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HomeMy WebLinkAboutRES NO 270-07 . RESOLUTION NO. 2 7 0 - 0 7 A RESOLUTION OF THE COUNCIL OF THE CITY OF BAKERSFIELD ADOPTING AN 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 ofthe City of Bakersfield as follows: The Council of the City of Bakersfield hereby adopts the Investment Policy as set for the in Exhibit "A" attached hereto and made a part hereof. ----------000---------- - Page 1 of 2 Pages - ~M~1> ~ ~ >- m I- r- ...- \:) v 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 m:c 1 2 Z007 by the following vote: ~ 'i;j@ ABSTAIN: ABSENT: /' ./' .,/ ,/ ./ /' COUNCIL MEMBER GOUGH, CARSON, BENHAM, HANSON, SULLIVAN, SCRIVNER, WEIR COUNCIL MEMBER ~ COUNCIL MEMBER ~ COUNCIL MEMBER (' ...f)l..oLc..-L ~ I}.;s-t, CITY CLERK and Ex Offici Council of the City of Bake APPROVED DEe 1 2 Z007 APPROVED AS TO FORM: VIRGINIA GENNARO City Attorney By i?uoed~ ~ ROBERT M. SHER Deputy City Attorney Exhibit "A" attached - Page 2 of 2 Pages - <oAKS'-9 cJ Ol -f\ >- - l;: f!! v <::; ORIGINAL CITY OF BAKERSFIELD INVESTMENT POLICY I INTRODUCTION This Investment Policy is intended to provide guidelines for the prudent investment of the City of Bakersfield's temporary idle cash, and outline the policies for maximizing the efficiency of the City's cash management system. It is the policy of the City of Bakersfield to invest public funds in a manner which will provide safety of principal and at least a market rate of return while meeting the daily cash flow demands of the City. Investments will conform to all statutes governing the investment of public funds. The primary goals of this policy are: · To assure compliance with all Federal, State and Local laws governing the investment of public funds under the control of the City Treasurer. · To maintain the principal value of financial assets and ensure ample liquidity to meet operating expenditures. · Within the constraints of safety and liquidity, and within the parameters of this Investment Policy generate a market rate of return . The ultimate goal is to enhance the economic status of the City of Bakersfield while protecting the safety of its financial assets. II SCOPE This 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 the City of Bakersfield Municipal Code Section 2.92. Investments made on a pooled basis include monies of the City of Bakersfield, the Redevelopment Agency and the Public Financing Authority. The pooled funds are accounted for I x <oil-KS'-9 o ~ >- - l- IT -- r- o OR/GINA? in the City of Bakersfield's Comprehensive Annual Financial Report (CAFR) and include: OXX General Funds IXX Special Revenue Funds 2XX Debt Service Funds 3XX Capital Project Funds 4 XX Enterprise Funds 5XX Internal Service Funds 6XX Fiduciary-Agency Funds Any new fund created, unless specifically exempted. All debt issue proceeds will be invested in accordance with the associated trust indenture, and in such a manner that facilitates arbitrage rebate calculations. III PRUDENCE Investments shall be made in the context of the "prudent person" standard: Investments shall be made with judgement and care, under circumstance 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 prudent investment diversification for the City's temporary idle cash vs. the Firemen's Disability and Retirement Fund (FDRF) is different. Up to 40% 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. This exception to investment diversification among the highest quality securities is deemed prudent and necessary in order to increase the available options for keeping retirement funds fully invested at or above the six percent actuarial rate of return. IV OBJECTIVE Criteria for selecting investments and the order of priority are: · Safety - Safety of principal is the foremost objective of the investment program. The City only operates in those investments that are considered very safe. The City shall seek to preserve principal by mitigating the two types of risk, credit risk and market risk. · Credit Risk - Potential loss due to the failure of an issuer of a security. · Market Risk - Potential decrease in the value of securities due to changes in the general level of interest rates. 2 <<. <oAKS'-9 o ~ >- - l- m __ r- V \:) ORIGINAL · LiQuidity - Liquidity 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 should the need for cash occur unexpectedly. · Yield -Yield is the potential dollar earnings an investment can provide and is sometimes described as the rate of return. V DELEGATION OF AUTHORITY In accordance with the City of Bakersfield Charter, Municipal Code and subsequent resolutions, the City Treasurer is authorized to invest the City's funds in accordance with California Government Code Section 53600 et seq. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. VI ETHICS AND CONFLICTS OF INTEREST All officials involved with the City of Bakersfield's investment program shall exercise their fiduciary responsibly as custodians of the public trust. The City Treasurer, or when appropriate the Treasury Supervisor, shall avoid any transactions that might impair public confidence in the City's ability to manage the investment of public funds in an effective manner. The City Treasurer, Treasury Supervisor, or any other official charged with the responsibility of making investment decisions, shall have no vested interest in any investment being made involving public funds of the City, and shall gain no financial benefit from such investment decisions. VII AUTHORIZED BROKER! DEALERS AND BANKS All financial institutions that desire to do business with the City shall be evaluated by the City Treasurer to determine if they are adequately capitalized, meet California Government Code requirements and agree to abide by the conditions set forth in the City of Bakersfield Investment Policy. Whenever reasonable and in keeping with Government Code, investments are placed locally. Broker/dealers are investigated to determine if there is pending legal action against the firm or the individual broker who would be the City's contact and that the firm offers securities appropriate to the City's needs. All broker/dealers, which may include "primary" dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15c3-1 (Uniform Net Capital Rule), who desire to become authorized bidders for City investment transactions must supply the City Treasurer with the following: · Current audited financial statements · Account authorization forms · Proof of National Association of Securities Dealers certification · Completed broker/dealer questionnaire · Certification of having read and agreement to abide by the City of Bakersfield Investment Policy 3 <oMS'-9 cJ ~ >- - l;: {:!2 o \:) ORIGINAl All banks that desire to become authorized bidders for time certificates of deposit (TCD) must be a qualified public depository as established by State Law and supply the City Treasurer with the following: . Current audited financial statements . Depository contracts . A copy of the latest FDIC call report · Certification of having read and agreement to abide by the City of Bakersfield Investment Policy Broker/dealer account authorizations and depository contracts will be executed by the City of Bakersfield Finance Director as required by City Charter. The City Treasurer will maintain a list of authorized broker/dealers and banks that are approved to do business with the City. An annual review of the financial condition of authorized financial institutions will be conducted by the City Treasurer. VIII AUTHORIZED & SUIT ABLE INVESTMENTS The City of Bakersfield's investment program is governed by the California Government Code Sections 53600 et seq. 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 the City of Bakersfield which is more restrictive than statute): A. United States Treasury Bills, Notes and Bonds United State 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 person" standard shall apply. Maturities are limited to five* 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. Treasury Note (T-Notes) are initially issued by the auction process with two, five and 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 4 <oMS'-9 cJ U1 "1'1 >- - t; J! o <:: ORIGINAl 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 by the auction process with thirty year maturities and have characteristics similar to T -Notes. B. United States Government Agencies United States Government agencies include 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 five* years from settlement date. C. Bankers Acceptance Bankers Acceptance (BA) is a time draft or bill of exchange, issued from a letter of credit, and is normally 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 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 180* days to maturity. No more than 10%** of the portfolio may be invested in BA's issued by anyone 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.. D. Commercial Paper Commercial Paper (CP) is a short-term promissory note. 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-I by Standard and Poor's Corporation or P-l by Moody's Investors Service, Inc. CP is issued by domestic corporations having assets in excess of $500 million and having an A or higher rating on its debt, other than CP, as provided by Standard and Poor's or Moody's. Purchases of eligible CP may not exceed 270* days to maturity. No more than 10%* of the portfolio may be invested in CP issued by anyone corporation. No more than 25%* of the portfolio may be invested in this category. 5 <oMS'-9 cJ ~ >- -- m t; r- o \:) ORIGINAL E. Repurchase Agreements Repurchase Agreements, commonly called Repos, consist of two simultaneous transactions. One is the purchase of securities by an investor (City of Bakersfield) from a bank or dealer. The other is the commitment by the bank or dealer to repurchase the securities at the same price plus interest at some mutually agreed future date. Normally the securities are U.S. Treasury notes or bonds and are held by a Federal Reserve Bank. 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. F. Local Agency Investment Fund 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. Due diligence will be exercised in monitoring the performance of LAIF on a continual basis. G. Time Certificates of Deposit 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 TCD's of any one institution. Maturity is limited to five* years. No more than 40%** of the portfolio may be invested in this category. Section 53652 of the California Government Code also specifies that the City will have a deposit contract with each depository. H. Public Agency Savings Account - Demand Deposits 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 California Government Code requirements. No more than 30%** of the portfolio may be invested in this category. I. Mutual Funds Mutual Funds are money market funds meeting criteria prescribed in California Government Code Section 53601 and related legislation. Investment in this 6 <(>MS'-9 cJ ~ >- m ':::: r- v \:) ORIGINAL. category is 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 anyone mutual fund. No more than 20%* of the portfolio may be invested in this category. Mutual funds are used for the investment of bond proceeds subject to arbitrage reporting. Due diligence will be exercised in the selection and performance monitoring of mutual funds on a continual basis. City of Bakersfield Summary Of Maximum Percent and Term Limitations By Investment Type: Percent u.s. Treasury Bills, Notes and Bonds u.s. Government Agency Obligations Bankers Acceptances( 1 ) Commercial Paper(3) Repurchase Agreements Local Agency Investment Fund Time Certificates of Deposit Public Agency Demand Accounts Mutual Funds o to 100% 20% per agency 40%(2) 25%(2) 30% 40% 40%(2) 30% 20%(2) Term 5 Years 5 Years 180 Days 270 Days 90 Days N/A 5 Years N/A N/A (1) Short-term debt rating of at least A-I Standard and Poor's Corporation or P-l Moody's Investors Service, Inc. (2) No more than 10% of the portfolio may be invested in anyone entity from these categories. (3) A-I Standard and Poor's Corporation rating or P-l Moody's Investors Service, Inc. rating. Should any 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. Any State of California legislative action that further restricts allowable maturities, investment type or percentage allocations, will be incorporated into this Investment Policy and supersede any and all previous applicable language. IX UNAUTHORIZED INVESTMENTS Ineligible investments are those that are not described herein, including but not limited to, negotiable time certificates of deposit, non-government agency medium term corporate notes and reverse repurchase agreements. 7 <oMS'-9 cJ ~ >- m l;: r- V \:) ORIGINAL X COLLA TERALIZA TION Collateralization will be required on two types of investments, time certificates of deposit and repurchase agreements. Investment in time certificates of deposit shall be insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC). Investments in time certificates of deposit in excess of $1 00,000 shall be properly collateralized. When a depository pledges government securities as collateral, section 53652 of the California Government Code requires the securities to have a market value of at least 10% in excess of the City's deposit or 50% in excess of the City's deposit when mortgages are pledged as collateral. Repo collateralization will be at least 102% of market value of principal and accrued interest. XI SAFEKEEPING AND CUSTODY All security transactions entered into by the City of Bakersfield shall be conducted on a delivery- versus-payment (DVP) basis. Securities shall be delivered to the City by book entry, physical delivery or by third party custodial agreement. XII DIVERSIFICA TION To reduce credit and market risk in the overall portfolio, the City will diversify its investments by security type, maturity date and issuer. With the exception of U.S. Treasury securities, diversification is also achieved by the portfolio percentages and maturity limitations indicated in the Authorized & Suitable Investments section of this policy. XIII MAXIMUM MATURITIES To the extent possible, and within the five year maximum maturity required by California Government Code, the City of Bakersfield will attempt to match investment maturities with anticipated cash flow requirements. As required by California Government Code 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 $1 0 million or 10% of the portfolio at the time the investment is made. XIV INTERNAL CONTROL Investment transactions are reviewed by the City's external auditor as part of the annual audit. This review verifies compliance with the City of Bakersfield Investment Policy and the California Government Code. XV PERFORMANCE STANDARDS The cash management system is designed to accurately monitor and forecast expenditures and revenues, thus ensuring the investment of monies to the fullest extent possible, including the 8 <<. <oMS'-9 o ~ >- - l- m -- t- o \:) ORIGINAL estimated float for the Active Account and the Payroll Account. The City attempts to obtain the highest interest yields possible as long as investments meet the criteria required for safety and liquidity, do not exceed a term of five years (unless otherwise authorized by the City Council) and are 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. The basic premise underlying the City of Bakersfield Investment Policy is, and will continue to be, to ensure that the money is always safe and available when needed. 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 benchmark that will be used by the City Treasurer to determine whether market yields are being achieved shall be the yield on the U.S. Treasury Bill or Note maturing closest to the weighted average maturity of the City's overall portfolio. XVI REPORTING The City Treasurer shall provide the City Council monthly investment reports which provide a clear picture of the status of the current investment portfolio. The Monthly Investment Report shall include the following: · A listing of individual securities held at the end of the reporting period by authorized investment category . Final maturity of all investments listed . Coupon, discount or earnings rate . Par value and market value . Transactions completed during the month . Percentage of the portfolio represented by each investment category XVII INVESTMENT POLICY ADOPTION The City of Bakersfield Investment Policy shall be reviewed annually by City staff and adopted by Resolution of the City Council. XVIII INDEMNIFICATION OF INVESTMENT OFFICIALS The standard of care to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing the overall portfolio. The City Treasurer and his designees' acting in accordance with established procedures and the City of Bakersfield 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 in a timely fashion and appropriate action is taken to control adverse developments. 9 <<. <oMS'-9 o Ol >- ~ l- m -- t- V C) ORIGINAL