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POLICY RESOLUTION NO. 28
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
UKIAH APPROVING REVISED CITY INVESTMENT POLICY
NOES: None.
ABSENT: None.
ABSTAIN. None.
WHEREAS, the City desires that the guidelines for investment of its cash assets to
maximize the efficiency of the City's Investment Program remain prudent and legal; and
WHEREAS, the objective of the City's cash management program should insure the
investment of funds to the fullest and safest extent possible; and
WHEREAS, the City attempts to obtain the highest yield consistent with meeting the
criteria established for safety and liquidity.
NOW, THEREFORE, BE IT RESOLVED that the Investment Policy of the City of Ukiah,
prescribed in Exhibit "A," is hereby approved.
PASSED AND ADOPTED this 17th day of January, 1996, by the following roll call
vote:
AYES: Councilmembers Mastin, Malone, Wattenburger, Shoemaker, and Mayor Schneiter.
4/Res:Invest I //
Fred Schneiter; Mayor
From: Patrick Coyne To: Cathy McKay Date: 1/18/96 Time: t0:17:30 Page 2 of 8
Investment Policy Statement
Office of Treasurer
CITY OF UKIAH
INVESTMENT POLICY STATEMENT
December 1995
I. PURPOSE
The City Treasurer renders annually to the Ukiah City Council a statement of investment policy.
This investment policy provides for necessary objectives to assure the City. Council that the
investment authority is judiciously exercised.
II. OBJECTIVE
The City of Ukiah's cash management system is designed to accurately monitor and forecast
expenditures and revenues, enabling the City to invest and manage funds to the fullest extent
possible. The City attempts to obtain the highest yield possible after the basic requirements of
safety and liquidity have been met.
The primary objective of the investment policy of the City of Ukiah is SAFETY. Investments
shall be placed only in securities authorized by law and described in this policy and are managed
in a manner that seeks to ensure the preservation of principal. Maximizing interest earned is a
secondary objective once safety and liquidity have been assured. An adequate percentage of the
portfolio shall be maintained in liquid, short-term securities which can be converted to cash if
necessary to meet forecasted disbursement requirements. The portfolio shall also be appropriately
diversified to avoid incurring unreasonable and avoidable risks regarding specific security t~pes or
individual financial institutions.
The City adheres to the "prudent investor" rule, which states, "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."
III. POLICIES
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 with the highest investment
return while meeting it cash flow demands.
rev. 1-18-96
Page 1 of 8
Prepared by: Patrick Co.vne, M.B.A. CFP
From: Patrick Coyne To: Cathy McKay Date: t/18/96 Time: t0:18:29 Page 3 of 8
Investment Policy Statement
Office of Treasurer
,
Prudent Investor Rule: Ukiah operates its investments program under the Prudent
Investor Rule. This affords a broad spectrum of investment opportunities so long as
the investment is deemed prudent and is permissible under currently effective
legislation of the State of California and any other imposed legal restrictions, such as
applicable under current bond issues.
Legal Compliance: The City's investments are authorized under and intended to
comply with State of California statutes governing the investment of public funds,
specifically with regards to Sections 53601 and 53601.1 of the Government Code.
The investment policy applies to all financial assets directly controlled by the City of
Ukiah.
.
Internal Controls: A system of internal controls shall be established and documented
in writing by the City Treasurer and 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, separating
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.
,
Reporting: The City Treasurer shall generate and present to the Finance Director,
City Manager and City Council monthly reports for accounting and management
purposes. Required elements of the report will include type of investment, issuer, date
of maturity, rating, cost of the security, current market value and yield. These reports
shall provide an appendix that discloses all transactions during the past month. By the
third week of each month, the Ukiah Oversight Committee will receive a monthly
report for the preceding month which will provide data on investment instruments
being held, including maturities and market value, as well as any narrative necessary
for clarification. Deviations from expectations shall be reported in a timely manner
and shall include recommendations for appropriate action to control adverse
developments. As detailed in the internal control procedure document,, the Oversight
Committee will meet at least every six months in order to conduct a comprehensive
review of the investment activities of the Treasurer and Finance Director so as to
insure that regulations are being adhered to and that strategies are being followed.
.
Management Responsibility: Management responsibility for the investment program
resides directly with the City Treasurer and the Director of Finance. The City
Manager will be kept fully apprised of all investment activities.
rex,. 1-18-96
Page 2 of 8
Prepared by: Patrick Co,vne, M.B.A. CFP
From: Patrick Coyne To: Cathy McKay Date: 1/18/96 Time: 10:19:42 Page 4 of 8
Investment Policy Statement
Office of Treasurer
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.
Return On Investment: The City's investment portfolio shall be designed to attain a
market-average rate of return through economic cycles. The market-average rate of
return is defined as the average return on three-month U.S. Treasury bills. Whenever
possible, and consistent with risk limitations, as defined herein, and prudent
investment principles, the Treasurer shall seek to augment returns above the market
average rate of return.
IV. A[rrHORIZED INVESTMENTS
Generally, investments shall be made in the context of the "prudent investor" rule. 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, and further limited herein:
A. United States Treasuries: United States Treasury Bills, Bonds, and Notes, or those
for which the full faith and credit of the United States are pledged for payment of
principal and interest. There is no limitation as to the percentage of the portfolio
which can be invested in this category, although maturity limitations are restricted to a
dollar weighted average portfolio of 3 years or less with no single investment
exceeding a 5 year maturity.
B,
US Agency Obligations: Obligations issued by the Government National Mortgage
Association (GNMA) "Ginnie Mae", the Federal Farm Credit Bank System (FFCB),
the Federal Home Loan Bank Board (FHLB), the Federal National Mortgage
Association (FNMA)"Fannie Mae", the Federal Home Loan Mortgage Association
(FHLMAC)"Freddie Mac" and the Student Loan Marketing Association (SLMA).
Although there is no percentage limitation on the dollar amount that can be invested
in these issues, the "prudent investor" rule shall apply for a single agency name.
Maturity limitations are restricted to an dollar average weighted portfolio of 3 years or
less with no single investment exceeding a 5 year maturity.
Investments detailed in C through L below are additionally restricted as to percentage of the cost
value of the portfolio in any one issuer name up to a maximum of 5%. The total cost value
invested in any one issuer name will not exceed 5% of an issuer's net worth. An additional 5%, or
rev. 1-18-96 Page 3 of 8
Prepared by: Pathck Coyne, M.B.A. CFP
From: Patrick Coyne To: Cathy McKay Date: 1/18/96 Time: t0:20:51 Page 5 of 8
Investment Policy Statement
Office of Treasurer
a total of 10%, of the cost value of the portfolio in any one issuer name can be authorized upon
written approval of the Treasurer, Finance Director and City Manager.
C. Banker Acceptances: Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as banker's acceptances. Banker's acceptances
purchased may not exceed 270 days to maturity or 40% of the cost value of the
portfolio and the City may only purchase Bills of Exchange accepted by banks which
meet the requirements for investment in short term certificates of deposit (less than 24
months) in Section V.
D,
Commercial Paper: Commercial paper ranked "PI" by Moody's Investor Services or
"Al+" by Standard and Poor's, and issued by domestic corporations having assets in
excess of $500,000,000 and having an "A" or better rating on its long term debentures
as provided by Moody's or Standard and Poor's. Purchases of eligible commercial
paper may not exceed 180 days to maturity or represent more than 10% of the
outstanding paper of an issuing corporation. Purchases of commercial paper may not
exceed 15% of the cost value of the portfolio. An additional 15% or a total of 30% of
the cost value of the portfolio may be invested in commercial paper if the dollar
weighted average maturity of the dollars in commercial paper invested does not
exceed 31 days.
E,
Negotiable Certificates: Negotiable certificates of deposit issued by a nationally or
state-chartered bank or a state or federal savings institution, or a State-licensed branch
of a foreign bank ("Yankee"). Purchases of negotiable certificates of deposit may not
exceed 30% of the cost value of the portfolio. To be eligible for purchase by the City
the NCD must meet the credit and maturity criteria as stated in Section V.
F,
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 initially priced with
margin ratios of 110%. Collateral pricing will be monitored daily by the investment
staff and not be allowed to fall below 100% of the value of the repurchase agreement.
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 certificates of deposit, commercial paper,
eligible bankers' acceptances, or securities that are direct obligations of the United
States or any agency of the United States.
G. Reverse Repurchase Agreements: The City may invest in reverse repurchase
agreements only with those banks and dealers with which the City has entered into a
master repurchase contract. The City may invest in reverse repurchase agreements
with the following conditions:
rev. 1-18-96
Page 4 of 8
Prepared by: Pathck Co,vne, M.B.A. CFP
From: Patrick Coyne To: Cathy McKay Date: 1/18/96 Time: 10:22:03 Page 6 of 8
Investment Policy Statement
Office of Treasurer
When the earnings from the matching investment(s) are greater than or equal to
the cost of the reverse(s) and the terms and conditions are otherwise favorable to
the City. Reverse repurchase agreements entered into in accordance with this
paragraph may not exceed 95 days to maturity without written approval of the
City Treasurer, Finance Director and City Manager, and must be matched as to
maturity with all proceeds of the reverse repurchase reinvested in the matched
security. Floating rate notes may be utilized for the reinvestment of reverse
repurchase proceeds where the coupon reset date is matched to the maturity of the
reverse. Fixed rate securities with maturities greater than 95 days with 'puts' may
also be utilized for reinvestment of reverse proceeds where the put on the security
is exercisable within 95 days and the put date is matched to the maturity of the
reverse. Both floating rate and putable securities should only be used for
reinvestment purposes when there is an appropriate yield advantage to other short
dated securities.
,
Term reverse repurchase transactions in excess of 95 days are authorized if thc
securities underlying the reverse are matched with the maturity of the reverse and
will mature within six months from the date of settlement. The proceeds of the
reverse transaction must be reinvested in securities that match the maturity of the
term reverse repurchase agreement.
.
Term reverse repurchase transactions in excess of 6 months are authorized if the
securities underlying the reverse are matched with the maturity of the reverse,
mature more than 6 months but within one year from date of settlement and have
written approval of the Treasure, Finance Director and City Manager for each
transaction. The proceeds of the reverse transaction must be reinvested in
securities that match the maturity of the term reverse repurchase agreement.
H. Local Agency Investment Fund: The CiD' may invest in the Local Agency
Investment Fund (LAIF) established by the State Treasurer for the benefit of local
agencies up to the maximum permitted under Section 16429.1 of the Government
Code.
Time Deposits: The City may invest in non-negotiable time deposits collateralized in
accordance with the California Government Code, in those banks and savings and
loan associations which meet the requirements for investment in negotiable certificates
of deposit. Since time deposits are not liquid, no more than 25% of the cost value of
the portfolio may be invested in this category.
J. Financial Futures: The City may sell financial futures contracts with respect to
securities owned by it, including securities which are subject to reverse repurchase
rev. 1-18-96
Page 5 of 8
Prepared by: Patrick Coyne, M.B.A. CFP
From: Patrick Coyne To: Cathy McKay Date: '1/'18/96 Time: '10:23:'1'1 Page 7 of 8
Investment Policy Statement
Office of Treasurer
agreements. The City may buy financial futures contracts in order to offset already
existing futures positions.
Ko
European or American Call Options: The City may use European or American Call
or Put Options with respect to U.S. Treasury or U.S. Agency obligations. The
maximum outstanding exposure allowed is $5 million face value for Calls bought or
sold by the City and $2.5 million face value for Puts bought or sold by the City. The
expiration date on any contract will not exceed 90 days.
L!
Medium-Term Notes: The City may invest in medium-term notes issued by
corporations operating within the United States. Securities eligible for investment
shall be rated in accordance with the maturity and rating criteria described in Section
V. In addition, the issuing corporation itself must have a minimum rating of"A" by
both Standard and Poor's and Moody's and have in excess of $500,000,000 in
Shareholders Equity. Purchase of medium-term notes may not exceed 15°/0 of the cost
value of the portfolio. No more than 5% of the cost value of the portfolio may be
invested in notes issued by any one corporation. Commercial paper holdings should
be considered when calculating the maximum percentage in any issuer name.
M. Mutual Funds & Beneficial Interest Shares: Share of beneficial interest issued by
diversified management companies or mutual funds shall be rated in the highest rating
categors.' of a least two of the three nationally recognized rating services (e.g.
Moody's P-1 or S&P AAAm) and must have in excess of $500,000,000 in assets
under management. The purchase price shall not include commissions and shall not
exceed 5% of the cost value of the portfolio.
N,
Notes, Bonds or Other Obligations: Notes, bonds, or other obligations which are at
all times secured by a valid first priority security interest in securities of the types
listed by Section 53651 as eligible securities for the purpose of securing local agency
deposits having a market value at least equal to that required by Section 53652 for the
purpose of securing local agency deposits. The securities serving as collateral shall be
placed by delivery or book entry into the custody of a trust company or the trust
department of a bank which is not affiliated with the issuer of the secured obligation,
and the security interest shall be perfected in accordance with the requirements of the
Uniform Commercial Code or federal regulations applicable to the types of securities
which the security interest is granted. Securities eligible for investment under this
subdivision shall be issued by an issuer rated in a rating category of "AA" or its
equivalent or better 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.
O. Pass Through and/or Certificate Investments: Any mortgage pass-through security,
collateralized mortgage obligation, mortgage-backed or other pay-through bond,
rev. 1-18-96
Page 6 of 8
Prepared by: Palrick Coyne, M.B.A. CFP
From: Patrick Coyne To: Cathy McKay Date: '1/18/96 Time: t0:24:23 Page 8 of 8
Investment Policy Statement
Office of Treasurer
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"AA" or its equivalent or better 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 percent of the agency's surplus money that may be
invested pursuant to this section.
P,
Ineligible Investments: Investments not described herein, including, but not limited
to, common stocks and long-term corporate notes/bonds are prohibited from use in the
City of Ukiah's portfolio.
Q,
Maximum Investment Maturity: Investment which exceed 5 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.
rev. 1-18-96
Page 7 of 8
Prepared by: Patrick Coyne, M.B.A. CFP