HomeMy WebLinkAboutRES-98-5899 (INVESTMENT POLICY/1998)1
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RESOLUTION NO. 98-5899
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERMOSA BEACH,
CALIFORNIA, ACKNOWLEDGING THE RECEIPT AND FILING OF AND APPROVING
THE ANNUAL STATEMENT OF INVESTMENT POLICY AND DELEGATING
INVESTMENT AUTHORITY TO THE CITY TREASURER FOR THE YEAR 1998.
WHEREAS, Government Code Section 53646 requires the filing of an annual Statement of
Investment Policy by local public agencies; and
WHEREAS, the City Treasurer of the City of Hermosa Beach has rendered the following
Statement of Investment Policy to this city council for the calendar year 1998:
PURPOSE: This statement is intended to provide a guideline for the prudent investment of
temporary idle cash, trust funds and restricted moneys and to outline a policy for maximizing the
efficiency of the cash management system. Ultimate investment goals include the enhancement of
economic status and the protection of pooled cash investments.
OBJECTIVE: The cash management system of the City of Hermosa Beach is designed to
accurately monitor and forecast expenditures and revenues, thus insuring the investment of moneys to
the fullest extent possible. The city attempts to obtain highest interest yields possible as long as
investments meet the criteria required for safety and liquidity.
POLICY: The City of Hermosa Beach operates its investment program with State and self-
imposed constraints. It does not buy stocks; it does not speculate; it does not deal in futures, options or
security loan agreements. With regard to investment companies, the City will deal only with investment
companies registered with the Securities and Exchange Commission. The City Treasurer will have sole
discretion over Security Trading, except in the case of monies invested in the State of California Local
Agency Investment Fund(LAIF) and the Los Angeles County Pooled Investment fund(LACPIF).
Longer term investments (over one year) are generally limited to maturates of 3 years or less, but will
`never exceed five years.
Criteria for selecting investments and the absolute order of priotity 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. Since it is the primary duty and responsibility o:
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the Treasurer to protect, preserve and maintain cash and investments placed in his/her trust on behalf of
the citizens of the City, Hermosa Beach only invests in those instruments that are considered very safe.
2. Liquidity: This refers to the ability to "cash in" at any moment in time with minimal chance
of losing some portion of the principal or interest. An adequate percentage of the portfolio should be
maintained in liquid short-term investments which can be converted to cash if necessary to meet
disbursement requirements. Since all cash requirements cannot be anticipated, investments in securities
with active secondary or resale markets is highly recommended. Emphasis should be on marketable
securities with low sensitivity to market risk.
3. Yield: Yield is the potential dollar earnings an investment can provide, and sometimes is
described as the rate of return. It should become a consideration only after the basic requirements of
safety and liquidity have been met. The City's investment philosophy is to insure the safety of principle
and to provide money when needed. A high dollar yield on investments, though important, ranks third in
the priority of investment strategy.
Depository Services
Money must be deposited in state or national banks, state or federal savings associations, or state
or federal credit unions in the state. It may be in inactive deposits, active deposits or interest -bearing
active deposits which are insured or collateralized as required by Government Code Section 53630 at
seq. The deposits generally may not exceed the amount of the bank's shareholder's equity, the savings
and loan's networth or the credit union's unimpaired capital and surplus. We require that each financial
institution submit current financial statements which are evaluated prior to the investment of funds. We
use the following criteria:
1. The institution must have been in business at least three years.
2. The institution must submit audited financial statements.
3. In addition, examination is made of the Reserve for Loan Losses category to evaluate the
financial trend of the institution's asset base.
4. Whenever possible, the use of several years' financial data is evaluated to present a trend of
activity in the institution. We also require the interest be paid to the City on'a monthly basis
(current state law only requires quarterly payment).
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Authorized Investments
Generally, investments shall be made in the context of "prudent man" rule, which states that,
"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." The City is further 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:
NEGOTIABLE CERTIFICATES OF DEPOSIT. Not more than 5% of the City's portfolio
is invested in any one institution. Time Certificates of Deposits are safekept in a legally acceptable
safekeeping account. Total purchases are not to exceed 30% of surplus funds. An institution must meet
the following criteria to be considered by the City:
1. The institution must be located in California.
2. The institution must have current financial information, signed contract and waiver on file
with the City.
3. The institution must maintain a net worth to asset ratio of a least 5%, and have a positive
earnings record.
4. The institution must be at least 3 years old.
U. S. TREASURY's are direct obligations of the United States Government.
U.S. TREASURY BILLS are issued weekly with maturity dates up to one year. They are
issued and traded on a discount basis and the interest is figured on the 360 day basis, actual number of
days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid
security.
U.S. TREASURY NOTES are initially issued with two to ten years maturities. They are
actively traded in a large secondary market and are very liquid.
MEDIUM -TERM NOTES (MTNs) are corporate notes. Issuers include well recognized
banks and bank holding companies, insurance companies, finance companies and industrial corporations.
A large percentage of MTNs are unsecured senior debt obligations, although a number of recent issues
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have come to market on a collateralized or secured basis. Maturity bonds are from 9 months to one
year, one year to 1 months, 18 months to 2 years, and annually thereafter. Typically, rates are
established at a positive spread over a Treasury security of comparable maturity. Credit ratings on
MTNs are established by nationally recognized rating services. Standard and Pool's, Moodys Investors
Service and Fitch Investors Service. Credit supported MTNs typically carry the Aaa/AAA long term
rating, based on the credit -worthiness of the support entity. Collateralized MTNs receive the same
rating based on the overcollateralization limits set by Standard and Poor's and Moody's. Although a
rating of A is required for Municipal investment as per sections 53601 and/or 53635, this agency, as
policy, will only consider investments with Aa/aa or better. There can be only 301/6 of the total surplus
funds used for MTN investment as per section 53635. MTNs offer safety, yield and liquidity through a
strong secondary market.
BANKERS ACCEPTANCES are negotiable time drafts drawn to finance the export, import,
shipment or storage of goods, and they are termed "Accepted" when a bank guarantees to pay the face
value at maturity. A Banker's Acceptance constitutes an irrevocable obligation of the accepting bank
and a contingent obligation of the drawer and of any endorsees whose names appear upon it. The bank
is protected by its customer's agreement to provide the necessary funds in advance of the maturity of the
Acceptance and also by the pledge of documents such as bills of lading, independent warehouse of
terminal receipts, and other documents evidencing ownership and the insurance of the goods so
financed.
Cities and other local agencies are authorized to purchase Banker's Acceptances subject to
several restrictions. First, the Banker's Acceptance must be eligible for purchase by the Federal Reserve
System. Second, purchases of Banker's Acceptances must not exceed two hundred seventy (270) days'
maturity or 40% of the City's surplus money invested under Sections 53601 and/or 53635. Finally, no
more than 5% of the agency's surplus funds may be invested in the Banker's Acceptances of any one
commercial bank.
LOCAL AGENCY INVESTMENT FUND (LATE) is a pooled investment fund in the State I
Treasury which local agencies may use to deposit funds for investment. There is no minimum
investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a
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maximum of $15,000,000 for any agency. The City is restricted to a maximum of ten transactions per
month. It offers high liquidity because deposits can be converted to cash in twenty-four hours and no
interest is lost. All interest is distributed to those agencies participating on a proportionate share
determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly
via a check or warrant. The State keeps an amount for reasonable costs of making the investments, not
to exceed one -quarter of one percent of the earnings. The interest rates are fairly high because of the
pooling of the State surplus cash with the surplus cash deposited by local governments. This creates a
multi -billion dollar money pool and allows diversified investments. In a high interest rate market, we do
better than LAIF, but in times of low interest rates, LAW yields are higher. The City continually invests
in the Local Agency Investment Fund (Government Code Section 16429).
LOS ANGELES COUNTY POOLED INVESTMENT FUND (LACPIF) Pursuant to
Government Code Section 53684, local agencies in the County of Los Angeles may deposit excess
funds in LACPIF for the purpose of investment by the county treasurer Government Code Sections
53601 and 53635;
The County keeps an amount for reasonable costs of making the investments, not to exceed 16
basis points per month. The number of monthly transactions are not restricted.
SafekeeWn
Certificate of Deposits or Receipts of Public Funds must be mailed or delivered to the City.
Banker's acceptances are actual "physical" securities, meaning they are evidenced by actual certificates.
All Treasury bills and most other Treasury securities are "book entry" securities, meaning they are held
at the Federal Reserve Union Bank of California where only a book entry is used to denote ownership.
Collateral for time deposits in banks and savings and loans are held by the Federal Home Loan
Bank (FHB) or an approved Agency of Depository of the financial institution.
Securities purchased from broker/dealers shall be held in third party safekeeping.
Public Trust
All participants in the investment process shall act as custodians of the public trust. Investment
officials shall recognize that the investment portfolio is subject to public review and evaluation. The
overall program shall be designed and managed with a degree of professionalism that is worthy of the
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public trust. In a diversified portfolio it must be recognized that occasional measurement losses are
inevitable, and must be considered within the context of the overall portfolio's investment return,
provided that adequate diversification has been implemented.
Risk Tolerance
The City Council recognizes that investment risks can result from issuer defaults, market price
changes or various technical complications leading to temporary illiquidity. Portfolio diversification is
employed as a way to control risk. Investment Managers are expected to display prudence in the
selection of securities, as a way to minimize default risk. No individual investment transaction shall be
undertaken which jeopardizes the total capital position of the overall portfolio. The Treasurer shall
periodically establish guidelines and strategies to control risks of default, market price changes, and
illiquidity.
Reporting
The Treasurer or his deputy shall submit a monthly investment report to the City Council. This
report will include all required elements of the monthly report as prescribed by Government Code
Section 53646. Under the City's current Investment Policy, of the monthly report shall include:
a. Type of investment
b. Name of issuer
C. Date of investment
d. Date of maturity
e. Amount of deposit or cost of the security
f. Current market value
g. Asking price
h. Rate of Interest
j. A statement of compliance with California Code Section 53646, from the City
Treasurer certifying that sufficient investment liquidity and anticipated revenues
are available to meet the City's budgeted expenditure requirement for the next
six months; and
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NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF HERMOSA BEACH
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. That the annual Statement of Investment Policy for the City of Hermosa Beach,
as set forth in the recitals hereon filed by the City Treasurer in compliance with Section 53646 (a) of the
Government Code, is hereby approved.
PASSED, APPROVED and
PRESIDENT of the City Council arld MA
ATTEST:
r l 1
CITY CLERK
day of January, 1998.
of the City of Hermosa Beach, California.
APPROVED ASJO FORM:
CITY ATTORNEY
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STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CITY OF ]HERMOSA BEACH
I, Naoma Valdes, Deputy City Clerk of the City Council of the
City of Hermosa Beach, California, do hereby certify that the foregoing
Resolution No. 98-5899 was duly and regularly passed, approved and adopted
by the City Council of the City of Hermosa Beach at a Regular Meeting of
said Council at the regular place thereof on January 13, 1998.
The vote was as follows
AYES:
Bowler, Oakes, Reviczky, Mayor Pro Tempore Benz
NOES:
None
ABSTAIN:
None
ABSENT:
Mayor Edgerton
DATED: January 14, 1998
Deputy City Clerk