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HomeMy WebLinkAbout2016-22 CC Reso - Approving Revised Statement of Investment PolicyRESOLUTION NO. 2016 -22 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF UKIAH APPROVING REVISED STATEMENT OF INVESTMENT POLICY WHEREAS, it is the policy of the City Council of the City of Ukiah to invest its public funds in a manner that will provide maximum security, adequate liquidity, and sufficient yield, while meeting the daily cash flow demands of the City and conforming to all statutes and regulations governing the investment of public funds; and WHEREAS, Section 53600.5 of the California Government Code states that when investing and managing public funds, the primary objective of a trustee shall be to safeguard the principal of the funds under its control; and WHEREAS, the secondary objective of Section 53600.5 is the requirement to meet the liquidity needs of the depositor; and WHEREAS, the third objective of Section 53600.5 is to achieve a return on the funds under its control; and WHEREAS, Section III of the City's Statement of Investment Policy clearly specifies the three principle objectives of the City's investment activities as safety, liquidity, and yield, in that order of priority; and WHEREAS, in accordance with California Government Code Section 53646, the City Finance Director may annually render to the City Council a Statement of Investment Policy, where any revisions to the Policy shall be considered by the City Council at a public meeting. NOW, THEREFORE, BE IT RESOLVED the City Council finds that the City's Statement of Investment Policy complies with the California Government Code, which governs investment practices of local governments; and BE IT FURTHER RESOLVED, the City Council of the City of Ukiah adopts the attached City of Ukiah Statement of Investment Policy dated May 2016. PASSED AND ADOPTED this 4th day of May 2016, by the following roll call vote: AYES: Councilmembers Crane, Mulheren, Doble, Brown, and Scalmanini. NOES: None ABSTAIN: None ABSENT: None — L'i Stephen G. Scalmanini, Mayor ATTEST: - 9L 04= - Ashley Cotco, Deputy City Clerk CITY OF UKIAH STATEMENT OF INVESTMENT POLICY May 2016 PURPOSE Exhibit A The purpose of this document is to establish and organize investment policies, which will govern the investment activities of the City of Ukiah. II. SCOPE This investment policy covers all the City's surplus funds and investments (except retirement funds and bond proceeds) and investment activities under the direction of the City. Investment of bond proceeds will be governed by the provisions of relevant bond documents. The investment policies of the City of Ukiah are based on state law and prudent money management practices. All funds will be invested in accordance with this Investment Policy and applicable California Government Codes, including § 53601 et seq. .�] 111*011A M The primary objectives of the City, in order of priority, shall be: 1) Safety: Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure preservation of capital in the portfolio. 2) Liquidity: The investment portfolio of the City will remain sufficiently liquid to enable the City to meet its cash flow requirements. 3) Yield: The investment strategy of the City shall be to earn a reasonable investment return, considering current market conditions, and within the parameters set forth by priorities (1) and (2) above. An adequate percentage of the portfolio shall be maintained in liquid, short-term securities that can be converted into cash if necessary to meet forecasted disbursement requirements. The portfolio shall also be appropriately diversified to avoid unreasonable and avoidable risks regarding specific security types or individual financial institutions. IV. POLICIES 1. Public Funds: It is the policy of the City of Ukiah to invest public funds in a manner which will provide the maximum safety and liquidity, while earning an investment return consistent with the objectives and parameters set forth by this policy. 2. Prudent Investor Standard: Ukiah operates its investments program under the Prudent Investor Standard, which states that the governing body of the local agency or the persons Exhibit A authorized to make investment decisions on behalf of the local agency are trustees, and, therefore, subject to the Prudent Investor Standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. 3. Management Responsibilities: Management responsibility for the investment program is delegated, for a one -year period, subject to annual review and delegation, to the City Treasurer. The City Treasurer may further delegate day -to -day management of the investment program to a professional external investment advisor. 4. Internal Controls: A system of internal controls shall be established and documented in writing by the Finance Director. The controls shall be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation of third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the City of Ukiah. Controls deemed most important include: minimization of opportunities for collusion, separation of duties, separation of transaction authority from accounting and recordkeeping, avoidance of bearer -form securities, specific limitations regarding securities losses and remedial actions, written confirmation of all transactions, minimizing the number of authorized investment officials, documentation of transactions and strategies, and proper review and approval of brokerage accounts and investment transactions. 5. Safekeeping, Custody, and Delivery: The City's investments shall be held in safekeeping, in the name of the City of Ukiah, by a third party custodian bank. Investment transactions shall be executed and settled using the "delivery vs. payment" method. 6. Reporting: The Finance Director shall review and have available monthly reports in the Finance Department, and available for public review, which shall include type of investment, issuer, purchase and maturity dates, rating, purchase price, par, current market value as of the date of the report and the source of this valuation, and yield to maturity. These reports shall include a list of all transactions during the past month. The Investment Advisor will also deliver periodic market updates and portfolio reviews to the Finance Director. The Finance Director will deliver investment reports to the Investment Oversight Committee and City Council. The Oversight Committee will meet at least once annually in order to conduct a comprehensive review of the investment activities of the City so as to insure that regulations are being adhered to and that strategies are being followed. 7. Conflict of Interest: In accordance with California Government Code sections 1090, et seq. and 87100, et seq., officers and employees of the City will refrain from any activity that could conflict with the proper execution of the investment program or which could impair their ability to make impartial investment decisions. All investment personnel shall comply with the reporting requirements of the Political Reform Act, to include the annual filing of Statements of Economic Interest. Exhibit A 8. Return on Investment: The City's investment portfolio shall be designed to attain a market - average rate of return through economic cycles. The Investment Oversight Committee will measure the portfolio against an appropriate benchmark. 9. Annual Review of Policy: The Investment Advisor shall review the Investment Policy annually and provide the City Manager and Finance Director with recommendations if any are needed. The Finance Director will present the Policy, and any recommended changes, to the Investment Oversight Committee and City Council. City Council will review the Policy and recommended changes at a public meeting. V. AUTHORIZED INVESTMENTS Generally, investments shall be made in the context of the Prudent Investor Standard. The City is further governed by applicable California Government Codes, including sections 53600 and 53601 et seq. Within the context of these regulations, the following investments are authorized, and further limited herein: (a) Ukiah Bonds: Bonds issued by the City of Ukiah, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. (b) U.S. Treasury Obligations: United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for payment of principal and interest. (c) California State Obligations: Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. (d) Non - California State Obligations: Registered treasury notes or bonds of any of the other 49 United States in addition to California, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 United States in addition to California. (e) Local Agency Obligations: Bonds, notes, warrants, or other certificates of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue - producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. (f) Federal Agency or Government Sponsored Enterprise Obligations: Federal agency or United States government- sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by Federal Agencies or United States Government Sponsored Enterprises. (g) Bankers' Acceptances: Bills of exchange or time drafts that are drawn on and accepted by a commercial bank. Purchases of bankers' acceptances may not exceed 180 days maturity or 40% of the portfolio, and no more than 5% of the portfolio may be invested in the banker's acceptance of any one commercial bank. Exhibit A (h) Commercial Paper: Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical - rating organization. The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2): (1) The entity meets the following criteria: (a) is organized and operating in the United States as a general corporation; (b) has total assets in excess of five hundred million dollars ($500,000,000); and (c) has debt other than commercial paper, if any, that is rated "A" or higher by an NRSRO. (2) The entity meets the following criteria: (a) is organized within the United States as a special purpose corporation, trust, or limited liability company; (b) has program -wide credit enhancements, including, but not limited to, over collateral ization, letters of credit or surety bond; and (c) has commercial paper that is rated "A -1" or higher, or the equivalent, by an NRSRO. Eligible commercial paper shall have a maximum maturity of 270 days. Purchases of commercial paper may not exceed 25% of the City's portfolio. The City may purchase no more than 10% of the outstanding commercial paper of any single issuer. No more than 5% of the portfolio may be invested in commercial paper of any one institution. (i) Negotiable Certificates of Deposit: Negotiable certificates of deposit or deposit notes issued by a nationally or state - chartered bank, a state or federal savings and loan association, or a federally - licensed or state - licensed branch of a foreign bank provided that the senior debt obligations of the issuing institution are rated "A "(long -term) or A -1 (short- term) or better by an NRSRO. Purchases of negotiable certificates of deposit may not exceed 30% of the portfolio, and no more than 5% of the City's portfolio may be invested in any one financial institution. (j) Repurchase Agreements: The City may invest in repurchase agreements with banks and dealers with which the City has entered into a master repurchase agreement. The maturity of repurchase agreements shall not exceed 365 days. The market value of securities used as collateral for repurchase agreements shall be valued at 102% or greater of the funds borrowed against those securities at all times and shall be monitored daily by the investment staff. In order to conform with provisions of the Federal Bankruptcy Code, which provide for the liquidation of securities held as collateral for repurchase agreements, the only securities acceptable as collateral shall be direct obligations of the United States or any agency of the United States as described in §V of this policy. In addition, the City may enter into repurchase agreements only with "primary dealers" as designated by the Federal Reserve Bank of New York. All securities underlying Repurchase Agreements must be delivered to the City's custodian bank (delivery vs. payment) or be handled under a properly executed "tri- party" repurchase agreement. The market value must be recalculated each time there is a substitution of collateral. The City or its trustee shall have a perfected first security interest under the Uniform Commercial Code in all securities subject to Repurchase Agreement. (k) Reverse Repurchase Agreements: The City may invest in reverse repurchase agreements only with "primary dealers" with which the City has entered into a master repurchase agreement contract. The City may invest in reverse repurchase agreements Exhibit A with the following conditions: Reverse repurchase agreements may be used only after prior approval of the City Council. The City may only use reverse repurchase agreements to (1) cover a temporary cash shortage, or (2) augment earnings. Reverse repos may not be used to leverage the portfolio. In addition: If a reverse repurchase agreement is authorized, it may be utilized only if the security to be sold on a reverse repurchase agreement has been owned and fully paid for by the City for a minimum of 30 days prior to the sale; the total of all reverse repurchase agreements on investments owned by the City does not exceed 20% of the portfolio; and the agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of the security using a reverse repurchase agreement and the final maturity date of the same security. The proceeds of the reverse repurchase agreement may not be invested in securities whose maturity exceeds the term of the reverse repurchase agreement. (1) Medium -term Notes: The City may invest in all corporate and depository institution debt securities with a maximum remaining maturity of five year or less, issued by corporations organized and operating within the United States, or by depository institutions licensed in the United States or any state and operating within the United States. Notes eligible for investment shall be rated "A" or better by an NRSRO. Purchase of corporate notes may not exceed 30% of the portfolio, and no more than 5% of the corporate notes in the portfolio may be invested in the same corporation. (m) Money Market Funds: Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by California Government Code section 53601 subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive and that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940. To be eligible for investment these companies shall either: (i) attain the highest ranking or highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations, or (ii) have an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). The purchase price of shares of beneficial interest purchased shall not include any commission that these companies may charge and shall not exceed 20% of the City's portfolio. (n) Local Agency Investment Fund: The City may invest in the Local Agency Investment Fund (LAIF) established by the State Treasurer for the benefit of local agencies under §16429.1 of the Government Code. Current. The maximum balance that can be held in the fund is the maximum amount permitted by LAIF's Local Investment Advisory Board. (o) Time Deposits: The City may invest in non - negotiable time deposits that are FDIC insured or fully collateralized in financial institutions located in California, including U.S. branches of foreign banks licensed to do business in California. To be eligible to receive local agency deposits, a financial institution must receive a minimum overall "satisfactory rating" for meeting the credit needs of California Communities in its most recent evaluation. All time deposits must be collateralized in accordance with the California Exhibit A Government Code § 53650, et seq. Since time deposits are not liquid, no more than 25% of the cost value of the portfolio may be invested in this category. (p) Mortgage- Backed and Asset - Backed Securities: Any mortgage pass- through security, collateralized mortgage obligation, mortgage- backed or other pay- through bond, equipment lease- backed certificate, consumer receivable pass- through certificate, or consumer receivable- backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer rated in a rating category of "AK or its equivalent by a nationally recognized rating service and having an "A" or higher rating for the issuer's unsecured debt, as provided by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20% of the agency's surplus money that may be invested pursuant to this section. (q) Local Government Investment Pools (LGIPs). Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in California Government Code section 53601 subdivisions (a) to (q), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and exchange Commission. (2) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (q), inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). (r) Supranational Debt. United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter - American Development Bank, with a maximum remaining maturity of five years or less, and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated "AA" or better by an NRSRO and shall not exceed 30% of the portfolio. Credit criteria listed in this section refers to the credit quality of the issuing organization at the time the security is purchased. The maturity limits are applied at the time of purchase. VI. INELIGIBLE INVESTMENTS The City may only invest in those obligations authorized by this policy. The City shall not invest any funds in inverse floaters, range notes, or interest -only strips that are derived from a pool of mortgages, or in any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited investments until their maturity dates. VII. PORTFOLIO LIMITS AND DIVERSIFICATION Maximum Investment Maturity: Unless otherwise noted within this investment policy, the City may not invest in a security with a maturity that exceeds five years from the date of purchase. Investments which exceed five years in maturity require authority granted by City Council before purchase. Written authority of the City Council must be granted specifically or as part of an investment program no less than three months prior to the date of purchase. Exhibit A 2. Maximum Weighted Average Maturity: The maximum weighted average maturity of the City's investment portfolio shall not exceed 2.5 years to control overall exposure to interest rate risk. 3. Diversification: With the exception of obligations of the United States Government and its Agencies, no more than 10% of the portfolio may be invested in the securities of any single issuer. Adopted on the 411 day of May, 2016 by the Ukiah City Council. Signed: Attest: Stephen G. Scalmanini, Mayor Ashley Ccftl o, Deputy City Clerk