HomeMy WebLinkAboutRES-94-5654 (INVESTMENT POLICY/1994)1
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RESOLUTION NO. 94-5654
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERMOSA BEACH
ACKNOWLEDGING THE RECEIPT AND FILING OF THE ANNUAL STATEMENT OF
INVESTMENT POLICY FOR THE YEAR 1994
WHEREAS, the California State Legislature passed legislation
during the 1984 session requiring the filing of an annual
Statement of Investment Policy by local public agencies; and
WHEREAS, the Governor of the State of California signed such
legislation into law effective January 1, 1985 (Chapter 1226);
and
WHEREAS, the City Treasurer of the City of Hermosa Beach
declares the annual Statement of Investment Policy to be as
follows:
PURPOSE: This statement is intended to provide a guideline for
the prudent investment of temporary idle cash, trust funds and
restricted monies 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 monies to the
fullest extent possible. Attempts to obtain highest interest
yields possible are statement of fact 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
the state of California and Los Angeles County Investment pool.
Longer term investments (over one year) are generally limited to
maturities of 3 years or less, but will never exceed five years.
Criteria for selecting investments and the absolute order of
priority are:
1. Safety: The safety and risk associated with an investment
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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 require-
ments 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. The deposits cannot exceed the
amount of the bank's or savings and loan's paid up 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:
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
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.
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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 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 the California Government Code,
Sections 53600 et seq. Within the context of these limitations,
the following investments are authorized, as further limited
herein:
TCD's (Time Certificates of Deposits) which are insured for
$100,000 by FDIC or FSLIC or fully collateralized as required
by state law if over $100,000 are purchased. Not more than
5% of the City's portfolio is invested in any one institu-
tion. 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. TBILLS 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. TNOTES are initially issued with two to ten years
maturities. They are actively traded in a large
secondary market and are very liquid. The Treasury may
issue note issues with a minimum of $5,000.00.
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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
Federal Reserve Systems. 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 (Government Code
Sections 53601 (f), 53635 (f).
LOCAL AGENCY INVESTMENT FUND is a special fund in 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 eight 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, LAIF yields are higher. The City continually
invests in the Local Agency Investment Fund (Government Code
Section 16429).
LOS ANGELES COUNTY POOL INVESTMENT FUND California Government
Code ("Government Code") Section 53684 allows local agencies
in the County of Los Angeles (the "County") to deposit
excess funds in the Los Angeles County Treasury Pool for the
purpose of investment by the treasurer and tax Collector of
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the County (the "Treasurer") pursuant to 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.
Safekeeping
Certificate of Deposits or Receipts of Public Funds must be
mailed or delivered to the City. No safekeeping provisions are
provided.
Banker's acceptances are actual "physical" securities, meaning
they are evidenced by actual certificates. All Treasuries, term
notes and most Agency securities are "book entry" securities,
meaning they are held at the Federal Reserve 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 (FHLB) 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
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
issued 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
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report to the City Council. This report will include all
required elements of the monthly report as prescribed by
Government Code Section 53646. Required elements of the monthly
report include:
a. Type of investment
b. Name of institution
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
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF HERMOSA BEACH
DOES HEREBY RESOLVE AS FOLLOWS:
That an annual Statement of Investment Policy for the City of
Hermosa beach has been filed by the City Treasurer for calendar
year 1994 in compliance with Section 53646 (A) of the Government
Code of the State of Californio /
PASSED, APPROVED AND
S 25th/DAY OF JANUARY 1994.
PRESIDENT of the,9fty Council a YOR
Hermosa Beach ifornia.
-.-ATT ST; -
LZA.UYn CITY CLERK
APPROVED AS TO FORM;
aa,' oz. robw CITY ATTORNEY
of the City o
M
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. 94-5654 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 25, 1994.
The vote was as follows:
,AN Benz, Bowler, Oakes, Reviczky, Mayor Edgerton
NOES: -_ _ None
-ABSTAIN: None
ABSENT: None
DATED: January 26, 1994
dcc-tnyel , 0 uo�—
Deputy City Clerk