Therefore, a five year maximum investment term pursuant to Government Code
Section 53601 is appropriate for the retirement funds. Depending on the level of interest rates, a five year
term is sometimes necessary to achieve a 6 percent actuarial rate of return. Up to 40 percent of the
retirement fund may be invested in securities of a single agency of the four triple A rated United States
Government agencies authorized in this policy. These two exceptions of five year maximum investment
term and a maximum of 40 percent per agency are necessary in order to assure retirement funds are fully
invested at or above the actuarial investment return rate.
Qualified 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 ensuring 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 tem~ of three years and are within portfolio percentage ~
limitations. ,C;*' q~
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The City strives to maintain the level of investment of all l~nds as near 100% as possible through daily
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 ensure that the money is always safe and available
when needed.