HomeMy WebLinkAboutRES-99-5953 (INVESTMENT POLICY/1999)1
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RESOLUTION NO. 99-5953
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 1999
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 1999:
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 favorable interest yields 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 or derivatives; 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 (LATE) 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 priority are:
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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 of 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, annual, certified financial statements which are evaluated prior to the investment
of funds. We use the following criteria:
The institution must have been in business at least three years. The institution must
submit audited financial statements. In addition, examination is made of the Reserve for Loan
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Losses category to evaluate the financial trend of the institution's asset base. 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).
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.
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U.S. TREASURY NOTES are initially issued with two to ten year maturities. They are
actively traded in a large secondary market and are very liquid.
MEDIUM -TERM NOTES (MTN) are corporate notes. Issuers include well -recognized
banks and bank holding companies, insurance companies, finance companies and industrial
corporations. A large percentage of MTN are unsecured senior debt obligations, although a
number of recent issues 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 MTN are established by nationally recognized rating
services. Standard and Poor's, Moody's Investors Service and Fitch Investors Service. Credit
supported MTN 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 over
collateralization 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 30% 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
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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 I
invested in the Banker's Acceptances of any one commercial bank.
LOCAL AGENCY INVESTMENT FUND (LAIF) is a pooled investment fund in I
the State 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 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 numbers of monthly transactions are not restricted.
SAFEKEEPING: 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.
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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 parry 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 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, 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
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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
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 hereof, filed by the City Treasurer in compliance with Section 53646
(a) of the Government Code, is hereby approved.
PASSED,
PRESIDENT of
ATTEST:
CITY CLERK
and ADOPTED this 26th day of January, 1999.
Council and Mayor of the City of Hermosa Beach, California
APPROVED AS TO 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. 99-5953 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 26, 1999.
The vote was as follows:
AYES: Bowler, Edgerton, Oakes, Reviczky, Mayor Benz
NOES: None
ABSTAIN: None
ABSENT: None
DATED: February 1, 1999
i r
L.
C'
Deputy City Clerk