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HomeMy WebLinkAboutRES NO 186-97POLICY RESOLUTION NO. ]. 8 6 - .~ ? A RESOLUTION OF THE COUNCIL OF THE CITY OF BAKERSFIELD ADOPTING INVESTMENT POLICY. WHEREAS1 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 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. ORIGINAL 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 DEC ! ? 1997 by the following vote: AYES: NOES: ABSTAIN: ABSENT: COUNCILMEMBER CARSON, DEMOND, SMITH, MCDERMOTT, ROWLES, SULLIVAN, SALVAGGIO COUNCILMEMBER COUNCILMEMBER COUNCILMEMBER CITY CLERK and EX OFFICIO ~f the Council of the City of Bakersfield APPROVED: DEC 1 1 1997 CITY OF BAKERSFIELD APPROVED AS TO FORM: JUDY K. SKOUSEN CITY ATTORNEY By: ~" / Assistant City Attorney City of Bakersfield LCM\meg S:~;OUNCIL~RES~JNVEST.POL ORIGINAL CITY OF BAKERSFIELD INVESTMENT POLICY Page I 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 o,a~a 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 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 ORIGINAL Page 2 of 4 Trea~sury 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 issuc 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 cxchange~ 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 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-l** by Standard and Poor's Corporation or P-l** 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- I 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. 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 ORIGINAL Page 3 of 4 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 thc maximum permitted by State Law or 30%** of the portfolio whichever is less. Time Certificates of Deposit (TCD's) am similar to a savings certificate that anyone can purchase at a bank where them is a specified rate of interest and a specified maturity rate. In the public funds area TCD's am collateralized in accordance with California Government Code and am non-negotiable. At the rime 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.'. Mutual Funds are money market funds meeting criteria proscribed in Government Code 53601 and related legislation. Investments in this category am limited to funds that invest in U S. Government Securities and maintain a net asset value of one (daily liquidity). The pumhase price of shams 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 am used primarily for the investment of bond proceeds subject to arbitrage reporting. Should an investment percentage and portfolio limitation be exceeded due to thc unexpected fluctuation in portfolio size, the affected securities may be held to avoid losses. When market values am such that no loss is indicated, the City Tmasumr shall consider restructuring the portfolio basing the decision in part on the expected length of time the portfolio will be imbalanced Ineligible investments are those that am not described heroin, 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: Safety. The safety and risk associated with an investment refers to the potential loss of principal, interest or a combination or these amounts. The City only operates in those investments that am considered very safe. 2. Lia_uiditv. 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. ORIGINAL Page 4 of 4 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 termsl 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 actuanal rate of return Up to 25 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 maximam of 25 percent per agency are necessary in order to assure retirement funds are fully invested at or above the actuarial investment return rate, 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. Seeantics shall be delivered to the City by book ent~', 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 term of three years and arc within portfolio percentage limitations. The City strives to maintain the level of investment of all funds 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 INVSTPLC.WPD