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RESOLUTION NO. 95-571.8
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERMOSA
BEACH APPROVING AN INVESTMENT POLICY FOR THE CITY OF
HERMOSA BEACH
WHEREAS, the City Treasurer of the City of Hermosa Beach
recommends adoption of the Investment Policy attached hereto as
Exhibit "A";
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF HERMOSA BEACH
DOES HEREBY RESOLVE AS FOLLOWS:
That the Investment Policy for the City of Hermosa Beach
attached hereto as Exhibit "A" is hereby approved and adopted.
PASSED, APPROVED AND ADOPTED THIS 14 DAY OF FEBRUARY,
1995.
ATTEST;
CITY CLERK
APPROVED AS
A
FORM;
K
IDENTfh)eCity
the City Council and
YOR of of Hermosa Beach,
Californi
Page 1
CITY OF HERMOSA BEACH
INVESTMENT POLICY
I. OBJECTIVES
The City of Hermosa Beach ("City") strives to maintain the
level of investment of all idle or surplus funds as near 100% as
possible through the optimum operation of its cash management
system. The City has determined that its investment goals are
safety, liquidity, and yield, in that order. The City shall
invest its funds in accordance with these investment goals and
the provisions of California Government Code Sections 53600 et
seq. and this Investment Policy.
II. DELEGATION OF AUTHORITY
The City Council has delegated the authority to invest to
the City Treasurer subject to the limitations set forth in the
Investment Policy.
III. DEPOSITS'OF FUNDS
All moneys held by the City Treasurer, except such moneys
which are at the time invested, shall be held in trust accounts
or time or demand deposits in any state or national bank, savings
association or federal association (as defined by California
Financial Code § 5102), subject to the following:
A. The depository institution must be authorized by law to
accept deposits of public funds, must have been in business in
California for at least three years and must provide the City
Treasurer with copies of its annual audited financial statements.
The City Treasurer shall review such financial statements,
including but not limited to the "Reserve for Loan Losses" or
similar item, to evaluate the financial trend of the
institution's asset base.
B. The deposit shall not exceed the shareholder's equity
of the depository bank or the net worth of the depository savings
association or federal association, as the case may be, as such
terms are defined in California Government Code § 53638(a) and
§ 53638(b), respectively.
C. The deposit shall be secured at all times by bonds or
other obligations which are authorized by law as security for
public deposits and are of a market value at least equal to the
amount required by law; provided that the City Treasurer may,
when in his discretion local conditions so warrant, waive such
security for the portion of the deposit which is insured pursuant
to federal law.
D. Interest on the deposit shall be paid monthly.
950202 10649-00001 syc 1111817 1 EXHIBIT "A"
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SSHSWA2 ISNI INHWZSaMI • AI
any securities authorized by this Paragraph IV. The term
"repurchase agreement" means a purchase of securities by the City
pursuant to an agreement by which the seller will repurchase the
securities on or before a specified date and for a specified
amount and will deliver the underlying securities to the City by
book entry, physical delivery, or by third -party custodial
agreement. The transfer of underlying securities to the
counterparty bank's customer book -entry account may be used for
book -entry delivery. The term "counterparty" for the purposes of
this subdivision, means the other party to the transaction. A
.counterparty bank's trust department or safekeeping department
may be used for physical delivery of the underlying security.
The term of repurchase agreements shall be for one year or less.
The term "securities," for purposes of repurchase under this
subparagraph 6, means securities of the same issuer, description,
issue date, and maturity.
7. The Local Agency Investment Fund ("LAIF")
administered by the Treasurer of the State of California.
8. The Los Angeles County Pooled Investment Fund.
B. Moneys held by a trustee or fiscal agent and pledged to
the payment or security of bonds or other indebtedness, or
obligations under a lease, installment sale, or other agreement
of the City, or certificates of participation therein may be
invested in accordance with the statutory provisions governing
the issuance of such bonds, indebtedness, or lease, installment
sale, or other agreement, or to the extent not inconsistent
therewith or if there are no specific statutory provisions, in
accordance with the ordinance, resolution ,indenture, or
agreement of the City providing for the issuance.
C. Subject to any provision of the Investment Policy
specifying a shorter maximum term, no investment shall be made in
any security which at the time of investment has a term remaining
to maturity in excess of five years.
D. Notwithstanding the provisions of California Government
Code § 53601.1, the City shall not invest in financial futures or
financial option contracts.
V. POLICY CRITERIA FOR SELECTING INVESTMENTS
A. Safety. Safety and the minimizing of risk associated
with investing refers to attempts to reduce the potential for
loss of principal, interest or a combination of the two. The
first level of risk controls is found in state law which
restricts the particular type of investments permissible for
municipalities. The second level of risk control is reduction of
default risk by investing in instruments that appear to be the
most creditworthy. The third level of risk control is reduction
`%mv of market risk by investing in instruments that have relatively
short maturities, thereby eliminating risk of loss from a forced
950202 10649-00001 syc 1111817 1 - 3 - EXHIBIT "A"
sale. The City only invests in those instruments that.are
considered very safe.
B. Liquidity. Liquidity refers to the ability to easily
sell at any time with a minimal risk of losing some portion of
principal or interest. Liquidity is an important quality for an
investment to have, for at any time the City may have unexpected
or unusual circumstances that result in larger disbursements than
expected, and some investments may need to be sold to meet
contingencies.
C. Yield. Yield is the potential dollar earnings an
investment can provide, and also is sometimes described as the
rate of return. The City attempts to obtain the highest yield
possible when selecting an investment, provided that the criteria
stated herein for safety and liquidity are met.
D. "Prudent Investor" Standard. The City Treasurer shall
administer the deposit and investment of City funds with the
care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and
familiar with such matters would use.
VI. MONTHLY REPORTS
The City Treasurer shall render a monthly investment report
to the City Manager and City Council showing the type of
investment, date of purchase, custodian (if applicable),
14� institution, date of maturity, amount of deposit or purchase
price, current market value and rate of interest.
The monthly report shall note each and every instance in
which there has been a divergence from, or violation of, this
Investment Policy or shall state that all items on the monthly
report are in compliance with the Investment Policy.
VII. INVESTMENT AUDITS AND INVESTMENT POLICY EVALUATION
Annually, in conjunction with, or separate from, the City's
annual audit, there shall be an external audit of the City's
investment program by an independent auditor to assure compliance
with the Investment Policy. The report of this audit shall be
made to the City Council.
VIII. INVESTING GUIDELINES:
A. The City shall invest only in investments authorized by
the Investment Policy. Investments in reverse repurchase
agreements, financial futures, financial option contracts or
other derivative products are not permitted.
B. A copy of the Investment Policy shall be given to each
financial institution with which the City does business.
950202 10649-00001 syc 1111817 1 — 4 — EXHIBIT "A"
C. Before an unfamiliar security is purchased, the City
Treasurer shall research the issuer and the instrument. All
contractual agreements and administrative procedures shall be
completed before any transactions are consummated.
D. Securities shall not be purchased on margin or via
reverse repurchase agreements (using the security to be purchased
as collateral). The City shall not enter into reverse repurchase
agreements under any circumstances.
E. Every investment transaction shall be documented and
the procedure for monitoring shall be clearly defined.
F. Investment strategies shall be reviewed by the City
Treasurer at least annually.
G. Investment income shall be shared by the General Fund
with restricted fund balances on a proportionate ratio of
balances to total pooled cash and investment income shall be
credited accordingly on an annual basis.
H. Custody of investments in securities issued by the
United States Government shall be placed, pursuant to written
custody agreements, with banks which meet the requirements of
subparagraph A of Paragraph III.
IX. INTERNAL CONTROL
A. Internal control for investments is the procedure
established by management of the City to assist in ensuring as
far as practicable:
1. An orderly and efficient conduct of depositing and
investing City funds, including adherence to investment policies.
2. The safeguarding of assets.
3. The accuracy and completeness of the accounting
records for investments.
4. The timely preparation of reliable financial
information.
5. The prevention of errors.
6. The detection of fraud.
B. Adherence to the use of sufficient elements of a system
of internal control is the method by which a City can satisfy the
objective of internal control. A list of sample elements
follows:
\%W1 1. Responsibility. Specific responsibility for the
performance of duties shall be assigned by the City Treasurer and
950202 10649.00001 syc 1111817 1 — 5 — EXHIBIT "A"
lines of authority and reporting shall be clearly identified and
understood.
2. Segregation of Functions. Segregation of functions
reduces the risk that a person is in a position to conceal errors
or fraud. In particular, the functions that should be considered
when evaluating segregation of functions are authorization,
execution, recording, and performing reconciliations.
3. Authorization. All transactions shall be
authorized by an appropriate responsible individual. The
responsibilities and limits of authorization shall be clearly
delineated.
4. Transfers of Funds. The transferring of investment
funds shall be carried out exclusively by use of the Federal
Reserve Bank's electronic wire transfer system. Each financial
institution with which the City does business shall receive in
writing from the City Treasurer a listing which limits transfers
of funds to preauthorized bank accounts. The listing shall also
contain the names of the City staff authorized to request such
transfers and will be updated in writing for all changes of
authorized staff and bank accounts as necessary.
5. Recording. A recording system shall be maintained
which provides that the recording of transactions shall be
carried out by a person other than the person executing the
investment, to help assure that transactions are complete, valid,
authorized and properly recorded.
950202 10649-00001 syc 1111817 1
EXHIBIT "A"
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CITY OF HERMOSA BEACH
1, Naoma Valdes, Deputy City Clerk of the City Council of the
City of Hermosa Beach, California, do hereby certify that the foregoing
Resolution No. 95-5718 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 February 14, 1995.
lqw� The vote was as follows:
AYES:
Bowler, Edgerton, Oakes, Reviczky, Mayor Benz
NOES:
None
ABSTAIN:
None
ABSENT:
None
DATED: February 16, 1995
Deputy City Clerk